-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EUbH4CBPuSlzcFgyRDnhoGU7xidlbQuIeKd+0+cIAiWxVZmdYNf8QKWz/grM0Rw1 burnmclLL6/0lhA9hfNTfQ== 0001077357-99-000029.txt : 19990909 0001077357-99-000029.hdr.sgml : 19990909 ACCESSION NUMBER: 0001077357-99-000029 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SURGICAL SAFETY PRODUCTS INC CENTRAL INDEX KEY: 0001063530 STANDARD INDUSTRIAL CLASSIFICATION: 8090 IRS NUMBER: 650565144 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: SEC FILE NUMBER: 000-24921 FILM NUMBER: 99588280 BUSINESS ADDRESS: STREET 1: 2018 OAK TERRACE CITY: SARASOTA STATE: FL ZIP: 34231 BUSINESS PHONE: 9419277874 MAIL ADDRESS: STREET 1: 2018 OAK TERRACE CITY: SARASOTA STATE: FL ZIP: 34231 10SB12G 1 REGISTRATION STATEMENT U. S. Securities and Exchange Commission Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM 10-SB 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 Identification No.) incorporation or organization) 2018 Oak Terrace Sarasota, Florida 34231 - - --------------------------------------- --------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (941) 927-7874 Securities to be registered under Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class to be registered None - - -------------------------------- ------------------------------- Securities to be registered under Section 12(g) of the 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 Item 1: Description of Business: (a) Business Development Surgical Safety Products, Inc. (the "Company" or "Surgical") is incorporated in the State of New York and qualified to do business as a foreign corporation in the State of Florida. Surgical Safety Products, Inc. originally was incorporated under the laws of the State of Florida on May 15, 1992. On November 28, 1994 the Company merged into Sheffeld Acres Inc., a New York shell corporation which had approximately 1,100 shareholders, but had never commenced operations. Although Sheffeld Acres, Inc. was technically the surviving entity, the Company changed its name after the merger to Surgical Safety Products, Inc. Articles of Merger were filed with the State of Florida on October 12, 1994 and a Certificate of Merger was filed with the State of New York on February 8, 1995. The Company filed to do business as a foreign corporation on April 11, 1995 in the State of Florida. The Company publically-trades on the OTC Bulletin Board under the symbol "SURG". The Company's executive offices are presently located at 2018 Oak Terrace, Sarasota, Florida 34231, its telephone number is (941) 927-7874 and its facsimile number is (941) 925-0515. The Company is filing this Form 10-SB on a voluntary basis so that the public will have access to the required periodic reports on the Surgical's current status and financial condition. The Company will file periodic reports in the event its obligation to file such reports is suspended under the Securities and Exchange Act of 1934 (the "Exchange Act".) The Company was formed for the initial purpose of combating the potential spread of bloodborne pathogen infections, such as HIV and hepatitis. The founding philosophy arose from a concern regarding the occupational risks of healthcare workers in the operating room. Since inception, the Company has broadened its mission to include the research, development and production of innovative products and services which create and maintain a safe surgical environment for medical and hospital staff, healthcare workers and patients, as well as enhance the level of surgical care available to patients. The Company is engaged in product development, sales and services for the medical industry. The Company is currently engaged in one line of business which is divided into three (3) divisions each of which is involved with specialty medical product research and development: (1) a division which develops various medical-related services to be marketed to healthcare facilities, including an entire family of computer software applications designed to evaluate, track, organize and manage infection control data for healthcare facilities and to provide multi-media information centers for a facility's healthcare workers ("Data Systems Division"); (2) a division which researches and develops medical products for sale in the marketplace ("Medical Products Division"); and (3) a division which provides confidential consultation services to third party developers of medical products, usually physicians and healthcare technicians ("Medical Products Consultation Division"). The common thread interwoven into each area requires medical research, education and a commitment to safety issues. It is the Company's intention to gradually make the transition from a research and development-oriented medical device company into a multi-product device manufacturer and distributor. In addition to its current activities, the Company also had operated a diagnostic clinic specializing in women's health. On September 28, 1994 the Company formed a wholly- owned subsidiary, Women's Diagnostic Center, Inc. ("WDC") under the laws of the State of Florida. WDC immediately acquired certain personnel and assets, consisting of a diagnostic clinic specializing in women's health, the Women's Ambulatory Services, Inc., a Florida corporation. WDC catered exclusively to women and their specific healthcare needs. Patients were attended to by an all female staff in order to provide a uniquely personal and caring atmosphere while emphasizing women's healthcare education and awareness. WDC specialized in mammography, ultrasounds, osteoporosis testing, chest x-rays and comprehensive laboratory testing. To focus the Company's growth efforts in the medical products and services industry, the equipment, furniture, accounts receivable, trade name and goodwill, net of related liabilities of WDC, were sold to Sarasota Memorial Hospital on June 13, 1996. All business operations of WDC had ceased and the corporation liquidated by December 31, 1996. On May 30, 1995, the Company completed the preparation of a self-directed private placement memorandum offering shares of the Company's Common Stock and Warrants. This offering was conducted pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and Rule 506 of Regulation D promulgated thereunder ("Rule 506"). The offering was amended on October 30, 1995. Initially, the offering required a minimum investment of $5,000 in exchange for which an investor would receive 5,000 shares of common stock, $.001 par value per share (the "Common Stock") and three-year warrants to purchase 2,500 shares of the Company's Common Stock at an exercise price of $1.50. Pursuant to this offering, the Company received gross proceeds in the amount of $37,500, $5,000 of which was subsequently refunded. This refund was made because certain paperwork and signatures were not properly executed. By agreement with the investors, in lieu of the unit arrangement, the investors each acquired shares at $.50 per share. A total of 65,000 shares of the Company's Common Stock were issued pursuant to this offering. (See Part II, Item 4. "Recent Sales of Unregistered Securities.") On December 8, 1997, the Company acquired all of the assets of Endex Systems, Inc., d/b/a Interactive PIE ("Endex"), a Florida corporation. The assets of Endex were valued at approximately $14,000 for which the Company issued 250,000 shares of restricted common stock. Endex was a medical multimedia software company, experienced in computer graphics related to the medical industry. The acquisition was made to implement the Company's Data Systems Division's development of its surgical safety, touch-screen network known as OASiS. The President and Chief Executive Officer ("CEO") of Endex, Donald Lawrence, became the Vice President of Sales and Marketing of the Company. Mr. Lawrence has an employment contract with the Company which is renewable annually. (See Part I, Item 6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and Related Transactions and Part II, Item 4. Recent Sales of Unregistered Securities.") From March through June 1998, the Company received gross proceeds in the amount of $999,000 from the sale or exchange for services of a total of 920,000 shares of Common Stock in four (4) offerings . The Company undertook its first offering of 400,000 shares of Common Stock pursuant to Rule 504 of Regulation D ("Rule 504") on March 1, 1998, exchanging shares with Stockstowatch.com, Inc. ("Stockstowatch") and its legal advisor in exchange for services, 300,000 shares and 100,000 shares respectively; its second offering of 400,000 shares of Common Stock pursuant to Rule 504 on April 1, 1998 upon the exercise of an option granted pursuant to a Stock Option Agreement; its third offering of 60,000 shares of Common Stock pursuant to Rule 504 on June 8, 1998; and its fourth offering of 60,000 shares of Common Stock pursuant to Rule 504 on June 18, 1998. While no offering memorandum was used in connections with these offerings, the business plan of the Company, which was disclosed to each prospective investor, was for the provision of product development, sales and services for the medical industry. The Securities and Exchange Commission ("SEC") has brought an action against Stockstowatch alleging that it violated the anti-fraud and anti-touting provisions of the federal securities laws with reference to shares which it received for services to the Company. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Employees and Consultants"; Part I, Item 7. "Certain Relationships and Related Transactions" and Part II, Item 4. "Recent Sales of Unregistered Securities.") In April 1998, the Company issued 2,500 shares of restricted stock subject to Rule 144 of the Act to an outside consultant in exchange for computer consulting services valued at $4,375. (See Part I, Item 7. "Certain Relationships and Related Transactions" and Part II, Item 4. "Recent Sales of Unregistered Securities.") In November 1998, the Company entered into a seven (7) year collaborative agreement with Dr. William B. Saye, the Medical Director and CEO of the Advanced Laparoscopy Training Center in Marietta, Georgia ("ALTC") under which the Company acquired the "digital rights" of ALTC and the resulting amalgam as it relates to surgical education and marketing rights to the ALTC database. Under this agreement, Dr. Saye became a member of the Company's Board of Directors and agreed to act as the Medical Director of ALTC VirtualLabs. Dr. Saye is to be compensated for travel expenses and will be paid an honorarium of $2,500 per day when his services are requested by Surgical. In addition, Dr. Saye was awarded stock options to purchase up to 1,000,000 shares of the Company's Common Stock over the period, options for 300,000 of which were issued upon the execution of the agreement, and the balance of which are issuable monthly. (See Part I, Item 1. "Description of Business (b) Business of Issuer - Data Systems Division"; Part I, Item 6. "Executive Compensation"; and Part I, Item 7. "Certain Relationships and Related Transactions.") See (b) "Business of Issuer" immediately below for a description of the Company's business. (b) Business of Issuer. General The Company was formed in 1992, and until 1996, was primarily engaged in women's healthcare, medical research and product development with a focus on safety-related products geared to the reduction of occupational risks to healthcare workers. To date, the Company has received four (4) patents on two (2) products, is seeking patent protection on other products and is in the process of developing or acquiring the rights to approximately nine (9) additional medical products intended to be marketed to the healthcare community. The concepts and designs of the additional medical products are at various stages of development or negotiation. The Company has an exclusive five (5) year manufacturing and supply agreement for a line of protective prescription eyeglasses. The Company markets its product lines under the trademark, Compliance Plus(TM). (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division - and - Patents, Trademarks and Copyrights.") The Company's premiere product in the Compliance Plus line, marketed under the trade name, SutureMate(R), is a disposable Food and Drug Administration ("FDA") approved, multi-function, suturing safety device for surgery. Three (3) of the patents apply to this product. The original instrument and its developmental variations facilitate advanced surgical techniques, which increase surgical efficiency and reduce the occupational risk of exposure to bloodborne pathogens such as HIV and hepatitis. The original product is currently being re-released. The product has been re-engineered and updated after feedback from over 4,000 surgeons and surgical technologists. New clinical advantages and significantly lower manufacturing costs create potential for this patented, disposable surgical assist device which was originally designed to facilitate the preferred one-handed suturing technique. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division - and - Patents, Trademarks and Copyrights.") The Company intends to market under the trade name, Prostasert(R), a FDA listed product which was developed to improve the preparation of pregnant patients for labor by providing a mechanism for applying and maintaining a pharmaceutical gel to the cervix and vagina. One (1) of the patents applies to this product. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division - and - Patents, Trademarks and Copyrights.") The Company has an exclusive marketing and supply agreement for a semi- disposable, custom-made prescription protective eyewear for healthcare workers which it markets under the trademark, MediSpecs Rx(TM), the initial term of which terminates in September 2000. In addition, the Company intends to market an infection control equipment kit for healthcare workers under the trademark, IcePak(TM). (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division - and - Patents, Trademarks and Copyrights.") The Company has two (2) additional products in the development stage: Prepwiz(TM), which is a revolutionary surgical prep and drape system and FingerSafe(TM), which is a multi-featured surgical thimble. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division.") The Company aggressively protects its intellectual properties through patents, trademarks and copyrights, as well as by proprietary software designs (flow charts, algorithms, reports and databases). In addition to the utility and design patents already issued to the Company, the Company has many other products in various stages of development which have patent potential. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division - Research and Development.") The Company had executed distributorship agreements for SutureMate(R) with (1) Johnson & Johnson Medical Pty., Ltd with respect to the territories of Australia, New Zealand, Papua, New Guinea in April 1995; (2) Medicor Corporation with respect to the Netherlands in March 1995; and (3) ISC Group, a company organized under the laws of the country of Saudi Arabia, with respect to Saudi Arabia and the so-called GCC Nations (comprising of Oman, Yemen, United Arab Emirates, Qatar, Bahrain and Kuwait) in December 1994. None of these agreements are currently active since the original distribution was thwarted by the high manufacturers suggested retail price. With the re-engineering of the product and the lower cost of goods, it is anticipated to receive a more favorable market response. In December 1996, the Company executed an exclusive seven (7) year distribution agreement for SutureMate(R) for the European market with Noesis Capital Group ("Noesis") under which Noesis was to recruit, hire and train European master distributors and distributor/dealer networks throughout the European continent. This agreement is technically in force but is currently inactive for the same reasons as the other distributorship agreements. The inactivity of these agreements reduces the current revenue potential of the Company. Based upon the number of surgical procedures done annually, it is estimated that the domestic market for SutureMate(R) is 15 to 20 million units and that the foreign markets could represent 70% to 80% of the domestic market. In August, 1997, the Company entered into a distribution agreement for the State of Florida for its MediSpecs Rx(TM) prescriptive eyewear with Hospital News of Florida. Hospital News of Florida has not met its quota requirements. (See Part I, Item 1. "Description of Business - (b) Business of Issuer Sales and Marketing - - - Distribution of Products.") In 1997, the Company focused on the creation and establishment of an information system for multiple applications within healthcare. Formerly named Surgical Safety Network, this information system is now marketed under the name OASiS which is the acronym for Occupational Automated Services Information System. In April 1998, the Company filed for two (2) patents on this system, one related to this touch-access information system and the other related to a technology transfer application. This touch access system has developed into a platform for initially managing three areas of need: (1) exposure (to bloodborne pathogen) management; (2)healthcare training; and (3) healthcare risk management. Effective January 30, 1998, the Company entered a ten (10) year lease arrangement with a leading Florida medical facility, the Sarasota Memorial Hospital ("SMH"), under which four (4) OASiS kiosks were installed at the healthcare site. (See Part I, Item 1. "Description of Business (b) Business of Issuer - Data Systems Division - and - Patents, Trademarks and Copyrights - and - - - Dependence on Major Customers.") In January 1998, the Company entered into a clinical products testing agreement with SMH whereby such facility will provide clinical testing of designated products of the Company for a term of five (5) years. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division.") In February 1998, the Company executed a letter of intent to joint venture with U.S. Surgical Corporation ("U S. Surgical"), a major manufacturer of surgical products which distributes its products worldwide, for the marketing of the OASiS system. The parties executed a final agreement dated October 28, 1998. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Data Systems Division; Sales and Marketing - Distribution of Products; and - Dependence on Major Customers.") In March 1998, the Company entered into an agreement with Stockstowatch to provide investor relations services as a media consultant to the Company. Stockstowatch was issued 300,000 shares of the Company's stock in exchange for these services. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Employees and Consultants; Part I, Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities.") In June 1998, the Company executed a letter of intent with Ad-vantagenet, Inc. for the development of Version 2.0 software for the OASiS system. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Data Systems Division.") In October 1998, the Company entered into an agreement with T.T. Communications, Inc. to provide investor relations services for the Company. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Employees and Consultants; and Part I, Item 7. "Certain Relationships and Related Transactions.") In November 1998, the Company committed to purchase twenty (20) OASiS units from Kiosk Information Systems, Inc. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Data Systems Division.") The Company's other products and concepts in development generally fall into the categories of occupational safety, infection control, obstetrics and gynecology, and new "minimally invasive" surgery devices and techniques. Most of these development projects originated from within the Company, although several are being co-developed with outside third party inventors who are mainly physicians and medical technicians for whom the Company provides consulting services in new product development. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Consultation Division.") The Company markets its line of products under the trade name of Compliance Plus(TM). The FDA lists Surgical as a medical device specifier. Under FDA Registration No. 1056687, as a medical device specifier, Surgical is permitted to control the specifications of its products. The Company spent its formative years in research and development and in obtaining patent protection on its core products and services. Tangential to its core competency, the Company had found it necessary to diversify its offerings, but has, over the past twelve (12) to sixteen (16) months, refocused its efforts towards the commercialization of its existing product lines. Additionally, the Company has enhanced its product lines with the development of the touch-access information system, OASiS. Surgical efficiency is highly valued in today's healthcare climate. With the looming threat of bloodborne diseases such as HIV and hepatitis, safety issues are also of critical importance. Hospitals and surgical teams have required, and now demand, constant improvement in available products and technology. In this rapidly growing market, new options for personal protective equipment are not only valued by the surgical team and appreciated by patients, but mandated by government agencies such as the Occupational Safety and Health Administration ("OSHA"). (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Sales and Marketing - Market Overview, Size and Occupational Safety.") The changing healthcare environment requires aggressive measures to improve efficiency in medical care. This is especially true in high-tech areas such as surgery, obstetrics, and emergency care. Time saving products and techniques that improve patient care quality are of extreme value. Surgical's medical device lines are designated for wholesaling to international distributors. These products are focused on improved efficiency and safety. Clinical research on the original Compliance Plus(TM) product, SutureMate(R), has demonstrated dramatic reductions in sharps injuries (sharps injuries are injuries to healthcare workers or patients caused by suture needles, syringes, intravenous catheters, scalpels, screws, wires and other sharp instruments in the operating room) and a 60% to 85% decrease in bloodborne pathogen exposure, while at the same time improving procedure efficiency. This study was conducted by Donna Haiduven, BSN, MSN, CIC, a member of the Company's OASiS Medical Advisory Panel. See Part I, Item 5. "Directors, Executive Officers, Promoters and Control Persons - OASiS Medical Advisory Panel." Surgical is attempting to secure a research-backed, OSHA mandate status for its OASiS information system which would make the availability of Compliance Plus(TM) required in hospitals and other medical facilities. The Company's plan is to accumulate enough research on product lines to demonstrate statistically their significant safety advantages to support such products inclusion in OSHA requirements for workplace safety compliance. There can be no assurance that such statistics will demonstrate such facts, or even if demonstrated, that such products will be included in OSHA requirements. OASiS is now installed in four hospitals. Lease payments from OASiS currently are made directly to Surgical from the customer hospital but may be made, in the future, through a third party leasing intermediary. In the case of the third party intermediary, Surgical is paid a lump sum at the front end of the lease and the hospital then makes its payments to the leasing company. Selection of the leasing arrangements is made based upon Surgical's current financial status and based upon the financial strength of the hospital involved. SutureMate(R) was originally sold in limited quantities and had limited success due to the high manufacturers suggested retail price. New manufacturing arrangements will allow sales in the $5 to $6 range, more in keeping with disposable products. MediSpecs Rx(TM) sales continue tough limited. Consulting fees are derived from the Medical Consultation Division on an as needed basis. The Company now is positioned to commercialize Compliance Plus(TM) product lines and its proprietary OASiS system through its alliance with U.S. Surgical and their full size international sales force. The Company is preparing other alliances with one or more established industry leaders in healthcare. The Company believes that recurring multiple revenue streams and a "cookie cutter" program and network will allow for potentially rapid growth in the number of OASiS system installations. The Company targets revenues at $50 million within five years. At that level, the Company will position itself as an acquisition target for major medical or information system entities. The Company is seeking debt or equity financing in the amount of between $2,000,000 and $5,000,000. In the event the Company is successful in securing equity financing, the Company is unable to project the number of additional shares of its Common Stock which will be required to secure such financing. As of December 31, 1998, the Company has no short term debt. In the event that the Company is successful in securing 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. The Company is in preliminary discussions with several potential funding sources; however, to date, has not concluded terms for any financing which it feels appropriately meets the requirements of the Company. In the event additional debt is raised, it will incur future interest expense. In the event additional equity is raised, management may be required to dilute the interest of existing shareholders or forgo a substantial interest in revenues, if any. Subject to the availability of additional financing, of which there can be no assurance, the Company plans (1) to facilitate implementation of its sales strategies, (2) to apply additional funding to existing new technology; and (3) to apply additional funding to complimentary products and services through corporate acquisition and exclusive licensing. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Risk Factors - 3. Need for Additional Capital; and 12. Future Capital Requirements.") The Company currently employs seven (7) people, including its President, Vice President, Treasurer and personnel added in 1998 to perform sales and marketing functions. Total employee salaries for the year ending December 31, 1998 were $397,210 of which $266,530 was paid as Executive Compensation including salaries and the value of Common Stock and Options issued and granted to such executives. (See Part I, Item 6. "Executive Compensation.") The Company's executive officers and directors devote such time and effort as are necessary to participate in the day-to-day management of the Company. (See Part I, Item 5. "Directors, Executive Officers, Promoters and Control Persons - Executive Officers and Directors."). During the fourth quarter of 1998, the Company employed one (1) additional individual in the area of computer systems and continues to seek another individual in the same area. The Company has no plans add any additional staff beyond this one (1) individual in the foreseeable future. The Company is dependent upon the services of three of its officers and directors. Dr. G. Michael Swor, the founder and Chairman of the Board and the Treasurer of the Company, is responsible for inventing all four (4) of the patents, which patents were assigned to the Company in exchange for stock. Dr. Swor is responsible for the overall corporate policy and the financing activities of the Company. The Company is the beneficiary of a "key-man" insurance policy currently owned by Dr. Swor. In addition to his duties with the Company, Dr. Swor is a board certified, practicing physician with a specialty in Obstetrics and Gynecology. Frank M. Clark, a Director and President and Chief Executive Officer, is responsible for the day to day management of the Company and new product development and the manufacturing of the Company's products. In addition, he manages new ventures for the Company including, mergers, acquisitions, joint ventures, strategic alliances and licensing/distribution agreements. After a nineteen (19) year career with Johnson & Johnson, Mr. Clark became the president of R. P. Scherer and then went on to become a senior partner in a consulting firm with responsibilities for business development with Fortune 100 corporations. Donald K. Lawrence, a Director and Executive Vice President, Sales and Marketing, is responsible for sales management, market planning, advertising for the Company and acts as the Executive Director of OASiS. Mr. Lawrence in addition to nearly ten (10) years in medical device sales, has extensive experience in computer graphics, multi-media and computer equipment leasing programs. The Company plans to continue to use to its advantage the reputations and skills of these three officers in the medical industry. Nevertheless, while these officers have been successful in the past, there can be no assurance that they will be successful in the continued development of the Company which is needed for a successful operation of the Company. The Company has employment agreements with each of these individuals. (See Part I, Item 1. "Description of Business" (b) "Business of Issuer - Risk Factors" and "Part I, Item 5. "Directors, Executive Officers, Promoters and Control Persons - Executive Officers and Directors; and - Employment Contracts and Agreements.") Data Systems Division In 1997, the Company saw an opportunity to establish a landmark information system for multiple applications within the healthcare industry. This proprietary surveillance network, called OASiS, was originally designed to export and tract occupational safety emergencies such as needlesticks and fluid exposures. The new Version 2 OASiS provides information consolidation in a secure network of touchports located throughout a health care facility. At each on-site location, a healthcare worker has touch access to multi-media information. The OASiS system at its current level of development, is designed to function in three areas: (1) exposure (to bloodborne pathogens) management; (2) healthcare training; and (3) healthcare risk management. In the area of exposure management, the healthcare industry is in need of a standardized, efficient method for tracking, managing and analyzing occupational safety emergencies such as needlesticks and other fluid exposures. Standardized and accurate reporting methods result in superior prevention controls and better post-exposure management for follow-up and counseling. Information relating to the spread of bloodborne pathogens through exposures varies widely and OASiS allows for cross-facility standardization. Healthcare workers need and are now insisting they receive accurate, timely information relating to exposures. Sharps injuries and other exposures occur frequently. Current reporting protocols incorporated into the OASiS system involve a typical chain of events necessary to create an estimated risk assessment and to provide access to testing, treatment and follow-up. Under current non-computerized protocols, after an exposure, the injured worker may be required to complete an incident report (provided by risk management), meet with a supervisor and then leave the worksite to seek evaluation, testing and treatment at an employee health facility or the emergency room. Evaluation techniques, testing and available treatment and follow-up recommendations are inconsistent, inefficient, not timely and breech the employee's confidentiality due to the multiple points of contact which are involved. With the use of OASiS, the injured worker is provided with confidential access to information, statistics and a preliminary risk assessment. The healthcare worker begins the reporting process by "touching" their way through a very detailed, yet easy to use, Occupational Safety Emergency Report. Data collection for the exposure incident is mutually exclusive and exhaustive. The system calculates the risk level based on data inputted into the system directly by the healthcare worker. The worker receives a printed data sheet with risk assessment (weighted towards higher risk) and a recommended testing, treatment and follow-up plan. The worker then is directed to employee health or emergency care for direct, complete and thorough assessment by a facility staff member designated in that capacity. If the worker decides not to proceed, full confidentiality is maintained while critical information for decision making is provided and documented. If the worker proceeds, then complete incident data is already collected in the system, sent to the appropriate locations within the facility and printed for use by the provider of counseling and treatment. In the area of employee training, current training systems involve a number of methods including small groups, large groups, video and other audiovisuals. Staff training on required courses is commonly done in small groups. New surgical equipment and techniques are typically done by way of small groups by product representatives or other trainers and often are enhanced or reinforced with printed materials or videotapes. Practice also requires annual training on various subjects such as modes of disease transmission, information on the epidemiology of disease, procedures to follow in the event of a potential exposure, use of personal protective equipment and standard precautions. Training is provided at the time of job entry, at annual retraining and whenever tasks are modified which alter the hazards posed. The person conducting the training must be knowledgeable not only on the subject matter but also on how it relates to the emergency response personnel. The Association of Operating Room Nurses ("AORN") recently issued a list of training recommendations. One such recommendation was a proposal to develop and evaluate continuing education requirements to assure the continuing competence of regulated healthcare professionals. Because of the rapid development of technologic and scientific advances, AORN believes that one of the greatest challenges is ensuring the continued competence of the workers providing nursing care. The competent use of technology involves not only the understanding of the equipment but also the decision making/critical thinking skills needed to use the equipment effectively, safely and appropriately. Inadequate training has been implicated as a common cause of patient safety incidents. This issue has gained increased publicity among consumer advocacy groups. Recent surveys by the National Patient Safety Foundation at the American Medical Association ("AMA") indicate that 42% of those surveyed said they were involved in situations where a medical mistake was made. Of these mistakes, 22% were made during a medical procedure. The causes cited by the respondents included what they believed to be carelessness, improper training and poor communications. The survey was commissioned by the AMA to evaluate the need for initiatives to reduce errors in the healthcare industry. With the use of OASiS, the worker has access to a directory of various succinct multimedia interactive training modules. The Company produces these modules using multimedia material provided by outside agencies, organizations and product suppliers. Quick reference is accessible to important safety-related features and key user information on medical devices and new techniques. The system was designed to decrease the need for personal training and to improve patient and worker safety by increasing the availability of critical information. Improved awareness of new techniques and devices by healthcare workers has shown improvement in the quality of care provided by the facility. The Company believes that the use of the OASiS system benefits device distributors and critical care departments and that better trained users of devices should lower the rate of incidents occurring due to misuse of a device. The system also provides a mechanism whereby alleged defective products may be efficiently reported to the facility and manufacturer. This aspect is expected to assist product distributors and manufacturers with field reporting. OASiS training programs are designed to provide not only a thorough and cost effective method for employee training, but also to provide the documentation of the learner's comprehension of the subject. Further, an established network of OASiS terminals within a facility also acts as a point-of-sale for the Company's other medical devices such as MediSpecs Rx(TM) semi disposable prescription eye protection. Each OASiS system involves "touch access" to a computer terminal designed as a stand-alone kiosk. In essence, kiosks are computers equipped with software designed to guide people to information, help them accomplish a task, or effect a transaction. Kiosks can provide text information, graphical presentations, and video and sound clips. Each OASiS touch point strategically located within the hospital environment and is linked to a main center for accumulation of hospital data. The system is designed to provide healthcare workers with previously unavailable access to a wide variety of pertinent information. Unlike traditional systems which require a certain level of computer aptitude (even if only using a mouse or keyboard), OASiS' distinct advantage is its foundational design in a "touch access" format. Virtually every command or task on OASiS is performed by touching a user friendly icon driven interface. In other words, if one can point to and touch a picture on a screen, then one has access to a world of valuable and potentially life saving information through the OASiS network. By using Apple Quicktime VR(TM) at an OASiS touchpoint, the system allows the user to touch an image on OASiS, drag their finger on the screen and view the image from multiple angles. The Company markets this feature under the name "Virtual Touch Reality". Upon approaching OASiS, the healthcare worker may select from a menu of icon based options including exposure reporting, hospital exposure policies, device inservices, safety training, communicable disease information and safety news and events. Each of these areas is accessed and navigated by a simple touch of the screen. The graphic design of the system is designed to accommodate workers with minimal reading skills and little computer experience. The uniqueness of OASiS is not only the fact that it is a touch access system, but that it is the first nationwide network for healthcare which is totally independent of the facility's existing information system. Once thought to be a disadvantage, the absence of integration into the facility's existing systems is actually one of the features of OASiS which has gained praise for the system from the Information Systems Department of SMH, the first installation of OASiS. The Company has applied for two (2) patents on the OASiS system which cover propriety aspects of the software, algorithms and reports, as well as the inservice training modules which are owned by the Company. OASiS is powered by a Windows NT platform with full-multimedia, Pentium 233 processors operating at each station. The stations connect to the OASiS server by way of the Internet and send and receive data at prescheduled times. This allows the OASiS server to send new information, training or updates to single stations or on a broadcast basis to the entire network. Hospitals employing OASiS will use an average of one (1) to three (3) units initially. The units are strategically placed in varying hospital departments. Pricing is structured so as to simplify the hospital's approval process. The OASiS system can be leased to the hospitals on a three-year contract arranged through Rockford Industries, Inc. of Santa Ana, California ("Rockford"), which acts as the third party lessor. After early stage discounting to the hospital, the Company expects that leasing fees, industry content production and use fees and software subscription fees will combine for a per unit revenue of $10,200 initially and $2,200 per month. After the three-year period expires, the residual value of each OASiS will be added to the Company's assets. The OASiS system will be upgraded at that time and it is anticipated that an additional $400 per month will be added to gross revenue for each unit in place. Under the leasing arrangement with Rockford, lease approval will be based upon the credit-worthiness of the lessee hospital. Once approved, the Company receives a discounted present value of the lease income stream in advance as the supplier of the equipment. It is these funds which the Company will use to cover the acquisition costs of the OASiS hardware delivered to the lessee. Fees also are anticipated in the future on a percentage of the product sales made through the OASiS platform and on information sales of generic occupational safety data. Market share is expected to increase for the Company as it brings on additional facility users, dditional industry content a providers and added on plug-in program modules developed by the Company in house or through Company acquisitions. As an information system, OASiS production consists of an integration of proprietary software with hardware from original equipment manufacturers ("OEM's"). The Company designed and is the sole owner of the software portion of OASiS. This was as a result of approximately three (3) years of research and development. The software presentation consists of the frontline user interface, the programs and all supporting database gathering programs and administrative "back office" facilities. The software exists as a user ready or standardized foundation with widespread adaptability as the system is installed at the hospital's facility. As of January 1998, Version 1.1 was fully operational at the initial installation at SMH and was ready for installation in additional facilities. OASiS Version 1 worked acceptably for accident reporting, but was unacceptable for constant updating of content and from the administrative monitoring standpoint. Version 2, now operational, uses nothing from Version 1. Plans for upgrades to Version 2 are in progress and are being adapted to the needs of the end-user market as they are discovered. Within the original site installation, OASiS is being used for exposure reporting, inservices and new technology, communicable disease information, news and events, safety education and hospital policies. New installations will add user identification log on capability, additional levels of news and events and training with certification. Since Version 2.0 has become operational, the Company has expanded the system with software plug-in integrations and advanced data reporting and management. In initially designing a system for a hospital facility, the Company completes a site survey to determine the needs of the facility regarding OASiS and system installation, as well as other pertinent information related to station location within the facility and available telecommunication resources. The site survey also includes details for customizing the software for the specific facility's application. The Company has determined that the most economical way to deliver the integrated hardware/software product to the customer is through a full service integration specialist (the "Integration Specialist"). The services and responsibilities covered by such specialist will be: (1) hardware installation into the OASiS kiosk and configuring the components; (2) software installation; (3) software configuration; (4) 24-hour "burn in" and testing; (5) hardware disassembly, packing and shipping; (6) on-site installation; (6) on-site testing; and (7) three-year 24 hour turn around warranty on all hardware. Many potential integrators exist and the Company has entered into preliminary agreements with two initial candidates. The Company expects to use no fewer than two integrators on a regular basis to ensure the quality, service and performance required in a competitive situation. The production cycle begins at the end of the initial sales cycle with the completion of the site survey. Information regarding communications availability, station location and on-site coordinator data is integrated into the customization process. A purchase order is placed with the Integration Specialist who in turn orders components from the various OEM's. The site survey is then used by the integration house for coordination of on-site services such as station location, service subcontractors and others. Effective January 30, 1998, the Company entered into a Prepaid Capital Lease Agreement with Community Health Corporation (the "Lessee"), a Florida not-for-profit corporation which acts in support of SMH ( the "SMH Lease Agreement"). Since delivery of under this agreement was in December 1997, the SMH Lease Agreement is treated as income in 1997. SMH is the site of the initial OASiS installation. Pursuant to the terms of the SMH Lease Agreement, SMH leased four (4) OASiS kiosks and accompanying software and technical support for a term of ten (10) years commencing on a date which was to follow an initial trial period. The Company was required to install the kiosks within five (5) days of the execution of the SMH Lease Agreement. SMH was entitled to review the performance of the installations for a period of thirty (30) days after installation. Provided the systems performed in accordance with pre-established standards during such trial period, the SMH Lease Agreement term would commence at the time of acceptance. Pursuant to the SMH Agreement, at acceptance, the Lessee agreed to prepay all rent payments for the term of the SMH Lease Agreement, which sum amounted to $250,000. All modifications, improvements, additions and enhancements ("Modifications") which result from this installation belong to the Company; however, in the event a Modification is proposed by SMH and the Company incorporates it into the OASiS system, the Company will pay SMH one half of one percent (.5%) of any net revenue the Company receives attributable to such Modification. The Company is obligated during the term of the SMH Lease Agreement to provide software maintenance, improvements and updates to the OASiS system and training for the use of the units to SMH's personnel. In addition, the Company is required to carry comprehensive general and products liability insurance in the amount of $2,000,000 covering the use of the OASiS system and naming SMH and the Lessee as co-insured parties. And further, the Company agreed to indemnify the Lessee and SMH against any liens, liabilities or other damages incurred by the Lessee or SMH as a result of the installation or use of the OASiS system. At the end of the term, the Lessee has an option to purchase the four (4) OASiS kiosks for the sum of $1. Neither party to the SMH Lease Agreement may assign nor delegate any of the rights or obligations contained in the agreement The units were installed and are operational. At the current time the SMH Lease Agreement is in full force and effect. The Company received the payment due under the SMH Lease Agreement on January 30, 1998. Following a presentation before the Association of Infection Control Professionals and Epidemiologist ("APIC") in May, 1998, the Company received nearly a dozen applications from multi-facility hospital systems wanting to be a part of the next wave of OASiS installations. And, the Company received inquires for at least four times that many facilities seeking more information about the development of OASiS. To date, none of these inquiries has resulted in an OASiS installation agreement. From March 31st through April 2nd, 1998, the Company, in conjunction with U S Surgical, demonstrated the OASiS touch-access information system at the AORN convention in Orlando, Florida. This is the largest nursing convention in the world. OASiS accounted for over 21% of all leads generated by US Surgical at AORN. Based upon the evaluation forms competed by the nurses, it was found that (1) the most useful section of OASiS, as it now exists, is the device inservices; (2) most of the nurses characterized the system as a convenient way to receive inservices, while a few of them viewed it as a sales and marketing tool for device manufacturers; (3) an overwhelming number of the nurses who responded stated that they would rely on OASiS on a daily basis; (4) the most requested additional features were a Surgeons' Preference Card which is scheduled for Version 2.x testing, electronic PDR and Latex sensitivity which is under development; and (5) most of the nurses would recommend OASiS for their operating room. Following the AORN convention, the Company and US Surgical agreed to terms for the further presentation of OASiS. On October 28, 1998, the parties executed a three year agreement under which US Surgical will arrange for the installation of ten (10) OASiS systems in hospital facilities which US Surgical defines as "Centers of Excellence." Each system will include thirty (30) inservice training modules. Following an initial nine (9) month trial at each of these facilities and subject to satisfactory performance by the system and the technical support group, US Surgical has the right to have additional systems installed in other healthcare facilities nationwide. US Surgical will finance the development and installation of the ten (10) systems. No decision has been made as to which party will pay for such additional systems as US Surgical elects to have installed. If it is the Company, additional capital may be needed, the securing of which on favorable terms to the Company cannot be assured. The Company will receive a fee in the amount of $36,000 for the initial ten (10) installations during the testing period and a fee in the amount of $108,000 for the balance of a three (3) year term for such initial installations. In addition, the Company will earn profits on the sales of its products through the point-of-sale facility in the OASiS system and from the fees it receives from other device providers and training companies through the use of the inservice modules (the "Long Term US Surgical Agreement."). (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Sales and Marketing - Distribution of Products - and Dependence on Major Customers.") On June 30, 1998, the Company executed a letter of intent with Ad-vantagenet Inc. of Sarasota, Florida ("Ad-vantagenet"). Under the terms of the letter of intent, Advantagenet assisted in the creation of version 2.0 OASiS software, including creating the art and graphics. Version 2.0 is designed to allow for more dynamic features on the system including instant updates, information-gathering and editing features. The Company chose Ad-vantagenet to complete Version 2.0 after unsatisfactory results were achieved by Gambit, Inc., d/b/a MediaWorks. The functions Ad-vantagenet incorporated into Version 2.0 include features which had been requested of MediaWorks but were not provided. The total projected cost of the Advantagenet project is one-fourth of the cost which MediaWorks projected. The Company was in litigation with MediaWorks over the termination of their agreement. (See Part II, Item 2. "Legal Proceedings.") Subject to the successful completion of the letter of intent project with Ad-vantagenet, the Company intends to enter into a more structured, long-term agreement for further OASiS development. In November 1998, the Company entered into a seven (7) year collaborative agreement with Dr. William B. Saye, the Medical Director and CEO of the Advanced Laparoscopy Training Center in Marietta, Georgia ("ALTC") under which the Company acquired the "digital rights" of ALTC and the resulting amalgam as it relates to surgical education and marketing rights to the ALTC database. Under this agreement, Dr. Saye became a member of the Company's Board of Directors and agreed to act as the Medical Director of ALTC VirtualLabs. Dr. Saye is to be compensated for travel expenses and will be paid an honorarium of $2,500 per day when his services are requested by Surgical. In addition, Dr. Saye was awarded stock options to purchase up to 1,000,000 shares of the Company's Common Stock over the period, options for 300,000 of which were issued upon the execution of the agreement, and the balance of which are issuable monthly. The intention of the agreement is that any educational activity involving ALTC or Dr. Saye on the Internet or other digital presence would be the property of and under the control of Surgical. The purpose of the agreement is to shift traditional training methods in advanced surgical technique to a new distance-based approach delivered through OASiS, the Internet and emerging mediums. The goal is to educate and train a wide audience on safe and efficient surgical techniques and procedures through the expansion of the OASiS network. Dr. Saye has an existing agreement with Ethicon Endo-Surgery, a division of Ethicon, Inc., which the parties do not believe will conflict with this agreement. (See Part I, Item 6. "Executive Compensation"; and Part I, Item 7. "Certain Relationships and Related Transactions.") In November 1998, the Company committed to purchase twenty (20) stand alone kiosk OASiS units from Kiosk Information Systems, Inc. for a total purchase price of $133,000 plus freight charges This commitment was in the form of a purchase order from the Company. By December 31, 1998, the Company had paid $66,500 and received a partial delivery under the agreement. To date, the Company has paid approximately $97,000 and has received 18 units. OASiS Version 2.0 became operational at SMH in February, 1999. Surgical has outsourced Internet services to Verio, Inc. ("Verio") , a provider of Internet services such as broadband connectivity, WEB hosting solutions, virtual private networks, e-commerce and other enhanced Internet services. Verio provides OASiS with fast, reliable and secure access to the Internet via Tier 1 connectivity. In February 1999, Surgical entered into an agreement with Verio for access service at SMH. The agreement required payment of a set up fee of $60 and monthly charges of $199. Surgical is responsible for paying the monthly charges. A comparable agreement with Verio is contemplated for each hospital at which OASiS is installed. In February 1999, Surgical completed negotiations which had commenced in the summer of 1998 to install OASiS units in St. Francis Hospital in Trenton, New Jersey ("St. Francis Hospital") as a test site. Three units with Version 2.0 software were installed in February. The Company has an oral arrangement with St. Francis Hospital under which the hospital pays Surgical $200 per month per unit as a monthly software license fee and pays $50 per month per unit for "hot swap" maintenance service based upon a monthly invoice. In February 1999, the first installations under the US Surgical agreement became operational, each with Version 2.0 software. One OASiS system was installed at Atlanticare Hospital in Massachusetts and two OASiS systems were installed at Columbia Presbyterian Hospital in New York. In addition, US Surgical inservice modules were installed in the SMH system and in the system installed at St. Francis Hospital. The Company knows of only one other system which is designed to accumulate exposure data which is called Epinet, a single system designed to track and report bloodborne pathogen exposure in the healthcare setting. (See "Part I, Item 1. "Description of the Business (b) Business of the Issuer - Competition.") The Company believes that OASiS is the superior product and that it represents the leader in the industry at this time. The basis for this belief is that Epinet is a software only product and that the OASiS system can be adapted to accept Epinet. Medical Products Division Compliance Plus(TM) is the designation under which all the Company's products are developed. The Company trademarked this term in order to indicate that the criteria used in the research and development of every Surgical product and service meets or exceeds compliance mandates set forth by the OSHA, the Centers for Disease Control and Prevention ("CDC") and other governing bodies. It is the goal of the Company to exceed existing standards in order to assume a leadership role in the area of medical prevention and safety products. The Compliance Plus(TM) Exposure Prevention Program includes several safety engineered products dedicated to reducing exposure and cross contamination in the operating room. These exposure prevention products are designed to maximize surgical efficiency while reducing bloodborne pathogen exposure to healthcare workers and improving patient care in a wide range of applications. The Company has already introduced the first two Compliance Plus(TM) products into the market - MediSpecs Rx(TM) and SutureMate(R). These are the only two Compliance Plus(TM) products which it currently markets. Both of these products meet OSHA and CDC mandates. Additional Compliance Plus(TM) products are scheduled for release in 1999. The remainder of the proposed Compliance Plus(TM) line will be added through further in-house development and acquisitions, which are already in process. The Compliance Plus(TM) devices include: SutureMate(R), a patented single-patient- use surgical assist device for safe and efficient suturing; MediSpecs Rx(TM), a disposable prescription protective eyewear for healthcare workers; Prostasert(TM), a patented obstetrics/gynecology ("OB/GYN") pharmaceutical applicator; IcePak(TM), an infection control equipment kit for healthcare workers; PrepWiz(TM), a revolutionary surgical preparation and drape system (in development); and FingerSafe(TM), a multi-featured surgical thimble (in development). The Company believes that the use of Surgical's Compliance Plus(TM) exposure prevention strategy provides numerous direct and indirect benefits. These benefits relate to a significant reduction in bloodborne pathogen exposure from needlesticks and glove perforations, as well as improved procedural efficiency. The Company believes that prevention through the use of its products reduces expenditures in employee health post-exposure work-up and treatment, and lost employee time. The Company further believes that there are also benefits from improved employee morale, community relations, and reduced liability and workers' compensation costs. In January 1998, the Company executed a clinical products testing agreement with SMH for a term of five (5) years. Under the terms of the agreement, Surgical will submit ten (10) surgical and medical products to SMH for clinical testing (the "SMH Clinical Testing Agreement.") Surgical will reimburse SMH for certain designated budgeted costs and pay a fixed amount of $25,000 for each study, payable in monthly increments over the term of each study. Further, the agreement provides that Surgical is obligated to pay SMH $250,000 over the term of the agreement in the event Surgical determines not to have SMH perform the clinical testing. In addition, SMH will receive one half of one percent (.5%) of the proceeds received by the Company from the sale of the products tested. The products to be tested include SutureMate(R), MediSpecs Rx(TM), Prostasert(TM), PrepWiz(TM), FingerSafe(TM) and five (5) other products in various stages of development. SutureMate(R) SutureMate(R), a patented, disposable, surgical assist device, was 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) can be used in a wide variety of specialties, including surgery, OB/GYN, emergency room treatment, plastic surgery, podiatry and dentistry. It was designed by Dr. Swor, the Company's Chairman, who is a surgeon himself for use by surgeons and surgical assistants. The Company is not aware of any comparable product on the market. New applications for its use are being devised regularly and several variations of the original product are in development, including a laparoscopic version, for use in the fast growing field of minimally invasive surgery. The product acts as a needle bank for temporarily "parking" suture needles, and a cutting slot for removing the needle from the suture thread. Using the SutureMate(R) device enables the user to "free-up" the non-dominant hand to engage in additional tasks such as holding instruments and exposing tissues. Data from the CDC indicates that seventy-seven percent (77%) of sharps injuries are caused by suture needles. In one-third of all injuries to surgeons, the sharp instrument was re-exposed to the patient. When one-handed suturing is not used, the surgeon's non-dominant hand is particularly vulnerable. Sixty-six (66%) percent of all suture needlesticks occur to the first two fingers of the non-dominant hand. This is where SutureMate(R)'s application is most significant. Clinical data suggests that SutureMate(R) dramatically decreases needlestick injuries and other exposures such as glove perforations. The cutting slot feature enables the user to efficiently remove the needle from the suture thread without the need for an assistant, and with greater efficiency than traditional methods. SutureMate(R) has been cited by safety advocates and infection control specialists in several publications and manuals. A study from Canada by Drs. Bebbington and Treissman was published in the October 1996 issue of the American Journal of Obstetrics and Gynecology, Volume 175, No. 1, Part I. This study was supported by the Company. The study concluded that there was a 71% reduction in glove perforations when SutureMate(R)n was used and stated that the "surgical assist device [SutureMate(R)] appeared to be useful in decreasing glove perforations regardless of the degree of training and expertise of the operator." The study concluded that the "use of this device significantly reduced the number of glove perforations that occurred during vaginal repair after delivery. Therefore it can be of benefit to the safety of operators during an all-too-frequent procedure in obstetrics. This is especially true when universal precautions are being advocated for all patients. A decrease in glove perforations deceases the exposure to potential pathogens." The study did state that the reduction in glove perforations may not have been exclusively related to the use of the device. The need for sharps management in surgery has generated a number of articles. In an article by Dr. Mark Davis which was published in the April 1995 issue of Infection Control & Sterilization Technology, Volume 1, No. 1, Dr. Davis stated that "most percutaneous injuries can be prevented by the use of currently available safety-engineered devices and by the application of known safety protocols and techniques...Other techniques such as double gloving and suturing with a device requiring one hand, offers some protection against the growing threat of HIV, and hepatitis B and C." The one-handed suturing device discussed in the article is SutureMate(R) which was being evaluated by the surgical and OB/GYN staff at Dr. Davis' institution. Dr. Davis served on the Scientific Advisory Board of the Company. (See Part I, Item. 5. "Description of Business - Directors, Executive Officers, Promoters and Control Persons - Scientific Advisory Board.") SutureMate(R) research findings have been presented to several major medical organizations including: the American College of Surgeons and Center of Disease Control and Prevention ("CDC") at a joint meeting on the prevention of bloodborne pathogens in surgery and obstetrics which was held in Atlanta, Georgia in February 1994 (the "February 1994 Conference"); at the annual meeting of the Society of Hospital Epidemiologist of America in Santa Clara, California in March 1994; at the annual meeting of the Association of Surgical Technologists in Atlanta, Georgia in May 1995; at the annual meeting of the Society of Perinatal Obstetricians in Vancouver, Canada in February 1996; at the annual meeting of the Association of Surgical Technologists in Atlanta, Georgia in June 1996 and at the annual meeting of the ACORN in Atlanta, Georgia in April 1997. (See Part I, Item. 5. "Description of Business Directors, Executive Officers, Promoters and Control Persons - Scientific Advisory Board.") The February 1994 Conference was the first joint conference of the American College of Surgeons and the CDC. Donna J. Haiduven, an infection control specialist and a member of the Company's Scientific Advisory Board, and Dr. Maria D. Allo of Santa Clara Valley Medical Center presenting an abstract entitled "Evaluation of a one-handed surgical suturing device to decrease intraoperative needlestick injuries and glove perforations." The study concluded that the "[u]se of "Suture Mate" facilitates one-handed suturing technique, resulting in less likelihood of glove perforations and intra-operative needlestick injuries" and "[t]he "Suture Mate" device obviates the need for two-handed suturing and provides a safe place to "bank" needles on the surgical field." The use of SutureMate(R) eliminates the need for the more expensive "control release-type" sutures. By virtue of improved surgical safety efficiency, the Company believes that the patient will experience significant savings through reduced anesthesia and operating room time. In addition, the Company believes that this product reduces cross contamination which can save expenses related to surgical wound infection. SutureMate(R) has recently been re-released. The product has been re-engineered and updated after feedback from over 4,000 surgeons and surgical technologists who have used or reviewed the product since its inception. As a result of the re-design, the Company believes that there will be 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 $1.50 per unit including packaging and sterilization and can be marketed in the $5 to $6 range which is more in keeping with pricing for a disposable product. Currently, the re-designed SutureMate(R) is manufactured by the Hansen Plastic Division of Tuthill Corporation at their plant located in Clearwater, Florida ("Tuthill"). Tuthill manufactures each non-sterile unit at a cost of $.902 per unit. The non-sterile product is then shipped to Gamma Services, Inc. in Lakeland, Florida for sterilization. The cost per unit for the sterilization process is $.172. This results in a total cost per unit of $1.074. The Company currently is considering other manufacturing sources. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Sources and Availability of Raw Materials.") MediSpecs Rx(TM) MediSpecs Rx(TM) is a prescription protective eyewear which Surgical co- developed for use in the operating room and related areas. The Company has an exclusive, renewable 5-year, distribution agreement which covers the United States with Morrison International, Inc., a Pennsylvania corporation with its principal place of business in Sarasota, Florida ("Morrison"). The initial term expires in September 2000. Under the terms of the agreement with Morrison executed in September, 1996, the Company has the right to purchase, promote, resell and distribute Morrison's trademarked glasses under the Company's private label trademark, MediSpecs Rx(TM). The price for the product is fixed for the initial five-year term and requires minimum purchases which are scaled over the first five-year period from 2,750 units the first year to 56,000 the fifth year. Under the agreement, the Company its entitled to distribute the product either directly or through other dealers. (See Part I, Item 1. "Description of Business (b) Business of Issuer - Sources and Availability of Raw Materials.") MediSpecs Rx(TM) are featherweight prescription glasses with OSHArecommended protective side shields. A proprietary manufacturing and assembling process minimizes the cost of production and allows healthcare workers to purchase prescription protective eyeglasses for dedicated use in an occupational setting. The Company believes that users will purchase multiple pairs of glasses. It is anticipated that each pair will have an average life of approximately 50-100 uses. While an average pair of prescription eyeglasses costs over $150, MediSpecs Rx(TM) glasses are being sold for approximately $25 a pair and can be ordered by mail. The cost to the Company under the Morrison agreement is $6.98 per pair. MediSpecs Rx(TM) glasses protect against splashing of blood and bodily fluids into the user's eyes, thus further reducing exposure risk. Medi-Specs Rx(TM) are ultra lightweight, making it unnecessary to the user to wear the more cumbersome Eyewear currently available for eye protection. In August 1997, the Company entered into a distribution agreement for the sale of MediSpecs Rx(TM) in the State of Florida. This agreement is with Hospital News, a Florida corporation with its principal place of business in Tampa, Florida ("Hospital News"). SMH and Doctors Hospital of Sarasota are excluded from the agreement and remain under the distributorship of the Company. The initial term of the Hospital News agreement was through December 1997, and is renewable by the parties for successive one (1) year periods. The price for the product is fixed for the initial term at $12.95 per pair and requires minimum purchases which are scaled over the first six (6) months from 0 units the first month to 800 the sixth month. Under the agreement, Hospital News its entitled to distribute the product either directly or through other dealers. Although Hospital News has not meet its quota to date, the Company has elected to extend this arrangement for an additional one (1) year period. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Distribution of Products.") Due to the price at which MediSpecs Rx(TM) may be offered to users and the prevention of cross-case contamination, the Company believes that there is a large international market available for the use of this product. The basis for this belief is because it is low cost prescription eyewear which can be assembled on site from low costs kits. The international market is estimated at 150% of the domestic market. Prostasert(TM) Prostasert(TM) , originally named LaborMate, is a patented, disposable, obstetrical/gynecological specialty device with many potential uses, including use for patients undergoing the induction of labor. The product provides a vaginal application of a precise dosage of pharmaceutical gel which is designed to shorten and improve the labor and delivery process. Although simple in design, the Company believes that Prostasert(TM) is unique in that it differs from its competitors by allowing for a more site-specific application and improved maintenance of the pharmaceutical gel used. Prostasert(TM), a FDA listed device, is a specially designed medication delivery and maintenance system which allows a physician to deliver the proper dosage and maintain that dosage precisely. With over four (4) million births annually in the United States alone, the Company estimates the potential market for obstetrical use of this product to be approximately 200,000 to 400,000 cases annually. These estimates are based on the fact that 10% to 20% of the four (4) million births annually are induced (labor stimulated medically) and such numbers of induced births is increasing because of the lower risks and patient/doctor convenience factors. Alternate uses and other applications for this product are under development including treatment for cervical infections and PAP smear abnormalities for which the market is estimated to be 1,000,000 cases per year. No FDA clearance was needed for this product because it is assembled from FDA approved parts. The product was listed by the FDA in June 1994. Prostasert(TM) was approved for clinical research by the Institutional Review Board of the SMH where it has been undergoing clinical trials for the past three (3) to four (4) years to document the clinical usefulness of the product. Once such trials are completed and provided additional funding is available (of which there can be no assurance), the Company intends to make final engineering adjustments and then commence manufacturing for initial market entry in the United States by the end of 1999. The Company is seeking a distribution outlet while the additional clinical trials are developed. Icepak(TM) The Company is researching patent protection for this specialty product and its accessory components. This product is a belt which is designed to carry various infection control-related products providing healthcare workers with easy access to personal protective supplies. The belt itself is a durable, reusable product with consumable supplies attached. The Company intends to market and sell this product primarily through catalogs, with a focus on distribution to nurses. The Company is in the process of developing arrangements with suppliers of the consumable supplies to be used in the belt. A prototype has been manufactured and the product is expected to enter the market before the end of calendar 1999 if the required agreements with potential manufacturers/suppliers have been completed and if additional funding is available (of which there can be no assurance). There is no requirement for regulatory approval of this product. Research and Development The Company engages in extensive research and development of new medical technology. Many product concepts and partially developed designs have been accumulated from internal and external sources. As funding becomes available, of which there can be no assurance, new products will be brought through the development process. Initial products in development include: RD91862: PrepWiz(TM): This is a multiple product for preparing the patient's surgical site. The Company anticipates that this product will potentially solve major efficiency, costs and safety problems. The Company currently plans to co-develop this product line with a major medical manufacturer and subsequently license it for sales and distribution. Currently, pattern designs are in process and the Company received non-sterile samples which it is currently evaluating. The samples were provided to a contract converter who produced non-sterile disposable samples to be used in finalization of the design. RD121096: Finger-Safe(TM) Surgical Thimble: The Company is seeking patent protection on this fingertip protection device. It is expected that this product can be added to the Compliance Plus(TM) product line in the event that Company secures additional capital, of which there can be no assurance. This product is used much like a thimble for sewing, but has special features that facilitate the suturing technique and also has special safety features and a storage component. The product is designed to reduce further the risk of needlesticks and glove perforations to the non-dominant hand. Both RD91862 and RD121096 require regulatory approval from the FDA. PrepWiz(TM) is in the development phase and no application under 501(K) will be undertaken until final designs and approvals have been executed. Finger-Safe(TM) Surgical Thimble is on the shelf and no development activity is currently underway. Advanced Surgical Techniques The Company has several products in development that are designed to contribute to the rapidly growing market of "minimally invasive" surgery with increasing emphasis on small incisions, laparoscopy, laser treatment, and more efficient post-surgery convalescence. The Company believes that there is a significant demand for improved technology to facilitate these newly developed procedures. The Company has several concepts and projects in development related to this type of surgery, and many of the new product ideas presented to the Medical Products Consultation Division by third parties are included in this group. Medical Consultation Division The Medical Consultation Division provides consulting services to individual inventors on a fee basis. Currently Dr. Swor, Mr. Clark and Mr. Stuart, a Director of the Company, provide such services depending upon the type of expertise required. The principal function of the division is to find new ideas and potential products which compliment the Company's product mix. This division has been retained to conduct several research evaluations of various proprietary medical products and has completed two such projects, one for London International U.S. Holdings, Inc. (a study to determine the spermicidal activity of several concentrations of nonoxynol-9 lubricated condom products) and another for Purely Cotton (a study of a tissue made from cotton rather than paper to determine whether the product was less irritating to people with chronic skin conditions). Based upon the initial evaluation of these products, the Company believes that one or more could be very successful and lead to additional business for the Company. Business Strategy The Company's business strategy, which is dependent upon its obtaining sufficient additional financing with which to enhance the commercialization of existing and future products of the Compliance Plus(TM) exposure prevention and surgical efficiency product line and the OASiS information system (of which there is no assurance), is to provide innovative products and services which create and maintain a safe surgical environment for medical and hospital staff, healthcare workers and patients, as well as to enhance the level of surgical care available to patients. The Company's revenues are based upon lease payments from its Data Systems Division, sale of its products and distribution fees from the Medical Products Division and consulting fees earned by the Medical Consultation Division. The Company's revenues are dependent on the volume of sales from its products. Revenues from sales are recognized in the period in which sales are made. The Company's gross profit margin will be determined in part by its ability to estimate and control direct costs of manufacturing and its ability to incorporate such costs in the price charged to clients. The Company's objective is to become a dominant provider of medical devices and systems which improve occupational safety, advance surgical techniques and provide greater efficiency. To achieve this objective, and assuming that sufficient operating capital becomes available, the Company intends to: (i) develop international distribution channels and co- marketing alliances for the Company's products and services; (ii) continue research and development and acquisitions of synergistic products and software programs; and (iii) frequently fine tune market strategies based upon ongoing evaluations of customer needs, capital budgeting opportunities and market economy fluctuations. Management believes that Surgical is posed to lead in the ever developing surgical and medical safety market and plans to capitalize on the opportunity while providing significant benefits to its customers and improving overall patient care. Management expects, in the event Surgical continues to achieve product acceptance, to increase the Company's market penetration through additional acquisitions and potential merger opportunities with appropriate bases of business development. However, such expansion presents certain challenges and risks and there could be no assurance that Surgical, even if it were successful in acquiring other bases of business development, would be successful in profitably penetrating these potential markets. Sales and Marketing The following discussion of the medical industry, as it relates to the Company's objectives, is of course pertinent only if the Company is successful in obtaining sufficient debt and/or equity financing to commercialize its existing products and OASiS, to add additional key personnel and to supplement new product and software program development. In addition, the Company must be able to generate significant profits from operations (which are not expected in the foreseeable future) and/or additional financing to continue expanding the business and/or to fund the anticipated growth, assuming Surgical's proposed expanded business is successful. There can be no assurance such financing can be obtained or that the Company's proposed expanded business will be successful. Background According to the World Health Organization, forty (40) million people will be infected with HIV by the year 2000. There are nearly ten (10) million people worldwide currently infected, including close to one (1) million children. Over four (4) million Americans carry the HIV virus. Approximately ten percent (10%) of individuals will contract this very serious illness when exposed by way of a sharps injury. Auto Immune Deficiency Syndrome ("AIDS") is now the top killer of men age 17 to 54 in the United States. The CDC and the National Institutes of Health ("NIH") have focused a great deal of effort and research into improving occupational safety and decreasing the risk of bloodborne pathogens in the healthcare setting. The American Hospital Association reports that needlestick injuries are the most common injury to healthcare workers and represent the greatest risk of occupational exposure to AIDS, Hepatitis, and other viral diseases. There are over two (2) dozen diseases that have been involved in documented transmission by way of exposure. Over one and a quarter million (1,250,000) Americans have chronic Hepatitis B and when their blood is exposed to a healthcare worker's intact skin, the transmission rate is thirty percent (30%). Since operating room personnel and surgeons are in particular high risk categories, the Company has committed itself to developing products and techniques to decrease the potential for deadly viral transmission to and from healthcare workers and patients. Market Overview, Size and Occupational Safety Healthcare workers need secure and safe working conditions as much as life's other necessities. Surgical seeks to provide solutions to meet that need in the critical care setting. Value is built into Surgical's products by reducing costs of inefficient surgery, occupational exposures and patient risks. Exposure to bloodborne diseases occurs in up to fifty percent (50%) of surgical cases, with needlesticks and other sharps injuries magnifying the risk. Up to 75% of sharps injuries in the operating room are related to suturing. Currently used safety measures are inadequate, with an unbelievable 23% exposure rate documented even in known or suspected HIV cases. Hepatitis C is a new, incurable threat and HIV is now the number one cause of death in 25 to 44 year-olds in the United States. Significant resources are devoted to occupational risks, with over $3 billion expended annually in the United States on sharps injuries and bloodborne exposures. According to the Canadian Medical Association Journal, treating one HIV-infected healthcare worker may cost in excess of $500,000. In addition to the risk of exposure, significant pressures have been made to reduce costs in surgery and in critical care units. With the increased prevalence of HIV, hepatitis and other deadly diseases, OSHA has set increasingly strong standards. Despite the standard use of protective gloves and clothing, operating room personnel and surgeons are at a particularly high risk. According the United States Department of Health and Human Services, healthcare workers contract more than 15,000 bloodborne infections from occupational exposure per year, resulting in 300 deaths and thousands of illnesses. Surgical wound infections are relatively common and result in increased costs, longer hospital stays and increased morbidity in patients. A Yale University study found that visible contact with patient's blood occurred in 63% of surgical cases and sharps injury rates range from 7% to 50%, depending on the type of case. At current rates, researchers from major medical institutions have estimated the lifetime career risk of occupational HIV infractions for surgeons as high as 20%, depending on the patient population. Despite this data, HIV is overshadowed by Hepatis B and C which are 100 times more infective. Due to increased awareness of these problems, there has been a movement from healthcare workers themselves for facilities to provide adequate protection and safety engineered technology. Hospitals also benefit from improved technology and can significantly decrease post-exposure follow-up and treatment. A large body of research and statistical evidence has been accumulated over the last ten (10) years regarding the significant risk of bloodborne disease to healthcare workers. Similar kinds of risks exist regarding the transmission of disease from health workers to patients. Since the AIDS virus was discovered and blood testing became available in 1985, even greater awareness has been focused on these problems. The Company has focused its efforts on identifying occupational risks in the healthcare industry and seeking to provide solutions to various problems regarding these risks. As noted, the bloodborne pathogens which have received the most attention are AIDS and Hepatitis. There are an estimated ten (10) million people infected with the AIDS virus worldwide, and because of the nature of the disease, it is impossible to determine infected individuals with certainty, even with blood tests. Hepatitis is even more widespread and, according to medical experts, much more contagious. These diseases and others are transmitted by contact with blood or bodily fluids and reports of infection through needlesticks, sharps injuries, and skin to skin contact are accumulating. The American Hospital Association, in 1992, reported over 800,000 occupational needlestick injuries in the United States each year, and estimated that approximately 16,000 were contaminated by HIV. They also estimated that as many as 60 healthcare workers may become infected annually with HIV as a result of occupational exposure. There have been estimates as high as 12,000 Hepatitis B infections annually to healthcare workers. A newer form of Hepatitis, Hepatitis C, is rapidly becoming even more important and more serious. OSHA now has strict guidelines for personal protective equipment, such as gloves, gowns, and eye wear. However, with a reported rate of glove perforation in surgery of up to 50%, sharps injuries of up to 25% and concerns regarding the prevention of bloodborne pathogen transmission, healthcare professionals, workers and patients are requesting more protection. Most professionals agree that many sharps injuries in surgery are preventable with changes in techniques and the use of new devices and protective equipment. The cost of these types of exposures is also a significant factor in the Company's business. The direct financial burden that facilities bear for medical evaluation and follow-up after a single needlestick injury is estimated to be $200 to $1,300 ($3 billion in the United States as reported in Nursing Economics, Vol. 12, No. 4, pp. 208-214 (1994) based upon 1987 date regarding the cost of diagnosis and treatment of needlestick injuries in the United States). According to the United States Department of Health and Human Services, the average cost of treating an accidental needlestick is $1,300. These costs do not include factors such as worker's lost time and potential liability litigation. This figure does not include indirect costs such as time lost from work, medical expense and potential liability loss. With annual expenditures in the United States on medical and surgical supplies estimated by current medical journals at more than $6 billion annually, there would appear to be a large budget for safety-related products. Surprisingly, there have been few significant advances in new technology regarding bloodborne pathogens. The Company is focusing its research and development efforts directly on improvements in this area with operating room, infection control, and personal safety equipment product lines. The Company's initial product, SutureMate(R) was designed primarily to reduce the risk of needlestick and glove perforation during suturing. Infection can also be transmitted by skin to skin (mucocutaneous) contact, and the Company's Infection Control Equipment Pack (IcePak(TM)) product was developed from the need to reduce this hazard. Customer demand for the Company's' products and services is expected to be stimulated further by recent scientific data suggesting that the risks related to these hazards were originally underestimated. In addition, new serious viral diseases are discovered regularly. With an estimated 25 million surgical procedures and 4 million births annually in the United States alone, and a fertile international market as well, the Company is focused upon the development of innovative protective equipment, efficiency related instruments, and cost efficient supplies for furthering the concept for cost conscious safety in healthcare. Hospitals are under increasing pressure to evaluate and adopt the use of safety- related technology, especially with regards to sharps injuries. New regulations, hospital policies, and federal guidelines will encourage any efficient means of improving safety, especially with regard to HIV transmission. Because of the size and demands of these markets, the Company believes that this is an area of potentially significant growth if it can continue to strengthen the market niche is has created. Markets The primary medical industry markets include hospitals, healthcare facilities, surgeons, nurses, technologists in procedure-oriented specialties, including obstetricians, dentists, emergency room personnel and other medical professionals. The potential global market for Surgical's products (devices and information systems) is estimated at over $1.3 billion. This data was presented in an article written by Dr. Swor which appeared in Surgical Technology International, Vol. II were Dr. Swor was referencing an article from the Florida Healthcare Report and Hospital News which appeared in December 1997. The initial target market areas for the product side of the Company's business are in the major metropolitan centers in the United States and abroad that presently have large teaching programs, higher disease prevalence and acute problem awareness. Entry into these target areas is expected by the Company to significantly ease general market penetration. The Company plans to continue to export its products worldwide to markets including Europe, South America and Asia, the Middle East and the Pacific Rim. Previously it had exclusive distributorship agreements with Johnson & Johnson Medical Pty. Ltd. with respect to the territories of Australia, New Zealand, Papua, New Guinea and Fiji, with Medicor Corp. with respect to the Netherlands and with ISC Group with respect to Saudi Arabia and the so-called GCC Nations which expired principally due to the Company's financial inability to sustain sufficient levels of production under prior manufacturing arrangement. Although technically in force, the agreement with Noesis relative to Europe is inactive. The Company believes that it will be able to reactivate these distribution arrangements with the re-designed SutureMate(R) under the manufacturing arrangement with Tuthill or other suitable suppliers under consideration, provided additional funding is available to Company to manufacturer adequate inventory. The basis of this belief is that initial marketing efforts were thwarted by the high manufacturers suggested retail price and in discussions with one of these distributors, it has been indicated that such distributor would reinstate its agreement when adequate inventory is available. There can be no assurance that such distribution arrangements can be re-established nor that there will additional funding available to the Company. (See Part I, Item 1. "Description of Business - (b) Business of Issuer Distribution of Products.") OASiS has been foundationally designed to accept multi-lingual applications. The Company expects that this will not only facilitate acceptance in the cosmopolitan markets within the United States, but also will enable instant adaptations to international markets which traditionally follow the United States leadership in developments of safety and exposure guidelines. A major portion of the safety products and services currently ready for marketing by the Company including both device and information services are unique and are without apparent competition by design since they were specified and designed by the Company to create previously unavailable products and services. In most cases, Surgical's state-of-the-art products, techniques and services position the Company as a pioneer in new markets. This is a direct result of the Company election to avoid the typical commodity sales of gloves, gowns, shields, and other products of that type and to focus on innovative, safety related products such as SutureMate(R), which was the first device of its kind to provide for lower risk, one-handed suturing. The market for Surgical's products is divided into three (3) segments: end users, healthcare risk managers and medical-related companies. The primary end user market for the products and services of Surgical include 8,000 hospitals, 100,000 surgeons and over 1,000,000 surgical nurses and technologists. Secondary end user markets include out-patient clinics, dental offices, emergency medical services, fire and rescue organizations, medical offices and laboratories. This segment of the Company's market will be the ultimate user of both the medical devices and OASiS and it is particularly defined by the need for protection against bloodborne diseases from body fluids and sharps injuries, such as needlesticks. The healthcare risk manager market is defined by similar statistics as the end user market. The major difference is that this segment is represented at an administrative level. Additionally, it encompasses insurance companies and other parties interested in capturing safety and occupational injury data. This segment of the market focuses on ensuring a safer, more efficient workplace for the healthcare worker and in obtaining previously unavailable information about actual occurrences of bloodborne pathogen exposure and the management thereof. The market segment for medical-related companies consists of approximately 11,600 medical device manufacturers, 360 pharmaceutical companies and 1,260 training and educational organizations. The Company believes that this is a significant segment for them for three reasons. First, these companies will be enlisted as content providers (a content provider supplies OASiS with device information and other educational components)("Content Providers"). Content Providers are potential customers for the Company because they pay a reoccurring fee to broadcast their information on OASiS. Secondly, this market segment is desirous of the data collected by OASiS as it relates to the information surrounding exposure occurrences. The Company already has received requests for access to this (yet-to-be collected) data. The third reason the Company believes this segment to be significant is that these companies are a key component to the Company's sales strategy for its medical devices. The Company anticipates that it may develop a relationship with a strategic partner based on the integration of OASiS and the Company's Compliance Plus(TM) line of products. The Company believes that the criteria for an appropriate strategic partner for an alliance with the Company would have a worldwide presence, maintain a dedicated, highly trained sales force with access to the operating room, be a respected and acknowledged leader in the industry, be among the Fortune 500 companies or equivalent and have an interest in diversification of its existing product lines. In this regard, the Company believes that its proposes long term arrangement with US Surgical establishes a strategic alliance with a company which meets these criteria. Distribution of Products SutureMate(R), MediSpecs Rx(TM) and OASiS are currently the Company's only products in the marketplace. With reference to such products, the Company has entered into a number of agreements regarding their distribution. See Part I, Item 1. "Description of Business (b) Business of Issuer - Risk Factors." In December 1994, the Company entered into a distributorship agreement for a period of one (1) year with ISC Group, a corporation organized under the laws of the country of Saudi Arabia, for the exclusive right to purchase, inventory, promote and re-sell SutureMate(R) in Saudi Arabia and the GCC Nations. An initial order was placed and shipped. In March 1995, the Company entered into a distribution agreement with Medicor Corporation for the exclusive right to purchase and sell SutureMate(R) in the Netherlands. An initial order was shipped pursuant to this agreement in April 1995. The agreement had no term and the parties were awaiting evaluation of the product in the marketplace. In April 1995, the Company entered into a distributorship agreement with Johnson & Johnson Medical Pty. Ltd. ("J&J") to exclusively sell SutureMate(R) in Australia, New Zealand, Papua, New Guinea and Fiji. An initial order was placed. Under the terms of the agreement, J&J had no sales quota for the first ninety (90) days and the parties were to agree by July 1995 as to the sales quota for the remaining term. J&J had a right to terminate this agreement on sixty (60) days notice. ISC Group, Medicor Corporation and Johnson & Johnson Medical Pty., Ltd. are not currently distributing Surgical's product. The Company has not actively pursued additional business from these companies since it has placed such business on hold pending further developments in the Company. The Company believes that it can reinstate these agreements at any time and has discussed reinstatement with one of these former distributors which advised that the agreement can be reinstated when adequate inventory is available. However, since each of these companies distribute many other products, there can be no assurance that they will agree to distribute SutureMate(R) at such time as the Company is ready for such additional distribution. Further, although the Company currently plans to proceed with attempting to re-establish these relationship at such time as the Company has sufficient funding to fully supply the re-engineered SutureMate(R), there can be no assurance that such funding will be available to it. In December 1996, the Company entered into an exclusive distribution agreement with Noesis Capital Corporation ("Noesis"), a Florida corporation, for a term of seven (7) years for the European market under which Noesis was to recruit, hire and train European master distributors and distributor/dealer networks throughout the Continent for sales of SutureMate(R). Under the terms of the agreement, the parties were to set minimum annual quantities which had to be sold. The price per unit to Noesis was set at the greater of $1.50 or, in the event of a cost increased to the Company for manufacturing, 150% of the Company's revised cost. Although still technically in force, this contract is not currently active and has been placed on hold by the Company pending further developments, including the availability of the re-designed SutureMate(R) currently being manufactured by Tuthill. In July 1997, the Company entered into a distribution agreement with Hospital News of Florida, a Florida corporation ("HNF"). Pursuant to this agreement, HNF was granted the exclusive distributorship of the MediSpecs Rx(TM) eyewear in the State of Florida. SMH was specifically excluded from this agreement. The original agreement was to terminate on December 31, 1997, but could be renewed if the parties so agreed for successive one (1) year periods. The price of each pair of eyewear was set at $19.95 plus $4.95 for shipping and handling. The Company agreed to pay HNF $7.00 for each pair sold and no commission was due to HNF for any subsequent re-orders from an existing customer. The agreement required HNF to generate 800 orders by December 1997. HNF was responsible for soliciting, collecting and delivering completed order forms on the form designated by the Company. Although HNF did not achieve its initial quota, the Company has elected to extend this arrangement. In February 1998, the Company executed a Letter of Intent with United States Surgical Corporation ("U S Surgical"). Pursuant to such letter, U S Surgical stated that, after investigation of the Company, it intends to pursue a joint venture or equity buy-in relationship, subject to due diligence review. Part of such due diligence review was to be observation of the healthcare workers' reactions to the OASiS presentation at the AORN 1998 meeting. The Company granted U S Surgical status as a Charter Sponsor of OASiS and a 33% discount off the proposed retail value of services provided at the AORN meeting. OASiS accounted for over 21% of all leaded generated by US Surgical at AORN meeting. In July 1998, the parties agreed to the terms of a long term relationship subject to execution of a contract which occurred on October 28, 1998. Under the terms of the executed agreement, US Surgical will arrange for the installation of ten (10) OASiS systems in hospital facilities which US Surgical defines as "Centers of Excellence", including initially Harvard and Yale. US Surgical continues to change the centers and as of this date, Harvard will be replaced with Northwestern University Medical Center. Each system will include thirty (30) inservice training modules with US Surgical products. In addition, the Company is permitted to include modules for other manufacturers subject to the approval of US Surgical. Following an initial nine (9) month trial at each of these facilities and subject to satisfactory performance by the system and the technical support group, US Surgical has the right to have additional systems installed in other healthcare facilities nationwide. US Surgical will finance the development and installation of the ten (10) systems. No decision has been made as to which party will pay for the additional installations which US Surgical elects to have installed. In the event the Company is required to pay, additional financing may be required from outside sources, the securing of which cannot be assured. The Company will receive a fee in the amount of $36,000 for the initial ten (10) installations during the testing period and a fee in the amount of $108,000 for the balance of a three (3) year term for such initial installations. In addition, the Company will earn profits on the sales of its products through the point-of-sale facility in the OASiS system and from the fees it receives from other device providers and training companies through the use of the inservice modules. Methods of Distribution Whether or not the Company is successful in raising additional capital (of which there can be no assurance), in the event that Surgical is successful in completing the alliance with US Surgical, the Company intents to provide sales support to such partner. The partner will manage the primary sales functions with the Company acting as an additional resource for sales support. As to the OASiS system, Surgical and its strategic partner will complete a site survey for each customer facility. As currently structured, in the event that a final contract cannot be completed with US Surgical, the Company will seek another strategic partner for these functions. Surgical will coordinate the necessary follow-through with the Integration Specialist. Until such time as the US Surgical contract is executed or the Company establishes such alliance with another strategic partner, Surgical will continue to rely on a significant database and network of consultants, international business contacts, researchers, medical advisors and potential distributors, suppliers and manufacturers for sales of its products. The Company has accumulated over 3,000 sales leads and customer contacts, with a majority being United States based surgeons and operating room technologists. The Company will continue to sell its products direct to hospitals and other medical care providers. In addition to sales by distributors, the Company also solicits orders through direct mail sales, trade publications and advertising by targeting specific market groups. Since joining the Company, Mr. Clark has begun an active campaign to establish repeat markets for Surgical's products. Customer follow-up is currently handled by in-house sales staff of which there are five (5). Orders obtained can be shipped from in-house inventory or warehousing arrangements. The Company has the original SutureMate(R) and MediSpecs Rx(TM) in stock and is finalizing manufacturing, sterilization and inspection procedures for the re-designed SutureMate(R) so that inventory can be established. Customers may return defective merchandise for a full refund, credit or replacement. In recent years, such returns have been insignificant. Status of Publicly Announced Products and Services Based upon feedback from surgeons and operating room technologists since the introduction of SutureMate(R) in 1993, this product has been re-engineered and is currently readied for distribution, subject to the availability of additional funding, of which there can be no assurance. The original SutureMate(R) is available and on the market. The Company is seeking additional distribution channels for this product. MediSpecs Rx(TM) currently is available and on the market. The Company is seeking additional distribution channels for this product. Once trials are completed and subject to the availability of additional funding, the Company intends to make final engineering adjustments to Prostasert(TM) and then commence manufacturing for initial market entry in the United States by the end of 1999. The OASiS system is fully operational at its initial sight at SMH in Sarasota, Florida and the Company is ready for additional installations at other locations, including the ten (10) Centers of Excellence which are part of the US Surgical arrangement. Version 2.0 will be installed at the US Surgical sites and is in final stages of test trials. A prototype of IcePak(TM) has been manufactured and the product is expected to enter the market before the end of calendar 1999 if the required agreements with potential manufacturers/suppliers have been completed and additional funding is available. Competition There is intense competition in the markets in which the Company engages in business. However, the Company believes that there is relatively little competition for its products at this time. Notwithstanding its innovative product line, there are many major companies which could compete with the Company due to their size and market share in the medical products area. These include such companies as U S Surgical, Ethicon, Inc. ("Ethicon"), a Johnson & Johnson subsidiary and Sherwood-Davis & Geck, a division of American Home Products Corporation, all of which have a wider range of other medical products and dominate much of the markets for these other products. These companies focus on sutures and related suturing devices. Traditionally such companies have not focused on safety related products but they are now modifying the design of some sutures to reduce needlesticks. Several medical products firms, including Johnson & Johnson and Graphics Controls, Inc. ("Graphics Control") have operations in the surgical safety product niche. Graphics Control sells approximately 50% of all safety devices to the medical industry. The Company believes that these major companies will continue their efforts to develop and market competitive devices. It is for this reason that the Company has sought to align itself with a strategic partner and has entered into the letter of intent with U S Surgical. A major purveyor of safety devices is Devon Industries ("Devon") which commands about 75% of this market. Devon's product line includes approximately one hundred "me-too" type products, that is products designed to copy or which copy products already in the market. Specialized Health Products International, Inc. ("SHPI") designs and develops products to minimize the risk of accidental needlesticks in order to reduce the spread of bloodborne diseases in heathcare workers. SHPI's strategy to is become a single source provider for needle protection devices. Many other device companies market these same products with only slight variations. However, the Company believes that one of the major pitfalls with these types of companies is that they have no distinctive new product concepts to distinguish themselves from other companies in their industry. The Company believes that its product line does distinguish Surgical from other medical device providers. For example: (1) SutureMate(R) is the only device of its kind which allows for one-handed suturing and its tent-like configuration combined with the adhesive backing and the hidden cutting device separates it from all competitive products; and (2) MediSpecs Rx(TM) is the only low-cost, ultra-light prescriptive eyewear specifically designed to protect against splashing blood and bodily fluids. There is intense competition in sales of products for use in gynocological, spinal, vascular, cardiovascular, interventional cardiology, breast biopsy, urologic, orthopedic and oncological procedures. A broad range of companies presently offer products or are developing products for the use in such procedures. Many of these companies have significantly greater capital than the Company and are expected to devote substantial resources to the development of newer technologies which would be competitive with products which the Company may offer. There are also a number of smaller companies which offer such products which present additional competition. Many of the large chemical companies market solvents that are claimed to be useful as a barrier protection to bloodborne pathogen infection. Some of these companies are being scrutinized by the FDA because of a lack of proper clinical research and statistics to substantiate barrier effectiveness. The market for products for minimally invasive surgery is highly competitive. The Company believes if it enters this market that it could gain a significant share of the market as the result of its innovative efforts and superior products. This is principally due to the Company's involvement with Dr. Saye and the ALTC which is currently training surgeons in advanced laparoscopic surgery since it is felt that if the Company develops a suitable product, it could be incorporated into this training program. Ethicon, through a division known as Ethicon Endo-Surgery, markets a line of endoscopic instruments directly competitive with the Company's proposed products and this company would be Surgical's principal competitor in minimally invasive surgery. Ethicon Endo-Surgery has an agreement with Dr. Saye. However, Dr. Saye's agreement with the Company specifically provides that it will not compete with the Ethicon agreement. The Company believes that Ethicon devotes considerable resources to research and development and sales efforts in this field. Numerous other companies manufacture and distribute single use endoscopic instruments. In addition, Richard Wolf Medical Instruments Corp. (a subsidiary of Richard Wolf, GmbH) and Karl Storz Endoscopy-America, Inc. (a subsidiary of Karl Storz, GmbH), would compete directly with the Company in this area. Surgical faces competition in its data service line by a system developed by the University of Virginia and promoted by the International Healthcare Worker Safety Center. Designated EpiNet, this is a single system designed to track and report bloodborne pathogen exposures in the healthcare setting. It is installed in approximately seventy (70) healthcare facilities; however, Company research indicates that EpiNet is actually used in only a fraction of those facilities. This research was assembled by interviewing healthcare workers who were users of the system at the American College of Surgeons annual meeting and by interviews with members of the Medical Advisory Panel who are familiar with the system. This system has been analyzed by infection and systems control experts and has been found to be "non-user friendly". That is because it is a DOS based systems which requires a sophisticated user, it is limited to bloodborne pathogen programs and content, it requires keyboard interface and is research based rather than user information based. Although this system has been available for several years, it has not achieved large market acceptance most likely because of the characteristics which make it "non-user friendly". The Company is encouraged by the fact that EpiNet has been installed in so many facilities as evidence that computer aided reporting and services are desired by the healthcare community and notwithstanding EpiNet's failure to gain large market acceptance, believes that the Company's OASiS system could find greater acceptance because of its ease of use due to the touch access concept and the broader availability of information which OASiS can provide on site. There are approximately two hundred (200) companies with at least some products designed to facilitate healthcare training. With a technology shift toward computer based training ("CBT"), this market is undergoing some redefinition. Certain companies are shifting from a VCR/booklet format to multimedia applications. Other companies are new and were formed specifically to develop CBT programs for healthcare training. The Company believes that these competitors are relying upon the healthcare facility to provide the delivery system, a personal computer, for such training programs. The Company believes that OASiS offers a complete system, software and hardware, in a touch access format. The Company's principal methods of competing are the development of innovative products, the performance and breadth of its products, its technically trained sales force, and its educational services, including sponsorship of training programs. Most of the Company's potential major competitors have greater financial resources than the Company. Some of its potential competitors, particularly Ethicon, have engaged in substantial price discounting and other significant efforts to gain market share, including bundled contracts for a wide variety of healthcare products with group purchasing organizations. In the current healthcare environment, cost containment has become a significant factor in purchasing decisions by hospitals. Additional cost effectiveness was one of the principle factors in the redesign of SutureMate(R) and a principle consideration in the lease pricing structure for OASiS. Surgical's sales force is being trained on an ongoing basis to focus on healthcare worker safety issues. In the ten (10) years prior to joining the Company, its President, Mr. Clark, was instrumental in assisting three (3) companies in establishing sales organizations within the healthcare industry. He has recruited, trained and supervised these sales organizations. For these reasons, the Company believes that it has the management expertise to have its sales force distinguish itself from the competition. More specifically, the Company is developing a clear and concise understanding of the inherent safety risks associated with the healthcare worker's everyday work place. This understanding is accomplished through its personnel which has extensive experience in the healthcare industry, medical expertise, engineering capabilities, communications skills with customers, as well as an understanding of the medical marketplace and a variety of manufacturing practices. The Company believes that the end result is that it is able to provide the customer with a unique product or service specifically developed with individualized safety and utility in mind, while providing that product or service to the customer so that its value exceeds its cost. One of the biggest attractions to the Company of a strategic alliance with US Surgical is the fact that U S Surgical collaborates with some of the most prestigious academic medical centers in the world to establish Centers of Excellence for training in many diverse disciplines. These centers are devoted to teaching residents and surgeons in the use of new instrumentation, developing new technologies, conducting preclinical trials and other research projects. Under the terms of the joint venture between the Company and U S Surgical, the OASiS system will be introduced to ten (10) of these Centers of Excellence for an initial nine (9) month trial period. At that end of such trials, if the OASiS performs as expected, U S Surgical intends to introduce the system into one hundred (100) of these centers. In today's managed care environment, these multi-center studies are expected to bring into sharper focus the cost benefits of a wide range of the Company's products. The Company believes that the advantages of its various products and its customer assistance programs will continue to provide the best value to its customers. However, there is considerable competition in the industry and no assurance can be given as to the Company's competitive position. The impact of competition will likely have an effect on sales volumes and on prices charged by the Company. In addition, increased cost consciousness has revived competition from reusable instruments to some extent. The Company believes that single use instruments are safer and more cost efficient for hospitals and the healthcare system than reusable instruments, but it cannot predict the extent to which reusable instruments will competitively impact the Company. The Company also offers semi-disposable instruments, components of which may be reused a certain number of times, to respond to the preferences of its customers. Current and future customers were interviewed at major medical organization exhibits. Overall statistics indicate that 50% of vascular, thoracic and general surgeons found the Compliance Plus(TM) products to be useful, safe and potentially cost effective. OB/GYN's urologists and plastic surgeons gave a 90% favorable evaluations, while over 90% of surgical technologists gave "high" to "very high" ratings to SutureMate(R) and MediSpecs Rx(TM). The Company believes that it has chosen a developing market with no well-established industry leaders at this time. Further it believes that its products are unique and that by maintaining a relatively narrow market focus, combined with technical expertise, that it can achieve rapid growth. (See Part I, Item 1. "Description of Business - - - (b) Business of the Issuer - Risk Factors.") The Company targets revenues at $50 million within five (5) years. At that level, the Company will position itself as an acquisition target for major medical or information systems entities. Sources and Availability of Raw Materials Raw materials necessary for the hardware requirements of the OASiS system are available from numerous third-party OEM's. The software integrated into the assembled system is proprietary to the Company. Raw materials necessary for the manufacturer of parts, components and packaging supplies for all of the Company's products manufactured by the Medical Products Division are readily available from numerous third-party suppliers. The Company does not rely on any principal suppliers for any of its raw materials. However, with regard to MediSpecs Rx(TM), the Company has entered into a manufacturing agreement with Morrison, the initial term of which expires in September 2000 and, with regard to SutureMate(R), the Company has received a price quotation from Tuthill for the manufacture of the redesigned SutureMate(R). (See Part I, Item 1. "Description of Business - (b) Business of Issuer Medical Products Division - SutureMate(R) - and, MediSpecs Rx(TM)" and Part I, Item 1. "Description of Business - (b) Business of the Issuer - Risk Factors.") Dependence on Major Customers At the current time, Surgical is reliant upon a few major customers for several of its products. For the fiscal year ending December 31, 1997, the Company derived approximately 99% of its revenue from sales of its OASiS to SMH. For fiscal year ending December 31, 1998, the Company derived approximately 93% of its revenue from technical services it provided to US Surgical during a medical products convention. (See Part I, Item 1. "Description of Business - (b) Business of the Issuer - Risk Factors.") With regard to the OASiS system, the Company is reliant upon its agreement for the installation at SMH, its agreement with US Surgical for sales revenues and further exploitation of the system, its arrangement with Rockford for the financing of the leasing to facilities and its arrangement with Ad-vantagenet for completion of the Version 2.0 software. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Data Systems Division.") SutureMate(R) sales are currently principally reliant upon in-house distribution and re-establishment of various distribution arrangements for generating revenues for this product. (See Part I, Item 1. "Description of Business - (b) Business of Issuer - Medical Products Division - SutureMate(R).") MediSpecs Rx(TM), in addition to in-house sales efforts, is reliant upon Hospital News of Florida for sales in the State of Florida. (See Part I, Item 1. "Description of Business (b) Business of Issuer - Medical Products Division - MediSpecs Rx(TM).") Subject to the availability of additional funding, of which there can be no assurance, the Company believes that it can increase its customer base so that the loss of any one client will not adversely impact upon the financial condition of the Surgical. Research and Development The Company believes that research and development is an important factor in its future growth. The Company engages in a continuing product research, development and improvement program. The Company's research and development group (currently consisting of three (3) persons) is actively working on in excess of four (4) additional products for the medical and healthcare community, all of which are in various stages of development, from prototype to patent. The Company is also devoting a substantial amount of time to the research and development of products within distinct product lines. Substantially all of the products in research and development have been designed, drawn, had preliminary market research conducted and have been submitted for review to the Company's patent counsel. As a natural by-product of an active research and development department, some product concepts have been generated which do not fit the Company's chosen focus. Several surgical and obstetrical devices have been designed and either will be licensed or sold outright to appropriate corporate entities. Patents, Copyrights and Trademarks Patents are significant to the conduct of the Company's business. The Company owns four (4) patents on two (2) products. Dr. Swor was the inventor who originally secured the patents which he later assigned to the Company in exchange for stock. (See Part II, Item 7. "Certain Relationships and Related Transactions.") The Company's first medical device patent is United States Patent No. 4,969,893, issued on November 13, 1990 for SutureMate(R), The patent was filed on June 16, 1989 and covers a unique surgical suturing device for its suture cutting and needle rest utility. Additional patents (U. S. Patent No.'s Des. 353,672 and 5,385,569) were issued on December 20, 1994 and January 31, 1995 and both were filed on May 21, 1993. The additional patents are for surgical accessories to SutureMate(R) for both design and utility. Patents number 4969893 and 353,672 are for a term of seventeen (17) years from the issuance date; while patent number 5,385,569 is for a term of fourteen (14) years from the issuance date. Prostasert(TM) is the Company's second medical device on which a patent was issued. This patent, United States Patent No. 5,364,375, was issued on November 15, 1994 and filed on September 24, 1993. The patent covers for a unique device designed to introduce and maintain a precise amount of pharmaceutical material to the uterine cervix and upper vagina. This patent is for a term of seventeen (17) years from the issuance date. The Company filed a Section 501(k) notification of intent to market SutureMate(R) with the FDA. On May 19, 1998, the Company was granted permission by the FDA to market this device. Prostasert(TM) was listed with the FDA under its original name, LaborMate on June 2, 1994. No FDA clearance was required because the components were each FDA approved prior to assembly in the Prostasert(TM) format. On June 1, 1998, the Company filed for two (2) patents on the OASiS system which includes propriety aspects of the software, algorithms and reports, as well as the inservice training modules which are owned by the Company. Neither of these patents have been issued to date. The Company currently has the rights to several new product concepts in various stages of development. These products are surgical and obstetrical devices for which patent protection is in progress or will be initiated in the near future. The patents held by the Company have expiration dates ranging from nine (9) to fourteen (14) years. The Company has an extensive library of copyrighted educational and training material related to occupational safety and surgical techniques. These include the Surgical Safety Manual published in 1994, which was revised in 1996. The Company filed on July 1, 1993 for trademark registration with the United States Patent and Trademark Office for SutureMate(R). This trademark was registered on April 5, 1994. The Company applied for trademark registration on the Compliance Plus(TM) on December 6,1996. It was published for opposition on June 23, 1998 and the Company is awaiting notice of allowance. The Company applied for trademark registration for the OASiS Touch Access Information on April 29, 1998 and the examination of this application is pending. The Company applied for trademark registration for TouchPort and VirtualTouch Reality on November 16, 1998. Examination of these applications are pending. The Company is not a party to any actions claiming patent infringement of any of its products. Governmental Regulation FDA Approval Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of the Company's proposed products and services and in its ongoing research and product development activities. It is anticipated that virtually all of the products developed by the Company's Medical Products Division will require regulatory approval by governmental agencies prior to commercialization. It is expected that many of the Company's products, as presently contemplated, will be regulated as medical devices. Prior to entering commercial distribution, all medical devices must undergo FDA review under one or two basic review procedures: a Section 510(K) premarket notification ("510(K)") or a premarket approval application ("PMA"). A 510(K) notification is generally a relatively straightforward filing submitted to demonstrate that the device in question is "substantially equivalent" to another legally marketed device. The term "substantially equivalent" for 501(K) purposes does not mean that a product is not unique. Rather it means that a product can be categorized with existing products for sterilization and safety purposes. Approval under this procedure is typically granted within ninety (90) days if the product qualifies, however, this procedure may take longer. When the product does not qualify for approval under the 510(K) procedure, the manufacturer must file a PMA which shows that the product is safe and effective based on extensive clinical testing among several diverse testing sites and population groups, and shows acceptable sensitivity and specificity. This requires much more extensive prefiling testing than does the 510(K) procedure and involves a significantly longer FDA review after the date of filing. In the past, the Company's products have been cleared by the FDA under the 501(K) expedited form of pre-market review or have not required FDA approval. While the industry had for several years experienced lengthy delays in the FDA approval process, more recently, the timeliness of the FDA's review has improved. Timely product approval is important to the Company's maintaining and/or obtaining a technological competitive advantage. Other than FDA product approval waiting periods, the Company has not encountered any other unusual regulatory impediments to the introduction of new products. To the extent the Company develops products for use in more advanced surgical procedures, the regulatory process may be more complex and time consuming. Some of the Company's potential future products may require lengthy human clinical trials and the PMA application relating to class III medical devices. The Company knows of no reason to believe that it will not be able to obtain regulatory approval for its products, to the extent efficacy, safety and other standards can be demonstrated, but the lengthy approval process will require additional capital (of which there is no assurance that the Company will be able to secure), risk of entry by competitors and risk of changes in the marketplace prior to market approvals being obtained. Overseas, the degree of government regulation affecting the Company varies considerably among countries, ranging from stringent testing and approval procedures in certain locations to simple registration procedures in others, while in some countries there is virtually no regulation of the sale of the Company's products. In the past, the Company has not encountered material delays or unusual regulatory impediments in marketing its products internationally. Establishment of uniform regulations for European Economic Area nations took place on January 1, 1995. The new regulations subject the Company to a single regulatory scheme for all of the participating countries. Once the Company's domestic channels are satisfied, Surgical will commence its program for meeting regulatory requirements internationally. The Company expects that it will be able to market its products in Europe with a single registration applicable to all participating countries. The Company also is establishing procedures to respond to various local regulatory requirements existing in all other international markets in which it intends to market its products. By letter dated May 19, 1993, the Company received notifications from the FDA that the 510(K) notification of intent to market device related to SutureMate(R) had been received and reviewed, and the FDA had determined that the device was substantially equivalent to the devices marketed in interstate commerce prior to May 28, 1976. The receipt of this letter allowed the Company to immediately begin marketing and selling SutureMate(R). The Prostasert device was listed with the FDA on June 2, 1994 under its original name, LaborMate. OSHA Mandatory Reporting of Illness and Injury Federal rules administered by the OSHA require healthcare workers to report if they have been accidentally stuck with a needle previously used by a patient, or splashed by blood or bodily fluids. On February 11, 1997, in the Federal Register, OSHA issued a final rule, effective March 13, 1997, that amended the Occupational Injury and Illness Reporting Regulation (29 CFR Part 1904) established in 1971. Under the 1971 regulation, employers were required to collect and maintain injury and illness data and have it available for OSHA to examine when they came on site for an inspection. It was determined that OSHA needed a separate provision for collection of data by mail. The final rule requires, employers, upon request, to report to OSHA their illness and injury data, in addition to the number of workers and the number of hours worked in a designated period. It establishes a mechanism for OSHA to conduct an annual survey of ten (10) or more employers by mail or other remote transmittal. The specific request may come directly from OSHA or its designee, e.g., the National Institute of Occupational Safety and Health ("NIOSH"). The rule was finalized since OSHA believed that this comprehensive data on worker injury and illness would provide more reliable data suited to OSHA's needs than any other available source. The data also is planned to provide information to target OSHA activities, including workplace inspections; to evaluate the effectiveness of educational programs; and to determine the need for additional standards. Employers have thirty (30) days to submit their data after the request is received. Regulations set forth the type of information which needs to be collected. Much of the initial injury and illness information reported was taken from records that employers already were required to create, maintain, and post. The finalized rule provides an additional incentive for healthcare facilities to implement worker safety and health programs and to provide the necessary safety equipment and supplies to reduce the risk of occupational illness and injuries. Those healthcare facilities that have good health and safety programs will likely benefit from this rule. OSHA also initiated a number of partnerships with other federal and national organizations in an effort to reduce the increasing number of occupational illness and injuries among workers. This effort was prompted, in part, by OSHA's inability to inspect and enforce worker safety in the approximately five million (5,000,000) work sites in the United States and to collect accurate worker injury and illness data to assist in targeting the approximately 8,000 annual inspections in the face of continuing shrinking budgets. In August 1996, OSHA and the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") announced a three-year partnership to reduce the increasing number of healthcare worker-related illnesses and injuries. The announced goal of this partnership is to foster improvement in the management of safety and health issues in healthcare organizations. The result is that healthcare organizations face an additional authority testing OSHA compliance. This partnership does not transfer any authority for enforcement of OSHA standards to JCAHO. Rather, JCAHO continues to survey a healthcare organization's performance against JCAHO's standards. JCAHO surveyors monitor how compliance with JCAHO meshes with OSHA's expectations related to heath and safety of employees. When deficiencies are identified, the JCAHO surveyor provides guidance and educational materials. A specific recommendation based on a JCAHO standard can be made only when an OSHA citation has already been issued and the healthcare organization has failed to take corrective action to clear the citation. If an immediate threat to a worker's safety is found during a survey, the facility is cited by JCAHO under their application standards. A determination is made regarding the organization receiving conditional accreditation status in accordance with JCAHO policies and procedures. Most hazards to workers in healthcare organizations that have been identified by both OSHA and JCAHO resulted from injuries and illness related to patient handling; exposures to bloodborne pathogens, tuberculosis, hazardous drugs and anesthetic gases; workplace violence; and fire and electrical hazards. Example of JCAHO requirements that are linked to OSHA standards for worker safety include many of the components of the Environment of Care Standards (safety, hazardous material and waste, emergency preparedness, life safety, medical equipment, utility systems) and the Infection Control Standards. The 1997 JCAHO Accreditation Manual for hospitals includes a number of OSHA-related examples of implementation of JCAHO standards to assist healthcare organizations with compliance. Healthcare organizations are able to demonstrate compliance with JCAHO standards by advising the surveyors how they meet both OSHA and JCAHO requirements and by showing them OSHA documents and reports such as the OSHA 200 log of occupational illness and injury, lock- out/tag-out procedures, bloodborne pathogen exposure control plans and records of Hepatitis B vaccination among workers exposed to blood and body fluids. In August 1996, OSHA also announced a seven-state initiative to protect workers in nursing homes and personal care facilities, one of the nation's largest growing industries. The seven states include Florida, Illinois, Massachusetts, Missouri, New York, Ohio and Pennsylvania. Nationwide there are 1.6 million nursing home workers in more than 21,000 facilities. It is anticipated that by the year 2005, the nursing home and personal care facilities will be one of the largest industries in the United States. Potential nursing home hazards include back injuries from incorrect and/or strenuous lifting of residents, slips and falls, workplace violence and risks from bloodborne pathogens, tuberculosis and other infectious diseases. State and Local Licensing Requirements Other than the governmental regulatory schemes listed above, the Company is not subject to any other state or local regulations which apply to the operation and business of the Company. Effect of Probable Governmental Regulation on the Business The Company is not currently engaged in the development of any product which would be categorized as therapeutic. Under the current regulatory scheme, in the event any product of the Company were defined as therapeutic, then such therapeutic product will be subject to regulation by the FDA and will require FDA approval before it may be commercially marketed for human therapeutic use in the United States. The Company believes that any therapeutic products to be developed by it will be regulated either as biological products or as new drugs. New drugs are subject to regulation under the Federal Food, Drug, and Cosmetic Act (the "FFDC Act"), and biological products, in addition to being subject to certain provisions of the FFDC Act, are regulated under the Public Health Service Act. Both statutes and the regulations promulgated thereunder govern, among other things, the testing, manufacturing, safety, efficacy, labeling, storage, recordkeeping, advertising and other promotional practices involving biologics or new drugs as the case may be. FDA approval or other clearances must be obtained before clinical testing, and before manufacturing and marketing, of biologics or other products. At the FDA, the Center for Biological Evaluation and Research ("CBER") is responsible for the regulation of new biologics and the Center for Drug Evaluation and Research ("CDER") is responsible for the regulation of new drugs. Obtaining FDA approval for therapeutic products has historically been a costly and time consuming process. Generally, in order to gain approval from the FDA, a developer first must conduct preclinical studies in the laboratory and in animal model systems to gain preliminary information on a product's efficacy and to identify any major safety problem. The results of these studies are submitted as part of an Investigational New Drug ("IND") application, which the FDA must review before human clinical trials of an investigational drug can start. The IND application includes a detailed description of the clinical investigations to be undertaken. In order to commercialize any therapeutic products, the Company must first prepare and file an IND application. It must act as the sponsor of product testing and will be responsible for planning, initiating and monitoring human clinical studies which must be adequate to demonstrate safety and efficacy. The Company will be responsible for selecting well-trained physicians as clinical investigators to supervise the administration and evaluation of new products. The Company, however will bear the responsibility for monitoring the studies to ensure that they are conducted in accordance with the general investigational plan and protocols contained in the IND. Human clinical trials are normally done in three phases. Phase I trials, which are concerned primarily with the safety and preliminary effectiveness of the drug, involve fewer than 100 subjects, and may take from six months to over a year. Phase II trials normally involve a few hundred patients and are designed primarily to demonstrate effectiveness in treating or diagnosing the disease or condition for which the drug is intended, although short-term side effects and risks in people whose health is impaired may also be examined. Phase III trials are expanded clinical trials with larger numbers of patients which are intended to gather the additional information on safety and effectiveness needed to clarify the drug's benefit-risk relationship, discover less common side effects and adverse reactions, and generate information for proper dosage and labeling of the drug. Human clinical trials generally take four to six years, but may take longer, to complete. The FDA receives reports on the progress of each phase of human clinical testing, and it may require the modification, suspension, or termination of clinical trials if an unwarranted risk is presented to patients. There can be no assurance as to the length of the clinical trial period or the number of patients the FDA will require to be enrolled in the clinical trials in order to establish the safety, efficacy, and potency of the products. In addition, it is uncertain that the clinical data generated in these studies will be acceptable to the FDA to support marketing approval. After completion of clinical trials of a new therapeutic product, FDA marketing approval must be obtained. If the product is regulated as a new biologic, CBER will require the submission and approval of both a Product License Application ("PLA") and an Establishment License Application ("ELA") before allowing commercial marketing of the biologic. If the product is classified as a new drug, the Company must file a New Drug Application ("NDA") with CDER and receive approval before commercial marketing of the drug. The NDA or PLA must include results of product development, preclinical studies and clinical trials. The testing and approval processes require substantial time and effort and there can be no assurance that any approval will be granted on a timely basis, if at all. NDA's and PLA's submitted to the FDA can take, on average, two years to receive approval. If questions arise during the FDA review process, approval can take longer. Notwithstanding the submission of relevant data, the FDA may ultimately decide that the NDA or PLA does not satisfy its regulatory criteria for approval and require additional clinical studies. Even if FDA regulatory clearances are obtained, a marketed product is subject to continual review, and later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Other than the government regulations previously discussed with reference to FDA and OSHA, the Company does not believe that there are any other effects from probable government regulation, including state or local laws, on the business. Cost of Research and Development For fiscal years 1997 and 1998, the Company expended $113,740 and $34,536 of its revenues, respectively, on research and development. These expenditures represented 44.5% and 81.5%, respectively, of the total revenues of the Company for such fiscal years. The principal decrease in the cost of research and development for fiscal 1998 from 1997 was the reduction in cost, time and expenses incurred through the use of Ad-Vantagenet as opposed to MediaWorks for the enhancement of the OASiS system and the completion of Version 2.0. At the current time, none of the costs associates with research and development are bourne directly by the customer; however there is no guarantee that such costs will not be bourne by customers in the future and, at the current time, the Company does not know the extent to which such costs will be bourne by the customer, if at all. Cost and Effects of Compliance with Environmental Laws The Company's business is also subject to regulation under the state and Federal laws regarding environmental protection and hazardous substances control, including the Occupational Safety and Health Act, the Environmental Protection Act, and Toxic Substance Control Act. In 1992, the United States Congress expressed increasing interest in the issues of sharp injuries. The House Subcommittee on Regulation held hearings regarding needlestick injuries and the implementation of mandated guidelines on safer medical devices. However, the Company is unaware of any bills currently pending in Congress on this issue. The Company believes that it is in material compliance with the current and other applicable laws and that its continual compliance therewith will not have a material adverse effect on its business. Employees and Consultants As of December 31, 1998, the Company employed seven (7) persons, including personnel added in 1998 to perform sales and marketing functions. None of these employees are represented by a labor union for purposes of collective bargaining. The Company considers its relations with its employees to be excellent. On March 30, 1998, the Company entered into a Consulting Agreement with Stockstowatch whereby Stockstowatch agreed to provide investor relations services as a media consultant to the Company in exchange for issuance of 300,000 share of the Company's Common Stock. The agreement was for a term of six (6) months which is renewable at the option of the Company for an additional six (6) months. The services are provided on a non-exclusive basis since Stockstowatch is in the business of providing such services to companies. After an initial due diligence period, Stockstowatch is responsible for all costs associated with providing the services required under the agreement. The SEC brought an action against Stockstowatch alleging that they violated the anti-fraud and anti-touting provisions of the federal securities laws with reference to the shares which it received from the Company for services. No allegations have been made that the Company acted improperly with regard to the alleged charges. (See Part I, Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities.") On June 30, 1998, the Company executed a letter of intent with Ad-vantagenet. Under the terms of the letter of intent, Ad-vantagenet will assist in the creation of version 2.0 OASiS software, including creating the art and graphics. Version 2.0 is designed to allow for more dynamic features on the system including instant updates, information-gathering and editing features. The Company chose Ad-vantagenet to complete Version 2.0 after unsatisfactory results were achieved by Gambit, Inc., d/b/a MediaWorks. The functions Ad-vantagenet is currently incorporating into Version 2.0 include features which had been requested of MediaWorks but were not provided. The total projected cost of the Ad-vantagenet project is one-fourth of the cost which MediaWorks projected. The Company was in litigation with MediaWorks over the termination of their agreement. (See Part II, Item 2. "Legal Proceedings.") Subject to the successful completion of the letter of intent project with Ad-vantagenet, the Company intends to enter into a more structured, long-term agreement for further OASiS development but has not done so to date. In October 1998, the Company entered into an agreement with T.T. Communications, Inc. to provide investor relations services for the Company. T.T. Communications, Inc.'s function is to contact investment and media people throughout the United States and to participate in the preparation of communication packages including annual and quarterly reports, new and press releases and publicity and corporate profiles. The initial agreement is for a period of three (3) months for which T.T. Communications, Inc. receives $2,000 per month and reimbursement of out of pocket expenses. In addition, T.T. Communications, Inc. was granted options to purchase 25,000 shares of the Company's Common Stock at an exercise price of $1.50. In the event T. T. Communications, Inc. introduces the Company to a suitable financing source, they will be compensated by a cash finder's fee equal to 1.5% on the initial financing and .75% on any subsequent financing. The agreement is cancelable by either party with 30 days written notice. (See Part I, Item 7. "Certain Relationships and Related Transactions.") Facilities The Company maintains its executive offices at 2018 Oak Terrace, Sarasota, Florida 34231. Its telephone number is (941) 927-7874 and its facsimile number is (941) 925- 0515. The Company leases 3500 square feet for its executive offices from Savannah Leasing, a company owned by Dr. Swor and his wife. The lease is for a term of two (2) years and is automatically renewable for an additional one (1) year period. The initial term of the lease expires in May 2000. The Company pays monthly rent in the amount of $3,500 and the Landlord and the Company share the costs of insurance. The Company is responsible for maintenance of the parking area, while the Landlord otherwise maintains the property. The Company is responsible for personal taxes only as the Landlord pays real estate taxes. Savannah Leasing own several adjacent properties and the Company has the first right of refusal in the event additional space is required for the operation of the Company's business. The Company believes that the rental payment and terms under the lease are comparable to other properties in the area owned by property owners other than Dr. Swor. In addition, the Company believes that the leased property together with the property under the first right of refusal is sufficient for its requirements for the next ten (10) years. (See Part I, Item 3. "Description of Property.") Risk Factors Before making an investment decision, prospective investors in the Company's Common Stock should carefully consider, along with other matters referred to herein, the following risk factors inherent in and affecting the business of the Company. 1. HISTORY OF LOSSES. Although Surgical has been in business since May 15, 1992 it was in the development stage until July 7, 1993 when it began commercial shipments of its first product. As of December 31, 1997, the Company had total assets of $445,235, a net loss of $148,422 on revenues of $255,386 and stockholders deficit of $59,043. As of December 31, 1998, the Company had total assets of $373,514, a net loss of $797,662 on revenues of $42,393 and stockholders equity of $318,183. Due to the Company's operating history and limited resources, among other factors, there can be no assurance that profitability or significant revenue will occur in the future. Moreover, the Company expects to continue to incur operating losses through at least the first half of 2000, and there can be no assurance that losses will not continue thereafter. The ability of the Company to establish itself as a going concern is dependent upon the receipt of additional funds from operations or other sources to continue those activities. The Company is subject to all of the risks inherent in the operation of a development stage business and there can be no assurance that the Company will be able to successfully address these risks. (See Part I, Item 1. "Description of Business.") 2. MINIMAL ASSETS, WORKING CAPITAL AND NET WORTH. As of December 31, 1998, the Company's total assets in the amount of $373,514, consisted , principally, of the sum of $41,191 in cash, $58,700 in deposits and $26,898 in inventory. As a result of its minimal assets and a net loss from operations, in the amount of $797,662, as of December 31, 1998, the Company had a net worth of $318,183. Further, there can be no assurance that the Company's financial condition will improve. Even though management believes, without assurance, that it will obtain sufficient capital with which to implement its expansion plan, the Company is not expected to proceed with its expansion without an infusion of capital. In order to obtain additional equity financing, management may be required to dilute the interest of existing shareholders or forego a substantial interest of its revenues, if any. (See Part I, Item 1. "Description of Business") 3. NEED FOR ADDITIONAL CAPITAL. Without an infusion of capital or profits from operations, the Company is not expected to proceed with its expansion as planned. Accordingly, the Company is not expected to overcome its history of losses unless additional equity and/or debt financing is obtained. The Company does not anticipate the receipt of increased operating revenues until management successfully implements its expansion plan, which is not assured. Further, Surgical may incur significant unanticipated expenditures which deplete its capital at a more rapid rate because of among other things, the stage of its business, its limited personnel and other resources and its lack of a widespread client base and market recognition. Because of these and other factors, management is presently unable to predict what additional costs might be incurred by the Company beyond those currently contemplated to obtain additional financing and achieve market penetration on a commercial scale in its expanded line of business, i.e. medical device supplier and risk exposure systems developer. Surgical has no identified sources of funds, and there can be no assurance that resources will be available to the Company when needed. (See Part I, Item 1. "Description of Business - (b) Business of Issuer." 4. DEPENDENCE ON MANAGEMENT. The possible success of the Company is expected to be largely dependent on the continued services of its Founder, Chairman and Treasurer, Dr. G. Michael Swor, its President, Frank M. Clark and its Vice President of Sales & Marketing, Donald K. Lawrence. Virtually all decisions concerning the marketing, distribution and sales of the Company's products and services will be made or significantly influenced by the Company's officers. These officers are expected to devote only such time and effort to the business and affairs of the Company as may be necessary to perform their responsibilities as executive officers and directors of Surgical. The loss of the services of any of these officers, but particularly Dr. Swor, would adversely affect the conduct of the Company's business and its prospects for the future. The Company presently has employment agreements with Dr. Swor, Mr. Clark and Mr. Lawrence and holds no key-man life insurance on the lives of, and has no other agreement with any of these officers, except that the Company is the named beneficiary of a key- man life insurance policy currently owned by Dr. Swor. (See Part I, Item 1. "Description of Business - (b) Business of Issuer and Part I, Item 5. "Directors, Executive Officers, Promoters and Control Persons." 5. LIMITED DISTRIBUTION CAPABILITY. The Company's success depends in large part upon its ability to distribute its products and services. As compared to Surgical, which lacks the financial, personnel and other resources required to compete with its larger, better-financed competitors, virtually all of the Company's competitors have much larger budgets for securing customers. Although the Company has entered into several distribution agreements, none are producing significant revenues at this time. Further, the OASiS system currently is only installed at one (1) location. Depending upon the level of funding obtained by the Company, management believes, without assurance, that it will be possible for Surgical to attract additional customers for its products and services. However, in the event that only limited funds are obtained, the Company anticipates that its limited finances and other resources may be a determinative factor in the decision to go forward with planned expansion. Until such time, if ever, as the Company is successful in securing additional capital, of which there is no assurance, it intends to continue marketing its products through its current distribution arrangements. However, the fact that these arrangement have not thus far produced significant revenue may adversely impact the Company's chances for success. (See Part I, Item 1. "Description of Business," (b) "Business of Issuer Sales and Marketing- Distribution of Products.") 6. HIGH RISKS AND UNFORESEEN COSTS ASSOCIATED WITH SURGICAL'S EXPANDED ENTRY INTO THE MEDICAL DEVICE AND EXPOSURE REPORTING INFORMATION INDUSTRIES. There can be no assurance that the costs for the establishment of a client base for its products and services will not be significantly greater than those estimated by Company management. Therefore, the Company may expend significant unanticipated funds or significant funds may be expended by Surgical without development of a commercially viable medical device or exposure reporting information business. There can be no assurance that cost overruns will not occur or that such cost overruns will not adversely affect the Company. Further, unfavorable general economic conditions and/or a downturn in customer confidence could have an adverse affect on the Company's business. Additionally, competitive pressures and changes in customer mix, among other things, which management expects the Company to experience in the uncertain event that it achieves commercial viability, could reduce the Company's gross profit margin from time to time. Accordingly, there can be no assurance that Surgical will be capable of establishing itself in a commercially viable position in local, state, nationwide and international medical device and exposure reporting information markets. (See Part I, Item 1. "Description of Business," (b) "Business of Issuer.") 7. DEPENDENCY ON SECURING A SUITABLE STRATEGIC PARTNER. The Company's ability to establish a sufficient customer base at a level sufficient to meet the larger competition depends in part upon the ability of the Company to capitalize on its joint venture with US Surgical with regard to OASiS and to finalize a joint venture agreement with a suitable partner for its disposable medical devices. The Company has no tentative agreements with any strategic partner for expansion of its medical device business. There can be no assurance that a qualified strategic arrangement will not be found at the levels which management believes are possible. Further, even if the Company receives sufficient proceeds from equity and/or debt financing or otherwise, thus enabling it to go forward with its planned expansion of its medical device business, it will nevertheless be dependent upon the availability of a qualified strategic partner to progress at the levels which the Company believes are necessary. OASiS has only been in the marketplace for the past year and appears to be meeting expectations; however, its market acceptance has not yet been determined. SutureMate(R) had limited acceptance as originally marketed, which limited acceptance the Company believes was due to the manufacturers suggested retail price. SutureMate(R) has been redesigned and has been re-released at a price more in keeping with disposal devices. MediSpecs RX(TM) has had limited acceptance to date. Unless additional financing is available, the Company has elected to concentrate on development of markets for OASiS rather than focusing on the expansion of the markets for these two products and will rely on its existing markets for these products. Although management believes that the acceptance of its products and services will continue to find the market acceptance which has occurred in the past, there can be no assurance that this will be so. (See Part I, Item 1. "Description of Business," (b) Business of Issuer - Sales and Marketing.") 8. SIGNIFICANT CUSTOMER AND PRODUCT CONCENTRATION. To date, a limited number of customers and distributors have accounted for substantially all of the Company's revenues with respect to product sales. The Company anticipates that the main focus of its selling efforts will be to continue to sell its products to a relatively small group of medical products distributors with the objective of having its products distributed on a large national and international scale. Although the company entered into a letter of intent with US Surgical, an exclusive distributorship agreement with Hospital News and believes it can reactivate its distributorship agreements with Johnson & Johnson Medical Pty Ltd. to sell its SutureMate(R) product (in the territories of Australia, New Zealand, Papua, New Guinea and Fiji), with the two other distributors to sell such product in Saudi Arabia and the Netherlands and that Noesis will generate sales, there is no assurance that the Company will be able to obtain adequate distribution of its products to the intended end user. Most medical product distributors carry an extensive line of products (some of which they manufacture themselves) which they make available to end users (hospitals, surgeons, healthcare workers) and various of these products may compete with each other as to function, price or other factors. In addition, numerous medical product distributors are not themselves well capitalized and their financial condition may impact their ability to properly distribute the Company's products. The Company's ability to achieve revenues in the future will depend in significant part upon its ability to obtain orders from, maintain relationships with and provide support to, existing and new distributors, as well as the condition of its distributors. As a result, any cancellation, reduction or delay in orders by or shipments to any customer or the inability of any customer to finance its purchases of the Company's products may materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company's revenues will increase in the future or that the Company will be able to support or attract customers. See "Part I, Item. 1. "Description of Business - (b) Business of Issuer - Sales and Marketing - Distribution of Products; and - Dependence on Major Customers" and Part I, Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation - Revenues." 9. FLUCTUATIONS IN RESULTS OF OPERATIONS. The Company has experienced and may in the future experience significant fluctuations in revenues, gross margins and operating results. On the medical products development side of its business, the introduction of new products and the manufacture and marketing of most of the Company's products is a lengthy (ranging from a minimum of six weeks to an estimated maximum of eighteen (18) months from order to delivery) process and the timing and amount of product sales is difficult to predict reliably. In addition, a single customer's order scheduled for shipment in a fiscal quarter can represent a significant portion of the Company's potential sales for such quarter. As with many developing businesses, the Company expects to fail to receive expected orders, and delivery schedules may have to be deferred as a result of changes in customer requirements, among other factors. As a result, the Company's operating results for a particular period have, to date, been and may in the future be materially adversely affected by a delay, rescheduling or cancellation of even one purchase order. Moreover, purchase orders are often received and accepted substantially in advance of shipment, and the failure to reduce actual costs to the extent anticipated or an increase in anticipated costs before shipment could materially, adversely affect the gross margins for such order, and as a result, the Company's results of operations. Moreover, a majority of the Company's anticipated orders could be canceled since orders are expected to be made substantially in advance of shipment, and even though the Company's contracts do not typically provide that orders may be canceled, if an important distributor wishes to cancel an order, the Company may be compelled, due to competitive conditions, to accede to such request. As a result, backlog, if any, will not necessarily be indicative of future sales for any particular period. Furthermore, a substantial portion of net sales may be realized near the end of each quarter. A delay in a shipment near the end of a particular quarter, due, for example, to an unanticipated shipment rescheduling, to cancellations or deferrals by customers or to unexpected manufacturing difficulties experienced by the Company, may cause net revenues in a particular quarter to fall significantly below the company's expectations and may materially adversely affect the Company's operating results for such quarter. A large portion of the Company's expenses are fixed and difficult to reduce should revenues not meet the Company's expectations, thus magnifying the material adverse effect of any revenue shortfall. Furthermore, announcements by the Company or its competitors of new products and technologies could cause customers to defer purchases of the Company's products or a reevaluation of products under development, which would materially adversely affect the Company's business, financial condition and results of operations. Additional factors that may cause the Company's revenues, gross margins and results of operations to vary significantly from period to period include: product development, patent processing, FDA processing, clinical trials, mix of products sold; manufacturing efficiencies, costs and capacity; price discounts; market acceptance and the timing of availability of new products by the Company or its customers, usage of different distribution and sales channels; warranty and customer support expenses; customization of systems; and general economic and political conditions. In addition, the Company's results of operations are influenced by competitive factors, including the pricing and availability of and demand for, competitive products. All of the above factors are difficult for the company to forecast, and these or other factors could materially adversely affect the Company's business, financial condition and results of operations. As a result, the Company believes that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indications of future performance. See Part I, Item. 2. "Management's Discussion and Analysis of Financial Condition or Plan of Operation." 10. POTENTIAL FOR UNFAVORABLE INTERPRETATION OF GOVERNMENT REGULATION. As a medical device specifier, the Company is subject to all federal, state and local statutes and regulations governing its products, to the extent applicable. The Company will not be subject to additional regulation unless it elects to produce therapeutic drugs, in which case Surgical will be required to conduct extensive clinical trials for FDA clearance which are not required for the Company's products at this time. In such event the Company shall have all of the uncertainties such clinical trials present including the risk of loss of substantial capital in the event a product never receives the required approvals. Medical products are subject to extensive regulation by the United States (U.S. Food and Drug Administration ("FDA") and U.S. Patent Office), state, local and foreign laws and international treaties. The Company's products must conform to a variety of domestic and international requirements. In order for the Company to sell its products in a jurisdiction, it must obtain regulatory approval and comply with different regulations in each jurisdiction. The delays inherent in this governmental approval process may cause the cancellation, postponement or rescheduling of the purchase by the Company's customers, which in turn may have a material adverse effect on the sale of such products by the Company to such customers. The failure to comply with current or future regulations or changes in the interpretation of existing regulations could result in the suspension or cessation of product sales. Such regulations or such changes in interpretation could require the Company to modify its products and incur substantial costs to comply with such time-consuming regulations and changes. The regulatory environment in which the Company operates is subject to change. Regulatory changes, which are affected by political, economic and technical factors, could significantly impact the Company's operations by restricting development efforts by the Company and its customers, making current products obsolete or increasing the opportunity for additional competition. Any such regulatory changes could have a material adverse effect on the Company's business, financial condition and results of operations. The Company might deem it necessary or advisable to alter or modify its products to operate in compliance with such regulations. Such modifications could be extremely expensive and, especially if subject to regulatory review and approval, time-consuming. (See Part I, Item 1. "Description of Business," (b) "Business of Issuer - Governmental Regulation.") 11. NO ASSURANCE OF PRODUCT QUALITY. Performance and Reliability. The Company expects that its distributors and their customers will continue to establish demanding specifications for quality, performance and reliability. Although the Company attempts to only deal with manufacturers who adhere to good manufacturing practice standards, there can be no assurance that problems will not occur in the future with respect to quality, performance, reliability and price. If such problems occur, the Company could experience increased costs, delays in or cancellations or rescheduling of orders or shipments and product returns and discounts, any of which would have a material adverse effect on the Company's business, financial condition or results of operations. 12. FUTURE CAPITAL REQUIREMENTS. The Company's future capital requirements will depend upon many factors, including the development of new medical products, requirements to maintain adequate manufacturing facilities, the progress of the Company's research and development efforts, expansion of the Company's marketing and sales efforts and the status of competitive products and services. The Company believes that it will require additional funding in order to fully exploit its plan for operations. There can be no assurance, however, that the Company will secure such additional financing. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. If additional funds are raised by issuing equity securities, further dilution to the existing stockholders will result. If adequate funds are not available, the Company may be required to delay, scale back or eliminate its research and development or manufacturing programs or obtain funds through arrangements with partners or others that may require the Company to relinquish rights to certain of its existing or potential products or other assets. Accordingly, the inability to obtain such financing could have a material adverse effect on the Company's business, financial condition and results of operations. See Part I, Item 2. "Management's Discussion and Analysis of Financial Condition or Plan of Operation." 13. UNCERTAINTY REGARDING PROTECTION OF PROPRIETARY RIGHTS. The Company attempts to protect its intellectual property rights through patents, trademarks, secrecy agreements, trade secrets and a variety of other measures. However, there can be no assurance that such measures will provide adequate protection for the Company's trade secrets or other proprietary information, that disputes with respect to the ownership of its intellectual property rights will not arise, that the Company's trade secrets or proprietary technology will not otherwise become known or be independently developed by competitors or that the Company can otherwise meaningfully protect its intellectual property rights. There can be no assurance that any patent owned by the Company will not be invalidated, circumvented or challenged, that the rights granted thereunder will provide competitive advantages to the Company or that any of the Company's pending or future patent applications will be issued with the scope of the claims sought by the Company, if at all. Furthermore, there can be no assurance that others will not develop similar products, duplicate the Company's products or design around the patents owned by the Company or that third parties will not assert intellectual property infringement claims against the Company. In addition, there can be no assurance that foreign intellectual property laws will adequately protect the Company's intellectual property rights abroad. The failure of the Company to protect its proprietary rights could have a material adverse effect on its business, financial condition and results of operations. Litigation may be necessary to protect the Company's intellectual property rights and trade secrets, to determine the validity of and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that infringement, invalidity, right to use or ownership claims by third parties or claims for indemnification resulting from infringement claims will not be asserted in the future. If any claims or actions are asserted against the Company, the Company may seek to obtain a license under a third party's intellectual property rights. There can be no assurance, however, that a license will be available under reasonable terms or at all. In addition, should the Company decide to litigate such claims, such litigation could be extremely expensive and time consuming and could materially adversely affect the Company's business, financial condition and results of operations, regardless of the outcome of the litigation. See Part I, Item 1. Description of Business - (b) Business of Issuer - Patents, Copyrights and Trademarks." 14. ABILITY TO GROW. The Company expects to grow through one or more strategic alliances, acquisitions, internal growth and by granting licenses for products which are not within the focuses defined by management. There can be no assurance that the Company will be able to create a greater market presence, or if such market is created, to expand its market presence or successfully enter other markets. The ability of the Company to grow will depend on a number of factors, including the availability of working capital to support such growth, existing and emerging competition, one or more qualified strategic alliances and the Company's ability to maintain sufficient profit margins in the face of pricing pressures. The Company must also manage costs in a changing regulatory environment, adapt its infrastructure and systems to accommodate growth within the niche market which it has created. The Company also plans to expand its business, in part, through acquisitions. Although the Company will continuously review potential acquisition candidates, it has not entered into any agreement, understanding or commitment with respect to any additional acquisitions at this time. There can be no assurance that the Company will be able to successfully identify suitable acquisition candidates, complete acquisitions on favorable terms, or at all, or integrate acquired businesses into its operations. Moreover, there can be no assurance that acquisitions will not have a material adverse effect on the Company's operating results, particularly in the fiscal quarters immediately following the consummation of such transactions, while the operations of the acquired business are being integrated into the Company's operations. Once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as at then existing Company-owned locations or otherwise perform as expected. The Company is unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisitions will be completed. The Company will be competing for acquisition and expansion opportunities with entities that have substantially greater resources than the Company. In addition, acquisitions involve a number of special risks, such as diversion of management's attention, difficulties in the integration of acquired operations and retention of personnel, unanticipated problems or legal liabilities, and tax and accounting issues, some of all of which could have a material adverse effect on the Company's results of operations and financial condition. (See Part I, Item 1. "Description of Business (b) "Business Issuer.") 15. POTENTIAL LEGAL LIABILITY. Providers of medical devices may be subject to claims relating to their product. In addition, under the terms of the agreement with SMH, the Company is required to indemnify and hold harmless SMH and the Lessee against any and all claims regarding the use of the OASiS system. Management has adopted and implemented policies and guidelines to reduce its exposure to these risks; principally in the area of its initial product research and development. However, the failure of any product to meet such policies and guidelines may result in governmental intervention, negative publicity, injunctive relief and the payment by the Company of money damages or fines. There can be no assurance that the Company will not experience such problems. (See - 8. "Potential for Unfavorable Interpretation of Government Regulations" and Part I, Item 1. "Description of Business" (b) "Business of Issuer-Government Regulation.") At such time as the Company enters into licensing agreements for certain products which it feels are not a proper mix but deserve exploitation, the Company may be subject to claims asserting that it is vicariously liable for the damages allegedly caused by the products produced by the licensees. Generally, liability for the acts or inactions of its licensees are based on agency and products liability concepts. The Company intends for its license agreements to state that the parties are not agents and that the licensees control the manufacturer and production of the product. And that any modifications are the sole responsibility of the licensee. Despite these efforts to minimize the risk of liability, there can be no assurance that a claim will not be made against the Company. 16. COMPETITION. The medical products and devices industry is highly competitive, with several major companies involved. The exposure reporting information industry has only one (1) known competitor at this time. The Company will be competing with larger competitors in international, national, regional and local markets. In addition, the Company may encounter substantial competition from new market entrants. Many of the Company's competitors have significantly greater name recognition and have greater marketing, financial and other resources than the Company. There can be no assurance that the Company will be able to complete effectively against such competitors in the future. (See Part I. Item 1. "Description of Business," (b) "Business of Issuer-Competition.") 17. REQUIREMENT FOR RESPONSE TO RAPID TECHNOLOGICAL CHANGE AND REQUIREMENT FOR FREQUENT NEW PRODUCT INTRODUCTIONS. The market for surgical safety products and services is subject to rapid technological change, frequent new product introductions and enhancements, product obsolescence and changes in end-user requirements. The Company's ability to be competitive in this market will depend in significant part upon its ability to successfully develop, introduce and sell new innovative proprietary products, services and enhancements thereof on a timely and cost-effective basis that respond to changing customer requirements. Any success of the Company in developing new and enhanced products and services will depend upon a variety of factors, including new product selection, timely and efficient compliance with and completion of the regulatory process (FDA and the U.S. Patent and Trademark Office), timely and efficient completion of design, timely and efficient implementation of manufacturing and assembly process, its cost reduction program and the development, completion, performance, quality and reliability and development of competitive products and services by competitors. The Company may experience delays from time to time in completing development and introduction of new products and services. Moreover, there can be no assurance that the Company will be successful in selecting, developing, manufacturing and marketing new products and services. There can be no assurance that defects will not be found in the Company's products and services after commencement of commercial shipments, which could result in the loss of or delay in market acceptance. The inability of the Company to introduce in a timely manner new products and services that contribute to revenues could have a material adverse effect on the Company's business, financial condition and results of operations. See "Part I, Item. 1. "Description of Business (b) Business of Issuer - Competition." 18. POSSIBLE ADVERSE AFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY AND BUSINESS OF CUSTOMERS. Historically, the general level of economic activity has significantly affected the demand for new, disposable products. As demands for economy have increased, reusable products have seen a resurgence of demand. There can be no assurance that an economic downturn would not adversely affect the demand for the Company's products and services. Further, hospitals and other healthcare facilities have been required to adopt cost effective policies which may cause them to reject any new information gathering system, notwithstanding the need to collect accurate data. There can be no assurance that such cost cutting factors will not adversely affect the development and market penetration of the OASiS system. 19. LACK OF WORKING CAPITAL FUNDING SOURCE. Other than revenues from the sale of its products, which revenues have yet to produce a net profit, the Company has no current source of working capital funds, and should the Company be unable to secure additional financing on acceptable terms, its business, financial condition, results of operations and liquidity would be materially adversely affected. 20. DEPENDENCE ON CONTRACT MANUFACTURERS; RELIANCE ON SOLE OR LIMITED SOURCES OF SUPPLY. As of the date hereof, the Company has no internal manufacturing capacity. The Company has been utilizing contract manufacturers to produce its products. In the case of SutureMate(TM), Tuthill and in the case of MediSpecs Rx(TM), the Company has an agreement with Morrison. The Company may also rely on outside vendors to manufacture certain components. Certain necessary components and services anticipated to be necessary for the manufacture of the Company's products could be required to be obtained from a sole supplier or a limited group of suppliers. There can be no assurance that the Company's contract manufacturers, will be sufficient to fulfill the Company's orders. Should the Company be required to rely solely on contract manufacturers and a limited group of suppliers, such increasing reliance involves several risks, including a potential inability to obtain an adequate supply of finished products and required components, and reduced control over the price, timely delivery, reliability and quality of finished products and components. The Company does not believe that it is currently necessary to have any long-term supply agreements with its manufacturers or suppliers but this may change in the future. The Company has from time to time experienced and may in the future experience delays in the delivery of and quality problems with its products and certain components from vendors. Certain of the Company's suppliers have relatively limited financial and other resources. Any inability to obtain timely deliveries of acceptable quality or any other circumstances that would require the Company to seek alternative sources of supply, or to manufacture its finished products internally, could delay the Company's ability to ship its products which could damage relationships with current or prospective customers and have a material adverse effect on the Company's business, financial condition and operating results. See "Part I, Item 1. "Description of Business - (b) Business of Issuer." 21. DECLINING AVERAGE SELLING PRICES. The Company believes that average selling prices and gross margins for its products may decline in the long term as such products are in use in the market, as volume price discounts in existing and future contracts take effect and as competition intensifies, among other factors. To offset declining average selling prices, the Company believes that it must successfully introduce and sell new products and services or adaptations of products and services on a timely basis, develop new products and services with features that can be sold at higher average selling prices and reduce the costs thereof through design improvements, component cost reduction and in-house manufacturing, among other actions. To the extent that new products and services are not developed in a timely manner, do not achieve customer acceptance or do not generate higher average selling prices, and the Company is unable to offset declining average selling prices, the Company's gross margins will decline, and such decline will have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that the re-design of SutureMate(R) will result in a reduction in costs. See "Pat I, Item. 1. "Description of Business - (b) Business of Issuer - Medical Products Division - Research and Development" and Part I, item. 2. "Management's Discussion and Analysis of Financial Condition or Plan of Operations - Research and Development." 22. UNCERTAINTY OF MARKET ACCEPTANCE. The future operating results of the Company depend to a significant extent upon the continued development of products and services deemed necessary, useful, convenient, affordable and competitive by medical professionals and their patients. There can be no assurance that the Company has the ability to continuously introduce propriety products and services into the marketplace which will achieve the market penetration and acceptance necessary for the Company to grow and become profitable on a sustained basis, especially given the fierce competition that exists from companies more established and well financed than the Company. See "Part I, Item 1. "Description of Business (b) Business of Issuer - Competition." To date, substantially all of the Company's product sales have been to customers within the United States with a small portion of such sales generated internationally. The Company's future results of operations will be dependent in significant part on its ability to penetrate markets in the United States and foreign countries in which the Company has not yet established a meaningful presence. There can be no assurance that the Company will be successful in penetration these additional markets. 23. INTERNATIONAL OPERATIONS; RISKS OF DOING BUSINESS IN DEVELOPING COUNTRIES. Substantially all of the Company's revenues from product sales to date have been made to customers located inside of the United States. The Company anticipates that international sales will, as a result of various distribution agreements entered into, account for more of its revenues from product sales for the foreseeable future. The Company's international sales may be denominated in foreign or United States currencies. The Company does not currently engage in foreign currency hedging transactions. As a result, a decrease in the value of foreign currencies relative to the United States dollar could result in losses from transactions denominated in foreign currencies. With respect to the Company's international sales that are United States dollar-denominated, such a decrease could make the Company's products less price-competitive. Additional risks inherent in the Company's international business activities include changes in regulatory requirements, costs and risks of local customers in foreign countries, availability of suitable export financing, timing and availability of export licenses, tariffs and other trade barriers, political and economic instability, difficulties in staffing and managing foreign operations, difficulties in managing distributors, potentially adverse tax consequences, foreign currency exchange fluctuations, the burden of complying with a wide variety of complex foreign laws and treaties and the possibility of difficulty in accounts receivable collections. Some of the Company's customer purchase agreements may be governed by foreign laws, which may differ significantly from U.S. laws. Therefore, the Company may be limited in its ability to enforce its rights under such agreements and to collect damages, if awarded. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, financial condition and results of operations. Some of the Company's potential markets consist of countries that have not yet developed the technological and medical know-how to properly utilize the Company's products, in which event the development of demand for the Company's products in those countries will be limited or delayed. In doing business in some of these markets, the Company may also face economic, political and foreign currency fluctuations that are more volatile than those commonly experienced in the United States and other areas. See "Part I, Item 1. "Description of Business (b) Business of Issuer - Sales and Marketing - Distribution of Products." 24. NO DIVIDENDS. While payments of dividends on the Common Stock rests with the discretion of the Board of Directors, there can be no assurance that dividends can or will ever be paid. Payment of dividends is contingent upon, among other things, future earnings, if any, and the financial condition of the Company, capital requirements, general business conditions and other factors which cannot now be predicted. It is highly unlikely that cash dividends on the Common Stock will be paid by the Company in the foreseeable future. (See Part I, Item 8. "Description of Securities - Description of Common Stock - Dividend Policy.") 25. NO CUMULATIVE VOTING. The election of directors and other questions will be decided by a majority vote. Since cumulative voting is not permitted and one-third of the Company's outstanding Common Stock constitute a quorum, investors who purchase shares of the Company's Common Stock may not have the power to elect even a single director and, as a practical matter, the current management will continue to effectively control the Company. (See Part I, Item 8. "Description of Securities - Description of Common Stock.") 26. CONTROL BY PRESENT SHAREHOLDERS. The present shareholders of the Company's Common Stock will, by virtue of their percentage share ownership and the lack of cumulative voting, be able to elect the entire Board of Directors, establish the Company's policies and generally direct its affairs. Accordingly, persons investing in the Company's Common Stock will have no significant voice in Company management, and cannot be assured of ever having representation on the Board of Directors. (See Part I, Item 4. "Security Ownership of Certain Beneficial Owners and Management.") 27. POTENTIAL ANTI-TAKEOVER AND OTHER EFFECTS OF ISSUANCE OF PREFERRED STOCK MAY BE DETRIMENTAL TO COMMON SHAREHOLDERS. Potential Anti-Takeover and Other Effects of Issuance of Preferred Stock May Be Detrimental to Common Shareholders. The Company is authorized to issue shares of preferred stock. ("Preferred Stock"); none of which has been issued to date. The issuance of Preferred Stock does not require approval by the shareholders of the Company's Common Stock. The Board of Directors, in its sole discretion, has the power to issue shares of Preferred Stock in one or more series and to establish the dividend rates and preferences, liquidation preferences, voting rights, redemption and conversion terms and conditions and any other relative rights and preferences with respect to any series of Preferred Stock. Holders of Preferred Stock may have the right to receive dividends, certain preferences in liquidation and conversion and other rights; any of which rights and preferences may operate to the detriment of the shareholders of the Company's Common Stock. Further, the issuance of any shares of Preferred Stock having rights superior to those of the Company's Common Stock may result in a decrease in the value of market price of the Common Stock provided a market exists, and additionally, could be used by the Board of Directors as an anti-takeover measure or device to prevent a change in control of the Company. (See Part I, Item 1. "Description of Securities - Description of Preferred Stock.") 28. NO SECONDARY TRADING EXEMPTION. Secondary trading in the Common Stock will not be possible in each state until the shares of Common Stock are qualified for sale under the applicable securities laws of the state or the Company verifies that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. There can be no assurance that the Company will be successful in registering or qualifying the Common Stock for secondary trading, or availing itself of an exemption for secondary trading in the Common Stock, in any state. If the Company fails to register or qualify, or obtain or verify an exemption for the secondary trading of, the Common Stock in any particular state, the shares of Common Stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in the Company's Common Stock, a public market for the Common Stock will fail to develop and the shares could be deprived of any value. The Company was listed in Moody's OTC Industrial on April 28, 1998. 29. POSSIBLE ADVERSE EFFECT OF PENNY STOCK REGULATIONS ON LIQUIDITY OF COMMON STOCK IN ANY SECONDARY MARKET. Although trading volume indicates that a secondary trading market has developed to a certain extent for the shares of Common Stock of the Company, the Common Stock is expected to come within the meaning of the term "penny stock" under 17 CAR 240.3a51- 1 because such shares are issued by a small company; are low-priced (under five dollars); and are not traded on NASDAQ or on a national stock exchange. The SEC has established risk disclosure requirements for broker-dealers participating in penny stock transactions as part of a system of disclosure and regulatory oversight for the operation of the penny stock market. Rule 15g-9 under the Securities Exchange Act of 1934, as amended, obligates a broker-dealer to satisfy special sales practice requirements, including a requirement that it make an individualized written suitability determination of the purchaser and receive the purchaser's written consent prior to the transaction. Further, the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure instrument that provides information about penny stocks and the risks in the penny stock market. Additionally, the customer must be provided by the broker-dealer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. For so long as the Company's Common Stock is considered penny stock, the penny stock regulations can be expected to have an adverse effect on the liquidity of the Common Stock in the secondary market, if any, which develops. Item 2. Management's Discussion and Analysis or Results of Operations. 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, manufacture, market and sell 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, 1998, the Company generated revenues of approximately $1,100,000 from a limited number of customers. Since inception through December 31, 1998, the Company has generated cumulative losses of approximately $1,690,000. Although the Company has experienced a significant percentage growth in revenues from fiscal 1992 to fiscal 1998, the Company does not believe prior growth rates are indicative of future operating results, especially in light of the contract with US Surgical to assist in the introduction of OASiS. 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 the first half of 2000, and there can be no assurance that losses will not continue after such date. With the implementation of its agreement with US Surgical and in the event of the reactivation of its various distribution agreements, the Company expects to experience a period of growth, which requires it to significantly increase the scale of its operations. This increase will include the hiring of one additional person and 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 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. (See Part I, Item 1. "Description of the Business - (b) Business of the Issuers - Risk Factors - Fluctuations in Results of Operations".) The Company's plan of operations for the next twelve months is to focus on building revenue by installing the OASiS system in the ten (10) hospitals designated by US Surgical and to install additional OASiS systems in hospitals not under the US Surgical agreement but with whom the Company has begun negotiations and in some cases reached a commitment. Additionally, the Company intends to install the inservice modules from US Surgical and other medical product manufacturers at both the US Surgical and the other hospitals. The Company estimates that revenues will be sufficient to fund ongoing operations at the current level when the number of OASiS installations reaches 30 to 35 and the total number of inservice modules reaches 60-70. The Company has purchased 20 OASiS units from Kiosk Information Systems, Inc., 3 of which were installed under the US Surgical agreement, 3 of which were installed at St. Francis Hospital, and the balance of which are dedicated to its commitment to US Surgical for hospitals it has ready for installation and to other hospitals which are committed to proceed, which installations are scheduled on or before April 30, 1999. Based upon potential additional commitments, the Company believes that if it were to order 20 more units, that all such units would be placed by the end of the third quarter 1999. The Company already has 30 inservice modules under the US Surgical agreement and is in discussion with various manufacturers interested in using OASiS to inservice more than 50 of their products. The Company believes that each of the initial installations should have a position as to long term acceptance within three (3) to six (6) months and that this initial time is the test period to determine the potential for market acceptance at that hospital. In the case of US Surgical hospitals, this period will be for nine (9) months by contract. At the end of such test period, the Company believes it will be in a position to execute three (3) year leases and finance such leases through the Rockford leveraged leasing arrangement. In the short term, to fund operations through the third quarter 1999, the Company will be required to seek additional funds from its shareholders, seek funds from a limited number of accredited investors in a private placement of its restricted securities, seek additional third party financing or seek third party debt or equity financing other than those planned by the current anticipated private placement. In the event no such funding is available or only partial funding is available, the Company will be required to scale back operations and to reduce its breakeven point by such measures as salary reductions, staffing cuts, or the licensing or sale of some of the Company's assets or product lines to third parties. Provided such funding or scale back is successful, the Company believes that it can meet its capital needs through the testing period and until such time as the Company has sufficient additional long term capital to expand. There can be no assurance that the Company will be successful in these efforts. Once the testing period is over, the Company will require between $2 and $5 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. The Company has met with several venture capital firms, investment bankers, factoring companies and traditional lending sources, each of whom have expressed early interest and many of whom are awaiting the conclusion of the testing period. No definite offer has been accepted by the Company. There can be no assurance that such long term financing will be available to the Company or that it will be on terms which the Company may seek. Results of Operations - Full Fiscal Years Revenues To date, a limited number of customers and distributors have accounted for substantially all of the Company's revenues with respect to product sales. For the fiscal year ending December 31, 1997, the Company derived approximately 99% of its revenue from sales of its OASiS to SMH. For fiscal year ending December 31, 1998, the Company derived approximately 93% of its revenue for product sales from technical services it provided to US Surgical during a medical products convention. The Company anticipates that the main focus of its selling efforts will be to focus on the US Surgical arrangement and to continue to sell its products to a relatively small group of medical products distributors with the objective of having its products distributed on a large national and international scale. Although the Company had entered into an exclusive distributorship agreement with Johnson & Johnson Medical Pty Ltd. to sell its SutureMate(R) product (in the territories of Australia, New Zealand, Papua, New Guinea and Fiji), Noesis for sales in Europe, and with two other distributors to sell such product in Saudi Arabia and the Netherlands, none of these arrangements are currently active. And, although the Company is currently engaged in a joint marketing agreement with US Surgical, there is no assurance that the Company will be able to obtain adequate distribution of its products to the intended end user. Most medical product distributors carry an extensive line of products (some of which they manufacture themselves) which they make available to end users (hospitals, surgeons, healthcare workers) and various of these products may compete with each other as to function, price or other factors. In addition, numerous medical product distributors are not themselves well capitalized and their financial condition may impact their ability to properly distribute the Company's products. The Company's ability to achieve revenues in the future will depend in significant part upon its ability to obtain orders from, maintain relationships with and provide support to, existing and new customers, as well as the condition of its customers. As a result, any cancellation, reduction or delay in orders by or shipments to any customer or the inability of any customer to finance its purchases of the Company's products may materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company's revenues will increase in the future. In addition, the Company expects that the average selling price of a particular product line will also decline as such products mature, and as competition increases in the future. Accordingly, the Company's ability to maintain or increase revenues will depend in part upon its ability to increase unit sales volumes of its products and to introduce and sell products at prices sufficient to compensate for reduced revenues resulting from declines in the average selling price of the Company's more mature products. ( See Part I, Item 1. "Description of the Business - (b), Business of the Issuers - Risk Factors - Significant Customer and Product Concentration, Fluctuations in Results of Operations, Declining Average Selling Prices and International Operations; Risks of Doing business in Developing Countries.") Net Sales For the year ended December 31, 1997, net sales and cost of sales of $248,760 and $22,002 respectively, related primarily to the sale of four (4) units of the OASiS system to one customer. Net sales for the year ended December 31, 1998 of $16,545 are comprised of sales of the Company's proprietary SutureMate(R) products, MediSpecs Rx(TM) eyewear and technical services provided to US Surgical. Product sales and related cost of sales amounted to $1,203 and $5,560, respectively for the year ended December 31, 1998. Cost of sales includes a write-down of approximately $4,500 for defective units of the re-designed SutureMate(R). There were no sales of the OASiS system during 1998 due to the Company's focus on enhancements to the product design and development of a new version of the product. The Company has an ongoing program to reduce the costs of manufacturing its products. As part of this program, the Company has been attempting to achieve cost reductions principally through engineering and manufacturing improvements, product economies and utilization of third party subcontractors for the manufacture of the Company's products. Notwithstanding a delivery of defective units, to date, it has been successful in substantially reducing such costs by re-designing SutureMate(R). The success of these cost reduction programs will not be known until production volumes are scaled up. There can be no assurance that the Company's ongoing or future programs can be accomplished or that they will increase gross profits. To the extent the Company is unable to reduce its production costs or introduce new products with higher margins, the Company's results of operations could be materially adversely affected. The Company's results may also be affected by a variety of other factors, including mix of products and services sold; production, reliability or quality problems; price competition; and warranty expenses and discounts. Operating Expenses Sales and Marketing: These expenses consist of advertising, meetings and conventions and entertainment related to product exhibitions and the related travel expenses. Since inception, the Company has spent approximately $359,000 on sales and marketing expenses. For the years ended December 31, 1997 and December 31, 1998, sales and marketing expenses were $62,028 and $265,261, respectively. In 1998, the Company increased its advertising particularly with reference to OASiS and hired additional sales and marketing personnel during 1998. The Company has invested significant resources to expand its sales and marketing effort, including the hiring of additional personnel and establishing the infrastructure necessary to support future operations. The Company expects that such expenses in 1999 will increase in absolute dollars as compared to 1998. General and Administrative. These expenses consist primarily of the general and administrative expenses for salaries, contract labor and other expenses for management and finance and accounting, legal and other professional services including ongoing expenses as a publicly owned Company related to legal, accounting and other administrative services and expenses. Since inception, the Company has spent approximately $1,562,000 on general and administrative expenses. For the years ended December 31, 1997 and December 31, 1998, general and administrative expenses were $182,787 and $517,189, respectively. The increase of $334,402 is due primarily to higher executive compensation, legal and accounting fees associated with the Company's SEC filings, higher depreciation and amortization and additional rent for the Company's headquarters. The Company expects general and administrative expenses to increase in absolute dollars in 1999 as compared to 1998, as the Company continues to expand its operations. Research and Development These expenses consist primarily of costs associated with personnel and equipment costs and field/clinical trials. The Company's research and development activities include the development of the OASiS system and more than six (6) operating room, OB/GYN, advanced surgical and protective related products including SutureMate(R) and MediSpecs RX(TM). Since inception, the Company has spent approximately $156,000 on research and development. For the years ended December 31, 1997 and December 31, 1998, research and development expenses were approximately $113,740 and $34,536, respectively. During 1997, research and development expenses were significant as the Company concentrated on the OASiS System. The Company made enhancements to the software for the OASiS system in 1998, and the majority of these related costs were capitalized and will be amortized over a period not to exceed five (5) years. The Company intends to continue to invest significant resources to continue the development of new products and expects that research and and development expenses in 1999 will increase in absolute dollars as compared to 1998. Interest and Other Income (Expense), Net Interest and other income (expense), net consists primarily of interest expenses accrued on the direct loan to the Company under a line of credit agreement for $100,000, interest related to loans from the majority stockholder, miscellaneous income and underwriting costs. In May 1997, the Company established a line of credit in the amount of $100,000 with a financial institution at 1.5% above the prime rate, interest only payments are due monthly with an expiration date of May 2, 2017. The line is due on demand and is secured by inventory, accounts receivable and equipment. There was no outstanding balance as of December 31, 1998. The outstanding balance as of December 31, 1997 was $100,000. The interest rate at December 31, 1997 was 10.0%. The line of credit is personally guaranteed by Dr. Swor. (See Part I, Item 2. "Management's Discussion and Analysis or Results of Operations - Financial Condition, Liquidity and Capital Resources.") The Company did not report any foreign currency gains or losses for the years ended December 31, 1997 and 1998 since there were no contracts negotiated in foreign currencies for those periods. In the event its contract with Johnson & Johnson Medical Pty. Ltd., Noesis and the Company's distribution arrangements in the Netherlands and in Saudi Arabia are reactivated, the Company may in the future be exposed to the risk of foreign currency gains or losses depending upon the magnitude of a change in the value of a local currency in an international market. The Company does not currently engage in foreign currency hedging transactions, although it may implement such transactions in the future. Financial Condition, Liquidity and Capital Resources At December 31, 1998, the Company had assets totaling $373,514 and liabilities totaling $55,331. Since its inception in June of 1992, the Company has financed its operations and met its capital requirements through sales of its products, fees from OASiS, proceeds from the sale of or exchange for common stock aggregating approximately $1,405,000, through borrowing from current shareholders and through the $100,000 line of credit with the financial institution which is guaranteed by Dr. Swor. Operating activities used net cash of $216,991 and $441,458 in1997 and 1998, respectively. At December 31, 1998, the Company had a working capital of approximately $73,000, including $41,000 of cash, $58,700 of deposits and $26,898 of inventory. This represents an increase of approximately $315,000 over a working capital deficiency of $242,411 at December 31, 1997. At December 31, 1998, the Company's outstanding indebtedness consisted of accounts payable in the amount of $35,262 and accrued expenses of $20,069. The Company's principal commitments for capital expenditures are (1) those associated with the arrangement with US Surgical under which the Company will provide initially ten (10) units for installation at Centers of Excellence designated by US Surgical; (2) the Company's obligation to pay SMH $25,000 for each of ten (10) studies or $250,000 over the term of the clinical testing agreement if the Company determines not to have SMH perform clinical testing; and (3) the Company's obligations to pay the balance due on the order of twenty (20) OASiS units from Kiosk Information Systems, Inc.. (See Part I, Item 1. "Description of the Business - (b) Business of Issuer - Data Systems Division; and - Medical Products Division.") The sources of funds to meet these commitments will be partially made through cash on hand from the prior year, use of the line of credit, a loan from Dr. Swor, revenues generated by the long term US Surgical agreement and other revenues which the Company believes it will generate over the five (5) year term. The Company's future capital requirements will depend upon many factors, including the continued development of OASiS, its current products and new products and services, the extent and timing of acceptance of the Company's products and services in the market, requirements to maintain adequate manufacturing arrangements, the progress of the Company's research and development efforts, expansion of the Company's marketing and sales efforts, the Company's results of operations and the status of competitive products and services. In the short terms, it is likely that the Company will require additional financing. In addition, the Company may require additional financing after such date to fund its operations. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all, when required by the Company. If additional funds are raised by issuing equity securities, further dilution to the existing stockholders will result. If additional funds are raised by issuing debt securities future interest expense will be incurred. If adequate funds are not available, the Company may be required to delay, scale back the development of OASiS or scale back or eliminate one or more of its research and development or manufacturing programs or obtain funds through arrangements with partners or others that may require the Company to relinquish rights to certain of its products or potential products or other assets that the Company would not otherwise relinquish. Accordingly, the inability to obtain such financing could have a material adverse effect on the Company's business, financial condition and results of operations. Impact of the Year 2000 Issue The Year 2000 Issue is the result of potential problems with computer systems or any equipment with computer chips that use dates where the date has been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock or date recording mechanism including date sensitive software which uses only two digits to represent the year, may recognize the date using 00 as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar activities. Management has reviewed its current internal systems and is in the process of upgrading its accounting system to be Year 2000 compliant. The Company has purchased new hardware in 1998 that is Year 2000 compliant and expects its internal systems upgrades to be completed in the third quarter of 1999. Management does not anticipate any significant additional costs that would relate to upgrading its systems to support the Year 2000. Further, management does not believe the Year 2000 will impact the operation of the OASiS system since the software for this system does not rely on legacy applications or subsystems. OASiS is designed to handle dates in the form of a two digit month and day and a four digit year, thus avoiding the Year 2000 problem The Company believes that it has disclosed all required information relative to Year 2000 issues relating to its business and operations. However, there can be no assurance that the systems of other companies on which the Company's systems rely also will be timely converted or that any such failure to convert by another company would not have an adverse affect on the Company's business, operations or financial condition. Item 3. Description of Property: The Company's executive offices are located at 2018 Oak Terrace, Sarasota, Florida 34231. Its telephone number is (941) 927-7874 and its facsimile number is (941) 925-0515. The Company pays rent in the amount of $3500 per month which consists of 3,500 square feet of office space. The lease is for a term of two (2) years and is automatically renewable for an additional year. The initial term of the lease expires in May 2000. The property is owned by Savannah Leasing which is owned by Dr. and Mrs. Swor. The Company has a first right of refusal on surrounding properties owned by Savannah Leasing and therefore believes that the leased space and the property under the first right of refusal will be sufficient for its corporate offices for the next ten (10) years. (See Part I, Item 1. "Description of Issuer - (b) Business of Issuer - Facilities.") The Company owns no real property and its personal property consists of furniture, fixtures and equipment, prototype molds and leasehold improvements with an original cost of $155,930 on December 31, 1998. The Company currently employs its capital reserves in a money market sweep account. Activity is monitored on a daily basis and for a thirty (30) day period commencing on July 1, 1998, had returned on average 4.75% on assets employed. Additionally, Surgical has acquired stock in two (2) privately owned companies, 25,000 shares in ParView Inc. as part of its acquisition of Endex Systems Inc. and 3,750 shares in Linters Inc. which was received as partial compensation for clinical products research completed by the Medical Consultants Division. It is the Company's strategy to engage in transactions which minimize dilution of the Company's equity. Item 4. Security Ownership of Certain Beneficial Owners and Management: The following table sets forth information as of December 31, 1998, regarding the ownership of the Company's Common Stock by each shareholder known by the Company to be the beneficial owner of more than five percent (5%) of its outstanding shares of Common Stock, each director and all executive officers and directors as a group. Except as otherwise indicated, each of the shareholders has sole voting and investment power with respect to the share of Common Stock beneficially owned.
Name and Address of Title of Amount and Nature of Percent of Beneficial Owner Class Beneficial Owner Class - - ----------------------------------------------------------------------- Dr. G. Michael Swor Common 3,792,890 (1) 35.16 Frank M. Clark Common 50,000 .47 Donald K. Lawrence Common 250,000 2.32 James D. Stuart Common 848,182 (2) 7.86 Irwin Newman Common -0- -0- Sam Norton Common 53,400 .50 David Swor Common 473,445 4.39 Tom DeCesare Common 9,469 .09 Dr. William B. Saye - - - David Collins - - -
All Executive Officers and Directors as a Group (ten (10) persons) 5,477,386 (3) 50.78 (3) - - ---------- (1) This includes 631,260 owned by Dr. Swor's wife of which he is deemed the beneficial owner (2) This include 31,563 which Mr. Stuart owns jointly with his brother and 816,619 which Mr. Stuart received as a gift from Dr. Swor in 1996. (3) In addition to the shares owned by the Executive Officers and Directors as a group, said officers and directors own (including those beneficially held) options to purchase 5,278,094 shares of the Company's Common Stock (without regard to the additional options to Dr. Saye which accrue at the rate of 8,333 per month) pursuant to Employee Stock Option Plans adopted in 1994, 1998 and 1999. In the event all such options to purchase were exercised, this group would own a total of 10,755,480 shares of the Company's Common Stock which would represent 66.95% of the total shares of Common Stock outstanding. (See Part I, Item 6. "Executive Compensation Employee and Consultant Stock Option Plans.") There are no arrangements which may result in the change of control of the Company. Item 5. Directors, Executive Officers, Promoters and Control Persons: Executive Officers and Directors Set forth below are the names, ages, positions, with the Company and business experiences of the executive officers and directors of the Company. Name Age Position(s) with Company - - ---- --- ------------------------ Dr. G. Michael Swor 40 Chairman and Treasurer 4485 S. Shade Avenue Sarasota, FL 34237 Frank M. Clark (1) 66 Director, CEO and President 7313 Oak Leaf Way Sarasota, FL 34241 Donald K. Lawrence (1) 35 Director, Executive Vice 716 Edgemer Lane President and Secretary Sarasota, FL 34242 David Collins (1) 57 Director and Acting Chief 6210 Sun Boulevard Financial Officer(2) St. Petersburg, FL 33715 James D. Stuart 40 Director 880 Jupiter Park Drive Suite 14 Jupiter, FL 33458 Irwin Newman 50 Director 1515 SW 22nd Avenue Circle Boca Raton, FL 33486 Sam Norton 39 Director 1819 Main Street Suite 610 Sarasota, FL 34236 David Swor 66 Director 6385 Presidential Court Suite 104 Fort Meyers, FL 33919 Tom DeCesare 66 Director 15316 Gulf Boulevard #802 Madiera Beach, FL 33708 Dr. William B.Saye (1) 59 Director and Medical Director 4614 Chattahoochee Crossing of ALTC VirtualLabs Marietta, GA 30067 (1) Except for Mr. Clark, Mr. Lawrence, Dr. Saye and Mr. Collins, who had no role in founding or organizing the Company, the above-named persons may be deemed to be "promoters" and "parents" of the Company, as those terms are defined under the Rules and Regulations promulgated under the Act. (2) Mr. Collins is not engaged as a full time employee of the Company. He is devoting and will continue to devote such time as required to fulfill the obligations as the Company's Acting Chief Financial Officer. At such time as the Company has sufficient additional revenue or is successful in securing additional funding from outside sources, it is intended that Mr. Collins will be employed by the Company as the Chief Financial Officer and that he will devote his full time to the business of the Company. All directors hold office until the next annual meeting of the Company's shareholders and until their successors have been elected and qualify. Officers serve at the pleasure of the Board of Director. The officers and directors will devote such time and effort to the business and affairs of the Company as may be necessary to perform their responsibilities as executive officers and/or directors of the Company. Family Relationships There are no family relationships between or among the executive officers and directors of the Company except that David Swor is Dr. G. Michael Swor's father and Tom DeCesare is Dr. Swor's father-in-law. Business Experience G. Michael Swor, M.D., M.B.A, age 40, has served as Chairman of the Board and Medical/Technical Advisor of the Company since its inception in 1992 and has served as Treasurer to the Company since June, 1998. Dr. Swor, a board certified, practicing physician with a specialty in OB/GYN, is the founder of Surgical. From 1992 until June 12, 1998, Dr. Swor also served as President and CEO. With a Masters in Business Administration, Dr. Swor's duties for the Company include investor relations, corporate financing, and overall corporate policy and management. He is a clinical assistant professor in the OB/GYN department at University of South Florida. Dr. Swor was the inventor of SutureMate(R) and Prostasert(TM) and the original holder of the patents issued to each of these products. Dr. Swor has written numerous articles, published the "Surgical Safety Handbook," and given numerous lectures on safety and efficiency in the surgical environment. His professional affiliations include American College of Surgeons, American College of Obstetrics and Gynecology and the Florida Medical Association. From 1996 until the present, Dr. Swor has acted as an independent consultant for Concise Advise which provides consulting services related to product development, patent, research, distribution, joint venture, mergers and other business issues. From 1994 through 1996, Dr. Swor oversaw the operation of WDC. From 1987 through 1995,Dr. Swor was the managing partner of Women's Care Specialists/Physicians Services Inc. where he oversaw four (4) physicians, two (2) practitioners and a staff of over twenty five (25). From 1987 through 1992, Dr. Swor was a partner and board member of Women's Ambulatory Services, Inc., a diagnostic testing facility. From 1982 through 1985, Dr. Swor was the President of University of Florida at Jacksonville, Health Sciences Center resident staff association with over 200 members. Dr. Swor received a B.A degree in 1978 from the University of South Florida, a M.D. degree from the University of South Florida College of Medicine in 1981, and an M.B.A. degree from the University of South Florida in 1998. From 1981 through 1985 he received his training in OB/GYN from the University of Florida Department of Obstetrics and Gynecology in Jacksonville, Florida. He has received several special achievement awards including being honored by the University of South Florida in May, 1998 with the Alumni Award for Professional Achievement. Frank M. Clark, age 66, has served as a Director, CEO and President since June, 1998. Mr. Clark is responsible for the day to day operations of the Company and is responsible for new product development and manufacturing and manages new business ventures, including mergers, acquisitions, joint ventures, strategic alliances and licensing/distribution agreements for the Company. From 1991 to 1997, Mr. Clark was Chairman and CEO of Corporate Consulting Services Group where his primary activities were providing consulting services to start-up companies, under-performing companies and training people in career transitions. From 1984 to 1991, Mr. Clark was COO and Executive Vice President of Right Associates, a consulting firm with responsibilities for business development with Fortune 100 corporations for which he acted. He acquired a Los Angeles based consulting firm and became the Managing Principal. From 1981 to 1984, Mr. Clark was a Vice President of National Medical Care, a subsidiary of W.R. Grace, Inc. where his innovative marketing leadership helped the company recapture a dominant share of the dialysis market. From 1978 to 1981, Mr. Clark served as President, Corporate Vice President and a Director of R.P. Scherer, Inc., the world's leading producer of soft gelatin capsules where he was in charge of worldwide businesses. From 1959 to 1984, Mr. Clark was employed by Johnson & Johnson, Inc., first with Ethicon, Inc. where he served as a Vice President and Director, then with Ethnor Medical Products where he was a Vice President, General Manager and a Director and then with Stimulation Technology, where he served as Executive Vice President and a Director. From 1956 to 1958, Mr. Clark was employed by Federated Department stores in the executive training program at Bloomingdales in New York City. Mr. Clark received a certificate from Teachers College in Connecticut in 1955. Donald K. Lawrence, age 35, has served as a Director, Vice President, Sales & Marketing and Secretary since May, 1997 and Executive Vice President since January, 1998. Mr. Lawrence's responsibilities include sales management, market planning, advertising, and management for Compliance PlusTM products and most recently he has become the Executive Director of OASiS. His arrival to the Company was facilitated by the Company's acquisition in 1997 of InterActive PIE Multimedia, Inc., of which Mr. Lawrence was founder and Chief Executive Officer. From February 1996 until February 1997, Mr. Lawrence was the CEO of InterActive PIE. From December 1991 until February 1996, Mr. Lawrence was employed by Ethicon Endo-Surgery/Johnson & Johnson as a surgical sales representative. From July 1989 until December 1991, Mr. Lawrence acted as a surgical sales representative for Davis and Geck. Prior to entering the area of medical device sales, from February 1985 until July 1989, Mr. Lawrence was an account executive with DHL Worldwide Express. During college, Mr. Lawrence was an independent dealer for Southwestern Publishing Co. Mr Lawrence received a B.S degree in Marketing and Communications in 1984 from Appalachian State University. David Collins, age 57, has served as a Director since January 1999 and its Acting Chief Financial Officer since March 1999. Mr. Collins responsibilities include overseeing the financial affairs of the Company on a part time basis and he is currently engaged as a consultant to the Company. Mr. Collins devotes such time as is necessary to fulfill his duties to the Company. During 1997 and 1998, Mr. Collins was Controller for the Sales and Marketing Division for GES Exposition Services, a subsidiary of the NYSE listed Viad Corporation. From 1993 to 1996, Mr. Collins was General Manager and Chief Financial Officer of Spectra Services Corporation. From 1989 to 1992, Mr. Collins was a Partner and Consultant to Quantum Corporation, a venture capital firm. From 1977 to 1988, Mr. Collins rose from Controller to Vice President of Finance (1982) and then to Vice President of Finance and Chief Financial Officer (1984) of R.P. Scherer Corporation, a NYSE listed company. From 1975 to 1977, Mr. Collins was Vice President and Controller of Wheelhorse Products, a subsidiary of American Motors/Chrysler. From 1971 to 1975, Mr. Collins rose from Controller of the Midwest Dental Division to Vice President and Controller of the American Hospital Division of American Hospital Supply Corporation (1974). From 1969 to 1971, Mr. Collins was a Senior Auditor and Consultant in Public Accounting with Deloitte & Touche. Mr. Collins received a BSBA from Northwestern University in 1964 and a MBA from the Kellogg Graduate School of Management at Northwestern University in 1967. He became a Certified Public Accountant in the State of Illinois in 1971. James D. Stuart, age 40, has served as a Director since 1993, initially acting as Director of Marketing and Sales. Mr. Stuart served as Executive Vice President from 1993 until June, 1998 and initially acted as the Director of Marketing and Sales. During his time as an officer of the Company, Mr. Stuart was responsible for new product development and manufacturing and manages new business ventures, including mergers, acquisitions, joint ventures, strategic alliances and licensing/distribution agreements for the Company. From November 1994 until July 1996, Mr. Stuart acted as President and CEO of WDC and was responsible for managing and operating the facility. From March 1986 until May 1993, Mr. Stuart was employed by Liquid Air Corporation, Buld Gases Division first as a Business Manager for South Florida and then as a Program Manager for Food Freezing. From February 1981 until February 1986, Mr. Stuart was employed by NCR Corporation in the Systemedia Division initially as a Territory Manager and then as a Senior Account Manager. Mr. Stuart received a B.A. degree in marketing in 1980 from the University of South Florida. Irwin Newman, age 50, has served as a Director since 1993 Currently, Mr. Newman provides financial advisory services to the Board of Directors. From 1993 to the present, Mr. Newman has served as the President and CEO of Jenex Financial Services, Inc. ("Jenex"). Mr. Newman is the principal of Jenex. Mr. Newman is and has been a practicing attorney since 1973. From 1993 to 1998, Mr. Newman served as Vice President and General Counsel for Boca Raton Capital Corporation, a publicly owned, NASDAQ listed investment holding company where he completed an Initial Public Offering for a $4 million subsidiary, completed a $3.5 million secondary offering and was responsible for shareholder and investor relations. From 1983 to 1988, Mr. Newman served with the New York Stock Exchange firms of Gruntal & Co. and Butcher and Signer, specializing in common and preferred stocks, options, municipal and corporate bonds and GNMA's. During part of this period, he broadcast a daily television market comments program over the Financial News Network. Mr. Newman received a B.S. degree in Business Administration from Syracuse University in 1970 and a J.D. degree from the University of Florida in 1973. Sam Norton, age 39, has served as a Director since 1992. Mr. Norton provides business and legal advisory services to the Board of Directors. Mr. Norton is an attorney with the firm Norton, Gurley, Hammersley & Lopez, P.A. in Sarasota, Florida. Mr. Norton practices primarily in the areas of real estate, banking, corporate and business transactions and is a Florida Bar board certified real estate specialist, having earned such certification in 1991. He has practiced law in Sarasota since 1985 and is the past Chairman of the Joint Committee of the Sarasota Board of Realtors/Sarasota County Bar Association. Mr. Norton is active in Sarasota civic organizations and currently serves as a member of the Board of Directors of Sarasota Bank. Mr. Norton graduated from the University of Florida in 1981 and earned a J.D. degree from Stetson University School of Law in 1984 where he graduated Cum Laude. While in law school, Mr. Norton was chosen to serve on the Law Review. He was admitted to the Florida Bar in 1985. David Swor, age 66, has served as a Director since 1992. Mr. Swor, who is the father of Dr. Swor, provides business advisory services for the Board of Directors. From 1985 until the present, Mr. Swor had been engaged in the real estate brokerage business as the owner of Swor, Inc. The firm specializes in the development of commercial real estate properties along with operating other related business interest, holdings and investment properties. From 1992 to the present, Mr. Swor has been a member of the Board of Directors of SunTrust Bank in Sarasota, Florida. From 1974 until 1985, Mr. Swor was a co-owner of the real estate firm of Swor & Santini, Inc. which specialized in commercial real estate and investments. From 1973 until 1975, Mr. Swor was a realtor with Russ Gorgone, Inc.. From 1971 until 1973, Mr. Swor was Vice President and co-owner of Carroll Oil Company, which operated a Texaco distributorship in Fort Myers, Florida. From 1959 until 1971, Mr. Swor was a salesman for Texaco and from 1958 until 1959, Mr. Swor was in advertising sales for the Orlando Sentinel Star. Mr. Swor received a B.A. degree from the University of Kentucky in 1955 and holds teaching certificates from the states of Kentucky and Florida. Tom DeCesare, age 66, has served as a Director since 1992. Mr. DeCesare, who is the father in law of Dr. Swor, provides business advisory services for the Board of Directors. Mr. DeCesare has been the Mayor of Madeira Beach, Florida since August 1993. Prior to that time, he served as Vice Mayor from April 1993 and as a Commissioner from April 1991 until April 1993. From 1967 until 1987, was employed by Metropolitan Life Insurance Company where he ended his career as a Vice President. Mr. DeCesare received a Bachelor of Arts degree from the University of Minnesota in 1959. William B. Saye, MD, FACOG, FACS, age 59, has served as Medical Director of ALTC VirtualLabs since November 1998 and as a Director since January, 1999. Dr. Saye is the founder, CEO and Medical Director of ALTC. ALTC was started in 1990. Dr. Saye is also the Clinical Assistant Professor of OB/GYN for Emory University School of Medicine in Atlanta, Georgia. Dr. Saye, with another pioneering surgeon, made medical history when he performed the first laparoscopic cholecystectomy (removal of the gall bladder) in the United States. In the past nine (9) years, Dr. Saye has been instrumental in training more than 15,000 surgeons in various laparoscopic techniques and spearheaded the development of a new minimally invasive therapy, laparoscopic Doderlien hysterectomy. Dr. Saye received a BS from Georgia Institute of Technology in 1962 and his MD degree from Tulane University Medical School in 1965. Dr. Saye is board certified in Obstetrics and Gynecology and in Advance Operative Paparoscopy. Dr. Saye is the author of numerous articles on laparoscopic surgery and techniques. Scientific Advisory Board In addition to the officers and directors of the Company, Surgical has a scientific advisory board which has provided advisory input on products, research and educational projects for the Company. Inactive members of this board can be called on to address issues which arise in ongoing research and development projects. Active/Inactive status depends upon the level of participation in the Company's current activities. Scientific Advisory Board members receive no salaries for their services but are compensated for any reasonable out of pocket expenses incurred on behalf of the Company. Included on such board are the following: Mark Davis, M.D. OB/GYN Physician & Safety Consultant DeKalb Medical Center Atlanta, Georgia Donna Haiduven, RN/C.I.C. Infection Control Specialist Santa Clara Valley Medical Center San Jose, California Robert Morrison, M.D. Optometrist/Chairman, Morrison International New York, New York Gail Lebovic, M.D. (Inactive) Breast Surgeon Co-Founder, Bay Area Breast Center Palo Alto, California Sharon Tolhurst, RN, MBA Director, Cape Surgery Center Sarasota, Florida John Nora, M.D. General Surgeon Sarasota, Florida George Maroulis, M.D. (Inactive) Professor, University of South Florida College of Medicine, Department of OB/GYN Marguerite Barnett, M.D. (Inactive) Plastic Surgeon Venice, Florida Ruth Dyal, M.D. (Inactive) OB/GYN, Women's Care Specialists Sarasota, Florida Neil Pollack, M.D. OB/GYN, Women's Care Specialists Sarasota, Florida Michael Shroder, M.D. OB/GYN, Women's Care Specialists Sarasota, Florida Galen Swartzendruber, M.D. OB/GYN, Women's Care Specialists Sarasota, Florida Phyliss Barber FDA Compliance Consultant Sarasota, Florida Anne Johnson, O.R.T. Surgical Technician Columbus, Ohio Andrew Garlisi, M.D. Emergency Medicine LaPorte, Indiana Dr. Nathan Belkin Former Researcher and Author in the infection control field Scott Silverstein, M.D. Occupational Health and Information Systems Specialist Wilmington, Delaware Gail Vallone Operating Room Technologist Las Vegas, Nevada OASiS Medical Advisory Panel In addition to the officers and directors of the Company, Surgical has a medical advisory panel which approves, edits and contributes to content information for the OASiS system. Medical Advisory Panel members receive no salaries for their services but are compensated for any reasonable out of pocket expenses incurred on behalf of the Company. Included on such panel are the following: Michael Abidin, MD Nathan Belkin, PhD Trish Carlson, RN, CEN, CFRRN Dorothy Corrigan, RN Mark Davis, MD Donna Haiduven, BSN, MSN, CIC Pamela Hart, CLS Richard Howard, MD James Li, MD Mark Lipman, MD James A. McGregor, MD CM Trista Negele, MD Heidi M. Stephens, MD Pam Tenaerts, MD Steven Weinstein, MT Item 6. Executive Compensation:
Long Term Compensation ------------------------------ Annual Compensation Awards Payouts --------------------------------- --------------------- ------- (a) (b) (c) (d) (e) (f) (g) (h) (i) Name Other Restricted Securities All Other and Annual Stock Underlying LTIP Compen- Principal ($) ($) Compen- Award(s) Options/ Payouts sation ($) Position Year Salary Bonus sation ($) (1) - - --------------------------------------------------------------------------------------------- G. 1996 - 5,280 Michael 1997 - 4,877 Swor, 1998 32,500 5,400 Chairman of the Board and Treasurer (2) - - --------------------------------------------------------------------------------------------- Frank M. 1996 - Clark 1997 - President 1998 32,731 50,000 70,417 and CEO (3) - - --------------------------------------------------------------------------------------------- Donald 1996 - K. 1997 16,675 13,657 Lawrence 1998 57,278 17,604 Executive Vice President (4) - - --------------------------------------------------------------------------------------------- James D. 1996 49,536 8,944 Stuart 1997 47,166 5,676 Former 1998 6,000 4,020 Executive Vice President (5) - - ---------------------------------------------------------------------------------------------
(1) All other compensation includes certain health and life insurance benefits paid by the Company on behalf of its employee. (2) Dr. Swor did not receive any salary prior to June 1998 at which time the Company and he executed an Employment Agreement for a salary of $60,000 per year. Other compensation includes life insurance paid by the Company. (3) Mr. Clark executed an Employment Agreement with the Company in June 1998 for an annual salary of $60,000. As a signing bonus, Mr. Clark received 50,000 shares of restricted stock in the Company which is valued at $50,000 and options to purchase 200,000 shares of the Company's Common Stock at an exercise price of $1.75 per share. The Company's options have no current trading value. (4) Mr. Lawrence executed an Employment Agreement with the Company in May 1997 for an annual salary of $50,000. As consideration for the acquisition of the assets of Endex, Mr. Lawrence received 250,000 shares of restricted stock in the Company. Such shares were valued at the asset value of $13,657. In June 1998, the Company granted Mr. Lawrence options to purchase 100,000 shares of the Company's Common Stock at an exercise price of $1.75 per share. The Company's options have no current trading value. (5) Mr. Stuart acted as the Executive Vice President of the Company until June, 1998. Other compensation includes a portion of his health insurance premiums which were paid by the Company and life insurance. Year End Option Values for Executive Officers
Name Exercised Value Realized No. of Value of Unexercised Unexercised Exercisable/ Exercisable/ Unexercisable Unexercisable - - -------------------------------------------------------------------------------- G. Michael 0 0 3,850,686/ 473,634/ Swor 0 0 Frank M. Clark 0 0 200,000/ 0/ 0 0 Donald K. 0 0 100,000/ 0/ Lawrence 0 0 James D. Stuart 0 0 (1) (1)
(1) Mr. Stuart was not an executive officer at the year end 1998 and the number of unexercised exercisable/unexercised and the value of unexercised exercisable/unexercised options were not included in this table. In November 1998, the Company entered into a seven (7) year collaborative agreement with Dr. William B. Saye, the Medical Director and CEO of the Advanced Laparoscopy Training Center in Marietta, Georgia ("ALTC") under which the Company acquired the "digital rights" of ALTC and the resulting amalgam as it relates to surgical education and marketing rights to the ALTC database. Under this agreement, Dr. Saye became a member of the Company's Board of Directors and agreed to act as the Medical Director of ALTC VirtualLabs. Dr. Saye is to be compensated for travel expenses and will be paid an honorarium of $2,500 per day when his services are requested by Surgical. In addition, Dr. Saye was awarded stock options to purchase up to 1,000,000 shares of the Company's Common Stock over the period, 300,000 of which were issued upon the execution of the agreement, and the balance of which are issuable monthly. The intention of the agreement is that any educational activity involving ALTC or Dr. Saye on the Internet or other digital presence would be the property of and under the control of Surgical. (See Part I, Item 7. "Certain Relationships and Related Transactions.") Except for certain shares of the Company's Common Stock issued and sold and options granted to the ten (10) executive officers and/or directors of the Company in consideration for various cash, loans and services performed for the Company by each of them, and rent paid to a company controlled by Dr. Swor for the Company's facility, cash or non-cash compensation in the amount of $276,083 was awarded to, earned by or paid to executive officers or directors of the Company for all services rendered in all capacities to the Company since January 1, 1996. The Company has adopted an Employee Stock Option Plan and a Consultant Stock Option Plan. See Part I, Item 6. "Executive Compensation - Employee and Consultants Stock Option Plans." Employee Contracts and Agreement The Company has entered into Employee Agreements with Dr. Swor, Mr. Clark and Mr. Lawrence. The agreement with Dr. Swor was entered into on June 15, 1998. Dr. Swor is employed as the Treasurer and Medical Director of the Company at an annual salary of $60,000. The agreement is for a term of one (1) year, which term is renewable year to year unless either party provides notice to the other within fourteen (14) days prior to the expiration that it seeks to terminate the agreement. Dr. Swor is required to devote such time as is required to fulfill his duties to the Company. Dr. Swor is reimbursed reasonable and necessary expenses incurred on behalf of the Company. Prior to the execution of this agreement, Dr. Swor received no salary for his services to the Company since its inception. The agreement with Mr. Clark was entered into on June 15, 1998. Mr. Clark is employed as the President and CEO of the Company for a term of one (1) year at a salary of $60,000, which term is renewable year to year unless either party provides notice to the other within fourteen (14) days prior to the expiration that it seeks to terminate the agreement. Mr. Clark is required to devote such time as is required to fulfill his duties to the Company. Mr. Clark is reimbursed reasonable and necessary expenses incurred on behalf of the Company. Mr. Clark received a signing bonus of 50,000 shares of restricted stock in the Company and was granted options to purchase 200,000 shares of the Company's Common Stock at an exercise price of $1.75 per share. The agreement with Mr. Lawrence was entered into on April 1, 1997. Mr. Lawrence is employed as the Marketing Director of the Company for a term of one (1) year at a salary of $50,000, which term is renewable year to year unless either party provides notice to the other within fourteen (14) days prior to the expiration that it seeks to terminate the agreement. Commencing January 1, 1998, Mr. Lawrence became the Executive Vice President of the Company. Mr. Lawrence is required to devote such time as is required to fulfill his duties to the Company. Mr. Lawrence is reimbursed reasonable and necessary expenses incurred on behalf of the Company. Key Man Life Insurance The Company currently does not maintain key-man life insurance coverage on any of its officers or directors. However, the Company is the named beneficiary of a key-man life insurance policy currently owned by Dr. Swor. Employee and Consultants Stock Option Plans Employee Stock Option Plan On July 21, 1994, the Board of Directors adopted an Employee Stock Option Plan which is available to employees and Directors of the Company ("ESOP"). Pursuant to the ESOP, employees are given the opportunity to purchase a designated number of shares of the Company's common stock at a pre-set flat rate. The options are granted for a period of seven (7) years and are not transferable except by will or laws of descent and distribution. The options may not be exercised unless the Company has filed an effective registration statement on Form S-8 relating to the shares underlying the option. As to employees who are not also directors, such employees must agree to remain with the Company for a period of two (2) years from the date the option is granted. In the event that such employee is terminated during such two (2) year period for cause or at the request of the employee, to the extent any options have not been exercised, the options terminate immediately upon the termination of the employee. If termination is for any other reason, the employee has two (2) months from the date of termination to exercise. In the case of death, the options must be exercised within the lesser of (i) three (3) years from the date of death or (ii) five (5) years from the option issuance date. In the case of the capital restructure of the Company, the options are effective as if exercised prior to the capital restructuring event. The employee is limited to exercise the equivalent of $100,000 of Common Stock in the Company in any calendar year. In January, 1998, the Board of Directors revised the term of the ESOP ("1998 Revised ESOP"). Under the revised plan, the term is now determined by a Committee consisting of Frank Clark, Thomas DeCesare and Sam Norton (the "Stock Option Committee"). The Stock Option Committee is evaluating recommendations for adjusting stock compensation for the Company employees and consultants. In January, 1999, the Board of Directors further revised the ESOP ("1999 Revised ESOP"). Under the further revised plan which is designated the "Surgical Safety Products 1999 Stock Option Plan", employees qualify for issuance of Incentive Stock Options under Section 422 of the Internal Revenue Code, as amended, Non-incentive Stock Options and Reload Options. Directors, consultants and advisors who are issued options under the plan only qualify for Non- incentive Stock Options and Reload Options. All of the options under this plan terminate ten (10) years (except those issued to 10% or more shareholders, in which case they terminate in five (5) years) from issuance and vest for employees at the rate of one-third each year for three (3) years and vest as established by the Stock Option Committee for Directors, Consultants and Advisors. The plan is overseen by the Board of Directors or the Stock Option Committee and all issuances are at fair market value as defined in the plan (and 110% of fair market value in the case of a 10% or more shareholder). The plan provides the exercise rights on death, disability or termination of employment. The Company may, at its option, provide change of control rights to designated persons and if granted, the option holder is entitled to certain cash payments on all options granted whether or not vested if the Company changes control. Pursuant to the ESOP, the Company has granted options to purchase 4,166,316 shares of the Company's Common Stock representing proceeds on exercise of $1,320,000 under the 1994 ESOP, 708,333 shares of the Company's Common Stock representing proceeds on exercise of $683,333 under the 1998 Revised ESOP (without regard to the additional options to Dr. Saye which accrue at the rate of 8,333 per month) and 193,000 shares of the Company's Common Stock representing proceeds on exercise of $193,000 under the 1999 Revised ESOP to date as follows:
Employee Date Option No. of Exercise Price Term Granted Share subject Years to Exercise - - ------------------- ----------- ------------ -------------- ----- 1994 ESOP (1) G. Michael Swor (2) 07/21/94 3,850,686 $ .317 7 Irwin Newman (3) 07/21/94 63,126 $ .317 7 James D. Stuart 07/21/94 63,126 $ .317 7 Samuel Norton 07/21/94 63,126 $ .317 7 David Swor 07/21/94 63,126 $ .317 7 Thomas DeCesare 07/21/94 63,126 $ .317 7 1998 Revised ESOP Frank M. Clark (4) 06/15/98 200,000 $1.00 7 Donald L. Lawrence (4) 06/15/98 100,000 $1.00 7 Stacy Quaid (4) 01/01/98 50,000 $0.50 7 Mike Williams (4) 08/03/98 50,000 $1.00 7 William B. Saye (5) 11/20/98 308,333 $1.00 7 1999 Revised ESOP G. Michael Swor (2) 1/01/99 10,000 $1.00 10 Frank M. Clark 1/01/99 10,000 $1.00 10 Donald L. Lawrence 1/01/99 10,000 $1.00 10 Mike Williams 1/01/99 5,000 $1.00 10 Mike Williams 1/08/99 50,000 $1.00 10
Leann Lafko-Spofford 1/01/99 5,000 $1.00 10 Leann Lafko-Spofford 1/08/99 50,000 $1.00 10 Stacy Quaid 1/01/99 3,500 $1.00 10 Stacy Quaid 1/08/99 21,500 $1.00 10 Eric Hill 1/01/99 3,000 $1.00 10 Eric Hill 1/08/99 25,000 $1.00 10
- - -------------------------------------------------------------------------------- (1) The options granted under the 1994 ESOP have been adjusted to reflect the new conversion rate in accordance with the capital restructuring provision which came into effect when Surgical Safety Products, Inc. of Florida merged into Sheffeld Acres, Inc., the surviving New York corporation. (2) Dr. Swor received options for 63,126 shares of the Company's Common Stock as a Director and options for 3,787,560 shares of the Company's Common Stock in exchange for transfer of patents and rights to existing patent concepts. Dr. Swor was granted Non Incentive Stock Options under the 1999 Revised ESOP. (3) In addition to the options granted to Mr. Newman for 63, 126 shares of the Company's Common Stock as a Director of the Company, options to purchase up to 315,630 shares of the Company's Common Stock were granted to Jenex Financial Services, Inc., a company of which Mr. Newman is the principal. Jenex is a financial service company which was issued the options under the Company's 1994 CSOP. (4) Each of these four (4) employees received their options as a bonus; Mr. Clark's as an additional incentive to join the Company as its CEO, Mr. Lawrence and Ms. Quaid in consideration of outstanding services to the Company for the prior year and Mr. Williams as an additional incentive to join the Company as the Sales Manager. Although the options granted to Mr. Clark, Mr. Lawrence and Mr. Williams were exercisable at $1.75 per share, the Board of Directors on January 20, 1999 voted to reduce the exercise price to $1.00. Since the change was made after December 31, 1998, the original exercise price was used in the financial statements for purposes of determining weighted averages. In addition, the Board of Director at the January 1999 meeting increased the term of Mr. Clark's options from one (1) to seven (7) years. (5) Dr. Saye received 300,000 issued on November 20, 1998. Dr. Saye is to receive additional 100,000 options per year on a monthly basis. Accordingly, 8,333 options are attributable for the month of December 1998. The exercise price for the options is $1.00 for year one, $1.50 for year two, $2.00 for year three and $2.50 for years 4 through 7. On July 21, 1994, the Board of Directors also adopted a Consultant Stock Option Plan which is available to certain consultants who provide services to the Company ("CSOP"). Pursuant to the CSOP, consultants are given the opportunity to purchase a designated number of shares of the Company's common stock at a pre-set flat rate. The options are granted for a period of seven (7) years and are not transferable except by will or laws of descent and distribution. The options may not be exercised unless the Company has filed an effective registration statement on Form S-8 relating to the shares underlying the option. In the event the consultant's services are terminated, such consultant has two (2) months from the date of termination in which to exercise and in the case of death, the estate has the lesser of (i) three (3) years from the date of death or (ii) five (5) years from the option issuance date in which to exercise. In the case of the capital restructure of the Company, the options are effective as if exercised prior to the capital restructuring event. There are no yearly limitation on the amount of options which may be exercised by consultants. In January, 1998, the Board of Directors revised the term of the CSOP ("1999 Revised CSOP"). Under the revised plan, the term is now determined by the Stock Option Committee. The 1998 CSOP requires that the options are not exercisable for a period of two (2) years from issuance In January, 1999, the Board of Directors adopted the 1999 Revised ESOP which covers consultants and advisors to the Company. Pursuant to the CSOP, the Company has granted options to purchase 346,115 shares of the Company's Common Stock representing proceeds of $110,700 to the Company under the 1994 CSOP, options to purchase29,000 shares of the Company's Common Stock representing proceeds of $39,500 to the Company under the 1998 Revised CSOP and 115,000 shares of the Company's Common Stock representing proceeds of $115,000 under the 1999 Revised ESOP to date as follows:
Consultant/ Date No. of Exercise Price Term Services Rendered Option Share subject Years Granted to Exercise - - ------------------------- --------- ------------- -------------- ----- 1994 CSOP(1) Danielle Chevalier 07/21/94 3,156 $.317 7 For marketing assistance at conventions Donna Haiduven 07/21/94 15,782 $.317 7 For medical advisory and clinical studies Jenex Financial Services Inc. (2) 07/21/94 315,630 $.317 7 For financial advisory and corporate financing consulting services Leann Swor 07/21/94 6,313 $.317 7 For marketing assistance at conventions Loren Schuman 07/21/94 4,734 $.480 7 For marketing consulting services Bruce Cohen 01/24/95 500 $0.90 7 Performed business valuations of acquisition candidates 1998 Revised CSOP
Danielle Chevalier 01/01/98 2,000 $0.50 7 For marketing assistance at conventions Leann Swor 01/01/98 2,000 $.050 7 For marketing assistance at conventions T.T. Communications 10/15/98 25,000 $1.50 7 For investor relations services 1999 Revised ESOP David Collins (3) 01/01/99 10,000 $1.00 10 For financial consulting services David Collins (3) 01/19/99 65,000 $1.00 10 For financial consulting services Scott Heap, Ad-Vantagenet 01/8/99 20,000 $1.00 10 For OASiS development services Ray Villares, Ad-Vantagenet 01/8/99 20,000 $1.00 10 For OASiS development services
- - -------------------------------------------------------------------------------- (1) The options granted under the 1994 CSOP have been adjusted to reflect the new conversion rate in accordance with the capital restructuring provision which came into effect when Surgical Safety Products, Inc. of Florida merged into Sheffeld Acres, Inc., the surviving New York corporation. (2) These options were granted to Jenex in exchange for certain financial services provided to the Company. Mr. Newman, a Director of the Company, is the principal of Jenex. Mr. Newman is deemed the beneficial owner of these options. (3) David Collins received these options as a consultant to the Company prior to his election to the Board of Directors on January 20, 1999. Compensation of Directors The Company has no standard arrangements for compensating the directors of the Company for their attendance at meetings of the Board of Directors. Item 7. Certain Relationships and Related Transactions: On June 1, 1992, the Company issued 11,300 shares of the Company's restricted stock to Dr. Swor and 2,000 shares to Mrs. Swor (of which Dr. Swor is deemed the beneficial owner) each in exchange for services rendered to Surgical valued at a total of $1,400. Following the merger with Sheffeld Acres, Inc., these shares were converted into 4,197,879 shares in the restructured company. In 1996, Dr. Swor received 478,630 shares of restricted stock as payment of debt and related interest on loans which Dr. Swor made to the Company totaling $239,315. In 1996, Dr. Swor gifted 816,619 of his shares to James D. Stuart. In September, 1996 Savannah Leasing purchased the Company's executive office building at 2018 Oak Terrace with cash from Dr. Swor and 50,000 shares of his stock which were valued at $0.50 per share. These shares were transferred to the third party seller. At December 31, 1997, the Company was indebted to Dr. Swor in the amount of $197,720. In addition, the Company was indebted to Savannah Leasing, a company owned by Dr. and Mrs. Swor. The amount owed at December 31, 1997 was $36,000. Interest on the notes was 10.0%. At December 31, 1997, interest payable on these loans totaled $17,667. Out of the proceeds of the sale of the Company's Common Stock during the period of March 1998 through June 1998, the Company made repayment of principal and interest on the 1997 indebtedness. During fiscal 1998, Dr. Swor loaned the Company an additional $23,000. The balance of these notes payable was repaid during fiscal 1998 and at December 31, 1998, there was not amounts due to Dr. Swor. Interest expense relating to these notes amount to $9,882 and $15,314 for the years ended December 31, 1998 and 1997 respectively. Dr. Swor has a year to year employment contract with the Company. (See Part I, Item 6. "Executive Compensation - Employee Contracts".) On June 1, 1992, the Company issued 1,500 shares of restricted stock to David Swor for which it received $15,000. Following the merger with Sheffeld Acres, Inc., these shares were converted into 473,445 shares in the restructured company. On November 5, 1992, the Company issued 120 shares of the Company's restricted stock to Sam Norton for which it received $6,000. On March 1, 1993, the Company issued 34 shares of the Company's restricted stock to Sam Norton for which it received $2,000. Following the merger with Sheffeld Acres, Inc., these shares were converted into 48,607. In 1996, the Company issued 4,793 shares of the Company's restricted stock to Mr. Norton as payment for legal services valued at $4,793. On March 1, 1993, the Company issued 100 shares of the Company's restricted stock to James D. Stuart and David Stuart jointly for which it received $6,000. On May 9, 1993, the Company issued 100 shares of the Company's restricted stock to Mr. Stuart in exchange for services rendered valued at par. Following the merger with Sheffeld Acres, Inc., these shares were converted into 63,126. In 1996, Mr. Stuart received 816,619 shares of restricted stock from Dr. Swor as a gift. On March 1, 1993, the Company issued 30 shares of the Company's restricted stock to Tom DeCesare in exchange for services rendered valued at par. Following the merger with Sheffeld Acres, Inc., these shares were converted into 9,469. On July 21, 1994, the Board of Directors adopted the 1994 ESOP and awarded options to purchase the post-merger equivalent of 63,126 shares of the Company's Common Stock to each of the Company's six (6) directors at an exercise price of $.317. There was no value attached to the grant of such options. At the same time, the Company awarded Dr. Swor options to purchase 3,787,560 shares of the Company's Common Stock at an exercise price of $.317 in exchange for the transfer of certain patents and rights to previously patented concepts to the Company, which patents and rights were valued at approximately $1,200,000. On July 21, 1994, the Board of Directors also adopted the 1994 CSOP under which it awarded options to purchase the post-merger equivalent of a total of 346,115 shares of the Company's Common Stock. These options were granted to consultants in consideration of services valued; however, there was no value attached to the grant of such options. On December 8, 1997, the Company acquired all of the assets of Endex Systems, Inc., d/b/a InterActive PIE ("Endex"), a Florida corporation. The assets of Endex were valued at approximately $14,000 for which the Company issued 250,000 shares of restricted common stock. Endex was a medical multimedia software company, experienced in computer graphics related to the medical industry. The acquisition was made to implement the Company's Data Systems Division's development of its surgical safety, touch-screen network known as OASiS. The President and Chief Executive Officer ("CEO") of Endex, Donald Lawrence, became the Vice President of Sales and Marketing of the Company. Mr. Lawrence has a year to year employment contract with the Company. (See Part I, Item 6. "Executive Compensation - Employee Contracts".) In consideration of outstanding service to the Company in 1997, Mr. Lawrence was granted an option to purchase 100,000 shares of the Company's Common Stock at a price of $1.75 under the 1998 Revised ESOP. In January 1999, the Board voted to reduce the exercise price on the option to $1.00 per share. There was no value attached to the grant of such options. In March 1998, the Company entered into an agreement with Stockstowatch, whereby Stockstowatch agreed to provide investor relations services as a media consultant to the Company in exchange for issuance of 300,000 shares of the Company's Common Stock valued at $45,000. On October 27, 1998, the SEC brought an action against Stockstowatch and its principal, Steven A. King, for injunctive and other relief to enjoin the defendants from touting and "scalping" securities in violation of the anti-fraud and anti-touting provisions of the federal securities laws (Securities and Exchange Commission v. Stockstowatch.com and Steven A. King, United States District Court, Middle District of Florida, Tampa Division, Case No. 98-2198-CIV-T-26B). The SEC alleges that since October 1997, the defendants touted the securities of at least five "microcap" companies, one of which is Surgical, over the Internet through e-mail sent to over 200,000 subscribers and on the defendant's website. The SEC has taken no action against Surgical nor has it made any allegations that the Company directly or indirectly acted improperly in this matter or was in any way involved in the alleged violations. In the Stockstowatch complaint, the SEC further alleges that almost every stock touted by the defendants (1) the volume and/or price increased sharply, sometimes as much as 200% shortly after the defendants' buy recommendations; and (2) the defendants took advantage of the market interest they created by selling into the inflated market large amounts of the stock they received in consideration of their promotional services. Further the SEC alleges that the defendants realized profits in excess of $1 million from sales of these securities. The SEC alleges that the defendants failed to disclose that they had received stock as compensation from the issuers of the securities they touted and did not disclose that they intended to sell the stock in contravention of their buy recommendations which is a fraudulent practice known as "scalping". The SEC is seeking permanent injunctive and equitable relief, including an accounting, disgorgement of gains with pre-judgement interest and civil penalties against each defendant. The SEC alleges, with reference to Surgical, that Surgical entered into a consulting agreement with Stockstowatch on March 19, 1998 in which Stockstowatch agreed to profile Surgical in exchange for 300,000 free-trading shares of its Common Stock. On the date the contract was executed, Surgical's Common Stock was trading at $.145. The shares were received by Stockstowatch on April 9, 1998, on which date Surgical's Common Stock closed at $.87. According to the Complaint, on April 21, 1998, Stockstowatch e-mailed the Surgical Profile to its subscribers. In the profile, Stockstowatch stated that Surgical "represents the most positive upside potential of any company we have profiled." This profile continued: "[a]s a result of our own independent due diligence, our industry insiders believe this stock will be a $20.00 stock within 18 months." The SEC states in its complaint that there was a small print disclaimer which accompanied the profile which stated that Stockstowatch had entered into a compensation agreement valued at $43,500, but that such disclaimer did not disclose that Stockstowatch received Surgical's Common Stock and that it intended to sell the stock after the profile. In March 1998, the Company issued 100,000 shares of the Company's Common Stock valued at $15,000 to Mintmire & Associates in exchange for legal services. In April 1998, the Company issued 2,500 shares of restricted stock to Xavier Calderon in exchange for computer consulting services valued at $4,375. On June 15, 1998, the Company engaged Frank M. Clark to act as the President of the Company. As such he received 50,000 shares of the Company's Common Stock as a signing bonus valued at $50,000 and options to purchase up to 200,000 shares of the Company's Common Stock at a price of $1.75 per share under the 1998 Revised ESOP. In January 1999, the Board voted to reduce the exercise price on the option to $1.00 per share and to increase the exercise term. Mr. Clark's shares were valued at $50,000 and there was no value attached to the grant of his options. Mr. Clark has a year to year employment contract with the Company. (See Part I, Item 6. "Executive Compensation - Employee Contracts".) In October 1998, the Company entered into an agreement with T.T. Communications, Inc. to provide investor relations services for the Company. T.T. Communications, Inc.'s function is to contact investment and media people throughout the United States and to participate in the preparation of communication packages including annual and quarterly reports, new and press releases and publicity and corporate profiles. The initial agreement is for a period of three (3) months for which T.T. Communications, Inc. receives $2,000 per month and reimbursement of out of pocket expenses. In addition, T.T. Communications, Inc. was granted options to purchase 25,000 shares of the Company's Common Stock at an exercise price of $1.50. In the event T. T. Communications, Inc. introduces the Company to a suitable financing source, they will be compensated by a cash finder's fee equal to 1.5% on the initial financing and .75% on any subsequent financing. The agreement is cancelable by either party with 30 days written notice. In November 1998, the Company entered into a seven (7) year collaborative agreement with Dr. William B. Saye, the Medical Director and CEO of the Advanced Laparoscopy Training Center in Marietta, Georgia ("ALTC") under which the Company acquired the "digital rights" of ALTC and the resulting amalgam as it relates to surgical education and marketing rights to the ALTC database. Under this agreement, Dr. Saye became a member of the Company's Board of Directors and agreed to act as the Medical Director of ALTC VirtualLabs. Dr. Saye is to be compensated for travel expenses and will be paid an honorarium of $2,500 per day when his services are requested by Surgical. In addition, Dr. Saye was awarded stock options to purchase up to 1,000,000 shares of the Company's Common Stock over the period, 300,000 of which were issued upon the execution of the agreement, and the balance of which are issuable monthly. The intention of the agreement is that any educational activity involving ALTC or Dr. Saye on the Internet or other digital presence would be the property of and under the control of Surgical. (See Part I, Item 7. "Certain Relationships and Related Transactions.") Pursuant to a settlement agreement dated December 1, 1998 relative to the litigation between the parties, the Company agreed to pay MediaWorks, a former consultant to Surgical $50,000 and to issue 40,000 shares of Rule 144 stock. See Part II, Item 2. "Legal Proceedings." Item 8. Description of Securities: Description of Capital Stock The Company's authorized capital stock consists of 20,000,000 shares of Common Stock, $.001 par value per share. Although the Board of Directors is authorized to issue shares of Preferred Stock and to set the par value thereon, none has been authorized to date. Description of Common Stock All shares of Common Stock have equal voting rights and, when validly issued and outstanding, are entitled to one vote per share in all matters to be voted upon by shareholders. The shares of Common Stock have no preemptive, subscription, conversion or redemption rights and may be issued only as fully-paid and non-assessable shares. Cumulative voting in the election of directors is not permitted; which means that the holders of a majority of the issued and outstanding shares of Common Stock represented at any meeting at which a quorum is present will be able to elect the entire Board of Directors if they so choose and, in such event, the holders of the remaining shares of Common Stock will not be able to elect any directors. In the event of liquidation of the Company, each shareholder is entitled to receive a proportionate share of the Company's assets available for distribution to shareholders after the payment of liabilities and after distribution in full of preferential amounts, if any, to be distributed to holders of the Preferred Stock. All shares of the Company's Common Stock issued and outstanding are fully-paid and nonassessable. Dividend Policy Holders of shares of Common Stock are entitled to share pro rata in dividends and distribution with respect to the Common Stock when, as and if declared by the Board of Directors out of funds legally available therefore, after requirements with respect to preferential dividends on, and other matters relating to, the Preferred Stock, if any, have been met. The Company has not paid any dividends on its Common Stock and intends to retain earnings, if any, to finance the development and expansion of its business. Future dividend policy is subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, capital requirements and the financial condition of the Company. Description of Preferred Stock Shares of Preferred Stock may be issued from time to time in one or more series as may be determined by the Board of Directors. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions thereof shall be established by the Board of Directors, except that no holder of Preferred Stock shall have preemptive rights. The Company has not issued any shares of Preferred Stock to date. The Board of Directors has no plan to issue any shares of Preferred Stock for the foreseeable future unless the issuance thereof shall be in the best interests of the Company. Transfer Agent and Registrar The Transfer Agent and Registrar for the Company's Common Stock is Signature Stock Transfer, Inc. which is located at Office in the Park, 14675 Midway Road, Suite 221, Dallas, Texas 75244, telephone (972) 788-4193, facsimile (972) 788-4194. PART II Item 1. Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters. (a) Market Information. The Common Stock of the Company trades on the OTC Bulletin Board under the symbol "SURG". The high and low bid information for each quarter for the years ending December 31, 1996, December 31, 1997 and December 31, 1998 are as follows:
Quarter High Bid Low Bid Average Bid ------------------- ----------- ------- ----------- First Quarter 1996 1/4 3/16 .218 Second Quarter 1996 3/4 1/8 .445 Third Quarter 1996 1/4 1/8 .177 Fourth Quarter 1996 1/4 1/8 .176 First Quarter 1997 1/4 3/32 .135 Second Quarter 1997 1/4 3/32 .106 Third Quarter 1997 3/8 1/8 .183 Fourth Quarter 1997 9/64 1/8 .132 First Quarter 1998 29/32 9/64 .215 Second Quarter 1998 3-1/8 11/16 2.299 Third Quarter 1998 2-9/64 1-9/64 1.646 Fourth Quarter 1998 31/32 17/32 .750
The quotations may reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not reflect actual transactions. (b) Holders. As of December 31, 1998, the Company has 1,080 shareholders of record of its 10,786,973 outstanding shares of Common Stock, 6,244,290 of which are restricted Rule 144 shares and 4,542,683 of which are free-trading. As of the date hereof, the Company has outstanding options to purchase 5,557,764 shares of Common Stock (without regard to the additional options to Dr. Saye which accrue at the rate of 8,333 per month). Of the Rule 144 shares, 5,177,386 shares have been held by affiliates of the Company for more than one (1) year. (c) Dividends. The Company has never paid or declared any dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. There are no limitations on the ability of the Company to declare dividends; except those set forth in New York Statute 510 which prohibits dividends if the Company is insolvent or would be made insolvent by the declaration of a dividend and all dividends must be made out of surplus only. Item 2. Legal Proceedings. In August 5, 1997, the Company entered into an agreement with Gambit, Inc., d/b/a MediaWorks ("MediaWorks") as a producer of record of the Surgical Safety Network, now known as OASiS. Pursuant to the agreement, MediaWorks estimated the cost of its work on the project at no more than $217,000, a portion of which was to be paid over a three (3) month period against billable hours, with the balance less $60,000 payable after the third payment at an amount equal to not less than fifty percent (50%) of Surgical's revenue stream after operating expenses, sales, marketing and hardware equipment costs for all installations after the SMH contract. Subject to on-time delivery of the work to be performed, Surgical agreed to pay, as a performance bonus, unrestricted Common Stock equal to twenty five percent (25%) of the total cost of the SMH project, with the number of shares determined by the value of the Company's Common Stock at the time of issuance. Further, it was understood that all material and production rights, including source codes and related documentation, upon completion of the presentation and payment of the outstanding balance, would become the property of Surgical. On July 13, 1998, the Company was served with a Summons and Complaint for an action brought against it by MediaWorks. (Gambit, Inc. d/b/a MediaWorks v. Surgical Safety Products, Inc., Circuit Court of the Twelfth Judicial Circuit, Sarasota County, Florida, Case No. 98-4022-CA-01) The Complaint sets forth three (3) causes of action: an action for specific performance demanding that Surgical issue 289,720 shares unrestricted shares based upon the twenty five percent (25%) of the cost of the SMH installation divided by the share price on February 20, 1998 of the Company's Common Stock; in the alternative seeking damages in the amount of $732,993 which was the number of shares determined by the formula multiplied by the share price on July 1, 1998 of the Company's Common Stock; and seeking an accounting based upon a dissolution of the partnership which MediaWorks alleges was formed with Surgical. On or about July 31, 1998, the Company filed Motions to Dismiss and for a More Definite Statement of Count II of the Company. The purpose of the Motion for a More Definite Statement is so that the plaintiff will clarify how they contend they are entitled to the stock bonus so that Surgical can frame its defense and show defects, delays and deficiencies in the performance by MediaWorks. Surgical believes that MediaWorks failed to perform on the contract since the OASiS version 1 software has problems and that MediaWorks failed to meet performance and delivery requirements as agreed. Therefore, the Company believed that it has just and meritorious defenses and counterclaims to this action. Pursuant to a settlement agreement dated December 1, 1998, the Company agreed to pay MediaWorks $50,000 and to issue 40,000 shares of Rule 144 stock. See Part II, Item 4. "Recent Sales of Unregistered Securities." MediaWorks was permitted to remove its software from SMH and agreed to return a computer to the Company. The suit was dismissed with prejudice and each party paid their own costs of the case. 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 3. Changes in and Disagreements with Accountants: The Company has used the accounting firm of Kerkering, Barberio & Co., P.A. since 1993. There address is 1858 Ringling Boulevard, Sarasota, Florida 34236. This firm began providing audited financial statements for the Company in 1994. There has been no change in the Company's independent accountant during the period commencing with the Company's retention of Kerkering, Barberio & Co., P.A. through the date hereof. Item 4. Recent Sales of Unregistered Securities: On June 1, 1992, the Company issued 11,300 shares of the Company's restricted stock to Dr. Swor and 2,000 shares to Mrs. Swor (of which Dr. Swor is deemed the beneficial owner) each in exchange for services rendered to Surgical valued at a total of $1,400. Following the merger with Sheffeld Acres, Inc., these shares were converted into 4,197,879 shares in the restructured company. In 1996, Dr. Swor received 478,630 shares of restricted stock as payment of debt and related interest on loans which Dr. Swor made to the Company totaling $239,315. In 1996, Dr. Swor gifted 816,619 of his shares to James D. Stuart. In September, 1996 Savannah Leasing purchased the Company's executive office building at 2018 Oak Terrace with cash from Dr. Swor and 50,000 shares of his stock which were valued at $0.50 per share. These shares were transferred to the third party seller. On June 1, 1992, the Company issued 1,500 shares of restricted stock to David Swor for which it received $15,000. Following the merger with Sheffeld Acres, Inc., these shares were converted into 473,445 shares in the restructured company. On November 5, 1992, the Company issued 120 shares of the Company's restricted stock to Sam Norton for which it received $6,000. On March 1, 1993, the Company issued 34 shares of the Company's restricted stock to Sam Norton for which it received $2,000. Following the merger with Sheffeld Acres, Inc., these shares were converted into 48,607. In 1996, the Company issued 4,793 shares of the Company's restricted stock to Mr. Norton as payment for legal services valued at $4,793. On March 1, 1993, the Company issued 100 shares of the Company's restricted stock to James D. Stuart and David Stuart jointly for which it received $6,000. On May 9, 1993, the Company issued 100 shares of the Company's restricted stock to Mr. Stuart in exchange for services rendered valued at par. Following the merger with Sheffeld Acres, Inc., these shares were converted into 63,126. In 1996, Mr. Stuart received 816,619 shares of restricted stock from Dr. Swor as a gift. For the transactions with Dr. Swor, Mrs. Swor, David Swor, Mr. Norton, James and David Stuart and Mr. DeCesare, the Company relied upon the exemption under Section 4(2) of the Act. Such reliance was based upon the fact that (i) the issuance of the shares did not involve a public offering and (ii) each of the parties is a sophisticated purchaser and had full access to the information on the Company necessary to make an informed investment decision by virtue of his or her position as an officer and director of the Company and or as an a party related to an officer or director. On May 30, 1995, the Company completed the preparation of a self-directed private placement memorandum offering shares of the Company's Common Stock and Warrants. This offering was conducted pursuant to Section 4(2) of the Act and Rule 506 promulgated under Regulation D of the Act to not more than thirty five (35) non accredited investors, Section 49:3- 50(b)(9) of the New Jersey Code to not more than 10 New Jersey investors and Section 517.061(11) of the Florida Code. The offering was amended on October 30, 1995. The basis for reliance upon the Section 4(2) exemption in connection with this transaction was (i) the sale of the shares of Common Stock did not constitute a public offering and (ii) the investors were sophisticated investors who had access to information on the Company necessary to make an informed investment decision by virtue of the disclosure in the offering memorandum and its amendment and the availability to ask questions of management of the Company. Although required by Regulation D under which Rule 506 offerings are made, the Company did not file a Form D with the SEC. In addition, one sale was made in the State of New York for which no registration was made and no exemption was available. The basis for reliance upon Section 49:3- 50(b)(9) of the New Jersey Code was (i) there were not more than 10 purchasers in the State of New Jersey; (ii) no commissions were paid for the sales in New Jersey; (iii) there was no form of general solicitation; and (iv) the purchaser acquired the shares with an investment purpose. The basis of reliance upon Section 517.061(11) of the Florida Code were(i) sales of the shares of Common Stock were not made to more than 35 persons; (ii) neither the offer nor the sale of any of the shares was accomplished by the publication of any advertisement; (iii) all purchasers either had a preexisting personal or business relationship with one or more of the executive officers of Surgical or, by reason of their business or financial experience, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction; (iv) each purchaser represented that he was purchasing for his own account and not with a view to or for sale in connection with any distribution of the shares; and (v) prior to sale, each purchaser had reasonable access to or was furnished all material books and records of the Company, all material contracts and documents relating to the proposed transaction, and had an opportunity to question the executive officers of the Company. Initially, the offering required a minimum investment of $5,000 in exchange for which an investor would receive 5,000 shares of Common Stock, $.001 par value per share and three-year warrants to purchase 2,500 shares of the Company's Common Stock at an exercise price of $1.50. Pursuant to this offering, the Company received gross proceeds in the amount of $37,500, $5,000 of which was subsequently refunded. This refund was made because certain paperwork and signatures were not properly executed. By agreement with the investors, in lieu of the unit arrangement, the investors each acquired shares at $.50 per share. A total of 65,000 shares of the Company's Common Stock were issued pursuant to this offering. On December 8, 1997, the Company acquired all of the assets of Endex which were valued at approximately $14,000 for which the Company issued 250,000 shares of restricted common stock. Endex was a medical multimedia software company, experienced in computer graphics related to the medical industry. The acquisition was made to implement the Company's Data Systems Division's development of its surgical safety, touch-screen network known as OASiS. The President and Chief Executive Officer ("CEO") of Endex, Donald Lawrence, became the Vice President of Sales and Marketing of the Company. The Company relied upon the exemption under Section 4(2) of the Act. Such reliance was based upon the fact that (i) the issuance of the shares did not involve a public offering and (ii) Don Lawrence is a sophisticated purchaser and had full access to the information on the Company necessary to make an informed investment decision by virtue of his due diligence during the negotiating process and his position as an officer of the Company. From March through June 1998, the Company received gross proceeds in the amount of $999,000 from the sale of a total of 920,000 shares of Common Stock in four (4) offerings . The Company undertook its first offering of 400,000 shares of Common Stock pursuant to Rule 504 on March 1, 1998, exchanging 300,000 shares with an independent consultant (Stockstowatch) for the Company and 100,000 shares to its legal advisor in exchange for services; its second offering of 400,000 shares of Common Stock pursuant to Rule 504 on April 1, 1998 upon the exercise of an option granted pursuant to a Stock Option Agreement; its third offering of 60,000 shares of Common Stock pursuant to Rule 504 on June 8, 1998; and its fourth offering of 60,000 shares of Common Stock pursuant to Rule 504 on June 18, 1998. The SEC has brought an action against Stockstowatch alleging that they violated anti-fraud and anti-touting provisions of the federal securities laws with reference to the shares it received for services. While no offering memorandum was used in connections with these offerings, the business plan of the Company, which was disclosed to each prospective investor, was for the provision of product development, sales and services for the medical industry. The Company claimed the exemption from registration in connection with each of these offerings under Section 3(b) of the Act and Rule 504 of Regulation D promulgated thereunder and Section 517.061(11) of the Florida Code. The facts relied upon by the Company to make the federal exemption available include the following: (i) the aggregate offering price of the offering of the shares of Common Stock did not exceed $1,000,000, less the aggregate offering price for all securities sold with the twelve months before the start of and during the offering of shares in reliance on any exemption under Section 3(b) of, or in violation of Section 5(a) of the Act; (ii) no general solicitation or advertising was conducted by the Company in connection with the offering of any of the shares; (iii) the fact the Company has not been since its inception (a) subject to the reporting requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended, (b) and "investment company" within the meaning of the Investment Company Act of 1940, as amended, or (c) a development stage company that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies or other entity or person; and (iv) the required number of manually executed originals and true copies of Form D were duly and timely filed with the SEC. The facts relied upon to make the Florida exemption available include the following: (i) sales of the shares of Common Stock were not made to more than 35 persons; (ii) neither the offer nor the sale of any of the shares was accomplished by the publication of any advertisement; (iii) all purchasers either had a preexisting personal or business relationship with one or more of the executive officers of Surgical or, by reason of their business or financial experience, could be reasonably assumed to have the capacity to protect their own interests in connection with the transaction; (iv) each purchaser represented that he was purchasing for his own account and not with a view to or for sale in connection with any distribution of the shares; and (v) prior to sale, each purchaser had reasonable access to or was furnished all material books and records of the Company, all material contracts and documents relating to the proposed transaction, and had an opportunity to question the executive officers of the Company. Pursuant to Rule 3E- 500.005, in offerings made under Section 517.061(11) of the Florida Statutes, an offering memorandum is not required; however each purchaser (or his representative) must be provided with or given reasonable access to full and fair disclosure of material information. An issuer is deemed to be satisfied if such purchaser or his representative has been given access to all material books and records of the issuer; all material contracts and documents relating to the proposed transaction; and an opportunity to question the appropriate executive officer. In the regard, the Company supplied such information and was available for such questioning. In April 1998, the Company issued 2,500 shares of restricted stock to Xavier Calderon in exchange for computer consulting services valued at $4,375. The Company relied upon the exemption under Section 4(2) of the Act. Such reliance was based upon the fact that (i) the issuance of the shares did not involve a public offering and (ii) M. Calderon is a sophisticated purchaser and had full access to the information on the Company necessary to make an informed investment decision by virtue of his position as a consultant of the Company. On June 15, 1998, the Company engaged Frank M. Clark to act as the President of the Company. As such he received 50,000 shares of the Company's Common Stock as a signing bonus valued at $50,000 and options to purchase up to 200,000 shares of the Company's Common Stock at a price of $1.75 per share under the 1998 Revised ESOP. The Company relied upon the exemption under Section 4(2) of the Act. Such reliance was based upon the fact that (i) the issuance of the shares did not involve a public offering and (ii) Mr. Clark is a sophisticated purchaser and had full access to the information on the Company necessary to make an informed investment decision by virtue of his due diligence prior to becoming an officer and director of the Company. In December 1998, the Company settled all litigation with MediaWorks. The 40,000 shares agreed as part of the settlement were issued on December 8, 1998. Such shares were valued at the average of the closing prices of Surgical's shares for the dates between the settlement (December 1, 1998) and the issuance (December 8, 1998) at $.76 per share for a total of $36,000. The Company relied upon the exemption under Section 4(2) of the Act. Such reliance was based upon the fact that (i) the issuance of the shares did not involve a public offering and (ii) MediaWorks is a sophisticated purchaser and had full access to the information on the Company necessary to make an informed investment decision by virtue of its position as a consultant to the Company. Item 5. Indemnification of Directors and Officers. Article VI of the Company's Articles of Incorporation contains provisions providing for the indemnification of directors of the Company as follows: "The personal liability of directors to the corporation or its shareholders for damages for any breach of duty in such capacity is hereby eliminated except that such personal liability shall not be eliminated if a judgment or other final adjudication adverse to such director establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts violated Section 719 of the Business Corporation Law. Article VI of the Company's By-Laws contains provisions providing for the indemnification of directors and officers of the Company as follows: Each director and officer of this corporation shall be indemnified by the corporation against all costs and expenses actually and necessarily incurred by him or her in connection with the defense of any action, suit or proceeding in which he or she may be involved or to which he or she may be made a party by reason of his or her being or having been such director or officer, except in relation to matters as to which he or she shall be finally adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. The Company has no other agreements with any of its directors or executive offices providing for indemnification of any such persons with respect to liability arising out of their capacity or status as officers and directors. At present, there is no pending litigation or proceeding involving a director or officer of the Company as to which indemnification is being sought. PART F/S The Financial Statements of Surgical required by Regulation S-X commence on page F-1 hereof in response to Part F/S of this Registration Statement on Form 10-SB and are incorporated herein by this reference. PART III Item 1. Index to Exhibits Item No. Description - - ------- ----------- 3.(I).1 Articles of Incorporation of Surgical Safety Products, Inc., a Florida corporation filed May 15, 1992. [previously denominated 2.1] 3.(I).2 Articles of Amendment filed December 9, 1992. [previously denominated 2.2] 3.(I).3 Articles of Amendment filed July 19, 1994.[previously denominated 2.3] 3.(I).4 Articles of Amendment filed October 11, 1994 [previously denominated 2.4] 3.(I).5 Articles of Incorporation of Sheffeld Acres, Inc., a New York Corporation filed May 7, 1993 [previously denominated 2.5] 3.(I).6 Articles of Merger filed in the State of Florida October 12, 1994 [previously denominated 2.6] 3.(I).7 Certificate of Merger filed in the State of New York February 8, 1995. [previously denominated 2.7] 3.(I).8 Certificate to Do Business in the State of Florida filed April 11,1995 [previously denominated 2.8 3.(I).9 Certificate of Amendment filed May 1,1998 [previously denominated 2.9] 3.(II).1 Bylaws of Sheffeld Acres, Inc., now known as Surgical Safety Products, Inc. [previously denominated 2.10] 3.(II).2 *Amended Bylaws of Surgical Safety Products, Inc. 10.1 Acquisition of Endex Systems, Inc. d/b/a/ InterActive PIE dated December 8, 1997. [previously denominated 6.1] 10.2 Prepaid Capital Lease Agreement with Community Health Corporation relative to Sarasota Medical Hospital OASiS Installation dated January 30, 1998. [previously denominated 6.2] 10.3 Letter of Intent with United States Surgical Corporation dated February 12, 1998. [previously denominated 6.3] 10.4 Form of Rockford Industries, Inc. Rental Agreement and Equipment Schedule to Master Lease Agreement [previously denominated 6.4] 10.5 Ad-Vantagenet Letter of Intent dated June 19, 1998 [previously denominated 6.5] 10.6 Distribution Agreement with Morrison International, Inc., dated September 30, 1996 [previously denominated 6.6] 10.7 Distribution Agreement with Hospital News dated August 1, 1997. [previously denominated 6.7] 10.8 Clinical Products Testing Agreement with Sarasota Memorial Hospital dated January 30, 1998. [previously denominated 6.8] 10.9 Real Estate Lease for Executive Offices effective June 1, 1998 [previously denominated 6.9] 10.10 Employment Agreement with Donald K. Lawrence dated April 1, 1997 [previously denominated 6.10] 10.11 Employment Agreement with G. Michael Swor dated June 15, 1998 [previously denominated 6.11] 10.12 Employment Agreement with Frank M. Clark dated June 15, 1998 [previously denominated 6.12] 10.13 Agreement for Consulting Services with Stockstowatch.com Inc. dated March 30, 1988. [previously denominated 6.13] 10.14 Form of Employee Option Agreement dated July 1994 [previously denominated 6.14] 10.15 Form of Employee Option Agreement dated 1998 [previously denominated 6.15] 10.16 Form of Consultants Option Agreement dated July 1994 [previously denominated 6.16] 10.17 Form of Consultants Option Agreement dated 1998. [previously denominated 6.17] 10.18 Confidential Private Offering Memorandum dated May 30, 1995. [previously denominated 6.4] 10.19 Supplement to Private Offering Memorandum dated October 30, 1995. [previously denominated 6.4] 10.20 Stock Option Agreement with Bay Breeze Enterprises LLC dated April 9, 1998. [previously denominated 6.4] 10.21 Revolving Loan Agreement, Revolving Note, Security Agreement with SouthTrust Bank dated May 2, 1997. [previously denominated 6.4] 10.22 * Agreement between the Company and T. T. Communications, Inc. dated October 15, 1998. 10.23 * Agreement between the Company and U.S. Surgical Corporation dated October 28, 1998. 10.24 * Collaborative Agreement between the Company and Dr. William B. Saye dated November 16, 1998. 10.25 * Kiosk Information System, Inc. Purchase Order dated November 3, 1998 10.26 * Surgical Safety Products 1999 Stock Option Plan adopted January 1999 10.27 * Form of the Employee Option Agreement under the Surgical Safety Products 1999 Stock Option Plan dated January 1999. 10.28 * Form of the Director, Consultant and Advisor Option Agreement under the Surgical Safety Products 1999 Stock Option Plan dated January 1999 10.29 * Verio, Inc. Access Service Agreement dated February 16, 1999. 27.1 * Financial Data Sheet ---------------- (* Filed herewith, all other exhibits previously filed) Item 2. Description of Exhibits The documents required to be filed as Exhibits Number 2 and 6 and in Part III of Form 1-A filed as part of this Registration Statement on Form 10-SB are listed in Item 1 of this Part III above. No documents are required to be filed as Exhibit Numbers 3 , 5 or 7 in Part III of Form 1-A and the reference to such Exhibit Numbers is therefore omitted. The following additional exhibits are filed hereto: 23.1 * Accountants' Consent from Kerkering, Barberio & Co., P.A., etc. 23.2 Publisher's Consent and Article - Michael W. Bebbington, MD, MHSc and Mark J. Treissman, MD. The Use of a Surgical Assist Device to Reduce --------------------------------------------- Glove Perforations in Postdelivery Vaginal Repair: A Randomized ---------------------------------------------------------------------- Controlled Trial. American Journal of Obstetrics and Gynecology, Vol. ----------------- 175, No. 1, Part I, October 1996. [previously denominated 10.2] 23.3 Author's Consent and Abstract - Donna J. Haiduven, BSN, MSN, CIC and Maria D. Allo, MD. Evaluation of a One-Handed Surgical Suturing Device --------------------------------------------------- to Decrease Intraoperative Needlestick Injuries and Glove ---------------------------------------------------------------------- Perforations: Phases I & II, Conference on Prevention of Transmission ------------ of Bloodborne Pathogens in Surgery and Obstetrics Sponsored by the American College of Surgeons and the Center for Disease Control and Prevention, February 13-15, 1994, Atlanta, GA. [previously denominated 10.3] 23.4 Publisher's Consents and Article - Mark S. Davis, MD. Sharps ------ Management in Surgery. Infection Control & Sterilization Technology, --------------------- Vol. 1, No. 4, April 1995. [previously denominated 10.4] - - ----------- (* Filed herewith, all other exhibits previously filed) 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:April 6, 1999 By:/s/ FRANK M. CLARK ------------------------ Frank M. Clark, President and CEO By:/s/ DONALD K. LAWRENCE ------------------------ Donald K. Lawrence Vice President and Secretary By:/s/ G. MICHAEL SWOR ------------------------ G. Michael Swor Treasurer By:/s/ DAVID COLLINS ------------------------ David Collins Acting Chief Financial Officer SURGICAL SAFETY PRODUCTS, INC. INDEPENDENT AUDITORS' REPORT, FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION DECEMBER 31, 1998 AND 1997
CONTENTS -------- Page ---- INDEPENDENT AUDITORS' REPORT F-1 FINANCIAL STATEMENTS Balance Sheets F-2 Statements of Operations F-4 Statements of Changes in Stockholders' Equity (Deficit) F-5 Statements of Cash Flows F-7 Notes to Financial Statements F-9 SUPPLEMENTARY INFORMATION Independent Auditors' Report on Supplementary Information F-18 Schedules of Operating Expenses F-19
INDEPENDENT AUDITORS' REPORT The Board of Directors Surgical Safety Products, Inc. We have audited the accompanying balance sheets of Surgical Safety Products, Inc. as of December 31, 1998 and 1997, and the related statements of operations, changes in stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Surgical Safety Products, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 10. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Sarasota, Florida March 12, 1999 SURGICAL SAFETY PRODUCTS, INC. BALANCE SHEETS DECEMBER 31, 1998 AND 1997
Assets 1998 1997 ------ ---- ---- Current Assets Cash $ 41,191 $ Trade receivables 250,125 Other receivables 1,941 Deposits 58,700 Inventory 26,898 11,742 ------- ------- Total current assets 128,730 261,867 ------- ------- Furniture and equipment, net 92,429 71,368 ------ ------ Other Assets Deferred loan costs, net 317 412 Intangible assets, net 48,915 45,102 Software development costs, net 92,873 52,486 Investments 9,750 13,500 Deposits 500 500 ------- ------- Total other assets 152,355 112,000 ------- ------- Total Assets $ 373,514 $ 445,235 ======= =======
The accompanying notes are an integral part of these financial statements. F-2 SURGICAL SAFETY PRODUCTS, INC. BALANCE SHEETS DECEMBER 31, 1998 AND 1997
Liabilities and Stockholders' Equity (Deficit) 1998 1997 - - --------------------------------------------- ---- ---- Current Liabilities Bank overdraft $ $ 13,984 Line of credit 100,000 Notes payable - related parties 233,720 Accounts payable 35,262 117,776 Accrued expenses 20,069 21,131 Accrued interest 17,667 ------ ------- Total current liabilities 55,331 504,278 ------ ------- Stockholders' Equity (Deficit) Common stock, $.001 par value, 20,0000,000 shares authorized; 10,786,973 and 9,774,473 shares issued and outstanding in 1998 and 1997, respectively 10,787 9,775 Additional paid-in capital 1,998,242 824,366 Accumulated deficit (1,690,846) (893,184) ---------- -------- Total stockholders' equity (deficit) 318,183 (59,043) ------- -------- Total Liabilities and Stockholders'Equity(Deficit) $ 373,514 $ 445,235 ======= =======
The accompanying notes are an integral part of these financial statements. F-3 SURGICAL SAFETY PRODUCTS, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ---- ---- Revenue Net sales $ 16,545 $ 248,760 Other income 16,564 6,626 Interest income 9,284 ------ ------- Total revenue 42,393 255,386 ------ ------- Costs and expenses Cost of medical products sold 5,560 22,002 Operating expenses 782,450 244,815 Research and development expenses 34,536 113,740 Interest expense 13,759 15,651 Other 3,750 Underwriting costs 7,600 ------- ------- Total costs 840,055 403,808 ------- ------- Net loss before income taxes (797,662) (148,422) --------- --------- Provision for income taxes - - --------- -------- Net loss $ (797,662) $ (148,422) ========= ========= Net loss per share $ (0.076) $ (0.016) ========= =========
The accompanying notes are an integral part of these financial statements. F-4 SURGICAL SAFETY PRODUCTS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 1998 AND 1997
Common Stock ------------ Shares Amount ------ ------ Balances - December 31, 1996 9,524,473 $ 9,525 Issuance of common stock for acquisition of assets 250,000 250 Net loss --------- ----- Balances - December 31, 1997 9,774,473 9,775 Issuance of common stock for cash 520,000 520 Issuance of common stock for services 492,500 492 Stock options granted to employees Net loss ---------- ------ Balances - December 31, 1998 10,786,973 $ 10,787 ========== ======
The accompanying notes are an integral part of these financial statements. F-5 SURGICAL SAFETY PRODUCTS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 1998 AND 1997 (Continued)
Total Additional Stockholders' Paid-in Accumulated Equity Capital Deficit (Deficit) ------- ----------- --------- $ 810,959 $ (744,762) $ 75,722 13,407 13,657 (148,422) (148,422) -------- --------- --------- 824,366 (893,184) (59,043) 938,476 938,996 144,287 144,779 91,113 91,113 (797,662) (797,662) ------- --------- --------- $ 1,998,242 $(1,690,846) $ 318,183 ========= =========== =========
The accompanying notes are an integral part of these financial statements. F-6 SURGICAL SAFETY PRODUCTS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ---- ---- Cash Flows From Operating Activities Net loss $ (797,662) $ (148,422) -------- -------- Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization 57,461 20,557 Common stock issued for services 144,779 Stock option compensation expense 91,113 Write-down of investments 3,750 Gain on disposal of assets (396) Decrease (increase) in operating assets Receivables 250,125 (220,553) Other receivables (1,941) Inventory (15,156) (6,658) Deposits (58,700) Increase (decrease) in operating liabilities Bank overdraft (13,984) 13,984 Accounts payable (82,514) 103,747 Accrued expenses (1,062) 15,131 Accrued interest (17,667) 10,619 Stock subscription proceeds (5,000) ------- -------- Total Adjustments 356,204 (68,569) ------- -------- Net cash used in operating activities (441,458) (216,991) --------- --------- Cash Flows From Investing Activities Proceeds from disposal of assets 1,100 Furniture and equipment purchased (57,294) (65,958) Software development additions (56,256) (55,248) Patent and trademark costs (9,077) (2,386) --------- --------- Net cash used in investing activities (122,627) (122,492) --------- --------- Cash Flow From Financing Activities Proceeds from related party loans 23,000 233,720 Advances/(repayments) on line of credit, net (100,000) 100,000 Repayment of stockholder loans (256,720) Proceeds from issuance of common stock 938,996 -------- -------- Net cash provided by financing activities 605,276 333,720 ------- -------- Net increase (decrease) in cash 41,191 (5,763) Cash at beginning of year - 5,763 ------ ------- Cash at end of year $ 41,191 $ - ====== =======
The accompanying notes are an integral part of these financial statements. F-7 SURGICAL SAFETY PRODUCTS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1997 (continued)
1998 1997 ---- ---- Supplemental Cash flow Information: Cash paid for interest $31,426 $5,032 ======= =====
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: Year Ended December 31, 1998 - - ---------------------------- There were no material non-cash transactions not reflected in the statements of cash flows during the fiscal year ending December 31, 1998. Year Ended December 31, 1997 - - ---------------------------- Purchase of assets of Endex Systems, Inc.through issuance of stock valued at $13,657. The accompanying notes are an integral part of these financial statements. F-8 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies - - ------- ---------------------------------------------- Business Activities - - -------------------- SurgicalSafety Products, Inc. (Company) is engaged in product development, sales and services for the medical industry. The Company is primarily focused on medical research and product development. It has developed a product, OASiS, designed to reduce the occupational risks of bloodborne diseases in the operating room and other related areas. In 1997, the Company enhanced its OASiS system for multiple applications within health care, including exposure management, health care training, and health care risk management. Its medical products are sold to health care providers within the United States. Financial Statements - - -------------------- The financial statements and notes are representations of the Company's management who is responsible for their integrity and objectivity. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Preparation of financial statements in accordance with generally accepted accounting principles requires the use of management's estimates. Actual results could differ from those estimates. Accounts Receivable - - ------------------- Accounts receivable consist of amounts due from customers. There were no outstanding accounts receivable from customers at December 31, 1998. The balance of $250,125 at December 31, 1997 was due primarily from one customer in the amount of $250,000. Inventory - - --------- Inventory is stated at the lower of cost (first-in, first-out) or market (net realizable value) and consists of finished goods. Investments - - ----------- Investments are valued at cost and represent shares of common stock in privately-held companies. Management believes the value of the investments are not below cost. Fair market value is not determinable. Property and Equipment - - ---------------------- Purchases of property and equipment are recorded at cost. Expenditures for maintenance and repairs which extend the useful life are charged to operations as incurred. Depreciation is provided on an accelerated method over the assets' useful lives which range from three to seven years. Leasehold improvements are being amortized over the life of the lease term which is two years. F-9 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies (Continued) - - ------ ----------------------------------------------------------- Intangible Assets - - ----------------- Intangible assets subject to amortization include goodwill, organization costs, trade names and patent costs. Organization costs are being amortized on the straight-line method over five years. Patent costs are being amortized on the straight-line method over seventeen years from the granting of the patent. The other assets are being amortized on the straight-line method over fifteen years. Software Development Costs - - -------------------------- Certain software development costs are capitalized when incurred. Capitalization of software development costs begins upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgement by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life, and changes in software and hardware technologies. Amortization of capitalized software development costs is calculated using the straight-line method over a period of five years. All other research and development costs are charged to expense in the period incurred. Income Taxes - - ------------ The Company accounts for income taxes using the asset and liability method in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Long-Lived Assets - - ----------------- Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets, including certain identifiable intangibles, and the goodwill related to those assets, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value amount of the asset in question may not be recoverable. Management has reviewed the Company's long-lived assets and has determined that there are no events requiring impairment loss recognition. Revenue Recognition - - ------------------- The Company recognizes revenue at the point of passage of title of inventory, which is generally at the time of shipment to the customer. Revenue related to services is recognized at the point the service has been rendered. F-10 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies (Continued) - - ------ -------------------------------------------------------- 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. Stock Based Compensation - - ------------------------ The Company grants stock options for a fixed number of shares to employees and consultants. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations because the company believes the alternative fair value accounting provided under FASB Statement No. 123, "Accounting for Stock Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, the Company only recognized compensation expense to the extent that the fair value of the shares exceeds the exercise price of the stock option at the date of grant. The Company recorded compensation expense related to the issuance of stock options in the amount of $91,113 for the year ended December 31, 1998. There were no stock options issued during the year ended December 31, 1997. Impact of Recently Issued Accounting Standards - - ---------------------------------------------- In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company expects to adopt the new Statement effective January 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. This Statement is not applicable to the Company as of December 31, 1998. Note 2 - Property and Equipment - - ------ ---------------------- Property and equipment consisted of the following at December 31:
1998 1997 ---- ---- Property and equipment $ 90,703 $ 38,982 Prototype molds 59,652 82,778 Leasehold improvements 5,575 ------- ------- 155,930 121,760 Less accumulated depreciation 63,501 50,392 ------- ------- Furniture and equipment, net $ 92,429 $ 71,368 ====== ======
Total depreciation and amortization expense amounted to $36,234 and $14,014 for 1998 and 1997, respectively. F-11 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 3 - Line-of-Credit - - ------ -------------- Effective May 1997, the Company had established a line-of-credit in the amount of $100,000 with a financial institution at 1.5% above the prime rate, interest only payments are due monthly with an expiration date of May 2, 2017. The line is due on demand and is secured by inventory, accounts receivable, and equipment. The outstanding balance at December 31, 1998 and 1997 was $0 and $100,000, respectively. The interest rate at December 31, 1997 was 10.00%. The line-of-credit is personally guaranteed by the major stockholder. Note 4 - Related Party Transactions - - ------ -------------------------- At December 31, 1997, the Company was indebted to the major stockholder in the amount of $197,720. In addition, the Company was indebted to an affiliated company owned by the major stockholder. The amount owed at December 31, 1997 was $36,000. Interest on the notes was 10.00%. At December 31, 1997, interest payable on these loans totaled $17,667. During fiscal 1998, an additional $23,000 was loaned to the Company by the major stockholder. The balance of the notes payable was repaid during fiscal 1998, and at December 31, 1998 there are no amounts due to related parties. Interest expense relating to these notes amounted to $9,882 and $15,314 for the years ended December 31, 1998 and 1997, respectively. The Company leases office space from an entity owned by a major stockholder. See Note 13. Note 5 - Software Development Costs - - ------ -------------------------- During the fiscal year ended December 31, 1997, the Company focused its efforts in developing the software for its major product, OASiS. The company engaged the services of a software development company, and incurred significant costs related to the design and development of the software. The Company achieved technological feasibility in its development of the software in fiscal 1997. For the year ended December 31, 1998, the Company incurred and capitalized expenditures relating to the enhancement of the software in the amount of $56,256. For the year ended December 31, 1997, the Company incurred expenditures related to software development of $162,409, of which $54,653 was capitalized, and the remainder of $107,756 was expensed. Amortization expense of software development costs amounted to $21,227 and $6,543 for the years ended December 31, 1998 and 1997, respectively. Note 6 - Stock Option Plans - - ------ ------------------ Options granted under the 1994 and 1998 stock option plans are exercisable only after the respective vesting period which is two years from the date of grant under the 1994 plan, and determined by the Company's stock option committee under th 1998 plan. Options expire seven years from the date of grant. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of F-12 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 6 - Stock Option Plans (Continued) - - ------ ------------------------------ grant using a Black-Scholes option pricing model with the following assumptions for 1998: risk- free interest rate of 5.0%; dividend yield of 0%; volatility factor of the expected market price of the Company's common stock of .20; and a weighted-average expected life of the option of three years. There were no options granted during the fiscal year ended December 31, 1997. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is charged to expense over the options' vesting period. The Company's pro forma information for the fiscal year ended December 31, 1998 is as follows: Proforma net loss $ (837,065) -------- Pro forma earnings per common share: Basic $ (0.080) ------ A summary of the Company's stock option activity and related information for the years ended December 31 follows:
1998 1997 ---------------------- -------------------- Weighted Weighted Average Average Exercise Exercise Options Price Options Price ------- -------- ------- -------- Outstanding at the beginning of the year 4,512,431 $ 0.32 4,512,431 $ 0.32 Granted 737,333 1.50 -------- -------- -------- ------- Outstanding at the end of the year 5,249,764 $ 0.46 4,512,431 $ 0.32 ========= ==== ========= ==== Exercisable at the end of the year 4,820,764 $ 0.36 4,512,431 $ 0.32 ========= ==== ========= ==== Weighted-average fair value of options granted during the year $ 1.96 $ - ==== ====
F-13 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 6 - Stock Option Plans (Continued) - - ------ ------------------------------ The weighted-average exercise price and weighted-average fair value of options granted during 1998 was $0.96 and $0.75, respectively, for options whose exercise price exceeded the market price of the stock on the grant date. The weighted average exercise price and weighted-average fair value of options granted during 1998 was $1.75 and $2.33, respectively, for options whose exercise price was less than the market price of the stock on the grant date. The following table summarizes information about the options outstanding at December 31, 1998:
Weighted Average Remaining Weighted Number Contractual Average Exercise Price Outstanding Life Exercise Price - - -------------- ----------- ----------- -------------- $ 0.32 to 0.48 4,511,931 2.50 years $ 0.32 0.50 54,000 6.00 years 0.50 0.90 to 1.00 308,833 6.89 years 1.00 1.50 to 1.75 375,000 6.55 years 1.73 ------- ---- 0.32 to 1.75 5,249,764 3.08 years $ 00.46 ========= =====
Note 7 - Common Stock Issuance - - ------ --------------------- During the fiscal year ended December 31, 1998, the Company issued 492,500 shares of common stock in exchange for legal, computer hardware and software consulting services, and public relations services. Of the total issued, 90,000 shares were restricted stock. The value of the shares issued ranged from $0.15 - $1.75 per share based on either the fair market value of the shares at the time the agreement for services was executed, or the value of the services received, whichever was more estimable. The Company also issued 520,000 shares of common stock in exchange for cash. The value of the shares issued ranged from $1.75 - $2.19 per share based on the fair market value of the shares at the time of issuance. During the year ended December 31, 1997, the Company issued 250,000 shares of restricted common stock in exchange for the acquisition of the assets of Endex Systems, Inc. (See Note 9). The shares could not be sold for a period of two years; therefore the shares issued were valued at $.06 per share based on the value of the assets received. F-14 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 8 - Income Taxes - - ------ ------------ At December 31, 1998, the Company has net operating loss carryforwards of approximately $1,300,000 which expire during the years 2008 through 2012. The 1998 and 1997 tax benefits relating to the losses incurred in each year amounted to approximately $158,000 and $29,800, respectively. Based on the Company's financial history, there is no basis to conclude that the tax benefits will be realized. Therefore, the tax benefit that has been recorded in the accompanying financial statements for the years ended December 31, 1998 and 1997 has been offset by an allowance equal to the benefit. Note 9 - Asset Purchase - - ------ -------------- On December 8, 1997, the Company purchased the assets of Endex Systems, Inc. for which it issued 250,000 shares of restricted common stock based on the fair value of the assets received. The Company purchased furniture, equipment and investments valued at approximately $14,000. Note 10 - Realization of Assets - - ------- --------------------- The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company has sustained substantial losses and has minimal revenues for the current fiscal year. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon the Company's ability to achieve profitable operations and to obtain additional sources of funds. Management believes the Company's prospects for profitability are significant, based on the development of OASiS, a proprietary product. The Company has aggressively promoted this product during fiscal year 1998 and anticipates revenues in fiscal 1999 related to the leasing of these units to medical facilities. Management is considering both equity and debt financing in the range of $2 to $5 million. Management believes these factors will provide the basis for significant growth and profitability in the near term. Note 11 - Commitments - - ------- ----------- On January 30, 1998, the Company entered into an agreement with a health care provider in which the provider will perform clinical testing of ten surgical or medical products submitted by the Company. The agreement is for a term not to exceed five years and requires the Company to pay the health care provider a fixed amount of $25,000 for each of the ten studies. The agreement further provides that the Company is obligated to pay the provider $250,000 over the term of the agreement in the event the Company determines not to have the provider perform the clinical testing. The Company did not submit any products for clinical testing during the fiscal year ended December 31, 1998. In November 1998, the Company entered into an agreement with a vendor to manufacture 20 units of its OASiS system for a total of $133,000. At December 31, 1998, the Company had paid 50% or $66,500 to the vendor and received a partial F-15 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 11 - Commitments (Continued) - - ------- ----------------------- shipment of units. The remaining balance of $66,500 is payable upon receipt of the remaining units. Note 12 - Concentrations - - ------- -------------- During the year ended December 31, 1998, the company derived 93% of its revenue from technical services provided to one customer. The Company derived 99% of its revenues from the sale of medical products sold to one customer during the year ended December 31, 1997. Note 13 - Lease Commitments - - ------- ----------------- On June 1, 1998, the Company entered into an agreement to lease office space from an affiliated entity. The lease term expires on May 21, 2000 with automatic one year renewals. Minimum lease payments are as follows for the fiscal years ending: 1999 $ 42,000 2000 $ 17,500 Rent expense for the fiscal years ending December 31, 1998 and 1997 amounted to $30,750 and $6,912, respectively. The Company also leases office equipment. The lease term is for 60 months and expires October 2003. Monthly payments are $344. Minimum lease payments are as follows for the fiscal years ending: 1999 $ 4,128 2000 4,128 2001 4,128 2002 4,128 2003 3,440 Note 14 - Year 2000 Issue - - ------- --------------- The Year 2000 Issue is the result of potential problems with computer systems or any equipment with computer chips that use dates where the date has been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock or date recording mechanism, including date sensitive software which uses only two digits to represent the year, may recognize the date, using 00, as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar activities. Management has reviewed its current internal systems and is in the process of upgrading its F-16 SURGICAL SAFETY PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Note 14 - Year 2000 Issue (Continued) - - ------- --------------------------- accounting system to be Year 2000 compliant. The Company purchased new hardware in 1998 that is Year 2000 compliant. Management does not anticipate any significant additional costs that would relate to upgrading its systems to support the Year 2000. Further, management does not believe the Year 2000 will impact the operation of the OASiS system since the software for this system does not rely on legacy applications or subsystems. OASiS is designed to handle dates in the form of a two digit month and day and a four digit year, thus avoiding the Year 2000 problem. The Company believes it has disclosed all required information relative to Year 2000 issues relating to its business and operations. However, there can be no assurance that the systems of other companies on which the Company's systems rely also will be timely converted or that any such failure to convert by another company would not have an adverse affect on the Company's operations or financial condition. F-17 SUPPLEMENTARY INFORMATION INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION --------------------------------------------------------- The Board of Directors Surgical Safety Products, Inc. We have audited the accompanying financial statements of Surgical Safety Products, Inc. as of and for the years ended December 31, 1998 and 1997, and have issued our report thereon dated March 12, 1999. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary schedules of operating expenses are presented for purposes of additional information and are not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the examination of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. Sarasota, Florida March 12, 1999 F-18 SURGICAL SAFETY PRODUCTS, INC. SCHEDULES OF OPERATING EXPENSES YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ------- ------- Accounting and legal $ 58,260 $ 16,761 Advertising 103,281 12,507 Contract labor 28,950 2,137 Meetings/conventions 27,694 9,749 Depreciation and amortization 57,461 20,557 Salaries and related expenses 368,417 115,193 Travel and entertainment 18,087 8,426 Postage 4,953 5,772 Insurance 11,542 9,479 Equipment rental 7,724 3,778 General and administrative 18,201 11,428 Rent 30,750 6,912 Repairs and maintenance 4,188 5,467 Samples and supplies 3,195 Supplies 22,606 8,416 Taxes 1,615 998 Telephone 15,526 6,397 Utilities 838 ------- ------- $ 782,450 $ 244,815 ======= =======
F-19 EX-3.(II) 2 BY-LAWS Exhibit 3.(II).2 BY-LAWS OF SURGICAL SAFETY PRODUCTS, INC. ARTICLE I OFFICES The principal office of the Corporation in the State of Florida shall be located in the City of Sarasota. The Corporation may have such other offices, either within or without the State of Florida, as the business of the Corporation may require from time to time. The Registered Office of the Corporation may be, but need not be, identical with its principal office in the State of Florida and the address of the Registered Office may be changed from time to time by the Board of Directors. ARTICLE II SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of shareholders shall be held at such time and place each year as the Board of Directors shall determine for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall not be held at any annual meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders to be held as soon thereafter as may be convenient. SECTION 2. SPECIAL MEETING. Special meetings of the shareholders may be called by the President, by the Board of Directors or by the holders of not less than one-fifth (1/5) of the voting power of all shareholders of the Corporation. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place within or without the State of Florida as the place of meeting for any annual meeting, or any place either within or without the State of Florida as the place of meeting for any special meeting called by the Board of Directors. SECTION 4. NOTICE OF MEETINGS AND WAIVER. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, or the Secretary, or the officer or persons calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Notice of any shareholders' meeting may be waived in writing by any shareholder at any time before or after the meeting. SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall meet at any time and place, either within or without the State of Florida, and consent to the holding of a meeting, such meeting shall be valid without call or notice, and at such meeting any corporate action may be taken. SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of Directors of the Corporation may fix in advance a date, not exceeding sixty (60) and not less than ten (10) days prior to the date of any meeting of shareholders, or to the date for the payment of any dividend or for the allotment of rights, or to the date when any exchange or reclassification of shares shall be effective, as the record date for the determination of shareholders entitled to receive payment of any such dividend or to receive any such allotment of rights, or to exercise rights in respect of any exchange or reclassification of shares; and the shareholders of record on such date shall be the shareholders entitled to notice of and to vote at, such meeting, or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights in the event of an exchange or reclassification of shares, as the case may be. If no record date is fixed by the Board of Directors, the date on which notice of the meeting is mailed shall be deemed to be the record date for the determination of shareholders entitled to vote at such meeting. Transferees of shares which are transferred after the record date shall not be entitled to notice of or to vote at such meeting. SECTION 7. VOTING LISTS. The officer or agent having charge of the transfer book for shares of the Corporation shall at least ten (10) days before each meeting of shareholders, make a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address and the number of shares held by each shareholder, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the meeting. The original share ledger or stock transfer book, or a duplicate thereof kept in this State, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or stock transfer book or to vote at any meeting of shareholders. SECTION 8. QUORUM. A majority of the outstanding shares of the Corporation, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders; provided, that if less than a majority of the outstanding shares are represented at said meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy, and such proxy may be withdrawn at any time. SECTION 10. VOTING OF SHARES. Each outstanding share of Common Stock shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the By-Laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by his administrator or executor, either in person or by proxy. Shares standing in the name of a guardian, conservator, or trustee may be voted by such fiduciary, either in person or by proxy. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the joint names of four (4) or more fiduciaries shall be voted in the manner determined by the majority of such fiduciaries, unless the instrument or order appointing such fiduciaries otherwise directs. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares (except that if the right to vote be expressly given in writing to the pledgee and notice thereof delivered to the Corporation in writing by the pledgee, the shareholder shall not have the right to vote the shares so pledged) until the shares have been transferred into the name of the pledgee, and thereafter the pledgee or his nominee shall be entitled to vote the shares so transferred. SECTION 12. INFORMAL ACTION BY SHAREHOLDERS. Unless prohibited by the Articles of Incorporation, any action required to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. SECTION 13. ADJOURNMENTS. If a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. The Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS AND EXECUTIVE COMMITTEE. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may, by resolution passed by a majority of the whole Board, designate two (2) or more of its number to constitute an Executive Committee, who, to the extent provided in the resolution, shall have and exercise the authority of the Board of Directors in the management of the Corporation. The Board of Directors may also, by resolution passed by a majority of the whole of the Board, designate members to constitute other committees, who, to the extent provided in the resolution, shall have and exercise the designated authority. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by resolution passed by the Board or by the shareholders (any such resolution of either the Board of Directors or shareholders being subject to any later resolution by either of them) but in no event shall such number be less than one. No resolution shall have the effect of shortening the term of any incumbent director. Directors shall be elected at the annual meeting of shareholders and shall continue in office until their successors shall have been elected and qualified. Directors need not be residents of Florida nor need they be the holder of any shares of the capital stock of the Corporation. SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held without other notice than this By-Law, immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Florida, for holding of additional regular meetings without other notice than such resolution. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or any two (2) directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Florida, as the place for holding any special meeting of the Board of Directors called by them. SECTION 5. NOTICE. Written notice of any special meeting shall be given to each director at least two (2) days before the meeting, either by personal delivery, telegram, cablegram, or facsimile. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, and a waiver of any and all objections to the place of meeting, the time of meeting, or the manner in which it was called or convened, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. The purpose of and the business to be transacted at any special meeting of the Board of Directors must be specified in the notice or waiver or notice of such a meeting. SECTION 6. QUORUM. A majority of the number of directors fixed by or in the manner prescribed in the By-Laws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, provided, that if less than a majority of the directors are present at that meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 7. MANNER OF ACTING. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 8. INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a meeting of the Directors of a corporation or any action which may be taken at such meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by a majority of all directors and such consent shall have the same effect as a an actual vote. SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors or in a directorship to be filled by reason of an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office or until the next succeeding annual meeting of shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the Board of Directors for a term of office continuing until the next election of the directors by the shareholders. SECTION 10. COMPENSATION. Directors may by resolution of the Board of Directors, establish a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 11. REMOVAL. At a meeting of shareholders called expressly for that purpose, directors may be removed, with or without cause, by a vote of the majority of the shares then entitled to vote at an election of directors. ARTICLE IV OFFICERS SECTION 1. CLASSES. The officers of the Corporation shall be a President, a Treasurer, and a Secretary, and such other officers and assistant officers as from time to time may be deemed necessary by the Board of Directors and elected in accordance with the provisions of this Article. Any two (2) or more offices may be held by the same person, except that the offices of President and Secretary may not be held by the same person. The failure to elect a President, Secretary or Treasurer shall not affect the existence of this Corporation. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death, his resignation or his removal from office in the manner hereinafter provided. SECTION 3. REMOVAL. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. PRESIDENT. The President shall be the principal executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation. He shall preside at all meetings of the shareholders and of the Board of Directors. He may sign, with the Secretary or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 6. VICE PRESIDENT. In the absence of the President or in the event of his inability or refusal to act, the Vice President shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice President shall perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 7. TREASURER. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies, or other depositories as shall be selected in accordance with the provisions of Article V of these By-Laws; and (c) in general perform all the duties from time to time assigned to him by the President or the Board of Directors. Nothing herein shall require the Board of Directors to require a bond. SECTION 8. SECRETARY. The Secretary shall: (a) keep the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the Corporation under this seal is duly authorized in accordance with the provisions of these By-Laws; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the President, or Vice President, certificates for shares of the Corporation, the issue of which shall have been authorized by resolution of the Board of Directors; (f) sign with the President, or Vice President, certificates for shares for the Corporation, the issue of which shall have been authorized by resolution of the Board of Directors; (g) have personal charge of the stock transfer books of the Corporation; and (h) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or the Board of Directors. SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries, as and if authorized by the Board of Directors, may sign with the President or Vice President certificates for shares of the Corporation, the issue of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers and Assistant Secretaries in general shall perform such duties as shall be assigned to them by the Treasurer or Secretary, respectively, or by the President or the Board of Directors. SECTION 10. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation. ARTICLE V CONTRACTS, LOANS, CHECK AND DEPOSITS SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instruments in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents, of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the Corporation shall be in such form as may be determined by the Board of Directors. Such certificates shall be signed by the President and Secretary. All certificates for shares shall be consecutively numbered. The name of the persons owning the shares represented thereby with the number of shares and date of issue shall be entered on the books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. SECTION 2. TRANSFER OF SHARES. Transfer of shares of the Corporation shall be made only by the registered holder thereof or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such share. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. ARTICLE VII FISCAL YEAR The fiscal year of the Corporation shall be determined by the resolution of the Board of Directors. ARTICLE VIII DIVIDENDS The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE IX SEAL The Board of Directors shall if needed provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon appropriate wording. ARTICLE X WAIVER OF NOTICE Whenever any notice whatever is required to be given under the provisions of these ByLaws, or under the provisions of the Articles of Incorporation, or under the provisions of the corporation laws of the State of Florida or other jurisdiction, waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI AMENDMENTS The Board of Directors shall have the power and authority to alter, amend or rescind the By-Laws of the Corporation at any regular or special meeting at which a quorum is present by a vote of a majority or the whole Board of Directors, subject to the power of the shareholders to change or repeal such By-Laws at any annual or special meeting of shareholders at which a quorum is present, by a vote of a majority of the stock represented at such meeting, provided, that the notice of such meeting shall have included notice of any proposed alteration, amendment or rescission. I certify that these are the By-Laws adopted by the Board of Directors of the Corporation. BY: /s/Donald K. Lawrence --------------------- Donald K. Lawrence Secretary EX-10 3 MATERIAL CONTRACTS Exhibit 10.22 T.T. COMMUNICATIONS, INC. 233 Broadway, New York, NY 10279 (212) 962-3690 (212) 964-0136 (Fax) 5633 Charlestown Road, Dallas TX 75230 (972) 503-8286 (972) 503-8273 (Fax) October 15, 1998 Mr. Frank M. Clark President & CEO SURGICAL SAFETY PRODUCTS, INC. 2018 Oak Terrace Sarasota, Florida 34231 Dear Frank: We appreciate the opportunity to work with Surgical Safety Products Inc. (SURG). This agreement will serve as a confirmation of the terms of our working relationship as outlined in our letter to you dated October 5, 1998. Remuneration to T.T. Communications, Inc. (TT) will consist of the following: 1) Retainer fee of $2,000 per month for a period of three months commencing November 1, 1998 through January 30, 1999. This amount is payable in advance due on the 10th of each month and subject to review on a quarterly basis. 2) Reimbursement for expenses on an at-cost basis, including long distance telephone calls, postage, copy charges, and travel and entertainment. No single cost over $100 will be incurred without the approval of SURG. 3) Granting of 25,000 options to purchase SURG stock at $1.50 per share over a three-year period. 4) In addition, should T.T. introduce SURG to a source of financing, or to a contact who subsequently introduces SURG to a source of financing, T.T. will receive a cash finder's fee of 1.5% of the total dollar value involved in the initial financing. For subsequent transactions stemming from that initial introduction, T.T. will receive a cash finder's fee of .75% of the total dollar value involved for each subsequent financing. It is understood by all parties that this relationship is cancelable on 30 days written notice by either party. Please sign in acknowledgment of the above. We thank you and look forward to a productive relationship. In acknowledgment: Sincerely, /s/ Frank Clark /s/ Mark N. Tyler - - ----------------------------- -------------------------- Mr. Frank M. Clark, President Mark N. Tyler SURGICAL SAFETY PRODUCTS, INC. T.T. COMMUNICATIONS, INC. T.T. COMMUNICATIONS, INC. 233 Broadway, New York, NY 10279 (212) 962-3690 (212) 964-0136 (Fax) 5633 Charlestown Road, Dallas TX 75230 (972) 503-8286 (972) 503-8273 (Fax) October 5, 1998 Mr. Frank M. Clark President & CEO SURGICAL SAFETY PRODUCTS, INC. 2018 Oak Terrace Sarasota, Florida 34231 Dear Frank: First, let us thank you for considering our firm for your investor relations needs. After some careful and in-depth review, it appears to us that your corporate story is strong and should command the attention of some quality people in the investment community across the U.S. and possibly beyond. Of course, that is where T.T. becomes relevant. We firmly believe that our capabilities qualify us to assist you in gaining attention and, ultimately, a fair evaluation of SURG securities. We propose a total investor relations and communication program, commencing immediately or at a date in the near future appropriate for you. Here's what that would include: INVESTMENT COMMUNITY & MEDIA CONTACT T.T. would communicate with quality investment and media people across the U.S. whom we have come to know over the past 30 years. Additionally, we would identify and target new people who potentially would be interested in SURG. Included in our contracts would be the following: * Retail/Institutional Producers. * Money and Fund Managers. * Investment Bankers (we have relationships with a number of quality firm that we can introduce you). * Shareholders. (When appropriate). * Media/Press Personnel (publishers, editors, writers, reporters of all relevant trade and business publications). Our methods of contacting investment professionals include the following: * Telephone/Fax and Conference Calls. * Mailings. * Personal visits by T.T. -with travel when appropriate. * Meetings for SURG's management team with quality investment professionals. This would involve T.T. traveling with SURG's management. In addition, T.T. would arrange meetings while SURG's management is traveling for other corporate purposes. * Follow-up calls and meetings with the media and investment community, including creation of contact list, analysis of trading activity and feedback. COMMUNICATIONS PACKAGE DEVELOPMENT T.T.'s role would be in helping to concept the various components of this effort, plus editing as well as creating initial drafts when appropriate. We would propose being involved in the following components: * Annual/Quarterly Reports. * News/Press Releases. * Publicity. T.T. has gained "feature treatment" for our clients in major financial publications as well as specific industry, professional and trade journals. * Corporate profiles, fact sheets and brochures. T.T. has produced various documents that have proved effective as a supplement to existing client material. We would commence our work for you at $2,000 a month for a period of three months at which time we would request a review. Expenses would be billed at cost without markup. Any single expense over $100 would require management's approval. In addition, should T.T. introduce SURG to a source of financing, or to a contact who subsequently introduces SURG to a source of financing, T.T. will receive a cash finder's fee of 1.5% of the total dollar value involved in the initial financing. For subsequent transactions stemming from that initial introduction, T.T. will receive a cash finder's fee of .75% of the total dollar value involved for each subsequent financing. Based on the monthly retainer, we feel consideration should be given towards granting T.T. 25,000 options for SURG's common stock at a price correlating to T.T.'s engagement for duration of five years. If SURG decides to retain T.T., we would prepare a letter of agreement that would outline the terms of our relationship. T.T. would keep SURG apprised of all activities through continual updating. Frank, we appreciate the opportunity to present SURG with this proposal. There are virtually countless professional who could have an interest in your story - - it is just a matter of contacting them. Our performance will be best measured by the quality of the individuals and firms to who SURG is introduced. I can promise that you will not find any firm that will work harder for your interests. Sincerely, /s/ Mark Mark N. Tyler MNT/jt EX-10 4 MATERIAL CONTRACTS EXHIBIT 10.23 COLLABORATIVE AGREEMENT THIS COLLABORATIVE AGREEMENT is made this 25 day of October, 1998, by and between SURGICAL SAFETY PRODUCTS, INC., a New York corporation, with its principal place of business at 2018 Oak Terrace, Sarasota, Florida 34231 (ASSP@) and UNITED STATES SURGICAL CORPORATION, a Delaware corporation, with its registered office at 150 Glover Avenue, Norwalk, Connecticut 06856, (AUSSC@). : WHEREAS, USSC is a diversified surgical products company and a market leader in surgical stapling, laparoscopy and instrumentation for minimally invasive breast biopsy, and is rapidly penetrating the worldwide markets for sutures and other products; and WHEREAS, SSP engages, among other fields of business, in the design of computer software for the medical industry, including the OASIS information system, a proprietary hospital-based information system network to report and track occupational safety emergencies such as needlesticks and other reportable cases to OSHA independent from other hospital computer systems and software (AOASIS@); and WHEREAS, OASIS provides proprietary programs, health/risk management programs and medical products inservices through Touch Screen user interfaces at OASIS terminals in hospitals; and WHEREAS, the parties wish to enter into a Collaborative Agreement with the intention of building and growing the current relationship to a long term arrangement for the marketing of OASIS by placing certain OASIS units at designated USSC locations and, pending an initial trial period, for placement of additional OASIS units in additional locations or for USSC to purchase units from SSP for placement. NOW THEREFORE, in consideration of the mutual promises herein contained herein, as well as other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 TERM 1. The term of this Agreement shall be for a period of three (3) years (the ATerm@); which term may be terminated at the end of a nine (9) month period which period shall commence at the earlier of either: (i) six (6) months from the date of this Agreement, or (ii) on the date of Afirst installation at the last location@ (as defined herein) (the AReduced Term@). SSP shall have the right to terminate this Agreement if USSC has not designated ten (10) locations (as such are defined in Article 2(b)) at the termination of the Reduced Term. In the event USSC has designated ten (10) locations within the period of the Reduced Term, USSC shall have the right to terminate this Agreement at the end of the Reduced Term by giving SSP written notice within sixty (60) days of the expiration of the Reduced Term. For purposes of this Agreement, the Afirst installation at the last location@ shall mean the date on which the first OASIS system unit, as defined in Article 2, is released to the last facility pursuant to the Installation Schedule which is annexed hereto and made a part hereof as Schedule 1. 2. In the event this Agreement is terminated at the end of the Reduced Term by either SSP or USSC, the termination provisions of this Agreement shall take effect immediately. ARTICLE 2 INITIAL EQUIPMENT LEASED 1. During the Reduced Term, SSP hereby leases to USSC and USSC hereby leases and hires from SSP one or more units containing the initial equipment, software and other property (individually a AUnit@ and collectively the AUnits@) described in Schedule 2 which is annexed hereto and made a part hereof. 2. During the Reduced Term, the Units leased, as described in Schedule 2 annexed, shall be placed in not less than ten (10) locations, each of which location shall be a tertiary care facility containing one hundred (100) or more beds (individually the ALocations" and collectively, the Alocations@). 3. USSC shall have the right to lease one or more Units for each Location. 4. During the Term of this Agreement, SSP shall have the right to solicit other departments within a Location for sale or lease of OASIS systems (ASSP=s Business@). 5. During the Reduced Term of this Agreement, USSC shall be responsible for and bear all costs incurred relating to the delivery and installation of the Units. SSP shall be responsible for arranging for the supply, delivery and the integration of the Units. SSP agrees to commence installation of each Unit within two (2) to five (5) weeks after a Location has been designated by USSC. ARTICLE 3 ADDITIONAL EQUIPMENT LEASED 1. Provided this Agreement is not terminated at the end of the Reduced Term, from the expiration of the Reduced Term through the balance of the Term, SSP agrees to lease to and USSC agrees to lease and hire such additional Unit or Units as set forth in Schedule 2A et. seq. for place at one or more of the Locations, which Schedule or Schedules shall be annexed hereto and made a part hereof as if made at the time of execution of this Agreement. 2. Provided this Agreement is not terminated at the end of the Reduced Term, from the expiration of the Reduced Term through the balance of the Term, USSC shall be responsible for and bear all costs incurred relating to the delivery and installation of the Units. SSP shall be responsible for arranging for the supply, delivery and the integration of the Units. SSP agrees to commence installation of each Unit within two (2) to five (5) weeks after a Location has been signed. ARTICLE 4 USSC INSERVICE MODULES 1. During the Reduced Term, each Unit shall be formatted with as many inservice modules as requested by USSC for USSC products. As to the first ten (10) inservice modules for each of the following categories: Feature Modules, Major Modules and Basic Modules, USSC shall pay all production and modification fees in accordance with Schedule 3 annexed hereto and made a part hereof, but shall not be responsible for any monthly fee for such modules on all of the Units at a Location. In addition to rent required for leasing of the Units as provided herein, for all inservice modules for USSC products above the ten (10) inservice modules in three categories, USSC shall pay the monthly fees set forth in such Schedule 3 for such modules on all of the Units at a Location. 2. Provided this Agreement is not terminated at the end of the Reduced Term, from the expiration of the Reduced Term through the balance of the Term, As to the first ten (10) inservice modules for each of the following categories: Feature Modules, Major Modules and Basic Modules, USSC shall pay all production and modification fees in accordance with Schedule 3 annexed hereto and made a part hereof, and shall pay a monthly fee equal to the current monthly rates charged by SSP to its customers for such modules on all of the Units at a Location. In addition to rent required for leasing of the Units as provided herein, for all inservice modules for USSC products above the ten (10) inservice modules in three categories, USSC shall pay the monthly fees set forth in such Schedule 3 for such modules on all of the Units at a Location. ARTICLE 5 UNIT PLACEMENT Each Unit subject to this Agreement, shall be placed in a Location chosen by USSC. All Locations for placement must meet with SSP's written approval, which shall be given in the sole discretion of SSP, which approval may not be unreasonably withheld. USSC is not permitted to move any Unit without the express written consent of SSP. ARTICLE 6 INSPECTION 1. USSC=s Inspection. USSC shall inspect each Unit within seven (7) days after installation. Unless USSC, within said period of time, gives written notice to SSP, specifying any defect in or other proper objection to the Unit, USSC agrees that it shall be presumed conclusively, as between the SSP and USSC, that (i) USSC has fully inspected and acknowledged that the Unit is in good condition and repair, (ii) USSC is satisfied as to the condition and repair of said Unit, and (iii) USSC has accepted the Unit. 2. SSP=s Inspection. SSP shall, at any and all times during regular business hours, have the right to enter into and on the premises where the Unit may be located for the purpose of inspecting the same or observing its use. USSC shall give SSP or cause such to be given to SSP by the hospital where the Unit is located immediate notice of any attachment or other judicial process affecting any item of the Unit and shall, whenever requested by SSP, advise SSP of the exact location of the Unit. ARTICLE 7 USE 1. Manner of Use. USSC shall use each Unit subject to this Agreement or cause such Unit to be used in a careful and proper manner and in accordance with any and all documentation and manuals provided by SSP, and shall comply with all laws, ordinances, and regulations relating to the possession, use, or maintenance of such Unit. 2. Markings. If at any time during the time of this Agreement, SSP supplies USSC with labels, plates, or other markings, stating that the Unit is owned by SSP, USSC shall affix and keep the same in a prominent place on the Unit. ARTICLE 8 INITIAL AND ADDITIONAL EQUIPMENT RENT 1. During the Reduced Term as to the Initial Equipment on Schedule 2. USSC shall be solely responsible for all rental payments due SSP for the Units leased. Rental payments in the amount of $350 per Unit per month shall be paid to SSP for the duration of the Reduced Term for each such Unit. Additionally, USSC shall have the option to subscribe for a service maintenance plan which provides for the simultaneous exchange of equipment (within 24 hours) in the event any piece of equipment, its software or any module requires service or replacement (AHot Swap Maintenance Service@) for which payments in the amount of $50 per Unit per month shall be due during the Term. In the event Hot Swap Service is not elected by USSC or in the event USSC fails to make payment for such service, SSP shall remain responsible for service on such units, but shall cause such service to be performed within a three (3) business day time period. Payments shall be made at the principal place of business of SSP on or before the 1st day of each month of the Reduced Term. 2. Provided this Agreement is not terminated at the end of the Reduced Term, from the expiration of the Reduced Term through the balance of the Term as to the Initial Equipment on Schedule 2. USSC will use its best efforts to have the hospital sites at which a Unit or Units are installed to pay all future monthly rental charges, including Hot Swap Maintenance Service to SSP. In such event, USSC may direct such hospitals to make their respective rental payments to SSP and SSP agrees to accept same as if received from USSC. Rental payments during the period from the expiration of the Reduced Term through the balance of the Term for the Units on Schedule 2 shall be equal to $350 per Unit per month plus $50 per Unit per month for Hot Swap Maintenance Service. Notwithstanding such provision to accept payment for the benefit of SSP, such acceptance shall not be deemed a waiver of USSC=s responsibility, and in all USSC shall be solely responsible for such payments to SSP. 3. Provided this Agreement is not terminated at the end of the Reduced Term, from the expiration of the Reduced Term through the balance of the Term as to the Additional Equipment on Schedule 2A et seq. USSC will use its best efforts to have the hospital sites at which a Unit or Units are installed to pay all future monthly rental charges, including Hot Swap Maintenance Service to SSP. In such event, USSC may direct such hospitals to make their respective rental payments to SSP and SSP agrees to accept same as if received from USSC. Rental payments during the period from the expiration of the Reduced Term through the balance of the Term for the Units on Schedule 2A et seq. shall be (i) $350 per Unit per month plus $50 per Unit per month for Hot Swap Maintenance Service for all units configured in accordance with Schedule 2 and (ii) at the current monthly rate and Hot Swap Maintenance Service fee charged by SSP to its customers for all other configurations of Units. Notwithstanding such provision to accept payment for the benefit of SSP, such acceptance shall not be deemed a waiver of USSC=s responsibility, and in all USSC shall be solely responsible for such payments to SSP. ARTICLE 9 SECURITY DEPOSIT 1. USSC shall pay SSP a security deposit in the amount of $175 per Unit for Schedule 2 Units and (i) $175 per Unit for Schedule 2A et seq. Units configured in accordance with Schedule 2 or (ii) a deposit equal to half of one (1) month of the current monthly fee for all other configurations of Units in accordance with Schedule 2A et seq. (as to each Unit, the ASecurity Deposit@ and as to all of the Units, the ASecurity Deposits@). The Security Deposits shall remain in the possession, custody and control of SSP for the duration of Reduced Term and for the duration of the Term. 2. Upon termination at the Reduced Term or the Term, as applicable, SSP shall have the right to inspect the Units for damage. Provided no damage is found, except ordinary wear and tear, SSP shall return the Security Deposit to USSC . Should damage to the Unit be discovered by SSP upon inspection, SSP shall subtract an amount from the Security Deposit which represents a fair estimate of the cost of repair as a result of the damage, if repair is possible, and return the remaining portion of the Security Deposit to USSC, if any. In the event the Unit cannot be repaired as determined by SSP or should the Security Deposit be insufficient to cover the expense of repairing the Unit, SSP shall submit a request for payment to USSC, and USSC shall make prompt payment to SSP of the amount requested to conduct such repairs or replacement. ARTICLE 10 SECURITY INTEREST AND LICENSE AGREEMENT 1. During the Term or the Reduced Term, as applicable, SSP shall retain a security interest in all of the Units subject to this Agreement. USSC agrees to execute any and all documentation necessary to perfect such security interest, including but not limited to, any UCC-1 or related document for filing in the state and county where each Unit is located. In addition, USSC agrees that any hospital at which a Unit or Units are located, to cause such hospital to execute any and all documents necessary to perfect SSP=s security interest. In the event of any approved move of any Unit, USSC shall execute and cause the hospital at the new location to execute any and all documents or instruments necessary to perfect SSP=s security interest in the Unit at the new location. 2. During the Term or Reduced Term, as applicable, USSC shall and USSC shall cause each Location to execute a Site License Agreement in the form annexed hereto and made a part hereof as Exhibit A. In the event of any approved move of any Unit, USSC shall execute and cause the hospital at the new location to execute a Site License Agreement in the form annexed hereto and made a part hereof as Exhibit A. ARTICLE 11 INSURANCE AND TAXES 1. Insurance. USSC shall keep all of the Units insured against all risks of loss or damage from every cause whatsoever for not less than the full replacement value thereof as determined by SSP. USSC shall carry public liability and property damage insurance covering the Units. All said insurance shall be in the form and amount and with companies approved by SSP, and shall be in joint names of SSP and USSC. USSC shall pay the premiums therefor and shall deliver said policies, or duplicates thereof, to SSP. Each insurer shall agree, by endorsement on the policy issued by it or by independent instrument furnished to SSP, that it will give SSP thirty (30) days written notice before the policy in question shall be altered or canceled. The proceeds of such insurance, at the option of SSP, shall be applied: A. Toward the replacement, restoration, or repair of any damaged or lost Unit; or B. Toward payment of USSC=s obligations hereunder. USSC hereby appoints SSP as USSC=s attorney-in-fact to make claim for, receive payment of, and execute and endorse all documents, checks, or drafts for loss or damage under any said insurance policy. 2. Taxes. USSC shall keep all of the Units free and clear of all levies, liens, and encumbrances and shall pay all license fees, registration fees, assessments, charges, and taxes which may now or hereafter be imposed on the leasing, renting, possession, use, or in the event USSC elects to purchase, and SSP elects to sell, any or all of the Units, on the sale and or ownership of said Unit, excluding, however, all taxes on or measured by SSP=s ownership and or net income. 3. Additional Amounts Due SSP. In case of failure of USSC to procure or maintain said insurance or to pay said fees, assessments, charges, and taxes, as hereinbefore specified, SSP shall have the right, but shall not be obligated, to effect such insurance, or pay said fees, assessments, charges, and taxes, as the case may be repayable to SSP with the next installment of Rent or Additional Rent, as the case may be. ARTICLE 12 ADDITIONAL CONTENT PROVIDERS 1. During the Reduced Term, it is expected that additional companies will seek to promote their products on the Units installed, as additional content providers. The allowance of additional content providers to do so during and for the duration of the Reduced Term shall be in the sole discretion of USSC. 2. Provided this Agreement is not terminated at the end of the Reduced Term, from the expiration of the Reduced Term through the balance of the Term, SSP agrees to black out those products or companies set forth in Schedule 4, which schedule is annexed hereto and made a part hereof. As to any other company or product not listed on Schedule 4 annexed, SSP shall notify in writing USSC of any additional content providers which SSP wishes to include in any Unit. USSC shall have five (5) days from the date of such notice to advise SSP in writing as to whether or not USSC objects to the inclusion of such additional content provider. In the event USSC notifies SSP, such additional content provider shall not be included. In the event USSC fails to notify SSP within such five (5) day period, it shall be deemed that USSC has no objections, and SSP shall be entitled to include such additional content provider in any Unit. 3. All production fees, monthly fees and modification fees for such inservice modules for such additional content providers such be bourne by such providers and shall not be the responsibility of USSC. 4. For all companies who become additional content providers under subparagraph 1 or 2 of this Article 10, but exclusive of SSP Business, SSP shall pay to USSC a royalty equal to twenty five percent (25%) of all net monthly revenues realized from these additional content providers during and for the duration of the Term or Reduced Term. For purposes of this Agreement, Anet monthly revenues@ shall mean gross income from sales and monthly fees, less production fees, modification fees, costs of goods sold, repairs, taxes and out of pocket expenses. ARTICLE 13 ALTERATIONS, REPAIRS, DAMAGE AND LOSS 1. Alterations. Without the prior written consent of SSP, USSC shall not make any alterations, additions, or improvements to any Unit. All additions and improvements of any kind or nature made to any Unit shall belong to and become the property of SSP on the termination of this Agreement, with the following exceptions: A. SSP shall produce, modify and inservice software (AModules@) for USSC as outlined herein. B. Product based Modules produced by SSP for USSC, for which USSC makes full payment to SSP, shall become the sole property of USSC at the time of payment. SSP shall retain the right to display USSC Modules in SSP hardware for the Term or Reduced Term, but shall cease to actively display USSC Modules in SSP Units upon the termination of this Agreement without the prior written consent of an authorized representative of USSC. SSP shall always have the right to use USSC Modules for demonstration, education and development purposes. C. Product based Modules produced by SSP at the joint expense of SSP and USSC for their joint use, shall be the joint property of SSP and USSC, and both shall have all ownership rights in connection with the ownership of such Modules. All other types of modules shall remain the sole property of SSP. 2. Repairs. The Hot Swap Monthly Maintenance Fee shall cover the expense of the maintenance and upkeep of the Units including any repairs necessary for the Term or Reduced Term, so long as all such fees are paid in a timely manner. Provided however, that this fee shall not include any intentional misuse of any Unit, nor shall it include any maintenance required as a result of the use of any Units which is not the intended ordinary use of such equipment. 3. USSC hereby assumes and shall bear the entire risk of loss and damage to any Unit or any part thereof which shall impair any obligation of USSC under this Agreement. In the event of loss or damage of any kind to any Unit or part thereof, USSC shall pay to SSP the cost of placing the same in good repair, condition, and working order, or in the event such cannot be repaired, the replacement cost thereof in accordance with the stipulated loss value set forth herein. 4. Stipulated Loss Value. If any Unit is determined by SSP to be lost, stolen, destroyed, or damaged beyond repair, USSC shall pay SSP thereof in case the AStipulated Loss Value@ as set forth in the Schedule 5 which is annexed hereto and made a part hereof. Upon such payment, this Agreement shall terminate with respect to such Unit, USSC shall become the owner of such Unit without warranty, express or implied, with respect to any matter whatsoever and SSP shall provide USSC with a Bill of Sale relative to such Unit. ARTICLE 14 STEERING COMMITTEE 1. Each party to this Agreement shall appoint an equal number of members to a steering committee (the "Steering Committee"). The Steering Committee shall oversee Unit installation, operation, maintenance and removal. The Steering Committee shall have no power to govern or control the actions or inactions of the parties except as expressly provided by this or any other written Agreement. The Steering Committee shall take all necessary steps to maintain efficient and amicable coordination between the parties including the following: A. Preparation for product installation including site consideration, review and screening, installation considerations including power and phone access, determination of the necessary modules to cater to the needs of the individual site and consultation with the parties. B. Coordination of training schedules for site personnel, development of training programs and tools, etc. C. Site maintenance, including: preparation of data related to Unit use, adaptation of Unit and Unit modules to the changing needs of site personnel, Unit maintenance schedules, including general service and maintenance as well as Unit repair and replacement as necessary. D. Unit removal, relocation or reconfiguration if necessary and desirable to the parties. E. Information update and exchange by and between the parties. ARTICLE 15 OWNERSHIP AND ASSIGNMENT 1. Ownership. The Units are, and shall at all times be and remain, the sole and exclusive property of SSP, subject to the provisions contained herein regarding ownership of Modules produced either jointly or at the sole expense of USSC. USSC shall have no right, title, or interest therein, except as expressly set forth in this Agreement. 2. Assignment. Without the prior written consent of SSP, during the Term or the Additional Term, if any, USSC shall not: A. Assign, transfer, pledge, or hypothecate this Agreement, any Unit or any part of it, or any interest in it; or B. Sublet or lend any Unit or any part of it, or permit any Unit or any part of it to be used by anyone other than USSC or USSC=s employees, except for the employees located at the installation site, which site is approved by SSP. ARTICLE 16 PURCHASE OPTION Provided this Agreement is not terminated at the end of the Reduced Term, from the expiration of the Reduced Term through the balance of the Term, if all rents and any other money due and payable to SSP have been paid in full, USSC shall have the right and privilege, at its option, to purchase any OASIS Model 1062LP, exclusive of any software, for a price of $8500. This purchase option shall apply to hardware only. All software which is not either the joint property of USSC and SSP or is not the sole property of USSC shall remain the exclusive property of SSP, the use of which will require a license and fee. On the exercise of this option, SSP shall duly execute and deliver to USSC any and all documents necessary and proper to effect transfer of ownership of the equipment to USSC, free and clear of all encumbrances, security interests, or liens (other than encumbrances, security interests, or liens suffered or permitted by USSC to become effective thereon). Upon payment by USSC in cash or certified check of the full amount of the option price and thereupon this Agreement shall terminate as to such Unit. No further rent shall become due with respect to such equipment so purchased by USSC. SSP shall provide Hot Swap Monthly Maintenance, module production and module monthly maintenance and modification at its current rates if elected by USSC. ARTICLE 17 Intentionally left blank. ARTICLE 18 DEFAULT If USSC with regard to any Unit, module or modification (i) fails to pay any rent or any other amount due hereunder within ten (10) days after the same is due and payable, or (ii) if any execution of any other writ of process shall be issued in any action or proceeding against USSC whereby said equipment may be seized, taken, or detained, or (iii) if a proceeding in bankruptcy, receivership, or insolvency shall be instituted by or against USSC, or (iv) if USSC shall enter into any arrangement or composition with its creditors, or (v) if USSC, with regard to any Unit or Units, fails to observe, keep, or perform any other provision of this Agreement required to be observed, kept, or performed by USSC, SSP shall, if such default shall continue for thirty (30) days after written notice thereof to USSC, and such default shall not have been cured within thirty (30) days, have the right to exercise any one or more of the following remedies: 1. To declare the entire amount of rent and any other monies due hereunder immediately due and payable as to any or all Units, without notice or demand to USSC. 2. To sue for and recover all rents and any other payments then accrued or thereafter accruing, with respect to any or all Units. 3. To take possession of any or all Units, without demand or notice, wherever the same may be located, without any court order or other process of law. USSC hereby waives any and all damages occasioned by such taking of possession. 4. To terminate this Agreement as to any or all Units. 5. To pursue any other remedy at law or in equity available to SSP. Notwithstanding any repossession, or any other action which SSP may take, USSC shall be and remain liable for the full performance of all obligations to be performed by USSC under this Agreement. All such remedies are cumulative, and may be exercised concurrently or separately at the sole option of SSP. This provision shall survive the termination of this Agreement. ARTICLE 19 INTEREST If USSC fails to pay any part of the rent or any other money due hereunder to SSP within ten (10) days after the due date thereof, USSC shall pay to SSP interest on such delinquent payment from the expiration of said ten (10) days until paid at the rate of seven percent (7%) per annum. ARTICLE 20 SURRENDER AND TERMINATION On the expiration of the Term or Reduced Term, or earlier termination of this Agreement, including any termination on default, with respect to any Unit or Units, USSC shall forfeit all right to the software and hardware which are the subject of this Agreement, other than USSC produced modules. At the option of SSP, USSC shall either: 1. Return the same to SSP in good repair, condition and working order (ordinary wear and tear resulting from proper use thereof alone excepted) in the following manner as may be specified by SSP: A. By delivering such Unit or Units at USSC=s cost and expense to such place as SSP shall specify, in which case risk of loss remains with USSC until such time as the Unit or Units are returned to the location specified by SSP; or B. By loading the Unit or Units at USSC=s cost and expense on board such carrier as SSP shall specify and shipping the same, freight collect, to the destination designated by SSP, in which case risk of loss shifts to SSP at the time USSC delivers the Unit or Units to the specified carrier. 2. Surrender the same to SSP in good repair, condition and working order (ordinary wear and tear resulting from proper use thereof alone excepted) at the installation location, allowing SSP adequate time to inspect same, before releasing USSC from its obligations under the Agreement and returning the Security Deposit. ARTICLE 21 Intentionally left blank. ARTICLE 22 SECURITY AND CONFIDENTIALITY 1. SSP understands and acknowledges that USSC and USSC understands and acknowledges that SSP operates under the laws, statutes and regulations of various state and federal agencies, some of which are unique to the security-sensitive medical industry. Both SSP and USSC shall endeavor, to the extent permitted by law, make reasonable efforts to comply with the reasonable written instructions and reasonable written requests of the other regarding security and confidentiality pertaining to this Agreement, the project plan agreed by the parties and all other aspects of the relationship between the parties and the Units (including the hardware and software) and information that is exchanged, shared or handled by either party to this Agreement. 2. Both parties agree and do hereby agree that all information which could reasonably be considered "Confidential" by the other will not be distributed to their employees, affiliates or to the general public, except on a "Need to Know Basis." 3. For the purposes of this section only, Confidential Information shall include any non-public information that the disclosing party reasonably designates as confidential, or which under the circumstances surrounding disclosure, should reasonably be considered confidential. Confidential information includes, but is not limited to information relating to a Party's released or unreleased software and hardware products, business policies and practices including all tangible and intangible materials containing information that is not public or not known to the public whether or not it is in written or printed form or whether it is machine or user readable or not. ARTICLE 23 PERSONAL PROPERTY The Units, any attachments, improvements and or modifications thereon are, and shall at all times be and remain personal property and not deemed a fixture, notwithstanding that the Units or any part thereof may now be, or hereinafter become, in any manner affixed or attached to, or embedded in, or permanently resting on, real property or any building thereon, or attached in any manner to that which is permanent as by means of cement, plaster, nails, bolts, screws, or otherwise. ARTICLE 24 REPRESENTATIONS AND WARRANTIES 1. USSC Representations and Warranties. USSC represents and warrants that it is duly formed, validly existing and that none of the terms, conditions or obligations contained herein violate any provision of its articles of incorporation, bylaws, regulations or statutes. Further, USSC represents and warrants that the party executing this Agreement on its behalf is fully empowered to do so and to bind USSC to all of the terms and obligations contained herein. 2. SSP Representations and Warranties. SSP represents and warrants that it is duly formed, validly existing and that none of the terms, conditions or obligations contained herein violate any provision of its articles of incorporation, bylaws, regulations or statutes. Further, SSP represents and warrants that the party executing this Agreement on its behalf is fully empowered to do so and to bind SSP to all of the terms and obligations contained herein. 3. Survival. The provision contained in this Article 23 shall survive the termination of this Agreement. ARTICLE 25 GENERAL PROVISIONS 1. Expenses. If any legal action is required for either party to enforce any of its rights or remedies hereunder or to enforce any of the terms, conditions, or provisions hereof, the prevailing party in such action shall be entitled to recover all costs and expenses of such action, including attorneys fees, from the other party. 2. Concurrent Remedies. No right or remedy herein conferred on or reserved to SSP or USSC is exclusive of any other right or remedy herein or by the law or equity provided or permitted; but each shall be commutative of every other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise, and may be enforced concurrently therewith or from time to time. 3. Nonwaiver. No covenant or condition of this Agreement may be waived except by the written consent of the parties. Forbearance or indulgence by either party in any regard whatsoever shall not constitute a waiver of the covenant or condition to be performed by the other party to which the same may apply, and, until complete performance by the other party of any covenant or condition, the forbearing or indulging party shall be entitled to invoke any remedy available to it under this Agreement or by law or in equity despite said forbearance or indulgence. 4. Entire Agreement. This Agreement constitutes the entire agreement between SSP and USSC and supersedes any prior understanding or written or oral agreements between the parties respecting the within subject matter. It shall not be amended, altered, or changed except by a written agreement signed by the parties hereto. 5. Notices. Service of all notices under this Agreement shall be sufficient if given personally, delivered by courier, or mailed, certified receipt, return receipt requested to the party involved at its respective address set forth herein, or at such address as such party may provide in writing from time to time in accordance with this paragraph. Any such notice mailed to such address shall be effective when delivered. At the time of execution of this Agreement, and until further written notice is given by either party to the other, notices shall be sent to: SSP: Surgical Safety Products, Inc. SSP Corporate Center 2018 Oak Terrace Sarasota, Florida 34231 With a copy to: Mintmire & Associates 265 Sunrise Avenue, Suite 204 Palm Beach, Florida 33480 USSC: Legal Department United States Surgical Corporation 150 Glover Avenue Norwalk, Connecticut 06856 6. Notice of Special Events. USSC shall promptly give notice to SSP of any of the following occurrences within one week of USSC's knowledge thereof: (i) any execution of any writ of process shall be issued in any action or proceeding against any location at which any Unit is located whereby said equipment may be seized, taken or detained; (ii) a proceeding in bankruptcy, receivership, or insolvency shall be instituted by or against any location at which any Units is located; or (iii) the location at which any Unit is located shall enter into any arrangement or composition with its creditors. 7. Gender; Number. Whenever the context of this Agreement requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural. Whenever the word ASSP@ or AUSSC@ is used herein, it shall include all controlled, controlling or controlled by entities and individuals. 8. Law to Apply. This Agreement shall be construed under and in accordance with the laws of the State of Florida. The parties agree to the exclusive jurisdiction of the courts of the State of Florida and designate venue in Sarasota County, Florida. 9. Parties Bound. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors, and permitted assigns. 10. Legal Construction. If any or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision thereof, and this Agreement shall constructed as if such invalid, illegal, or unenforceable provision had never been contained herein. IN WITNESS WHEREOF, the parties hereto executed this Agreement the day and year first above written. Surgical Safety Products, Inc. (ASSP@) By: /s/ Donald K. Lawrence ---------------------------------- An Authorized Representative United States Surgical Corporation (AUSSC@) By: /s/ Larry C. Heatom III ---------------------------------- An Authorized Representative Schedule 1 Installation Schedule Installation # Facility Name Install week of - - ------------------------------------------------------------------------- Hospital 1 TBD 11-9-98 Hospital 2 TBD 11-9-98 Hospital 3 TBD 11-16-8 Hospital 4 TBD 11-16-98 Hospital 5 TBD 11-07-98 Hospital 6 TBD 11-07-98 Hospital 7 TBD 11-07-98 Hospital 8 TBD 11-14-98 Hospital 9 TBD 11-14-98 Hospital 10 TBD 11-14-98 Schedule 2 Unit configuration HARDWARE: Model 1062LP or Equivalent SOFTWARE: Version 2.x or later TITLES INCLUDED: Healthcare News and Events Device Inservices Culture Awareness Schedule 3 Production and Modification Fees PRODUCTION FEES: Feature: $2,000 per module Major: $1,500 per module Basic: $1,000 per module MODIFICATION FEES: $75 per hour Schedule 4 Excluded Companies and Products Richard Allen - Trocars, Laporoscopic stapling devices Origin - Trocars, Laporoscopic stapling devices, mesh products Dexcide - Trocars Core Dynamics - Trocars Applied Medical - All products Sophmore Danic - All products Bard - Hernia mesh products Genzymen - Trocars, Laporoscopic stapling devices, Mesh products Atruim Medical - Trocars, Mesh Ethicon - All products Johnson and Johnson - Review with USS Schedule 5 Stipulated Loss Value MODEL 1062LP $8500 EX-10 5 MATERIAL CONTRACTS EXHIBIT 10.24 Surgical Safety(TM) SSP Corporate Center [Logo] Products, Inc. 2018 Oak Terrace Sarasota, FL 32431 Telephone 941-927-7874 Fax 941-925-0515 November 16, 1998 Internet www.SSP-inc.com Via Facsimile Dr. William B. Saye Medical Director/CEO Advanced Laparoscopy Training Center REVISED 790 Church Street, Suite 380 Marietta, GA 30060 Dear Bill: After a great deal of thought as to a structure for an alliance, we have formulated the following framework which should address both of our concerns. This new arrangement would be a seven-year collaborative agreement between William Saye, M.D., and Surgical Safety Products, Inc. (SSP). The purpose is to position the existing Advanced Laparoscopy Training Center (ALTC) as the leading-edge approach in digital education, training and review. The focus will be to shift the paradigm of traditional training methods in advanced surgical techniques to a new distance-based approach. The new approach would be delivered through OASiS TouchPorts, the Internet, and emerging mediums. The goal of this collaborative agreement - to educate and train a wide audience on safe and efficient techniques and procedures. We will strategically expand the OASiS network while building valuable and effective digital content within. The prime mantra will be to re-shape technology for safety and efficiency for the healthcare worker and, ultimately, the patient. While we haven't reviewed your existing agreement with Ethicon Endo-Surgery, we are determined that the structure of this Agreement will in no way interfere nor conflict with either parties' existing professional agreements. Rather, it will continually strive to enhance these relationships. Here are the details: SSP acquires the "digital rights" to ALTC, William Saye, M.D., and the resulting amalgam from this Agreement as it relates to surgical education. Simply put, any educational activity involving ALTC, or Dr. Saye on the Internet, or other digital presence would be the property of, and under, SSP's control. Dr. Saye becomes a member of the Company Board of Directors and acts as the Medical Director for ALTC VirtuaLabs Dr. William B. Saye Page Two November 16, 1998 SSP acquires marketing rights to the ALTC database for purposes and initiatives that will be mutually agreed upon and formulated by both SSP and Dr. Saye. SSP and its assigns are granted "open-door" privileges with Dr. Saye in Atlanta for the purpose of developing digital content for ALTC VirtuaLab and other educational applications. This Agreement awards Dr. Saye for his involvement in the form of SURG stock options, thus providing a significant equity position in the Company while minimizing tax consequences. It allows you to earn up to 1,000,000 shares within the 7-year term. o Dr. Saye will receive 300,000 options on SURG common stock immediately upon accepting this proposal. o Dr. Saye will receive an additional 100,000 options on SURG common stock each year for the duration of this Agreement. These options will become available during each year in monthly (1/12) increments. o The exercise price for all options earned in year one will be $1.00. The exercise price for all options earned in year two will be $1.50. The exercise price for all options earned year three will be $2.00, and the exercise price for options earned in years four through seven will be $2.50. o As an incentive to promote the installation of OASiS, we are offering an acceleration allowing Dr. Saye to earn a portion of the 1,000,000 total options earlier than the outlined seven-year period. In doing so, Dr. Saye would enjoy a lower exercise price, compared to earning the stock options later in the contract. Dr. Saye will receive 20,000 options for each healthcare facility installation of any version of OASiS. Dr. Saye's stock accrual will be capped and limited regarding this Agreement to a total of 1,000,000 options. In other words, with rampant installations on behalf of Dr. Saye, he could reach the 1,000,000 maximum prior to the end of the seven-year agreement, thus earning the options at the lower option price. Along with incurred travel expense, Dr. Saye will be paid an honorarium of $2,500 per day when requested by SSP. We hope this approach answers your concerns. We are anxious to begin work immediately on developing ALTC VirtuaLab and look forward to your response. Sincerely, SURGICAL SAFETY PRODUCTS, INC. /s/ GMS /s/ Frank Clark - - ----------------------------------- -------------------------- G.Michael Swor, M.D., MBA, Chairman Frank M. Clark, President GMS:mgc Accept: /s/ William B. Saye, M.D. Date:11/20/98 ------------------------ William B. Saye, M.D. EX-10 6 MATERIAL CONTRACTS EXHIBIT 10.25 OASiS Touch-Access Information System November 3, 1998 Mr. Pete Snyder Kiosk Information Systems, Inc. 224 Commerce Street Broomfield, CO 80020 Reference: P.O.# 110398-DL / Quotation # 1103801
Item # Description Unit Price Qty Extended Price KT-Stealth KIS KT-Stealth walk-up kiosk consisting of: $6,650 20 133,000 * Aluminum chassis with black painted back and sides and 1/4" brushed aluminum front panel with polished edges * 13.2" TFT active matrix LCD(Samsung) with surface wave touch screen (native 800 x 600) * Open-frame amplified stereo speakers * Lock-n-Key entry into chassis * Cooling fan with power supply * Power Strip with surge protector * Pentium 266 MHz/64MG RAM/4GB IDE HD/ATI rage graphics card with 2 MN VRAM/16-bit stereo sound card/56.6 kbps modem/USB Port 1 parallel & 2 serial ports/1.44 Floppy/32X CDROM/WIN 98 * 80mm thermal printer with presenter * Kiosk packaging * Network interface card -10/100 * Keyboard and mouse
Kiosk Subtotal: $133,000 Color: Brushed Metallic Estimated Freight: 5,000 Estimated Total: $138,000 Terms: *50% Deposit, Balance due by 12/31/98, or net 10 days from last unit ship date (whichever is later) Delivery: F.O.B. Broomsfield, CO * 10 units - 5 weeks after receipt of order * 10 units - 6 weeks after receipt of order * Freight charges vary depending on method of shipment Estimate provided for budgeting purposes only. Authorized by: /s/ DONALD LAWRENCE Date: 11-3-98 ------------------- Donald Lawrence Surgical Safety Products, Inc. 2018 Oak Terrace, Sarasota, FL 34231 Telephone: 800-953-7889 Fax:: 941-925-0515 Internet: www.oasisdamo.com EX-10 7 MATERIAL CONTRACTS EXHIBIT 10.26 SURGICAL SAFETY PRODUCTS, INC. 1999 STOCK OPTION PLAN 1. GRANT OF OPTIONS; GENERALLY. In accordance with the provisions hereinafter set forth in this stock option plan, the name of which is the SURGICAL SAFETY PRODUCTS 1999 STOCK OPTION PLAN (the "Plan"), the Board of Directors (the "Board") or, a committee designated by the Board as the stock option committee (the "Stock Option Committee") of Surgical Safety Products, Inc. (the "Corporation") is hereby authorized to issue from time to time on the Corporation's behalf to any one or more Eligible Persons, as hereinafter defined, options to acquire shares of the Corporation's $.001 par value per share common stock (the "Stock"). 2. TYPE OF OPTIONS. The Board or the Stock Option Committee is authorized to issue options which meet the requirements of Sections ss.422 of the Internal Revenue Code of 1986, as amended (the "Code"), which options are hereinafter referred to collectively as ISO's, or singularly as an ISO. The Board or the Stock Option Committee is also, in its discretion, authorized to issue options which are not ISO's, which options are hereinafter referred to collectively as NSO's, or singularly as an NSO. The Board or the Stock Option Committee is also authorized to issue "Reload Options" in accordance with Paragraph 8 herein, which options are hereinafter referred to collectively as Reload Options, or singularly as a Reload Option. Except where the context indicates to the contrary, the term "Option" or "Options" means ISO's, NSO's and Reload Options. 3. AMOUNT OF STOCK. The aggregate number of shares of Stock which may be purchased pursuant to the exercise of Options shall be Two Million (2,000,000) shares. Of this amount, the Board or the Stock Option Committee shall have the power and authority to designate whether any Options so issued shall be ISO's or NSO's, subject to the restrictions on ISO's contained elsewhere herein. If an Option ceases to be exercisable, in whole or in part, the shares of Stock underlying such Option shall continue to be available under this Plan. Further, if shares of Stock are delivered to the Corporation as payment for shares of Stock purchased by the exercise of an Option granted under this Plan, such shares of Stock shall also be available under this Plan. If there is any change in the number of shares of Stock on account of the declaration of stock dividends, recapitalization resulting in stock split-ups, or combinations or exchanges of shares of Stock, or otherwise, the number of shares of Stock available for purchase upon the exercise of Options, the shares of Stock subject to any Option and the exercise price of any outstanding Option shall be appropriately adjusted by the Board or the Stock Option Committee. The Board or the Stock Option Committee shall give notice of any adjustments to each Eligible Person granted an Option under this Plan, and such adjustments shall be effective and binding on all Eligible Persons. If because of one or more recapitalizations, reorganizations or other corporate events, the holders of outstanding Stock receive something other than shares of Stock then, upon exercise of an Option, the Eligible Person will receive what the holder would have owned if the holder had exercised the Option immediately before the first such corporate event and not disposed of anything the holder received as a result of the corporate event. 4. ELIGIBLE PERSONS. (A) With respect to ISO's, an Eligible Person means any individual who has been employed by the Corporation or by any subsidiary of the Corporation, for a continuous period of at least sixty (60) days. (B) With respect to NSO's, an Eligible Person means (i) any individual who has been employed by the Corporation or by any subsidiary of the Corporation, for a continuous period of at least sixty (60)days, (ii) any director of the Corporation or any subsidiary of the Corporation or (iii) any consultant or advisor of the Corporation or any subsidiary of the Corporation. 5. GRANT OF OPTIONS. The Board or the Stock Option Committee has the right to issue the Options established by this Plan to Eligible Persons. The Board or the Stock Option Committee shall follow the procedures prescribed for it elsewhere in this Plan. A grant of Options shall be set forth in a writing signed on behalf of the Corporation or by a majority of the members of the Stock Option Committee. The writing shall identify whether the Option being granted is an ISO or an NSO and shall set forth the terms which govern the Option. The terms shall be determined by the Board or the Stock Option Committee, and may include, among other terms, the number of shares of Stock that may be acquired pursuant to the exercise of the Options, when the Options may be exercised, the period for which the Option is granted and including the expiration date, the effect on the Options if the Eligible Person terminates employment and whether the Eligible Person may deliver shares of Stock to pay for the shares of Stock to be purchased by the exercise of the Option. However, no term shall be set forth in the writing which is inconsistent with any of the terms of this Plan. The terms of an Option granted to an Eligible Person may differ from the terms of an Option granted to another Eligible Person, and may differ from the terms of an earlier Option granted to the same Eligible Person, including terms relative to change of control. 6. OPTION PRICE. The option price per share shall be determined by the Board or the Stock Option Committee at the time any Option is granted, and shall be not less than (i) in the case of an ISO, the fair market value, (ii) in the case of an ISO granted to a ten percent or greater stockholder, 110% of the fair market value, or (iii) in the case of an NSO, not less than 75% of the fair market value (but in no event less than the par value) of one share of Stock on the date the Option is granted, as determined by the Board or the Stock Option Committee. Fair market value as used herein shall be not less than: (A) If shares of Stock shall be traded on an exchange or over-the-counter market, the mean between the high and low sales prices of Stock on such exchange or over-the-counter market on which such shares shall be traded on that date, or if such exchange or over-the-counter market is closed or if no shares shall have traded on such date, on the last preceding date on which such shares shall have traded. (B) If shares of Stock shall not be traded on an exchange or over-the-counter market, the value as determined by a recognized appraiser as selected by the Board or the Stock Option Committee. 7. PURCHASE OF SHARES. An Option shall be exercised by the tender to the Corporation of the full purchase price of the Stock with respect to which the Option is exercised and written notice of the exercise. The purchase price of the Stock shall be in United States dollars, payable in cash or by check, or in property or Corporation stock, if so permitted by the Board or the Stock Option Committee in accordance with the discretion granted in Paragraph 5 hereof, having a value equal to such purchase price. The Corporation shall not be required to issue or deliver any certificates for shares of Stock purchased upon the exercise of an Option prior to (i) if requested by the Corporation, the filing with the Corporation by the Eligible Person of a representation in writing that it is the Eligible Person's then present intention to acquire the Stock being purchased for investment and not for resale, and/or (ii) the completion of any registration or other qualification of such shares under any government regulatory body, which the Corporation shall determine to be necessary or advisable. 8. $100,000 PER YEAR LIMITATION. (A) In general. To the extent that the aggregate fair market value of Stock with respect to which ISO's (determined without regard to this subsection) are exercisable for the first time by any individual during any calendar year (under all plans of the Corporation and its parent and subsidiary corporations) exceeds $100,000, such options shall be treated as options which are not ISO's. (B) Ordering Rule. Subparagraph (A) of this section shall be applied by taking options into account in the order in which they were granted. (C) Determination of fair market value. For purposes of subparagraph (A) of this section, the fair market value of any Stock shall be determined as of the time the option with respect to such Stock is granted. 9. GRANT OF RELOAD OPTIONS. In granting an Option under this Plan, the Board or the Stock Option Committee may include a Reload Option provision therein, subject to the provisions set forth in Paragraphs 21 and 22 herein. A Reload Option provision provides that if the Eligible Person pays the exercise price of shares of Stock to be purchased by the exercise of an ISO, NSO or another Reload Option (the "Original Option") by delivering to the Corporation shares of Stock already owned by the Eligible Person (the "Tendered Shares"), the Eligible Person shall receive a Reload Option which shall be a new Option to purchase shares of Stock equal in number to the tendered shares. The terms of any Reload Option shall be determined by the Board or the Stock Option Committee consistent with the provisions of this Plan. 10. STOCK OPTION COMMITTEE. The Stock Option Committee may be appointed from time to time by the Corporation's Board of Directors. The Board may from time to time remove members from or add members to the Stock Option Committee. The Stock Option Committee shall be constituted so as to permit the Plan to comply in all respects with the provisions set forth in Paragraph 21 herein. The members of the Stock Option Committee may elect one of its members as its chairman. The Stock Option Committee shall hold its meetings at such times and places as its chairman shall determine. A majority of the Stock Option Committee's members present in person shall constitute a quorum for the transaction of business. All determinations of the Stock Option Committee will be made by the majority vote of the members constituting the quorum. The members may participate in a meeting of the Stock Option Committee by conference telephone or similar communications equipment by means of which all members participating in the meeting can hear each other. Participation in a meeting in that manner will constitute presence in person at the meeting. Any decision or determination reduced to writing and signed by all members of the Stock Option Committee will be effective as if it had been made by a majority vote of all members of the Stock Option Committee at a meeting which is duly called and held. 11. ADMINISTRATION OF PLAN. In addition to granting Options and to exercising the authority granted to it elsewhere in this Plan, the Board or the Stock Option Committee is granted the full right and authority to interpret and construe the provisions of this Plan, promulgate, amend and rescind rules and procedures relating to the implementation of the Plan and to make all other determinations necessary or advisable for the administration of the Plan, consistent, however, with the intent of the Corporation that Options granted or awarded pursuant to the Plan comply with the provisions of Paragraph 21 and 22 herein. All determinations made by the Board or the Stock Option Committee shall be final, binding and conclusive on all persons including the Eligible Person, the Corporation and its stockholders, employees, officers and directors and consultants. No member of the Board or the Stock Option Committee will be liable for any act or omission in connection with the administration of this Plan unless it is attributable to that member's willful misconduct. 12. PROVISIONS APPLICABLE TO ISO's. The following provisions shall apply to all ISO's granted by the Board or the Stock Option Committee and are incorporated by reference into any writing granting an ISO: (A) An ISO may only be granted within ten (10) years from January 19, 1999, the date that this Plan was originally adopted by the Corporation's Board of Directors. (B) An ISO may not be exercised after the expiration of ten (10) years from the date the ISO is granted. (C) The option price may not be less than the fair market value of the Stock at the time the ISO is granted. (D) An ISO is not transferrable by the Eligible Person to whom it is granted except by will, or the laws of descent and distribution, and is exercisable during his or her lifetime only by the Eligible Person. (E) If the Eligible Person receiving the ISO owns at the time of the grant stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation (as those terms are defined in the Code), then the option price shall be at least 110% of the fair market value of the Stock, and the ISO shall not be exercisable after the expiration of five (5) years from the date the ISO is granted. (F) Even if the shares of Stock which are issued upon exercise of an ISO are sold within one year following the exercise of such ISO so that the sale constitutes a disqualifying disposition for ISO treatment under the Code, no provision of this Plan shall be construed as prohibiting such a sale. (G) The Plan was adopted by the Corporation on January 19, 1999, by virtue of its approval by the Corporation's Board of Directors. Approval by the stockholders of the Corporation is to occur prior to January 19, 2000. 13. DETERMINATION OF FAIR MARKET VALUE. In granting ISO's under this Plan, the Board or the Stock Option Committee shall make a good faith determination as to the fair market value of the Stock at the time of granting the ISO. 14. RESTRICTIONS ON ISSUANCE OF STOCK. The Corporation shall not be obligated to sell or issue any shares of Stock pursuant to the exercise of an Option unless the Stock with respect to which the Option is being exercised is at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and any other applicable laws, rules and regulations. The Corporation may condition the exercise of an Option granted in accordance herewith upon receipt from the Eligible Person, or any other purchaser thereof, of a written representation that at the time of such exercise it is his or her then present intention to acquire the shares of Stock for investment and not with a view to, or for sale in connection with, any distribution thereof; except that, in the case of a legal representative of an Eligible Person,"distribution" shall be defined to exclude distribution by will or under the laws of descent and distribution. Prior to issuing any shares of Stock pursuant to the exercise of an Option, the Corporation shall take such steps as it deems necessary to satisfy any withholding tax obligations imposed upon it by any level of government. 15. EXERCISE IN THE EVENT OF DEATH OF TERMINATION OR EMPLOYMENT. (A) If an optionee shall die (i) while an employee of the Corporation or a Subsidiary or (ii) within three months after termination of his employment with the Corporation or a Subsidiary because of his disability, or retirement or otherwise, his Options may be exercised, to the extent that the optionee shall have been entitled to do so on the date of his death or such termination of employment, by the person or persons to whom the optionee's right under the Option pass by will or applicable law, or if no such person has such right, by his executors or administrators, at any time, or from time to time. In the event of termination of employment because of his death while an employee or because of disability, his Options may be exercised not later than the expiration date specified in Paragraph 5 or one year after the optionee's death, whichever date is earlier, or in the event of termination of employment because of retirement or otherwise, not later than the expiration date specified in Paragraph 5 hereof or one (1) year after the optionee's death, whichever date is earlier. (B) If an optionee's employment by the Corporation or a Subsidiary shall terminate because of his disability and such optionee has not died within the following three (3) months, he may exercise his Options, to the extent that he shall have been entitled to do so at the date of the termination of his employment, at any time, or from time to time, but not later than the expiration date specified in Paragraph 5 hereof or one year after termination of employment, whichever date is earlier. (C) If an optionee's employment shall terminate by reason of his retirement in accordance with the terms of the Corporation's tax-qualified retirement plans or with the consent of the Board or the Stock Option Committee or involuntarily other than by termination for cause, and such optionee has not died within the following three months, he may exercise his Option to the extent he shall have been entitled to do so at the date of the termination of his employment, at any time and from time to time, but not later than the expiration date specified in Paragraph 5 hereof or thirty (30) days after termination of employment, whichever date is earlier. For purposes of this Paragraph 15, termination for cause shall mean termination of employment by reason of the optionee's commission of a felony, fraud or willful misconduct which has resulted, or is likely to result, in substantial and material damage to the Corporation or a Subsidiary, all as the Board or the Stock Option Committee in its sole discretion may determine. (D) If an optionee's employment shall terminate for any reason other than death, disability, retirement or otherwise, all right to exercise his Option shall terminate at the date of such termination of employment, unless otherwise provided in any agreement with an Eligible Person relative to change of control of the Corporation, in which case such change of control provisions shall govern. 16. CORPORATE EVENTS. Subject to the provisions for change of control which may be granted to an Eligible Person, in the event of the proposed dissolution or liquidation of the Corporation, a proposed sale of all or substantially all of the assets of the Corporation, a merger or tender for the Corporation's shares of Common Stock the Board of Directors may declare that each Option granted under this Plan shall terminate as of a date to be fixed by the Board of Directors; provided that not less than thirty (30) days written notice of the date so fixed shall be given to each Eligible Person holding an Option, and each such Eligible Person shall have the right, during the period of thirty (30) days preceding such termination, to exercise his Option as to all or any part of the shares of Stock covered thereby, including shares of Stock as to which such Option would not otherwise be exercisable. Nothing set forth herein shall extend the term set for purchasing the shares of Stock set forth in the Option. 17. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan or in writing granting an Option will confer upon any Eligible Person the right to continue in the employ of the Eligible Person's employer, or will interfere with or restrict in any way the right of the Eligible Person's employer to discharge such Eligible Person at any time for any reason whatsoever, with or without cause. 18. NONTRANSFERABILITY. No Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution. During the lifetime of the optionee, an Option shall be exercisable only by him. 19. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights as a stockholder with respect to any shares subject to his Option prior to the date of issuance to him of a certificate or certificates for such shares. 20. AMENDMENT AND DISCONTINUANCE OF PLAN. The Corporation's Board of Directors may amend, suspend or discontinue this Plan at any time. However, no such action may prejudice the rights of any Eligible Person who has prior thereto been granted Options under this Plan. Further, no amendment to this Plan which has the effect of (a) increasing the aggregate number of shares of Stock subject to this Plan (except for adjustments pursuant to Paragraph 3 herein), or (b) changing the definition of Eligible Person under this Plan, may be effective unless and until approval of the stockholders of the Corporation is obtained in the same manner as approval of this Plan is required. The Corporation's Board of Directors is authorized to seek the approval of the Corporation's stockholders for any other changes it proposes to make to this Plan which require such approval, however, the Board of Directors may modify the Plan, as necessary, to effectuate the intent of the Plan as a result of any changes in the tax, accounting or securities laws treatment of Eligible Persons and the Plan, subject to the provisions set forth in this Paragraph 20, and Paragraphs 21 and 22. 21. COMPLIANCE WITH RULE 16b-3. This Plan is intended to comply in all respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect to participants who are subject to Section 16 of the Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3 shall be deemed null and void to the extent appropriate by either the Stock Option Committee or the Corporation's Board of Directors. 22. COMPLIANCE WITH CODE. The aspects of this Plan on ISO's is intended to comply in every respect with Section 422 of the Code and the regulations promulgated thereunder. In the event any future statute or regulation shall modify the existing statute, the aspects of this Plan on ISO's shall be deemed to incorporate by reference such modification. Any stock option agreement relating to any Option granted pursuant to this Plan outstanding and unexercised at the time any modifying statute or regulation becomes effective shall also be deemed to incorporate by reference such modification and no notice of such modification need be given to optionee. If any provision of the aspects of this Plan on ISO's is determined to disqualify the shares purchasable pursuant to the Options granted under this Plan from the special tax treatment provided by Code Section ss.422, such provision shall be deemed null and void and to incorporate by reference the modification required to qualify the shares for said tax treatment. 23. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of Options thereunder, and the obligation of the Corporation to sell and deliver Stock under such options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Corporation shall not be required to issue or deliver any certificates for shares of Stock prior to (a) the listing of such shares on any stock exchange or over-the-counter market on which the Stock may then be listed and (b) the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which the Corporation shall, in its sole discretion, determine to be necessary or advisable. Moreover, no Option may be exercised if its exercise or the receipt of Stock pursuant thereto would be contrary to applicable laws. 24. DISPOSITION OF SHARES. In the event any share of Stock acquired by an exercise of an Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution within one year of the date such Option was granted or within one year after the transfer of such Stock pursuant to such exercise, the optionee shall give prompt written notice thereof to the Corporation or the Stock Option Committee. 25. NAME. The Plan shall be known as the "Surgical Safety Products 1999 Stock Option Plan." 26. NOTICES. Any notice hereunder shall be in writing and sent by certified mail, return receipt requested or by facsimile transmission (with electronic or written confirmation of receipt) and when addressed to the Corporation shall be sent to it at its office, 2018 Oak Terrace, Sarasota, FL 34231 and when addressed to the Committee shall be sent to it at the above address subject to the right of either party to designate at any time hereafter in writing some other address, facsimile number or person to whose attention such notice shall be sent. 27. HEADINGS. The headings preceding the text of Sections and subparagraphs hereof are inserted solely for convenience of reference, and shall not constitute a part of this Plan nor shall they affect its meaning, construction or effect. 28. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of the Corporation on January 19, 1999. The effective date of the Plan shall be the same date. Dated as of ___________________. By: _____________________ G. Michael Swor, Chairman of the Board By: _____________________ Donald K. Lawrence, Secretary EX-10 8 MATERIAL CONTRACTS EXHIBIT 10.27 EMPLOYEE OPTION GRANT AGREEMENT THIS EMPLOYEE OPTION GRANT AGREEMENT (the "Agreement") is effective the ___ day of ___, 1999, by and between SURGICAL SAFETY PRODUCTS, INC., a New York corporation, with its principal place of business at 2018 Oak Terrace, Sarasota, Florida 34231 (the "Employer") and ___________________________residing at _______________________ (the "Employee"). WITNESSETH: WHEREAS, Employer desire to grant certain options of Employer's Common Stock to Employee (the "Options"); and WHEREAS, Employee desires to accept such Options relative to the terms and conditions set forth herein. NOW THEREFORE, in completion of the mutual promises, covenants and conditions contained herein and for other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, the parties agree as follows: 1. STOCK OPTIONS: Under the SURGICAL SAFETY PRODUCTS 1999 STOCK OPTION PLAN (the "Plan") implemented by Employer on January 19, 1999, a copy of which has been provided to Employee and all terms and conditions of which are incorporated herein by reference, Employee is granted the following: A. ISO Stock Options to purchase up to a total of _______________ shares of the Employer's common stock, which options vest at the rate of one-third per year on the anniversary date of this Agreement for a period of three (3) years and which options may be exercised at any time after vesting at an exercise price of $ _________ per share (fair market value as defined Plan, or in the case of an Employee who possesses more than ten percent (10%) of the total combined voting power of all classes of stock of Employer at the time of the grant, 110% of the fair market value). Unless sooner terminated under the terms of the Plan, Employee has ten (10) years from the date of this grant in which to exercise said options, unless such Employee possesses more than ten percent (10%) of the total combined voting power of all classes of stock of Employer at the time of the grant, in which case said Employee shall have five (5) years from the date of this grant in which to exercise such options. B. NSO Stock Options to purchase up to a total of _______________ shares of the Employer's common stock, which options vest at the at a rate of one-third per year for a period of three (3) years and which options may be exercised at any time after vesting at an exercise price of $ _________ per share (75% fair market value as defined Plan). Unless sooner terminated under the terms of the Plan, Employee has ten (10) years from the date of this grant in which to exercise said options. C. Reload Option. Employer grants to Employee the right to pay the exercise price of shares of Employer's common stock to be purchased by the exercise of an ISO, NSO or another Reload Option (the "Original Option") by delivering to the Corporation shares of Employer's Common Stock already owned by Employee (the "Tendered Shares"), in which case Employee shall receive a Reload Option which shall be a new Option to purchase shares of Employer's common stock equal in number to the tendered shares. The terms of such Reload Option are as follows:_______________________________________________ __________________________________________________________ 2. CHANGE OF CONTROL. Employer grants/does not grant Employee change of control privileges. In the event Employer grants such privileges to Employee, such privileges are annexed hereto and made a part hereof as Exhibit A to this Agreement. 3. NO VIOLATION. Employee hereby represents and warrants to Employer that the execution, delivery and performance of this Agreement or the passage of time, or both, will not conflict with, result in a default, right to accelerate or loss of rights under any provision of any agreement or understanding to which the Employee or, to the best knowledge of Employee, any of Employee's affiliates are a party or by which Employee, or to the best knowledge of Employee, Employee's affiliates may be bound or affected. 4. CAPTIONS. The captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit or amplify the provisions hereof. 5. NOTICES. All notices required or permitted to be given hereunder will be in writing and will be deemed delivered, whether or not actually received, two (2) days after being deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the party to whom notice is being given at the specified address or at such other address as such party may designate by notice: Employer: SURGICAL SAFETY PRODUCTS, INC. 2018 Oak Terrace Sarasota, Florida 34231 Employee: ________________________________ ________________________________ 6. INVALID PROVISIONS. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provisions will be fully severable, and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement; the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance of this Agreement. In lieu of each such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof, including the Prior Agreement, which is fully replaced hereby. This Agreement may be amended, in whole or in part only, by an instrument in writing setting forth the particulars of such amendment and duly executed by an officer of Employer expressly authorized by the Board to do so and by Employee. 8. WAIVER. No delay or omission by any party hereto to exercise any right or power hereunder will impair such right or power to be construed as a waiver thereof. A waiver by any of the parties parties hereto of any of the covenants to be performed by any other party or any breach thereof will not be construed to be a waiver of any succeeding breach thereof or of any other covenant herein contained. Except as otherwise expressly set forth herein, all remedies provided for in this Agreement will be cumulative and in addition to and not in lieu of any other remedies available to any party at law, in equity or otherwise. 9. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will constitute an original, and all of which together will constitute one and the same agreement. 10. GOVERNING LAW. This Agreement will be construed and enforced according to the laws of the State of Florida. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement effective as of the date first above written. EMPLOYER: EMPLOYEE: SURGICAL SAFETY PRODUCTS, INC. By:______________________________ _________________________ EXHIBIT A CHANGE OF CONTROL PRIVILEGES (3) In addition to all other rights granted Employee, Employee shall have the following change of control privileges: (1) Upon change of control of Employer, Employer may terminate this Agreement. For the purpose of this Agreement, "change of control" will mean a change in the control of Employer of a nature that would be required to be reported in response to (1) Item 1 of Form 8K; (2) Item 5(f) of Schedule 14A of Regulation 14A; or (3) any other rule or regulation as promulgated by the Securities and Exchange Commission. (2) Upon a change in control of the Employer, the Employer will pay to the Employee in cash, an amount equal to the number of options granted to Employee from the date of this Agreement up to the date the change in the control of the Company occurs, whether such options are vested, not vested or exercised, multiplied by the highest closing sale price of a share of Employer's common stock quoted during the 30-day period immediately preceding the date the change in control occurs on the composite tape for shares listed on the New York Stock Exchange; or if such shares are not quoted on the composite tape of the New York Stock Exchange, the highest closing sale price quoted during such period on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such shares are listed; or if such shares are not listed on any such exchange, the highest closing bid quotation with respect to a share during the 30-day period preceding the date the change of control occurs on the National Association of Securities Dealers, Inc. automated quotation system or any similar system then in general use; or if no such quotations are available, the fair market value of a share on the date the change in control occurs as determined by a majority of disinterested directors, such amount being hereafter referred to as "Termination Option Payment". The Termination Option Payment will be paid to Employee within sixty (60) days after the change in control occurs and also will include an additional amount equal to (a) any excise tax imposed on the Employee under the Internal Revenue Code by reason of Employee's receipt of the Termination Option Payment above; plus (b) a gross-up payment to reflect any federal, state or local income tax or other taxes imposed on Employee by reason of Employee's receipt of the above Termination Option Payment. EMPLOYER: EMPLOYEE: SURGICAL SAFETY PRODUCTS, INC. By:_________________________________ _________________________ EX-10 9 MATERIAL CONTRACTS EXHIBIT 10.28 DIRECTOR, CONSULTANT AND ADVISOR OPTION GRANT AGREEMENT THIS DIRECTOR, CONSULTANT AND ADVISOR OPTION GRANT AGREEMENT (the "Agreement") is effective the ___ day of ___, 1999, by and between SURGICAL SAFETY PRODUCTS, INC., a New York corporation, with its principal place of business at 2018 Oak Terrace, Sarasota, Florida 34231 (the "Company") and ___________________________residing at _______________________ (the "Eligible Person"). WITNESSETH: WHEREAS, Company desire to grant certain options of Company's Common Stock to Eligible Person (the "Options"); and WHEREAS, Eligible Person desires to accept such Options relative to the terms and conditions set forth herein. NOW THEREFORE, in completion of the mutual promises, covenants and conditions contained herein and for other good and valuable consideration the receipt and adequacy of which is hereby acknowledged, the parties agree as follows: 1. STOCK OPTIONS: Under the SURGICAL SAFETY PRODUCTS 1999 STOCK OPTION PLAN (the "Plan") implemented by Company on January 19, 1999, a copy of which has been provided to Eligible Person and all terms and conditions of which are incorporated herein by reference, Eligible Person is granted the following: A. NSO Stock Options to purchase up to a total of _______________ shares of the Company's common stock, which options vest as follows:_________________________________________________________ ______________________________________________________________and which options may be exercised at any time after vesting at an exercise price of $ _________ per share (75% fair market value as defined Plan). Unless sooner terminated under the terms of the Plan, Eligible Person has ten (10) years from the date of this grant in which to exercise said options. B. Reload Option. Company grants to Eligible Person the right to pay the exercise price of shares of Company's common stock to be purchased by the exercise of a NSO or another Reload Option (the "Original Option") by delivering to the Corporation shares of Company's Common Stock already owned by Eligible Person (the "Tendered Shares"), in which case Eligible Person shall receive a Reload Option which shall be a new Option to purchase shares of Company's common stock equal in number to the tendered shares. The terms of such Reload Option are as follows: _________________________________________________________________ _________________________________________________________________ 2. CHANGE OF CONTROL. Company grants/does not grant Eligible Person change of control privileges. In the event Company grants such privileges to Eligible Person, such privileges are annexed hereto and made a part hereof as Exhibit A to this Agreement. 3. NO VIOLATION. Eligible Person hereby represents and warrants to Company that the execution, delivery and performance of this Agreement or the passage of time, or both, will not conflict with, result in a default, right to accelerate or loss of rights under any provision of any agreement or understanding to which the Eligible Person or, to the best knowledge of Eligible Person, any of Eligible Person's affiliates are a party or by which Eligible Person, or to the best knowledge of Eligible Person, Eligible Person's affiliates may be bound or affected. 4. CAPTIONS. The captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit or amplify the provisions hereof. 5. NOTICES. All notices required or permitted to be given hereunder will be in writing and will be deemed delivered, whether or not actually received, two (2) days after being deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the party to whom notice is being given at the specified address or at such other address as such party may designate by notice: Company: SURGICAL SAFETY PRODUCTS, INC. 2018 Oak Terrace Sarasota, Florida 34231 Eligible Person: __________________________ __________________________ 6. INVALID PROVISIONS. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provisions will be fully severable, and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement; the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance of this Agreement. In lieu of each such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof, including the Prior Agreement, which is fully replaced hereby. This Agreement may be amended, in whole or in part only, by an instrument in writing setting forth the particulars of such amendment and duly executed by an officer of Company expressly authorized by the Board to do so and by Eligible Person. 8. WAIVER. No delay or omission by any party hereto to exercise any right or ------ power hereunder will impair such right or power to be construed as a waiver thereof. A waiver by any of the parties hereto of any of the covenants to be performed by any other party or any breach thereof will not be construed to be a waiver of any succeeding breach thereof or of any other covenant herein contained. Except as otherwise expressly set forth herein, all remedies provided for in this Agreement will be cumulative and in addition to and not in lieu of any other remedies available to any party at law, in equity or otherwise. 9. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which will constitute an original, and all of which together will constitute one and the same agreement. 10. GOVERNING LAW. This Agreement will be construed and enforced according to the laws of the State of Florida. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement effective as of the date first above written. COMPANY: ELIGIBLE PERSON: SURGICAL SAFETY PRODUCTS, INC. By:_______________________________ _________________________ EXHIBIT A CHANGE OF CONTROL PRIVILEGES (3) In addition to all other rights granted Eligible Person, Eligible Person shall have the following change of control privileges: (1) Upon change of control of Company, Company may terminate this Agreement. For the purpose of this Agreement, "change of control" will mean a change in the control of Company of a nature that would be required to be reported in response to (1) Item 1 of Form 8K; (2) Item 5(f) of Schedule 14A of Regulation 14A; or (3) any other rule or regulation as promulgated by the Securities and Exchange Commission. (2) Upon a change in control of the Company, the Company will pay to the Eligible Person in cash, an amount equal to the number of options granted to Eligible Person from the date of this Agreement up to the date the change in the control of the Company occurs, whether such options are vested, not vested or exercised, multiplied by the highest closing sale price of a share of Company's common stock quoted during the 30-day period immediately preceding the date the change in control occurs on the composite tape for shares listed on the New York Stock Exchange; or if such shares are not quoted on the composite tape of the New York Stock Exchange, the highest closing sale price quoted during such period on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such shares are listed; or if such shares are not listed on any such exchange, the highest closing bid quotation with respect to a share during the 30-day period preceding the date the change of control occurs on the National Association of Securities Dealers, Inc. automated quotation system or any similar system then in general use; or if no such quotations are available, the fair market value of a share on the date the change in control occurs as determined by a majority of disinterested directors, such amount being hereafter referred to as "Termination Option Payment". The Termination Option Payment will be paid to Eligible Person within sixty (60) days after the change in control occurs and also will include an additional amount equal to (a) any excise tax imposed on the Eligible Person under the Internal Revenue Code by reason of Eligible Person's receipt of the Termination Option Payment above; plus (b) a gross-up payment to reflect any federal, state or local income tax or other taxes imposed on Eligible Person by reason of Eligible Person's receipt of the above Termination Option Payment. COMPANY: ELIGIBLE PERSON: SURGICAL SAFETY PRODUCTS, INC. By:________________________________ ___________________________ EX-10 10 MATERIAL CONTRACT EXHIBIT 10.29 The New World of Business(TM) VERIO www.verio.net Phone: 312-578-9928 Fax: 847-759-2951 ACCESS SERVICE AGREEMENT and SERVICE ORDER -1/12/99 --------------------------------------------------- Company: Surgical Safety Products Verio AE Bret Woods Verio Partner Billing Hosp. Contact: Don Lawrence Contact: Contact: Mike Connor Phone: 941-927-7874 Phone: Phone: 914-917-8400 Fax: 941-925-0575 Fax: Fax:: Pager: Pager: Pager email: DonL@SSP-INC.com email: email: Install SMH Billing Address: Address: 1700 Tamiami Trail 34239-3555 PO ___ # Check X Visa: MC: Amex:
Verio Services: Access Services Account Details Set-Up Fee Monthly Charge ADSL Platinum Verio orders circuit $60 $199 static IP address Access Service Subtotals
Hardware and Software Item # Description Mfr.Part# Price Qty Extend Price 1 2 Hardware Subtotal
To Begin Service (hardware fees, set-up fees and first month of service) _______ - - -------- Any interruption in any Service(s) that is caused by the malfunction or interruption of any telecommunications services or facility including, but not limited to, cables and fiber optic lines order by Verio on behalf of Customer or purchased directly by Customer in connection with the Service(s) will not be deemed a breach of Verio's obligations under this Agreement. Set-up includes installation fees and associated set-up and configuration of customer premise equipment. VERIO is acting only as a reseller of hardware and software offered under this Agreement, which was manufactured by a third party ("Manufacturer"). Verio shall not be responsible for any changes in Service(s) that cause haredware or software to become obsolete, require modification or alteration or otherwise affect the performance of the Services. Any malfunction or manufacturer's defects of equipment either sold or provided by VERIO to Customer or pruchase directly by Customer in connection with the Service(s) will not be deemed a breach of VERIO's obligation under this agreement. Customer shall use its best efforts to protect and keep confidential an intellectual property provided by VERIO to Customer through any hardware or software and shall make no attempt to copy, alter, reverse-engineer, or tamper with such intellectual property or to use it other than in connection with the Services. Prices do not inculde the cost of shipping and handling of equipment. Shift into Overdrive includes the tree use by Customer of equipment for the Term Commitment and any renewal thereof. Upon termination of this Agreement for any reason, Customer shall return the equipment to VERIO within thirty (30) days of any such termination. If the equipment is not returned within such thirty (30) day period, Customer shall pay pVerio 75% of the retail value of the equipment. Technical Information Domain Name_________________________________New___Modify___Transfer___Delete___ Verio OrdersCircuit?___ Login Name_______________ POP Mail___ SMTP Mail___ copy current records___ IP Addresses 0_ 1_ 8_ 16_ 64_ 128_ 256_ Other_ Please read the attached Terms and Conditions. By signing this document, customer agrees to be bound by the Terms and Conditions set forth herein. /s/Donald K. Lawrence Donald K. Lawrence VP Sales/Marketing 2/16/99 - - ------------------------------------------------------------------------------ Signature Printed Name Title Date Term Commitment: Beginning on date Verio begins billing customer, 13 Month ___ Two Year___ Three Year___ - - -------- Domain Name Registration Fee: 75$ (includes registration fee paid to Internic for first two years of registration. Internic will charge additional fees for each additional year of registration). The New World of Business(TM) VERIO www.verio.net Phone: 312-578-9928 Fax: 847-759-2951 ACCESS SERVICE AGREEMENT TERMS AND CONDITIONS 1. This Agreement applies to the purchase of all services (collectively, the "Services") ordered by Customer under this agreement. 2. Customer shall pay the fees and other charges for each service as provided in this Agreement. VERIO reserves the right to change rates by notifying Customer sixty (60) days in advance of the effective date of the change; provided that VERIO shall not change any rates during the term of any Term Commitment. Billing for Services will commence when a VERIO hub and a telephone circuit/line are prepared to route IP packets to Customer's location. Service charges shall be invoiced monthly, and payment shall be due on the date specified in the invoice ("Due Date"). Set-up charges shall be invoiced upon acceptance of this Agreement by VERIO. Charges for equipment shall be invoiced upon shipment. Customer will pay a late payment charge equal to 1.5% (or the highest amount permitted by law, which ever is lower) per month or portion thereof on the outstanding balance of any invoice remaining unpaid thirty (30) days after Due Date. Accounts unpaid thirty (30) days after the Due Date may have service suspended or terminated. Such suspension or termination shall not relieve Customer of its obligation to pay the monthly fee. Customer agrees to pay VERIO its reasonable expenses, including attorney's fee and collection agency fees, incurred in enforcing its rights under this Agreement. Customer shall pay all federal, state and local sales, use, value added, excise, duty and any other taxes assessed with respect to the Services and the sale of equipment to Customer, except that taxes based on VERIO's net income shall be the responsibility of VERIO. 3. This Agreement will be automatically renewed on a month to month basis at the end of the Term Commitment unless Customer provides ninety (90) days written notice to VERIO of termination of this Agreement. In the event of early cancellation of a Term Commitment, Customer will be required to pay 75% of VERIO's standard monthly charge for each month remaining in the Term Commitment. 4. Customer shall at all times adhere to the VERIO Acceptable Use Policy located at http://www.verio.net/isite/policy.html as amended from time to time by VERIO effective upon posting of the revised policy at the URL. Notwithstanding anything to the contrary contained herein, VERIO may immediately take corrective action, including disconnection or discontinuance of any and all Services, or terminate this Agreement in the event of notice of possible violation by Customer of the VERIO Acceptable Use Policy. 5. VERIO exercises no control over, and accepts no responsibility for, the content of the information passing through VERIO's host computers, network hubs and points of presence (the "VERIO Network"). VERIO MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT FOR THE SERVICES OR ANY EQUIPMENT VERIO PROVIDES. NEITHER VERIO, ITS EMPLOYEES, AFFILIATES, AGENTS, THIRD-PARTY INFORMATION PROVIDERS, MERCHANTS, LICENSORS OR THE LIKE, WARRANT THAT THE SERVICES WILL NOT BE INTERRUPTED OR ERROR FREE; NO DO ANY OF THEM MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED FROM THE USE OF THE SERVICES OR AS TO THE ACCURACY, RELIABILITY OR CONTENT OF ANY INFORMATION SERVICED OR MERCHANDISE CONTAINED IN OR PROVIDED THROUGH THE SERVICES. VERIO IS NOT LIABLE FOR THE CONTENT OF ANY DATA TRANSFERRED EITHER TO OR FROM CUSTOMER OR STORED BY CUSTOMER OR ANY OF ITS CUSTOMERS VIA THE SERVICE(S) PROVIDED BY VERIO. 6. Customer will indemnify, save harmless, and defend VERIO and all employees, officers, directors and agents of VERIO (collectively "indemnified parties") from and against any and all claims, damages, losses, liabilities, suits, actions, demands, proceedings (whether legal or administrative) and expenses (including but not limited to reasonable attorney's fees) threatened, asserted, or filed by a third party against any of the indemnified parties arising out of or relating to the use of the Services, including any violation of the VERIO Acceptable Use Policy. 7. IN NO EVENT SHALL VERIO BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR LOSS OF PROFITS, REVENUE, DATA OR USE, BY CUSTOMER OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR STRICT LIABILITY OR OTHER LEGAL THEORY, EVEN IF VERIO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. In no event will VERIO's liability for any damages, losses and causes of action whether in connect or tort (including negligence or otherwise) exceed the actual dollar amount paid by Customer for the Service which gave rise to such damages, losses and causes of actions during the 12-month period prior to the date the damage or loss occurred or the cause of action arose. VERIO shall not be liable for failure or delay in performing its obligations hereunder if such failure or delay is due to circumstances beyond its reasonable control, including, without limitation, acts of any governmental body, war, insurrection, sabotage, embargo, fire, flood, strike or other labor disturbance, interruption of or delay in transportation, interruption or dely in telecommunications services or inability to obtain raw materials, supplies, or power used in or equipment needed for provision of the Services. 8. The validity, interpretation, enforceability, and performance of this Agreement shall be governed by and construed in accordance with the law of the State of Colorado. This Agreement may not be amended except upon the written consent of the parties; provided that the VERIO Acceptable Use Policy may be amended from time to time by VERIO. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, no shall any single or partial exercise of any right remedy or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. The waiver by any party of the time for performance of any act or condition hereunder shall no constitute a waiver of the act or condition itself. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, and assigns. Customer may not assign this Agreement without the prior written consent of VERIO. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement shall remain in full force and effect. This Agreement supercedes all previous representation, understandings or agreements and shall prevail notwithstanding any variance with the terms and conditions of any order submitted. Acceptance of this Agreement by VERIO may be subject, in VERIO's absolute discretion, to satisfactory completion of a credit check. Activation of service shall indicate VERIO's acceptance of this Agreement. Use of the VERIO Network constitutes acceptance of this Agreement. Customers Initials /s/ DL EX-23 11 CONSENTS EXHIBIT 23.1 KERKERING BARBARIO & CO., P.A. CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITIORS' CONSENT We consent to the inclusion in the Registration Statement of Surgical Safety Products, Inc. on Form 10-SB to be filed with the Securities and Exchange Commission our report dated March 12, 1999 on the financial statements of Surgical Safety Products, Inc. for the years ended December 31, 1998 and 1997. /s/KERKERING BARBARIO & CO. --------------------------- Kerkering Barbario & Co. Sarasota, Florida March 12, 1999 EX-27 12 FDS --
5 12-MOS Dec-31-1998 Jan-01-1998 Dec-31-1998 41,191 0 60,641 0 26,898 128,730 115,930 36,234 373,514 55,331 0 0 0 10,787 1,998,242 373,514 16,545 42,393 0 840,055 0 0 13,759 (797,662) 0 0 0 0 0 (797,662) (0.080) 0
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