ITEM 1. DESCRIPTION OF BUSINESS - -------------------------------- INTRODUCTION - ------------
The Company owns all rights to, subject to certain minor royalties, and is engaged in the sale of a patented breast tumor detection training system (the "MammaCare System"). Using life- like models of a human female breast, the MammaCare System is designed to train individuals to perform effective manual breast examination. The breast models contain simulated tumors of varying sizes, ranging from under 5mm. to over 10mm. They also contain material which simulates the normal nodularity, or "lumpiness", that characterizes most breast tissue.
Although the examiner can never determine by feel alone whether a lump is benign or malignant, detection of tumors in the size range simulated by the models is important to early diagnosis of malignancies. Thus, the Company believes that by training women to palpate the breast model (and their own breasts) properly, the MammaCare System will lead to early detection of breast cancer and thus reduce morbidity and mortality due to this disease.
The MammaCare System is sold in several forms, all of which contain at least one of the Company's patented breast models. Originally, a client was given private training after which she was provided with a take-home breast model and other materials. Now, the customer may view a video tape developed by the Company which teaches her the proper use of the model(s) and an extremely thorough examination technique. The practice model is designed to permit a woman to reinforce her lump detection skills periodically and serves as a comparative standard as she palpates her own breast.
The sale of take-home models, together with training in the Company's method of B.S.E., was originally accomplished primarily through franchise and license arrangements (collectively referred to as "Franchises") with healthcare providers. In addition, the Company owns and operates one MammaCare Center in Gainesville, Florida. Franchisees sell materials and provide training directly to women, as does the Company at its own Center. To date, these franchisees have been medical schools, hospitals, breast centers, and radiology clinics.
In recent years, development and marketing through new Franchises has been de-emphasized because this marketing approach proved overly costly and cumbersome for the returns it generated. The Company has therefore developed a different marketing strategy which involves the sale of an integrated training system known as the MammaCare Learning System (the "Learning System"). The Learning System is available in two versions, the Professional and the Personal, and is comprised of one (Personal) or two (Professional) breast models and a videotaped B.S.E. training program designed to be viewed by women in either their homes Personal) or in a clinical setting (Professional). In both cases, the skill learned is subject to ultimate evaluation by a physician. See Item 1, "New Marketing Approach".
THE PURPOSE OF MANUAL BREAST EXAMINATION - ----------------------------------------
Manual palpation has been and remains the most widely used method for detection of breast cancer in all stages of development. The breast is an ideal organ for physical examination because of the external location, coupled with the softness of the tissue and its hard backing. The earlier breast cancer is detected, diagnosed and treated, the greater the chances are for arrest of the condition. Published studies of breast pathology have shown that 94% of all cancerous tumors of the breast are potentially discoverable by manual examination conducted by a properly trained person. Even though women themselves remain the primary discoverers of breast cancer, several reports show that B.S.E. is not widely practiced. Consequently, most breast cancers are initially detected at a relatively advanced stage with metastasis having already occurred. The average size tumor that women present to their physicians is about 3.5 cm. (over one inch) in diameter. Treatment often requires a radical mastectomy (an extensive surgical procedure which includes removal of the breast, underlying muscle and axillary lymph nodes) followed by a course of radiation treatment and/or chemotherapy. On the other hand, if the disease is initially detected while the primary tumor is small (<1.0 cm) and no lymph nodes are involved, treatment often involves only removal of the tumor and a margin of surrounding healthy tissue. Thereafter, a course of radiation treatment is often prescribed as a precautionary measure.
In research conducted at the University of Florida under the direction of the two principle shareholders of the Company, together with a third individual, more than 445 women were taught to detect tumors in the model ranging from 2 to
10 mm. As a result of this training, 33 of these women (7.4%) discovered suspicious masses and were referred to physicians. This percentage is comparable to that expected from screening procedures involving mammography and clinical examination.
The research was conducted at the University's Center for Ambulatory Studies. Except for a National Cancer Institute grant made directly to the University in 1977 and one small direct University grant, the research was not directly sponsored by the University; instead, it was concluded at the University's facilities under the supervision of the Company's two principle shareholders (and a third person) as part of their normal faculty research duties. The University released its rights to this research.
Based upon its commercial experience with approximately 10,000 women who have had the benefit of MammaCare training, the Company has demonstrated that the MammaCare System can train women to detect masses as small as 0.3 cm. It has been well documented that detection of such small masses often enables the surgeon to provide treatment in the form of lumpectomy (see above) or some other less extensive procedure not requiring total removal of the affected breast and surrounding tissue.
BASIC TRAINING MODEL AND TRAINING - ---------------------------------
The Company's basic training model is a life-like model of a human female breast. Its covering is a thin silicone membrane which simulates human skin. The interior of the model, also made of silicone, closely simulates that of a mature female breast with respect to granular, glandular, adipose and connective tissue. Implanted within the model are simulated tumors consisting of extruded polymers whose firmness matches that of excised tumors. The model is manufactured in different degrees of firmness and nodularity in order to offer the trainee a model which closely resembles her own breast.
A special series of training exercises is used to instruct women in basic palpation techniques required for manual self- examination for breast anomalies. The basic approach is to: (1) teach the distinction between the feel of all varieties of normal breast tissue and that of typical breast tumors, (2) teach a method of palpation that insures contact with all depths of the trainee's own breast tissue, and (3) teach a pattern of examination that insures palpation of all breast tissue.
COMPANY CENTER - --------------
The Company's Center is located in Gainesville, Florida. This Center serves three important functions. It is the national training center established to provide training for all licensees, physicians, nurses, and Company personnel who are engaged in offering MammaCare to the public. Another function of this Center is to package and ship MammaCare Products. Finally, this facility serves as a research center permitting the Company to undertake marketing and product development research.
As part of the Company's commitment to maintain the quality of its service to both the medical profession and women who need B.S.E., the Company has developed two training programs at the Gainesville Center. The first is a comprehensive, four-day training program leading to certification as a MammaCare Specialist. Specialist certification is dependent upon a demonstrated mastery of pertinent selected biological and medical literature as well as the MammaCare Method of performing and teaching manual breast examination.
The second training program leads to an Associate certificate. It is a three-day training session for health care professionals which enables them to instruct women in the use of the MammaCare technique. These certification procedures are used by the Company to control the quality of its training. It is a matter of resolute Company policy that a woman's mastery of the MammaCare System will only be evaluated by a trained MammaCare Specialist. MammaCare Specialists are empowered to train and certify MammaCare Associates at their own sites.
MARKETING OF THE COMPANY'S SYSTEM AND MODELS - --------------------------------------------
MammaCare Systems are each sold as a complete learning program. The Company permits models to be sold separately to customers who have appropriate training, either through the actual training sessions required in connection with the MammaCare System, through the video training contained in either of the Learning Systems, or through training provided by various individuals in accordance with the Company's standards.
During the last several fiscal years, the Company has intensified its efforts to offer MammaCare overseas.(See Management Discussion below). The Company has developed an extensive customer base in Canada and anticipates increased activity in that country as the trade barriers continue to be dismantled as a result of NAFTA. The Company has trained a number of MammaCare
Specialists who live and work in Canada and maintains close professional ties to these individuals. The Company has also an established relationship with a distributor in Germany who has translated the materials into German and is slowly establishing a substantial presence throughout Europe.
MARKETING HISTORY - -----------------
During the Spring of 1986, the Company concluded that Centers were not providing enough sales volume and not recruiting enough new users of the System. After the end of 1986 fiscal year, the Company implemented a new marketing strategy designed to encourage sales through physicians. Shortcomings with the prior marketing approach included the price of MammaCare (up to $125), which generally was not covered by most health insurance carriers and the inconvenience women found with the training at the Centers.
Under this new marketing approach, health care providers purchase the MammaCare Professional Learning System directly from the Company for $225 each. The Company does not generate any revenues from the use of the Learning System by women; its sole revenues under the new marketing approach come from sales of System and any accompanying training.
The MammaCare Professional Learning System consists of a teaching model, a 24-minute video cassette, and practice kit. The teaching model is a patented breast model, designed to teach the difference between the feel of normal, nodular breast tissue and the feel of small lesions. The video cassette guides the learner through a series step-by-step exercises, first on the models, then on her own breast tissue. This is intended to lead to mastery level proficiency in palpation, search technique and lump detection. The practice kit contains a "take-home" breast model, a written review manual, a reminder calendar and a record booklet.
It is suggested that providers make the System available to their patients to use at a set fee. A patient may purchase the practice kit portion of the System for continued monthly reinforcement of her skills. Patients may view the videotape either in their homes or in the provider's facility. In either case, a patient should have her proficiency reviewed by a physician or certified MammaCare Specialist.
By obtaining the MammaCare Learning System from their own providers, patients are assured of receiving the full quality of MammaCare without the inconvenience and expense of a lengthy clinic visit. Further, it is anticipated that the cost of MammaCare to the public will be lower than historical prices charged for this service. However, while the Company has made providers aware of the need to keep the price of MammaCare reasonable, the providers are free to charge whatever fee they deem appropriate for the use of the System. In light of the fact that most health insurance policies do not reimburse patients for any portion of their MammaCare expenses, no assurance can be given that the physicians will set prices low enough to attract patients.
Providers who are Franchisees or licensees are permitted to purchase Kits at a substantial discount. The Company's intent is for these providers to act as distributors to other physicians and health care providers in their respective geographic regions. Patients ultimately purchasing these systems would then seek a proficiency evaluation from either their physician or the Franchisee/provider. Conceivably, if additional treatment were needed, the patient would choose the physician or health care provider to furnish such treatment since a health care relationship had already been established.
A direct-to-physicians marketing approach was also developed during the Summer of 1986 and implemented in late September of the same year. To date, there are over 1000 physicians, hospitals and diagnostic centers throughout the United States providing the Learning System to women. Although it is too early to judge whether it will be more successful than the Company's earlier marketing strategies, the Company believes that this marketing approach is superior insofar as it eliminates certain prior deficiencies. No assurances can be given that this new marketing approach will be successful. In any event, for the Company to maintain profitability, MammaCare must be provided to an ever increasing number of women.
Early in 1989, the Company introduced a companion product called the MammaCare Personal Learning System. It contains a single breast model, a 45-min. video tape which teaches the same skills as the videotape in the Professional System but with reference to the single model, and assorted printed matter. This System is being marketed directly to women and was described in the August 1989 issue of Redbook and the July-August 1991 issue of the East West Journal. The Company is presently evaluating consumer response to this product and expects to develop additional marketing strategies for it in the coming year. The MammaCare
Personal Learning System is sold for $69.50, making it affordable and convenient for working women and others who are unable to schedule and keep appointments with health care providers. It is also discounted to readers of Family Circle and other publications in the lay press that feature MammaCare periodically in the editorial content of their health sections.
In 1993, the Company introduced a third version of MammaCare known as the MammaCare Clinical Learning System. This system is used to train physicians and other health care providers to conduct clinical breast examinations using the MammaCare Method. It is being adopted by medical schools, teaching hospitals, and a small number of HMO's who are attempting to control costs by taking advantage of the benefits of competent manual examination of the breast as a means of early cancer detection. It is being used extensively by the Breast and Cervical Cancer Screening Programs in the various states and will be the focus of an expanded training effort by the Company in the near future.
OTHER MARKETING APPROACHES - --------------------------
It is part of the Company's overall marketing strategy to arrange for the availability of MammaCare wherever women routinely seek health service. To this end, the Company has sought to penetrate the institutional market and medical departments of large corporations. Limited resources have prevented the Company from pursuing this strategy vigorously; however, the General Electric Corporation ("GE") has introduced the Professional Learning System into its Fairfield, Connecticut headquarters facility where it was reportedly well received. GE has purchased three Learning Systems for use in other facilities. Additionally, Pacific Bell has purchased a small number of MammaCare Personal Learning Systems for a trial program aimed at their female employees. Results of that trial were reported in 1991 and were judged favorable by Pacific Bell representatives.
The Company has intermittent negotiations ongoing with several other large corporations to make MammaCare available in their health care facilities. The Company believes that the addition of the MammaCare Personal Learning System may offer a more attractive mechanism for providing MammaCare in the workplace. There can be no assurance, however, that either these negotiations, trial programs, or related marketing efforts will result in significant revenue for the Company.
Prior to 1988,the Company retained a Southern California nurse practitioner as a marketing consultant for MammaCare. She appeared on the first ABC-TV "Home Show" in February, 1988 where she described the MammaCare Learning System to a
nationwide audience. This individual was employed by a large health care concern in Beverly Hills, California until 1996 and is a nationally recognized expert on BSE. That organization now uses MammaCare in all of its breast centers under a special agreement negotiated during 1992.
Largely as a result of the efforts of this individual, the California Division of the American Cancer Society adopted several features of MammaCare for enhancement of their national Special Touch program. Specifically, the Company provides its patented training models to Special Touch Facilitators who have undergone training approved by the Company. These individuals may also purchase the Company's Home Practice Model for use by participants in California ACS BSE training programs. In November of 1989, the California Division received an Honors Citation for its Special Touch Program from the National Office of the American Cancer Society. To date, the Company has shipped over $100,000 worth of products to California ACS chapters or affiliated individuals under this arrangement.
Similar arrangements have been concluded with the Alaska, Alabama, Alaska, Arkansas, Connecticut, Delaware, Florida, Georgia, Indiana, Kansas, Kentucky, Maine, Minnesota, New York, Pennsylvania, South Carolina, South Dakota and Wisconsin Divisions of the American Cancer Society. These organizations are a major component of the Company's customer base and are a stable source of revenue. More recently, the Company has developed a web site (www.mammacare.com) and markets its products and services through that medium.
RESEARCH - --------
The University of North Carolina at Chapel Hill was the first major medical institution to conduct research using MammaCare. The results of that research have been widely disseminated and are available from the Company by request.
Other institutions and organizations who have conducted or are conducting research involving MammaCare include Johns Hopkins University, the Fred Hutchinson Cancer Center, the University of California at San Diego, the University of Oregon, the University of Arkansas, the University of Vermont, the State University of New York at Stony Brook, the Harvard Community Health Plan, the University of Cincinnati, the University of Indiana, the Fox Chase Cancer Center, Northwestern University, the University of West Virginia, U.S. Healthcare, and the Mayo Clinic.
Presently, the Company is conducting research under the auspices of the National Cancer Institute. The object is to develop and validate versions of MammaCare that will meet the needs of the blind and visually impaired and the deaf and hard of hearing. This research is progressing on schedule and is expected to result in effective products.
PATENTS, TRADEMARKS AND COPYRIGHTS - ----------------------------------
The MammaCare System was invented by seven people, including the Company's two principle shareholders, as part of research activities conducted at the University of Florida. Subject to royalties payable to four of the co-inventors, the Company owns all rights to and is entitled to receive all revenues from the System. The Company's ownership interest in the patents and foreign patent applications is as follows:
Total Sale Volume of the System Company's Percentage - ------------------------------- -------------------- $ 1 to $ 5,000,000 97.14% $ 5,000,001 to $ 7,500,000 97.71% $ 7,500,001 to $10,000,000 98.29% $ 10,000,001 and over 98.86%
- --------------------------------
The Company's position is that based upon reasonable expectations of the parties, the above figures are for the life of the patent.
PATENTS - -------
The Company is the assignee of the following patents and patent applications directed to the Model and/or the System as indicated:
Patent No. Issue date or Appli- or Filing Expiration Subject Country cation No. Date Date Matter - ------- ---------- ---------- ---------- --------
United 4,134,218 1/16/79 1/16/96 Model and States Methods and Apparatus re- lating to the System
United 308,914 Filed New model re- States 2/9/89 lating to the system.
Canada 1,109,252 9/22/81 9/22/98 Model
Canada 1,147,951 Filed 6/14/2000 Methods and 6/14/83 Apparatus re- lating to the System
United 2005894 5/26/82 10/2/98 Model Kingdom
United 2077017 10/13/82 10/2/98 Methods and Kingdom Apparatus re- lating to the System
Germany P 2844373.4 11/11/81 10/12/98 Model, as well as certain appa- ratus relating to the System
Germany(1) Pending Filed - Division appli- Application 2/25/80 cation of the P 2857496.14 application which issued as German Patent No. P 2844373.4 and is directed to methods and apparatus rela- ting to the system
Japan 1304322 6/15/85 10/11/98 Methods and Apparatus rela- ting to the System
Japan(2) Pending 10/26/84 - Model allowed 224,279/84 and published for opposition.
(1) The German Patent Office has issued a notice of a decision to grant this application. After the application is granted, it will be published for the purpose of opposition, an interested person may oppose the granting of the application within three months of the publication date.
(2) This application was allowed by the Japanese Patent Office and published for opposition in September, 1985. In November, 1985, a Statement of Opposition was filed on the ground that protection sought fro this model was overbroad and that the Company's model is not sufficiently novel or inventive compared to other models to support a patent. In November, 1986, the Company filed a repose setting forth their position that the patent application defines the model in a manner that is patentable over all of the prior models known. To date, the Japanese Patent Office has not acted on this matter.
All of the foreign patents and patent applications have claimed the benefit of the filing date of the application which issued as U.S. Patent No. 4,134,218, namely, October 11, 1977, under the Paris Convention of 1883 for the Protection of Industrial Property. There is no assurance that any of the pending patent applications will be issued as patents.
TRADEMARKS - ----------
The following chart depicts the trademarks and copyrights owned by the Company:
Regis- tration Type of Mark Mark Number Status - ------------ ---- ------ ------
U.S. Trademark The MammaCare 1,288,296 Issued Method & Design 7/31/84
U.S. trademark The Mammatech 1,305,388 Issued Corporation 11/13/84
U.S. Trademark MammaKit 1,317,844 Issued 2/5/85
U.S. Trademark MammaTrainer 1,310,897 Issued & Design 12/25/84
U.S. Trademark MammaTest 1,303,689 Issued & Design 11/6/84
U.S. Trademark M & Design 1,310,918 Issued 12/25/84
U.S. Trademark Hand Design 1,357,256 Issued 8/27/85
U.S. Trademark MammaCare 1,445,641 Issued 6/30/87
- ---------------------------------------------------
COPYRIGHTS - --------- Regis- tration Type Name Number Effective for: - ---- ---- ------- --------------
Advertising What Am I TX1-199-545 75 years from Brochure Supposed to 9/29/83 Feel?
Test Form MammaTest TX1-234-492 75 years from 12/14/83
Instructional The MammaCare TX1-259-524 75 years from Manual Method 12/29/83
ITEM 2.
ITEM 2. PROPERTIES - -------------------
The Company's facilities house its executive offices and MammaCare Center. Located at 930 N.W. 8th Avenue, Gainesville, Florida, the Company's offices are approximately 2,700 square feet. Rent is $1295.25 per month plus utilities. These facilities are adequate for the Company's current business operations. The Company does not anticipate difficulties in obtaining additional office facilities in Gainesville at comparable rates should operations expand sufficiently. The Company rents these facilities from an unrelated party on a month- to-month basis. The Company owns a completely equipped modular factory unit that is housed within a building owned by RTS Laboratories, Inc. (RTS), a non-affiliated organization located in Alachua, Florida. RTS supplies personnel and manufactures the Company's models under contract, using the Company's modular facility, materials, and equipment.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - -------------------------
There is no current or pending litigation involving the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------
Not Applicable.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK EQUITY AND RELATED - ----------------------------------------------------------------- SHAREHOLDER MATTERS - -------------------
A. Market Information. The Company's common stock is traded in the over-the-counter market. From February 1983, through December 1985, there had been an established trading market on NASDAQ for the Company's common stock. However, in mid-December 1985, the Company's common stock was de-listed by NASDAQ. The Company's common stock is currently listed in the National Quotation Bureau "pink sheets". Throughout 2001, the bid value of the stock ranged from $0.001 to $0.05.
The following information concerning the National Quotation Bureau price of the Company's common stock has been received from NASDAQ and the National Quotation Bureau.
Quarterly Period High Bid (1) Low Bid (1) ---------------- ------------ ------------
November 30, 1988 $ 0.005 $ 0.005 February 28, 1989 $ 0.01 $ 0.0025 May 31, 1989 $ 0.01 $ 0.01 August 31, 1989 $ 0.01 $ 0.004 November 30, 1989 $ 0.01 $ 0.0075 February 28, 1990 $ 0.01 $ 0.005 May 31, 1990 $ 0.01 $ 0.005 August 31, 1990 $ 0.01 $ 0.001 November 30, 1990 $ 0.01 $ 0.001 February 29, 1991 $ 0.01 $ 0.001 May 31, 1991 $ 0.01 $ 0.001 August 31, 1991 $ 0.01 $ 0.001 November 30, 1991 $ 0.01 $ 0.001 February 29, 1992 $ 0.01 $ 0.001 May 31, 1992 $ 0.01 $ 0.001 August 31, 1992 $ 0.01 $ 0.001 August 31, 1996 $ 0.01 $ 0.005 August 31, 1997 $ 0.01 $ 0.001 August 31, 1998 $ 0.24 $ 0.001 August 31, 1999 $ 0.08 $ 0.010 August 31, 2000 $ 0.30 $ 0.010 August 31, 2001 $ 0.05 $ 0.001
(1) Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
B. Holders of Common Stock. As of August 31, 2001, there were approximately 3,460 record holders of the Company's common stock with 100,352,500 shares outstanding, of which 6,208,500 shares are treasury stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - --------------------------------
Summary of Consolidated Statements of Operations
YEAR ENDED Aug.31, Aug.31, Aug.31, Aug.31, Aug.31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Revenues from 539,414 464,153 468,206 541,911 438,755 Operations Net Income 12,521 4,532 201,934 150,545 143,578 (Loss) Income (Loss) 0 0 0 0 0 per Common Share
Summary of Consolidated Balance Sheet - -------------------------------------
YEAR ENDED Aug.31, Aug.31, Aug.31, Aug.31, Aug.31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Total Assets 1,242,465 1,147,500 1,065,127 769,143 530,184
Total 525,082 400,235 307,368 233,987 112,825 Liabilities
YEAR ENDED Aug.31, Aug.31, Aug.31, Aug.31, Aug.31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Shareholder's 717,383 747,265 757,759 543,216 417,359 Equity
During these periods, no cash dividends were declared or paid. - --------------------------------------------------------------
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND - ------------------------------------------------------------------------- RESULT OF OPERATIONS - --------------------
Results of Operations. ----------------------
Sales for 2001 were the highest in the Company's history. The 2001 sales total of $539,414 represents a increase of 16.2% compared to the previous year and a increase of 15.2% compared to 1999. Export sales of $41,895 accounted for 7.7% of the total, up from 5.04& the previous year. Figure 1 shows the progress of sales since 1987, the first year the Company sold its products directly to the medical profession rather than through its licensed centers.
[GRAPHIC OMITTED] Figure 1 Sales Revenues for Mammatech:1987-
The Company's operating expense decreased by 7.28% in comparison to 2000 and by 3.09% with respect to the 1999 figure. The resulting operating loss of $68,718 is reduced by 64% in comparison to last year and by 60.4% compared to 1999. Since 1998, this figure has been elevated due to the need for additional staff assigned to a three-year NCI SBIR Phase II grant awarded to the Company. This expense continued during the 2001 but was reimbursed in the amount of $38,557. The Company's pretax net income for the year was $12,521, up significantly (176%) from $4,532 in the previous year.
The major focus of the Company's marketing activities during the year was the expansion of its direct mail program. This was enhanced by the production and distribution of the Company's first catalogue which has been carefully coordinated with the web site. Enhanced sales, particularly from new customers, was the principal result of this activity which is now being expanded.
The Company introduced two major new products during the year. The first is a greatly improved version of its basic patented training model which anchors the MammaCare Professional Learning System. The second new product is an economy version of the MammaCare Lump Chart, introduced last year. Demand for the new lump chart already exceeds that of the earlier version and is expected to remain brisk.
During the year, a number of research reports appeared in the medical literature suggesting manual examination of the breast is essentially equivalent to mammography with respect to effectiveness in detecting early stage breast cancer. The result has been an upsurge in interest on the part of medical schools and training programs in the Company's training systems and products. The Company therefore continued its emphasis on its professional training program during 2001, producing 40 Certified MammaCare Specialists, down from 52 the previous year. Four of these individuals are employees of the World Bank and were trained in a satellite training facility at George Washington University. Additionally, the company provided training for 65 attendees at the annual meeting of the Nation Consortium of Breast Centers. A number of these individuals have sought additional training as a result of this exposure and others are expected to do so as well.
Medical professionals seeking MammaCare Professional Training represent a variety of health care organizations. Many are associated with the U.S. Centers for Disease Control, Breast and Cervical Cancer Project (BCCP)and other federal and state facilities. Others come from military facilities. Professional training continues to be a significant source of revenue for the Company, although there can be no assurance that it will continue.
The Company also benefits from its sales and distribution agreement with a German health care products company. This agreement provides exclusive distribution rights for the Company's products throughout Germany and the German-speaking portions of Austria, Switzerland, and Belgium. In return, the distributor has undertaken at its own expense to provide translations of the Company's Personal Learning System video tape and printed materials. The distributor continues an extensive promotional campaign in both the electronic and print media. The distributor is now actively marketing and modest sales are continuing. Discussions concerning formation of a MammaCare training center in Germany are now in the beginning stages. There can be no assurance that such a center will materialize or that, even if it does, that there will be substantial revenue to the Company as a result.
The Company continues to participate in a cooperative agreement with Medical Informatics, a division of Multi-Media Systems, Inc. This arrangement provides for joint development of an automated version of the Company's clinical breast examination technology. This work is supported primarily by a NCI Phase II SBIR grant to Multi-Media Systems. There can be no assurance that a marketable product will result from this collaboration or that any revenues will accrue to the Company as a result.
Finally, the Company continued during the year to conduct its research program under a Phase II grant in the amount of $592,000 from the Small Business Innovative Research (SBIR) Program of the National Institutes of Health. The purpose of this project is to develop versions of MammaCare suitable for use by women with sensory impairments. The portion of the project devoted to the blind and visually impaired has been completed and sales are just now beginning. Work on a companion product for the hearing impaired is nearing completion. The Company sought and received a one-year no-cost extension of the project in order to complete data collection and analysis. Data are being collected via the internet using a site and an interactive technology that may in the future be used with certain of the Company's other products.
Liquidity ---------
At the close of the 2001 fiscal year, the Company's assets totaled $1,242,465 compared to $1,147,500 at the close of 2000. The Company has sufficient liquid assets to meet current and foreseeable obligations.
The Company continues to support its operations solely on the basis of operating revenues and is debt free but for its note for $6,260 to an unaffiliated supplier for its manufacturing facility. The Company's principal goal continues to be to make MammaCare available to all women at risk for breast cancer through affiliations with capable organizations in the health care industry.
Capital Resources. ------------------
The Company has no material commitment for capital expenditures and there are no known trends in its capital resources.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS - (SEE FOLLOWING PAGES) - -----------------------------
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders Mammatech Corporation
We have audited the accompanying balance sheets of Mammatech Corporation as of August 31, 2001 and 2000, and the related statements of operations, changes in stockholders' equity, and cash flows for each of the three 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 audit.
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 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 Mammatech Corporation as of August 31, 2001 and 2000, and the results of its operations, and its cash flows for each of the three years then ended, in conformity with generally accepted accounting principles.
/s/ James E. Scheifley & Associates, P.C. ------------------------------------------ James E. Scheifley & Associates, P.C. Certified Public Accountants
Englewood, Colorado September 27, 2001
Mammatech Corporation Statements of Cash Flows Years Ended August 31, 2001, 2000 and 1999
2001 2000 1999 -------- -------- --------
Supplemental cash flow information: Cash paid for interest $ 0 $ 132 $ 829 Cash paid for income taxes $ 0.00 $ 0.00 $ 0.00
Non-cash investing and financing acticities: Increase (decrease) in investment valuation reserve $(42,403) $(15,326) $ 11,309
See accompanying notes to financial statements.
Mammatech Corporation Notes to Financial Statements August 31, 2001
Note 1. Summary of Significant Accounting Policies
A. Organization and Operations: Mammatech Corporation was incorporated in the State of Florida on November 23, 1981, and holds patents on a breast tumor detection training system. The system, which consists of a breast model and a method of breast self-examination, is marketed by the Company to individuals and healthcare professionals.
Inventories: Inventories, which consist principally of finished goods, are stated at the lower of cost or market using the first-in, first-out method.
Property and Equipment: Property and equipment are carried at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 8 years. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in operations for the period. The cost of repairs and maintenance is charged to operations as incurred and significant renewals or betterments are capitalized.
Patents, Trademarks, and Copyrights: Patents, trademarks, and copyrights are amortized using the straight-line method over their estimated useful economic lives of 10 years. They are stated at cost less accumulated amortization.
Revenue recognition: The Company recognizes revenue on the sales of its products at the time of shipment.
Earnings per share: In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the existing computational guidelines under Accounting Principles Board ("APB") Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending after December 15, 1997. Among other changes, SFAS No. 128 eliminates the presentation of primary earnings per share and replaces it with basic earnings per share for which common stock equivalents are not considered in the computation. It also revises the computation of diluted earnings per share.
The Company has adopted SFAS No. 128 and there is no material impact to the Company's earnings per share, financial condition, or results of operations. The Company's earnings per share have been restated for all periods presented to be consistent with SFAS No. 128.
The basic earnings per share are computed by dividing net income for the period by the weighted average number of common shares outstanding for the period. Basic income per share is unchanged on a diluted basis.
Cash and cash equivalents: Cash and cash equivalents, consist of cash and term deposits with original maturities of less than 90 days.
Estimates: The preparation of the Company's financial statements requires management to use estimates and assumptions. These estimates and assumptions affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates.
Fair value of financial instruments: The Company's short-term financial instruments consist of cash and cash equivalents, marketable securities, accounts and loans receivable, and payables and accruals. The carrying amounts of these financial instruments approximate fair value because of their short-term maturities. Financial instruments that potentially subject the Company to a concentration of
credit risk consist principally of cash, marketable securities and accounts receivable, trade. During the year the Company maintained cash deposits at financial institutions in excess of the $100,000 limit covered by the Federal Deposit Insurance Corporation.
Stock-based Compensation The Company adopted Statement of Financial Accounting Standard No. 123 (FAS 123), Accounting for Stock-Based Compensation beginning with the Company's first quarter of 1996. Upon adoption of FAS 123 when circumstances requiring its application arise, the Company will continue to measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to Employees.
Advertising Advertising expenses are charged to expense upon first showing. Amounts charged to expense were $6,226, $4,182 and $673 for the years ended August 31, 2001, 2000 and 1999, respectively.
New Accounting Pronouncements SFAS No. 130, 'Reporting Comprehensive Income', establishes guidelines for all items that are to be recognized under accounting standards as components of comprehensive income to be reported in the financial statements.
The statement is effective for all periods beginning after December 15, 1997 and reclassification of financial statements of financial statements for earlier periods will be required for comparative purposes. The Company has adopted SFAS No. 130 during the year ended August 31, 1999.
Note 2. Related Party Transactions
The Company occupies office and clinic space pursuant to a month-to-month lease entered into with a shareholder at a cost of $1,295 per month plus certain common costs, which approximates fair market value. Rent expense was $15,069, $13,497, and $14,885 for the years ended August 31, 2001, 2000, and 1999, respectively.
During prior years two officers of the Company made advances aggregating $11,830 of which $5,200 had been repaid prior to the year ended August 31, 1998. The balance of the advances was $6,630 at August 31, 2001.
During February 1989, an officer of the Company filed a patent application for a product representing a variation of the Company's patented models. The new product is an important part of the Company's product line.
The Company has entered into an agreement with this officer whereby the Company would enjoy exclusive and unrestricted use of the new product for the payment of the patent application fees. The agreement was for a period of one year and is automatically renewable for additional one year periods provided, however, that either party may cancel the agreement upon one months notice after the initial year.
Note 3. Available for Sale Securities
During the year ended August 31, 1999 the Company liquidated certain of its investment in a high-income mutual fund. Proceeds from the sale amounted to $66,277 and a portion thereof were reinvested in other mutual fund investments. The Company realized a loss from the sale of $10,228 during the year ended August 31, 1999. The aggregate market value of the funds amounted to $76,506 at August 31, 1999. The accumulated amount of net unrealized holding (losses) applicable to these securities has been included as a separate component of stockholders' equity in the accompanying balance sheet. This amount was ($7,127) at August 31, 1999 and the change in net unrealized holding (losses) for the year ended August 31, 1999 amounted to $11,309.
During the year ended August 31, 2000 the Company increased its investment in a high-income mutual fund by $112,894. The aggregate market value of the funds amounted to $174,074 at August 31, 2000. The accumulated amount of net unrealized holding (losses) applicable to these securities has been
included as a separate component of stockholders' equity in the accompanying balance sheet. This amount was ($22,453) at August 31, 2000 and the change in net unrealized holding (losses) for the year ended August 31, 2000 amounted to $(15,326).
During the year ended August 31, 2001 the Company increased its investment in a high-income mutual fund by $86,237. The aggregate market value of the funds amounted to $217,908 at August 31, 2001. The accumulated amount of net unrealized holding (losses) applicable to these securities has been included as a separate component of stockholders' equity in the accompanying balance sheet. This amount was ($64,856) at August 31, 2001 and the change in net unrealized holding (losses) for the year ended August 31, 2001 amounted to $(42,403).
Note 4. Property and Equipment
Property and equipment consists of the following, at cost, at August 31:
2001 2000 -------- -------- Furniture and equipment $225,817 $211,263 Leasehold improvements 16,135 16,135 ------- ------- 241,952 227,398 Less: accumulated depreciation 215,464 204,595 ------- ------- $ 26,488 $ 22,803 ======= =======
Depreciation charged to operations was $10,869, $17,193 and $17,115 during the years ended August 31, 2001, 2000, and 1999, respectively.
Note 5. Note Payable
At August 31, 2001 the Company had an unsecured note payable due to a vendor in the principal amount of $6,260 with interest at 8% per annum. The Company plans repay the note in full during the year ended August 31, 2002.
Note 6. Commitments and Contingencies
In connection with the acquisition of the patent rights for the Company's system of breast self-examination, the Company has paid $11,787 to the University of Florida for its release of all patent rights. In addition, 7 inventors also held certain patent rights to the Company's process. Three of these individuals, who are principal shareholders of the Company, contributed their rights to the Company at the inception of the Company in 1981 at $0 value. The remaining four inventors have assigned their rights in certain models to the Company in exchange for royalty payments to be made based on sales. The related sales were $435,719, $379,154, and $449,802 for the years ended August 31, 2001, 2000, and 1999, respectively. The related royalty expense was $12,549, $10,920, and $12,954 for the years ended August 31, 2001, 2000, and 1999, respectively.
The aggregate royalties payable to the inventors is as follows:
Sales Royalty --------------------------------- $ 1 - $ 5,000,000 2.86% $5,000,001 - $ 7,500,000 2.29% $7,500,001 - $10,000,000 1.71% Over $10,000,000 1.14%
The Company does not maintain product liability insurance related to its product line. It is unable to estimate the risks and possible economic consequences related to its decision not to carry this type of insurance.
Note 7. Concentration of Credit Risk/Major Customers
During the years ended August 31, 2001, 2000 and 1999, the Company had no single customer that accounted for more than 10% of its total sales.
At August 31, 2001 the Company has $545,447 on deposit in uninsured money market accounts.
The Company currently utilizes a single manufacturer for its products. Should this manufacturer be unable to meet the Company's demands it feels that it would be able to locate another suitable manufacturer or manufacturers.
The Company made sales to customers located in foreign countries amounting to $41,895 during the year ended August 31, 2001.
Note 8. Other Income
During September 1997, the Company received final approval for a research grant aggregating $592,000 to offset the costs associated with a program to promote breast self-examination for disabled women. The grant was issued to the Company by the US Department of Health and Human Services and has a two- year term ending September 29, 1999 and has been extended for an additional term. Funds received for services provided under the grant for the years ended August 31, 2001, 2000 and 1999 amounted to $38,557, $152,243 and $186,440, respectively.
Note 9. Income Taxes
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classifications of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. The Company has recorded a deferred tax asset during the year ended August 31, 1999, related to the operating loss carryforward of $170,000 based upon its estimate of net income before taxes that it expects to generate during the remaining term of the loss carryforward ($500,000). The Company has provided a reserve of approximately $140,000 for the asset related to the portion of the loss carryforward that more likely than not will not be utilized in future years. The reserve has decreased by approximately $75,000 from the amount recorded at August 31, 2000 due principally to the expiration or utilization of $228,000 of the loss carryforward during 2001.
At August 31, 2001, the Company had net operating loss carryforward aggregating approximately $903,000, which expires as follows:
2002: $ 115,000 2007: $ 131,000 2003: $ 54,000 2008: $ 74,000 2004: $ 233,000 2009: $ 16,000 2005: $ 280,000
The amounts shown for income taxes in the statements of operations differ from the amounts computed at federal statutory rates. The following is a reconciliation of those differences.
Year Ended August 31, --------------------- 2001 2000 1999 ---- ---- ---- Tax at federal statutory rates 34% 34% 34% Surtax exemption (19) (19) (19) Operating loss carryforward (15) (15) (15) --- --- --- - % - % - % === === ===
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure ------------------------------------------------------------
None
PART III - --------
Item 10.
Item 10. Directors and Executive Officers of the Company - --------------------------------------------------------
The following persons are the executive officers and directors of the Company.
Name Age Position with the Company - ---- --- -------------------------
Mark Kane Goldstein, Ph.D. 63 Chairman of the Board, Vice- President and Secretary
H. S. Pennypacker, Ph.D. 64 President and Director
Mary Bailey Sellers 53 Treasurer
All directors serve until the next annual meeting of shareholders. There is currently one vacancy on the Board of Directors.
Mark Kane Goldstein - -------------------
Mark Kane Goldstein, Ph.D., is Chairman of the Board, Vice President and Secretary of the Company. Dr. Goldstein directs and advises the Company on fiscal and policy matters and directs research on product development. From 1971 until July, 1982, Dr. Goldstein was employed by the U.S. Veterans Administration, Gainesville, Florida, as a research scientist. During this same period, Dr. Goldstein also was an Associate Professor/Research Scientist at the University of Florida, Gainesville, Florida, and continues as Co-Director of its Center for Ambulatory Studies.
From 1978 through May, 1984, Dr. Goldstein was a member of the City Commission of Gainesville, Florida including 1980-81 when he served a one-year term as Mayor.
Dr. Goldstein received a B.A. in 1961 from Muhlenberg College, an M.A. in 1962 from Columbia University and a Ph.D. in 1971 from Cornell University. All Degrees were in Psychology.
Henry Sutton Pennypacker, Ph.D. - -------------------------------
Henry Sutton Pennypacker, Jr., Ph.D., is President and a director of the Company. He is currently employed as President of the Company and as Professor Emeritus of Psychology at the University of Florida. He was the acting Chairman
of the Department of Psychology from June 1969 to 1970 and prior thereto was an Associate Professor and Assistant Professor. In May 1998, Dr. Pennypacker retired from the University but continues to teach on a part-time basis.
Dr. Pennypacker is the author or co-author of four books and over fifty articles and book chapters dealing with various aspects of behavioral research and behavioral medicine. He is a past President of the International Association for Behavior Analysis, the Society for Advancement of Behavior Analysis, and the Florida Association for Behavior Analysis. He serves as a member of the Board of Trustees of the Cambridge Center for Behavioral Studies and was recently elected Chairman of its newly formed Board of Directors. On August 10, 1990, Dr. Pennypacker received an award from the California Division of the American Cancer Society in recognition of his "...pioneering contribution to breast self-examination education."
Dr. Pennypacker received a B.A. and an M.A. from the University of Montana in 1958 and 1960, respectively, and a Ph.D. from Duke University in 1962. All degrees were in Psychology.
Mary Bailey Sellers - -------------------
Mary Bailey Sellers has been employed as Controller by the Company since September 1985. She was appointed Treasurer in August 1986. From April 1978 through November 1984, she was employed by Barnett Bank of Alachua County, N.A., and a predecessor bank as Vice President-- commercial loans. Mrs. Sellers devoted her time to her family from December 1984 through August 1985.
Mrs. Sellers received a B.A. in English and History in 1970 from Barry College.
Item 11.
Item 11. Executive Compensation - -------------------------------
The following table sets forth the cash remuneration paid or accrued by the Company during the fiscal year ended August 31, 2001, to each executive officer whose total cash compensation exceeded $60,000 and to all executive officers of the Company as a group.
Cash Compensation Table -----------------------
A B C - --------------------------------------------------------------------------------
Name of individual Capacities in Cash or number of persons which served Compensation in a group All executive officers All capacities $47,187.37 as a group (three persons) (1)
(1) No executive officer of the Company received more than $37,500.00 in compensation during the fiscal year ended August 31,1998.
Dr. H. S. Pennypacker, Jr., President of the Company, and Dr. Mark Goldstein received partial compensation associated with their activities on the research grant during the 2001 fiscal year. In addition,$61,797 was accrued in salary for Dr. Pennypacker and $55,984 was accrued for Dr. Goldstein. Mary Sellers receives a salary of $37,500.00 per year.
All directors receive reimbursement of expenses but no fees for serving as directors.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - -----------------------------------------------------------------------
The following table sets forth, as of Nov. 30, 1998, the number of shares of common stock owned both of record and beneficially by (I) all persons owning five percent or more of the outstanding common stock of the Company; (ii) all directors, and (iii) all officers and directors as a group:
Shares of Percentage of Stock Owned Outstanding Shares - ----------------------------------------------------------------------
Mark Kane Goldstein, Ph.D. (2) 26,516,000 26.4% 930 N.W. 8th Avenue Gainesville, Florida 32601
H. S. Pennypacker, Ph.D. 25,800,000 25.7% 930 N.W. 8th Avenue (1)(2) Gainesville, Florida 32601
Mary Bailey Sellers 400,000 4.0% 930 N.W. 8th Avenue Gainesville, Florida 32601
All Officers and Directors as a group (1)(2)
- ------------------------------
(1) All shares owned by Dr. Pennypacker are owned by himself and his wife as to which Dr. Pennypacker has shared investment and voting power.
Item 13.
Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------
On February 9, 1989, Mark Kane Goldstein, an Officer and Director of the Company, filed Patent Application Serial No. 308,914 seeking protection for a new breast model that represents a significant variation on the Company's patented models. The new breast model is an integral part of the Company's new MammaCare Personal Learning System. The Company has entered into a licensing agreement with Dr. Goldstein whereby the Company enjoys exclusive and unrestricted use of the invention in exchange for payment of costs associated with preparation and filing of the patent documents together with whatever foreign patent protection the Company, in consultation with Dr. Goldstein, may seek.
PART V
Item 14.
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K - ---------------------------------------------------------------------------
(a) The following documents are filed as part of this Report on Form 10-K.
Financial Statements Pages 17 to 24
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the last quarter of the fiscal year ended August 31, 2001.
(c) Exhibit Index: None
3 Articles of Incorporation*
3.1 Articles of Amendment to Articles of Incorporation*
3.2 By-Laws*
3.3 Amendments to By-Laws*
4 Warrants*
10.1 Patent Assignment Agreements*
10.2 H. S. Pennypacker Assignment*
10.3 Mark Kane Goldstein Assignment*
----------------------------------------
*Contained in the Company's registration statement of Form S-18 filed in October 27, 1982.
**Contained in Amendment No. 1 to the Company's registration statement on Form S-18 filed on November 13, 1982.
***Contained in Amendment No. 3 to the Company's registration statement on Form S-18 filed on November 9, 1982.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAMMATECH CORPORATION
By: /s/ H. S. Pennypacker -------------------------------- H. S. Pennypacker, President
Date: November 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the Capacities and on the dates indicated.
Signature - --------- Position or Office Date - ------------------ ----
/s/ Mark Kane Goldstein November 29, 2001 - ---------------------------------- Mark Kane Goldstein Chairman of the Board
/s/ H. S. Pennypacker November 29, 2001 - ---------------------------------- H. S. Pennypacker President and Director
/s/ Mary Bailey Sellers November 29, 2001 - ---------------------------------- Mary Bailey Sellers Treasurer