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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
   FORM 10-KSB (Mark One) x
    
    ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended June 30, 2004 or o
    
    TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from to Commission file number 333-64420   MEDICOR LTD.  Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
    
    14-1871462
(I.R.S. Employer
Identification No.)4560 S. Decatur Blvd.
Las Vegas, Nevada
(Address of Principal Executive Offices)
    
    89103
(Zip Code)
 (702) 932-4560  Securities registered under Section 12(b) of the Exchange Act:  Securities registered under Section 12(g) of the Exchange Act:    Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No o Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. o The issuers revenues for the most recent fiscal year: $1,421,583. The aggregate market value of voting and non-voting common equity held by
non-affiliates as of September 1, 2004 was approximately $23,841,075, based on
the average bid and asked prices on the OTC Bulletin Board on that date. On September 1, 2004, there were 18,045,265 shares of common stock
outstanding. Transitional Small Business Disclosure Format (Check one) Yes o No x




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MEDICOR LTD. Annual Report on Form 10-KSB For the Fiscal Year Ended June 30, 2004
 TABLE OF CONTENTS PagePART IItem 1.
    
    Business
    
    
    2Item 2.
    
    Properties
    
    
    13Item 3.
    
    Legal Proceedings
    
    
    13Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART IIItem 5.
    
    Market for Common Equity and Related Stockholder Matters
    
    
    14Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7.
    
    Financial Statements
    
    
    16Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    16Item 8A.
    
    Controls and Procedures
    
    
    16PART IIIItem 9.
    
    Directors and Executive Officers
    
    
    17Item 10.
    
    Executive Compensation
    
    
    17Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    17Item 12.
    
    Certain Relationships and Related Transactions
    
    
    17Item 13.
    
    Exhibits, List and Reports on Form 8-K
    
    
    17Item 14.
    
    Principal Accountant Fees and Services
    
    
    17Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the
Exchange Act by Non-Reporting IssuersSignatures
    
    
    
    
    18Financial Statements
    
    
    F-1Exhibit 10.19Exhibit 10.20Exhibit 10.21Exhibit 10.22Exhibit 10.23Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  This report contains trademarks and trade names that are the property of
MediCor Ltd. and its subsidiaries, and of other companies, as indicated. In this document, the words we, our, ours, us and MediCor refer only
to MediCor Ltd. and its subsidiaries, not any other person or entity. -1-




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PART I This Annual Report on Form 10-KSB (including the section regarding
Managements Discussion and Analysis or Plan of Operation) contains
forward-looking statements regarding our business, financial condition, results
of operations and prospects. Words such as expects, anticipates,
intends, plans, believes, seeks, estimates and similar expressions or
variations of such words are intended to identify forward-looking statements,
but are not the exclusive means of identifying forward-looking statements in
this report on Form 10-KSB. Additionally, statements concerning future matters
are forward-looking statements. Although forward-looking statements in this Annual Report on Form 10-KSB
reflect the good faith judgment of our management, such statements can only be
based on facts and factors currently known by us. Consequently,
forward-looking statements are inherently subject to risks and uncertainties
and actual results and outcomes may differ materially from the results and
outcomes discussed in or anticipated by the forward-looking statements.
Factors that could cause or contribute to such differences in results and
outcomes include without limitation those discussed under the heading Risks
and Uncertainties below, as well as those discussed elsewhere in this report
on Form 10-KSB. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report on
Form 10-KSB. We undertake no obligation to revise or update any
forward-looking statements in order to reflect any event or circumstance that
may arise after the date of this report on Form 10-KSB. Readers are urged to
carefully review and consider the various disclosures made in this report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and prospects. We file reports with the Securities and Exchange Commission (SEC). We
electronically file our Annual Reports on Form 10-KSB, quarterly reports on
Form 10-QSB, current reports on Form 8-K and amendments to those reports with
the SEC. You can read and copy any materials we file with the SEC at its
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can
obtain additional information about the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet site (www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, including us. 
 ITEM 1. BUSINESS MediCor Ltd. is a global health care company that acquires, develops,
manufactures and markets products primarily for the aesthetic plastic surgery
and dermatology markets. Current products include breast implants and scar
management products. Our products are sold worldwide to hospitals, surgical
centers and physicians mostly through various distributors as well as through
some direct sales personnel. Company History and Business Strategy MediCor was founded in 1999 by Chairman of the Board Donald K. McGhan, the
founder and former Chairman and Chief Executive Officer of Inamed, McGhan
Medical and McGhan Limited. MediCors objective is to be a leading supplier of
selected international medical devices and technologies. To achieve this
strategy, we intend to build upon and expand our business lines, primarily in
the aesthetic, plastic and reconstructive surgery and dermatology markets. We
intend to accomplish this growth through the expansion of existing product
lines and offerings and through the acquisition of companies and other assets,
including intellectual property rights and distribution rights. Products Currently, MediCor has two main product lines   
    
    breast implants for aesthetic plastic and reconstructive surgery and
    
    scar management products. Breast implant products MediCors primary product line is breast implants. We have a strategy of
establishing or acquiring manufacturing and distribution capabilities for this
product line. Historically, we acted as a distributor in the United States for
breast implant products manufactured by a third-party manufacturer. In May
2004, we agreed to purchase and in July 2004 we closed on the acquisition of
Laboratoires Eurosilicone S.A. Based on our evaluation of available industry
data, Eurosilicone is the third largest breast implant manufacturer in the
world. The financing for the Eurosilicone acquisition was provided through
additional loans from III, LLC, an affiliate of MediCors chairman, as more
fully described in the financial statements and notes. Because the
Eurosilicone acquisition occurred after the end of our fiscal year ending June
30, 2004, none of the results or financial information contained in this annual
report includes Eurosilicones operations or results. We are filing a Current -2-




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Report on Form 8-K concurrent with the filing of this annual report that
contains additional pro forma and historical financial information regarding
Eurosilicone. Prior to May 2000, through our III Acquisition Corp. subsidiary, which
does business under the trade name PIP.America, we distributed in the United
States pre-filled saline breast implants manufactured by Poly Implants
Protheses, S.A. (PIP), on both a direct and a consigned inventory basis. As of
May 2000, the United States Food and Drug Administration (FDA) notified
PIP.America and PIP that further direct sales to customers by PIP.America would
be suspended until the FDA reviewed and approved the clinical study being
conducted by PIP. Pursuant to a voluntary withdrawal from the market, sales of
PIP.America products ceased in November of 2002 pending final Pre-Market
Approval (PMA) clearance. PIP.America and MediCor are currently conducting the
clinical study and it is in a monitoring phase. Although the likelihood and
timing of obtaining FDA approval are uncertain, we currently anticipate that
the necessary governmental approvals for commercialization in the U.S. will
occur before the quarter ending June 2005. In April 2002, we agreed to acquire substantially all of assets of another
privately-held United States breast implant distributor whose principal product
line consists of inflatable saline breast implants. As in the case of PIPs
products, these were also available in the U.S. prior to May 2000. The closing
of this asset acquisition is conditioned upon the distributor acquiring
necessary governmental approvals for commercialization in the United States of
the products to be distributed, which we anticipate will occur before the end
of the quarter ending March 2005. Even though we intend to commence marketing
and sales of the products as soon after approval as possible, at June 30, 2004
we recorded a reserve against all acquisition advances due to various
uncertainties related to this third-party distributor. Scar Management Products Our subsidiary, HPL Biomedical, Inc. (which does business under the trade
name Biodermis) manufactures and sells products in the specialty field of scar
management and post-operative care products. In the United States, Biodermis
distributes its products to dermatologists, dermatological surgeons, aesthetic
plastic and reconstructive surgeons and Obstetric/Gynecologists through a
combination of a direct sales force and a distributor. Internationally,
Biodermis distributes to the same fields of medicine through approximately 70
distributors in about 50 countries, including Canada and Mexico. Biodermis
core product line consists of products indicated for use in the prevention and
management of excessive or abnormal masses of visible scar tissue known as
keloid and hypertrophic scars. In the United States, the products are
distributed under the names EpiDermTM silicone gel sheeting and XeragelTM
silicone ointment. Internationally, the same products are also marketed under
the names TopiGelTM and DermaSofTM. Biodermis secondary product lines consist mainly of two products,
EPIfoamTM and HydroGOLDTM. EPIfoam is a silicone backed, polyurethane foam
utilized post-lipectomy to assist in recovery and enhance the overall aesthetic
appearance following liposuction. HydroGOLD is a hydrogel-based product for
use in reducing the pain, discomfort and burning sensation frequently
associated with procedures of the skin typically aimed at reducing fine lines
and wrinkles and to eliminate or reduce the signs of aging, such as laser
resurfacing, chemical peels and micro-dermabrasion. Additionally, a portion of Biodermis revenue is derived from original
equipment manufacturing of scar management and post-operative care products for
other medical device companies who then sell the products under their own brand
names. To assure quality control and proper regulatory compliance, Biodermis
retains all responsibilities related to United States Food and Drug
Administration and European CE-mark certification and regulatory compliance
related to manufacturing activities. Some of these companies are allowed to
compete for sales in similar markets and for similar customers against
Biodermis distributors and direct sales staff. Sales and Marketing We sell our products primarily through independent distributors worldwide,
as well as through a small direct sales force. We reinforce our sales and
marketing program with telemarketing, which is designed to increase sales
through follow-up on leads and the distribution of product information to
potential customers. We supplement our marketing efforts with appearances at
trade shows, advertisements in trade journals and sales brochures. Breast Implants Currently, we are awaiting the required FDA clearance to sell breast
implants in the United States. These products are typically sold on both a
direct and a consigned inventory basis. Scar Management Products In the United States, Biodermis distributes its products to
dermatologists, dermatological surgeons, aesthetic plastic and reconstructive
surgeons and Obstetric/Gynecologists through a combination of a direct sales
force and a distributor. -3-




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Internationally, Biodermis distributes to the same fields of medicine
through approximately 70 distributors in about 50 countries, including Canada
and Mexico. Competition Breast Implants We have competed and will compete in the U.S. breast implant market with
Inamed Corporation and Mentor Corporation. Through our acquisition of
Eurosilicone, we will compete internationally with several manufacturers and
distributors, including Inamed Corporation, Mentor Corporation, Silimed, S.A.
Poly Implants Protheses, S.A., Nagor Limited, Laboratories Sebbin S.A., and
Laboratoire Perouse Implant S.A. We believe that the principal factors that will allow our products to
compete effectively are high-quality product consistency, product design,
managements knowledge of and sensitivity to market demands, plastic surgeons
familiarity with our management and products, and our ability to identify and
develop or license patented products embodying new technologies. Scar Management Products Currently, we estimate there are approximately 15 companies in the United
States and international markets competing for market share among
dermatologists and plastic and reconstructive surgeons for products that are
competitive with those of Biodermis. EpiDerm, also sold as DermaSof and
TopiGel, and Xeragel comprise Biodermis principal product line and compete
against such companies as Cica Care, by Smith and Nephew, Rejuveness, by
ReJuveness Pharmaceuticals, Kelo-Cote by Advanced Bio-Technologies, Inc.,
New Beginnings, by PMT Corporation, and others. EPIfoam post-operative compression foam has no direct product-type
competition. However, it competes to some extent with a product known as
Reston foam, manufactured by 3M, as a piping and insulation product, which is
occasionally used off-label by surgeons. HydroGOLD hydrogel sheeting competes
against such companies products as 2nd Skin, by Spenco Corp. and HydraSkin
by HydraSkin Corp. Research and Development We use employee and independent consultant scientists, engineers, and
technicians to work on material technology and product design as part of our
research and development efforts. Our research and development expense is
currently primarily directed toward supporting the clinical trials of our
products or products which we seek to distribute for third parties. In
addition, we direct research and development toward development or acquisition
of new and improved products based on scientific advances in technology and
medical knowledge, together with input from the surgical profession. We have
incurred expenses of $2,149,049 and $190,625 for the years ended, June 30, 2004
and 2003, respectively, for research and development. Patents, Licenses, and Related Agreements We currently own or have exclusive license rights to numerous patents,
patent applications, trademarks and trademark applications throughout the
world. Although we believe our patents and patent rights are valuable, our
technical knowledge with respect to manufacturing processes, materials, and
product design are also valuable. As a condition of employment or consulting,
we require that all employees and consultants execute a proprietary information
and inventions agreement relating to our proprietary information and
intellectual property rights. Manufacturing and Raw Materials Breast implants Prior to our acquisition of Eurosilicone, we did not manufacture any of
the breast implant products we sold. All of the saline filled breast implant
products we distributed in the past were manufactured in France by Poly
Implants Protheses. These products were produced in controlled environments
utilizing specialized equipment for precision measurement, quality control,
packaging, and sterilization. The manufacturing activities for products sold
in the U.S. are subject to FDA regulations and guidelines, and these products
and their manufacturing procedures were reviewed by the FDA prior to the FDAs
call for a pre-marketing approval for saline breast implants in 2000. Poly
Implants Protheses manufacturing activities are also subject to regulatory
requirements and periodic inspections by European regulatory agencies. Our Eurosilicone products are manufactured at the Eurosilicone facility in
Apt, France. This facility and its operations are subject to similar standards
and government regulation and inspection for manufacturing facilities. -4-




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There are a very few qualified suppliers of silicone raw materials in the
world. To the extent we build or acquire manufacturing capability, we will
most likely be required to purchase our silicone raw material supplies for
production of breast implants from a single-source supplier. Eurosilicone
relies upon one manufacturer for its silicone raw material supplies, the same
supplier to our largest competitors. Scar Management Products Biodermis has developed product lines though OEM vendors. These vendors
are single-source suppliers due to the highly specialized nature of the
products and the regulatory requirements for the manufacturing of the products.
Biodermis is responsible for the governmental regulatory submissions for the
products they distribute, as well as a required vendor audit program and
internal controls for all aspects of product flow through the facility. In the event we build or acquire our own manufacturing facilities for scar
management products, we will be subject to all standards and government
regulation and inspection required for all Class I and Class II medical
devices. There are very few qualified suppliers of the raw materials required for
the Biodermis products in the world. To the extent we build or acquire scar
management product manufacturing capability, we will most likely be required to
purchase our raw material supplies for our products from one of these
suppliers. Environmental Compliance Our manufacturing facilities are regulated by various national, state,
regional and local laws. We believe that our operations are in compliance with
all applicable laws and we received no citations or notices of violations in
2003. In 2004, we do not expect to incur any material expense to maintain our
compliance level. With regard to our recent acquisition of Eurosilicone, we
believe that we will be in compliance with all applicable laws and regulations. Government Regulation Medical devices are subject to regulation by the U. S. Food and Drug
Administration, state agencies and, in varying degrees, by foreign government
health agencies. These regulations, as well as various U.S. Federal and state
laws, govern the development, clinical testing, manufacturing, labeling, record
keeping, and marketing of these products. The majority of our product
candidates must undergo rigorous testing and an extensive government regulatory
approval process prior to sale in the U.S. and other countries. The lengthy
process of seeking required approvals and the continuing need for compliance
with applicable laws and regulations require the expenditure of substantial
resources. Regulatory approval, when and if obtained, may be limited in scope,
and may significantly limit the indicated uses for which a product may be
marketed. Approved products and their manufacturers are subject to ongoing
review, and discovery of previously unknown problems with products may result
in restrictions on their manufacture, sale, or use or their withdrawal from the
market. Regulation of Medical Devices Our current products are medical devices intended for human use and are
subject to regulation by FDA in the United States. Unless an exemption applies,
each medical device we market in the U.S. must have a 510(k) clearance or a
Pre-market Approval (PMA) in accordance with the federal Food, Drug, and
Cosmetic Act of 1976, as amended. FDA regulations generally require reasonable
assurance of safety and effectiveness prior to marketing, including safety data
obtained under approved clinical protocols. FDA regulation divides medical
devices into three classes. Class I devices are subject to general controls
that require compliance with device establishment registration, product
listing, labeling, GMPs and other general requirements. Class II devices are
subject to special controls in addition to general controls. Class III devices
are subject to the most extensive regulation and in most cases require
submission to the FDA of a PMA application that includes data, including
clinical data, supporting the safety and effectiveness of the device.
Manufacturing must comply with the FDAs Quality System Requirements for
good manufacturing practices (GMPs), and the compliance is verified by
detailed FDA inspections of manufacturing facilities. These regulations also
require reporting of product defects to the FDA. Periodic reports must be
submitted to the FDA, including any descriptions of any adverse events
reported. The majority of our products are regulated as Class III medical
devices. The advertising, promotion and distribution of medical devices are
regulated by the FDA and the Federal Trade Commission (FTC) in the U.S. Products marketed in the European Community must comply with the
requirements of the European Medical Device Directive (MDD) and must be
CE-marked. Medical device laws and regulations similar to those described above
are also in effect in many of the other countries to which we export our
products. These range from comprehensive device approval requirements for some
or all of our medical device products to requests for product data or
certifications. Failure to comply with these domestic and international regulatory
standards and requirements could affect our ability to market and sell our
products in these countries. The current regulatory status of our Biodermis
products and the breast -5-




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implant products we distribute is discussed in the Products section above.
Our Eurosilicone products are not currently approved for sale in the United
States and we have yet to commence filing an application for a PMA for those
products. Regulation of Manufacturing For medical devices the manufacturing processes and facilities are subject
to continuing review by the FDA and various state and other national agencies.
These agencies inspect quality systems and facilities from time to time to
determine whether they are in compliance with various regulations relating to
manufacturing practices and other requirements. Facilities that manufacture
products sold in the U.S. must comply with the FDAs Quality System Regulation
requirements for Good Manufacturing Practices. For products sold in Europe, we
must demonstrate compliance with the ISO 9000 and EN 46000 international
quality system standards. The regulatory status of our manufacturing
facilities is discussed under Manufacturing and Raw Materials above. Other Regulation We are subject to federal, state, local and foreign environmental laws and
regulations, including the U.S. Occupational Safety and Health Act, the U.S.
Toxic Substances Control Act, the U.S. Resource Conservation and Recovery Act,
and other current and potential future federal, state, or local regulations.
Our manufacturing and research and development activities involve the
controlled use of hazardous materials, chemicals, and biological materials,
which require compliance with various laws and regulations regarding the use,
storage, and disposal of such materials. We are also subject to various federal and state laws pertaining to health
care fraud and abuse, including anti-kickback laws and false claims laws.
Anti-kickback laws make it illegal to solicit, offer, receive, or pay any
remuneration in exchange for, or to induce, the referral of business, including
the purchase or prescription of a particular product. The U.S. federal
government has published regulations that identify safe harbors or exemptions
for certain payment arrangements that do not violate the anti-kickback
statutes. We seek to comply with the safe harbors where possible. Due to the
breadth of the statutory provisions and the absence of guidance in the form of
regulations or court decisions addressing some of our practices, it is possible
that our practices might be challenged under anti-kickback or similar laws.
False claims laws prohibit anyone from knowingly and willingly presenting, or
causing to be presented for payment to third-party payers (including Medicare
and Medicaid) claims for reimbursed products or services that are false or
fraudulent, claims for items or services not provided as claimed, or claims for
medically unnecessary items or services. Our activities relating to the sale
and marketing of our products may be subject to scrutiny under these laws.
Violations of fraud and abuse laws may be punishable by criminal and/or civil
sanctions, including fines and civil monetary penalties, as well as the
possibility of exclusion from federal health care programs (including Medicare
and Medicaid). Our present and future business has been and will continue to be subject
to various other laws and regulations. Foreign Corrupt Practices Act The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits
corporations and individuals from engaging in certain activities to obtain or
retain business or to influence a person working in an official capacity. It is
illegal to pay, offer to pay, or authorize the payment of anything of value to
any foreign government official, government staff member, political party, or
political candidate in an attempt to obtain or retain business or to otherwise
influence a person working in an official capacity. Third-Party Coverage and Reimbursement Purchases of breast implant products for augmentation and facial
aesthetics products are generally not reimbursed by government or private
insurance carriers. However, since 1998, U.S. federal law has mandated
nationwide insurance coverage of reconstructive surgery following a mastectomy,
which includes coverage for breast implants. Outside the U.S., reimbursement
for breast implants used in reconstructive surgery following a mastectomy may
be available, but the programs vary on a country-by-country basis. In some countries, both the procedure and product are fully reimbursed by
the government healthcare systems for all citizens who need it, and there is no
limit on the number of procedures that can be performed. In other countries,
there is complete reimbursement but the number of procedures that can be
performed at each hospital is limited either by the hospitals overall budget
or by the budget for the type of product. Product Replacement Programs We have always conducted our product service and support activities with
careful regard for the consequences to patients. As with any medical device
manufacturer however, we occasionally receive communications from surgeons with
respect to various products claiming the products were defective, lost volume,
or have otherwise failed. In the case of a -6-




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deflation of a saline-filled breast implant product sold by us and implanted in
the U.S., in most cases our product replacement program provides for a free
replacement implant and limited financial assistance paid to the surgeon to
help reduce the costs of a replacement surgical procedure. In order to receive
the surgical assistance, the deflation must have occurred within ten years of
the original implantation, and certain other claim procedures must be met. We
do not warrant any level of aesthetic result and, as required by government
regulation, make extensive disclosure concerning the risks of our products and
implantation surgery. Anticipated estimated financial liabilities for product
replacement and warranty claims are periodically reviewed and reflected in our
financial statements. Financial Information About Geographic Areas A majority of our historic sales and substantially all of our long-lived
assets are in the U.S. With the recent acquisition of Eurosilicone, we expect
that in the future our financial assets and sales will be primarily outside of
the U.S., including manufacturing assets in France, and sales into over 60
countries. Working Capital and Product Inventories When in the past we have sold breast implant products, we maintained
significant breast implants consignment inventories, consistent with industry
practice. We expect this practice to continue as we reintroduce products to
the market. Since a doctor may not be sure of the exact size of breast implant
required for implantation and cannot be sure that no accidental damage will
occur to an implant, the doctor is likely to order extra quantities and sizes
beyond the quantity and size ultimately used in surgery. By carrying a
consignment inventory of typical sizes at certain hospitals and other medical
offices, we reduce the level of product return subsequent to surgery. Otherwise, we attempt to manage inventories to a level that permits good
customer service. Additionally, there are inventory builds prior to launching
new products. Our accounts receivable payment terms have been and we anticipate them to
continue to be consistent with normal industry practices for each of our market
segments. Our working capital and product inventories may change materially in the
future due to the acquisition of Eurosilicone. We anticipate that inventory
and accounts receivable will be consistent with norms in the industry and
consistent with Eurosilicones history. Employees As of June 30, 2004, we had approximately 28 full-time or full-time
equivalent employees, all of which were in the United States. From time to
time, we also engage consultants on short- or long-term contracts, primarily in
connection with research and development projects. None of our employees are
represented by a labor union. With the recent acquisition of Eurosilicone, we expect that the number of
employees in France will be approximately 170 people. Although not represented
by an independent labor union, the Eurosilicone employees are represented by a
statutory workers council. We recognize the importance of environmental responsibility and the need
to provide a safe and healthy workplace for our employees by complying with all
federal, state, and local laws, rules, and regulations. During the past fiscal
year, we have received no citations, notices of violations or other censures
from public agencies regulating environmental compliance or our employees
health and safety. We do not expect any significant capital expenditures to
comply with environmental, health, or safety regulations in 2004 or 2005. We
believe that our current systems and processes are adequate for current needs. Risks and Uncertainties If clinical trials for our products are unsuccessful or delayed, we will
be unable to meet our anticipated development and commercialization
timelines. Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through pre-clinical testing and clinical trials
that our products are safe and effective for use in humans. Conducting
clinical trials is a lengthy, time-consuming and expensive process. Completion of clinical trials may take several years or more. Our
commencement and rate of completion of clinical trials may be delayed by many
factors, including: -7-




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
    
    lack of efficacy during the clinical trials;
    
    unforeseen safety issues;
    
    uncertainties with or actions of our collaborative partners
or suppliers;
    
    slower than expected patient recruitment;
    
    difficulties in patient retention; and
    
    government or regulatory delays. The results from pre-clinical testing and early clinical trials are often
not predictive of results obtained in later clinical trials. A number of new
products have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals. Data obtained from pre-clinical and clinical activities
are susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including perceived defects in the
design of the clinical trials and changes in regulatory policy during the
period of product development. Any delays in, or termination of, our clinical
trials or clinical trials of our collaborative partners or suppliers will
adversely affect our development and commercialization timelines, which would
adversely affect our future sales and profitability. If we are unable to develop, gain regulatory approval for and market new
products and technologies, we will not achieve meaningful revenue and may
experience a decrease in demand for our products or our products could
become obsolete. The medical device industry is highly competitive and is subject to
significant and rapid technological change. We believe that our ability to
respond quickly to consumer needs or advances in medical technologies, without
compromising product quality, will be crucial to our success. We are
continually engaged in product development and improvement programs to
establish and improve our competitive position. We cannot, however, guarantee
that we will be successful in enhancing our existing products or products we
have in development or clinical trials. Nor can we guarantee that we will be
successful in developing new products or technologies that will timely achieve
regulatory approval or receive market acceptance. Once developed, we must also
timely obtain regulatory approval for our products, the failure of which may
cause our products to be obsolete once regulatory approval is granted. If changes in the economy and consumer spending reduce consumer demand for
our products or our products in development, our sales and profitability
will suffer. Breast augmentation and reconstruction and other aesthetics procedures are
elective procedures. Other than U.S. federally mandated insurance
reimbursement for post-mastectomy reconstructive surgery, breast augmentations
and other cosmetic procedures are not typically covered by insurance. Adverse
changes in the economy may cause consumers to reassess their spending choices
and reduce the demand for cosmetic surgery. This shift could have an adverse
effect on our projected future sales and profitability. Our ability to expand our business will be significantly limited if we
cannot obtain additional financing. To accomplish our plans to expand our current product lines and markets
and to purchase new companies, products and intellectual property, we need
substantial additional capital, which we may not be able to obtain. While we
have to date been funded in substantial part from financing from an affiliate
of our chairman, we do not anticipate this funding source will provide
sufficient capital to finance our intended growth strategy and that we will
need significant external financing to accomplish our goals. We are currently
negotiating with potential equity and debt providers to obtain additional
financing, but this additional financing may not be available on terms that are
favorable to us, or at all. If adequate funds are not available, or are not
available on acceptable terms, our ability to implement our expansion and
growth plans will be significantly impaired. In addition, the financial terms
of any such financing, if obtainable, may be dilutive to existing stockholders. Because we have only a limited operating history and our business strategy
calls for significant growth through new products and acquisitions, there
is significant uncertainty about our business and prospects. MediCor and its subsidiaries have only been operating since 1999.
Although our Biodermis operation has been in existence for a longer period of
time, it has only operated under MediCors management since its acquisition in
2001. Significantly, during much of our history we have also been prevented
from selling our primary existing product, saline-filled breast implants, in
the U.S. market due to the FDAs 2000 call for a Pre-market Approval for that
product. As a result, all of our current revenues have been derived from our
scar management products. Revenue generated by our Biodermis subsidiary has
not been significant, and we do not expect more than modest internal growth in
that segment. Our business plans call for significant expansion into other
markets that in the future will constitute the significant majority of our
sales and income. As a result, our existing business platform is not
necessarily indicative of our future business or prospects. -8-




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MediCor and its prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in an early stage of
development, particularly companies in rapidly evolving markets such as
the medical device market. Risks for our business include the uncertainties associated with
developing and implementing an evolving business model and the management of
both internal and acquisition-based growth. This is particularly acute in a
rapidly evolving market such as the market for medical devices. To address
these risks, we must continue to develop the strength and quality of our
operations, maximize the value delivered to customers, respond to competitive
developments and continue to attract, retain and motivate qualified employees.
We may not be successful in addressing these challenges. We are subject to substantial government regulation, which could
materially adversely affect our business. The production and marketing of our products and intended products and our
research and development, pre-clinical testing and clinical trial activities
are subject to extensive regulation and review by numerous governmental
authorities, both in the U.S. and abroad. Most of the medical devices we
intend to sell or develop must undergo rigorous pre-clinical testing and
clinical trials and an extensive regulatory approval process before they can be
marketed. This process makes it longer, more uncertain and more costly to
bring the products to market, and some of these products may not be approved,
or, once approved, they may be recalled. The pre-marketing approval process
can be particularly expensive, uncertain and lengthy. Many devices for which
FDA approval has been sought by other companies have never been approved for
marketing. In addition to testing and approval procedures, extensive
regulations also govern marketing, manufacturing, distribution, labeling, and
record-keeping procedures. If we or our suppliers or collaborative partners do
not comply with applicable regulatory requirements, this could result in
warning letters, non-approval, suspensions of regulatory approvals, civil
penalties and criminal fines, product seizures and recalls, operating
restrictions, injunctions, and criminal prosecution. Delays in or rejection of FDA or other government entity approval of new
products would adversely affect our business. Delays or rejection may be
encountered due to, among other reasons, government or regulatory delays, lack
of efficacy during clinical trials, unforeseen safety issues, slower than
expected rate of patient recruitment for clinical trials, inability to follow
patients after treatment in clinical trials, inconsistencies between early
clinical trial results and results obtained in later clinical trials, varying
interpretations of data generated by clinical trials, or changes in regulatory
policy during the period of product development in the U.S. and abroad. In the
U.S., there has been a continuing trend of more stringent FDA oversight in
product clearance and enforcement activities, causing medical device
manufacturers to experience longer approval cycles, more uncertainty, greater
risk, and higher expenses. Internationally, there is a risk that we or our
suppliers or collaborative partners may not be successful in meeting the
quality standards or other certification requirements. Even if regulatory
approval of a product is granted, this approval may entail limitations on uses
for which the product may be labeled and promoted. It is possible, for example,
that we or our suppliers or collaborative partners may not receive FDA approval
to market our current or future products for broader or different applications
or to market updated products that represent extensions of our, our suppliers
or collaborative partners basic technology. In addition, we or our suppliers
or collaborative partners may not receive export or import approval for
products in the future, and countries to which products are to be exported may
not approve them for import. Government regulation of manufacturing of medical devices is expensive and
time consuming for manufacturers and may result in product unavailability
or recalls. Medical device manufacturing facilities also are subject to continual
governmental review and inspection. The FDA has stated publicly that
compliance with manufacturing regulations will be scrutinized more strictly. A
governmental authority may challenge our or our suppliers or collaborative
partners compliance with applicable federal, state and foreign regulations.
In addition, any discovery of previously unknown problems with products or
facilities may result in restrictions on the product or the facility, including
withdrawal of the product from the market or other enforcement actions. If we are unable to avoid significant product liability claims or product
recalls, we may be forced to pay substantial damage awards and other
expenses that could exceed our reserves and any applicable insurance
coverage. We have in the past been, currently are, and may in the future be subject
to product liability claims alleging that the use of our technology or products
has resulted in adverse health effects. These claims may be brought even with
respect to products that have received, or in the future may receive,
regulatory approval for commercial sale. In particular, the manufacture and
sale of breast implant products entails significant risk of product liability
claims due to potential allegations of possible disease transmission and other
health factors, rupture or other product failure. Some breast implant
manufacturers that suffered these types of claims in the past have been forced
to cease operations or even to declare bankruptcy. We may also face a
substantial risk of product liability claims from other products we may choose
to sell. In addition to product -9-




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liability claims, we may in the future need to recall or issue field
corrections related to our products due to manufacturing deficiencies, labeling
errors, or other safety or regulatory reasons. We do not presently have liability insurance to protect us from the costs
of claims for damages due to the use or recall of our products, except that our
Biodermis subsidiary carries a limited amount of product liability insurance
related to its products. We may in the future seek additional insurance, which
will be limited in both circumstance of coverage and amount. Recent premium
increases and coverage limitations, including specifically limitations or
prohibitions by insurers on insurance covering breast implant manufacturers,
may make this insurance uneconomic or even unavailable. However, even if we
obtain or increase insurance, one or more product liability claims or recall
orders could exceed any coverage we may hold. If we continue to have limited
or no coverage or our insurance does not provide sufficient coverage, product
liability claims or recalls could result in losses in excess of our reserves. Certain lawsuits filed seek class action status and may, if successful, cause
us to incur substantial liability, including damage awards and
significant legal fees that may exceed our reserves. Three lawsuits have been filed naming us or one of our subsidiaries, the
French manufacturer from which we purchase breast implant products, and the
U.S. distributor of those same products who preceded our subsidiary in the U.S.
market. In these suits the plaintiffs seek, among other things, class action
status for claims, including claims for breach of warranty. The claims arise
from products distributed both before and after our subsidiary that distributed
the products came into existence. Although certain of the claims arise from
products distributed by the other distributor prior to our subsidiary coming
into existence, we have still been named as a defendant. While we have
reserved an amount equal to the outstanding warranty claims for claims arising
from products our subsidiary did distribute, the plaintiffs are seeking to hold
us responsible for more damages. There can be no assurance we can terminate
the litigation as to our subsidiary for reserved amounts. Although our
subsidiary is indemnified by three separate entities, including Poly Implants
Protheses, S.A., the French manufacturer, PIP/USA, Inc. the previous
distributor, and Mr. Jean Claude Mas, personally, there can be no assurance
this indemnity will protect us, as there is no guarantee the French
manufacturer, the previous distributor, or Mr. Mas will, or is able to, honor
the indemnification they have provided. If we are unsuccessful in defending against the claims involved in these
suits, or if class action status is achieved, and the indemnification were to
prove non-reliable, we could be responsible for significant damages above the
reserves and available assets needed to satisfy such a judgment. If we suffer negative publicity concerning the safety of our products, our
sales may be harmed and we may be forced to withdraw products. Physicians and potential patients may have a number of concerns about the
safety of our products and proposed products, whether such concerns have a
basis in generally accepted science or peer-reviewed scientific research or
not. Negative publicitywhether accurate or inaccurateabout our products,
based on, for example, news about breast implant litigation or regulatory
actions, could materially reduce market acceptance of our products and could
result in product withdrawals. In addition, significant negative publicity
could result in an increased number of product liability claims, whether or not
these claims have a basis in fact. Because a key component of our growth strategy is based on successfully making
acquisitions and otherwise diversifying our product offerings, we are
exposed to numerous risks associated with acquisitions, diversification
and rapid growth. A key component of our growth strategy is the acquisition of other
companies, products and technologies that meet our criteria for strategic fit,
geographic presence, revenues, profitability, growth potential and operating
strategy. The successful implementation of this strategy depends on our
ability to identify suitable acquisition candidates, acquire companies and
assets on acceptable terms and integrate their operations successfully. We may not be able to identify suitable acquisition candidates in our
desired product areas or we may not be able to acquire identified candidates on
acceptable terms. Moreover, in pursuing acquisition opportunities we will
likely compete with other companies with greater financial and other resources.
Competition for these acquisition targets likely could also result in
increased prices of acquisition targets and a diminished pool of companies and
assets available for acquisition. Acquisitions also involve a number of other risks, including the risks of
acquiring undisclosed or undesired liabilities, acquired in-process technology,
stock compensation expense and increased compensation expense resulting from
newly hired employees, the diversion of management attention, potential
disputes with the sellers of one or more acquired entities and the possible
failure to retain key acquired personnel. Client satisfaction or performance
problems with an acquired business or -10-




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product line could also have a negative impact on our reputation as a
whole, and any acquired entity or assets could significantly under-perform
relative to our expectations. Our ability to meet these challenges has not
been established. We expect that, at least for the foreseeable future, we will be required
to use cash consideration for acquisitions. We likely will be required to
obtain significant third-party financing to accomplish these acquisitions.
This financing may not be available on favorable terms, if at all. The terms
of any such financing may be dilutive to existing stockholders. If our intellectual property rights do not adequately protect our products
or technologies, others could compete against us more directly. Our success depends in part on our ability to obtain patents or rights to
patents, protect trade secrets, operate without infringing upon the proprietary
rights of others, and prevent others from infringing on our patents, trademarks
and other intellectual property rights. We will be able to protect our
intellectual property from unauthorized use by third parties only to the extent
that it is covered by valid and enforceable patents, trademarks and licenses
and we are able to enforce those rights. Patent protection generally involves
complex legal and factual questions and, therefore, enforceability and
enforcement of patent rights cannot be predicted with certainty. Patents, if
issued, may be challenged, invalidated or circumvented. Thus, any patents that
we own or license from others may not provide adequate protection against
competitors. In addition, our pending and future patent applications may fail
to result in patents being issued. Also, those patents that are issued may not
provide us with adequate proprietary protection or competitive advantages
against competitors with similar technologies. Moreover, the laws of certain
foreign countries do not protect our intellectual property rights to the same
extent as do the laws of the United States. In addition to patents and trademarks, we rely on trade secrets and
proprietary know-how. We seek protection of these rights, in part, through
confidentiality and proprietary information agreements. These agreements may
not provide meaningful protection or adequate remedies for violation of our
rights in the event of unauthorized use or disclosure of confidential and
proprietary information. Failure to protect our proprietary rights could
seriously impair our competitive position. If third parties claim we are infringing their intellectual property
rights, we could suffer significant litigation or licensing expenses or
be prevented from marketing our products. Our commercial success depends significantly on our ability to operate
without infringing the patents and other proprietary rights of others.
However, regardless of our intent, our technologies may infringe the patents or
violate other proprietary rights of third parties. In the event of such
infringement or violation, we may face litigation and may be prevented from
pursuing product development or commercialization. We depend on a limited number of suppliers for certain raw materials and
the loss of any supplier could adversely affect our ability to
manufacture many of our products. We currently rely on a single supplier for silicone raw materials used in
many of our products. Although we have an agreement with this supplier to
transfer the necessary formulations to us in the event that it cannot meet our
requirements, we cannot guarantee that we would be able to produce a sufficient
amount of quality silicone raw materials in a timely manner. We will also
depend on a sole or limited number of third-party manufacturers for silicone
breast implants to be distributed by us. Our international business exposes us to a number of risks. A significant part of our current sales are and a significant part of our
projected future sales will be derived from international operations. In
addition, we anticipate having material international suppliers and operations,
including, potentially, manufacturing operations. Accordingly, we will be
exposed to risks associated with international operations, including risks
associated with re-valuation of the local currencies of countries where we
purchase or sell our products or conduct business, which may result in our
purchased products becoming more expensive to us in U.S. dollar terms or sold
products becoming more expensive in local currency terms, thus reducing demand,
or in increased costs to us. Our operations and financial results also may be
significantly affected by other international factors, including:  
    
    foreign government regulation of medical devices;
    
    product liability claims;
    
    new export license requirements;
    
    political or economic instability in our target markets;
    
    trade restrictions;
    
    changes in tax laws and tariffs; -11-




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
    
    inadequate protection of intellectual property rights in
some countries;
    
    managing foreign distributors, manufacturers and staffing;
and
    
    managing foreign branch offices. If these risks actually materialize, our sales to international customers,
as well as those domestic customers that use products manufactured abroad, may
decrease or our supplier or manufacturing costs may materially increase. Our failure to attract and retain key managerial, technical, selling and
marketing personnel could adversely affect our business. Our success will depend upon our ability to attract and retain key
managerial, financial, technical, selling and marketing personnel. The lack of
key personnel might significantly delay or prevent the achievement of our
development and strategic objectives. We do not maintain key man life
insurance on any of our employees. Other than certain of our executives who
are parties to employment agreements, none of our employees is under any
obligation to continue providing services to MediCor. We are currently in the
process of building our management and technical staffs. We believe that our
success will depend to a significant extent on the ability of our key
personnel, including the new management and technical staffs, to operate
effectively, both individually and as a group. Competition for highly skilled
employees in our industry is high, and we cannot be certain that we will be
successful in recruiting or retaining these personnel. MediCors future growth will place a significant strain on our managerial,
operational, financial and other resources. Our success will depend upon our ability to manage our internal and
acquisition-based growth effectively. This will require that we continue to
implement and improve our operational, administrative and financial and
accounting systems and controls and continue to expand, train and manage our
employee base. We anticipate that we will need to hire and retain numerous
additional employees and consultants for both internal and acquisition-based
growth for some time. Integration of these employees and consultants and
employee and consultant loss in the process will require significant management
attention and resources. Our systems, procedures, controls and personnel may
not be adequate to support our future operations and our management may not be
able to achieve the rapid execution necessary to exploit the market for our
business model. If our suppliers, collaborative partners or consultants do not perform,
we will be unable to obtain, develop, market or sell products as
anticipated and we may be exposed to additional risks. We have in the past and may in the future enter into supply, collaborative
or consulting arrangements with third parties to supply or develop products.
These arrangements may not produce or provide successful products. If we fail
to establish these arrangements, the number of products from which we could
receive future revenues will be limited. Our dependence on supply, collaborative or consulting arrangements with
third parties subjects us to a number of risks. These arrangements may not be
on terms favorable to us. Agreements with suppliers may limit our supply of
products or require us to purchase products we can not profitably sell. They
may also restrict our ability to market or distribute other products.
Agreements with consultants or collaborative partners typically allow the third
parties significant discretion in electing whether or not to pursue any of the
planned activities. We cannot with certainty control the amount and timing of
resources our suppliers, collaborative partners or consultants may devote to
our products and these third parties may choose to pursue alternative products.
These third parties also may not perform their obligations as expected.
Business combinations, significant changes in their business strategy, or their
access to financial resources may adversely affect a suppliers, partners or
consultants willingness or ability to complete its obligations under the
arrangement. Moreover, we could become involved in disputes with our
suppliers, partners or consultants, which could lead to delays or termination
of the arrangements and time-consuming and expensive litigation or arbitration. Our quarterly operating results are subject to substantial fluctuations and
any failure to meet financial expectations for any fiscal quarter may
disappoint securities analysts and investors and could cause our stock
price to decline. Our quarterly operating results may vary significantly due to a
combination of factors, many of which are beyond our control. These factors
include:  
    
    changes in demand for our products;
    
    our ability to meet the demand for our products;
    
    existing and increased competition;
    
    our ability to compete against significantly larger and better funded competitors;
    
    the number, timing, pricing and significance of new products
and product introductions and enhancements by us and our competitors;
    
    our ability to develop, introduce and market new and enhanced versions of our products on a timely basis; -12-




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
    
    changes in pricing policies by us and our competitors;
    
    the timing of significant orders and shipments;
    
    regulatory approvals or other regulatory action affecting new or existing products;
    
    litigation with respect to product liability claims or product
recalls and any insurance covering such claims or recalls; and
    
    general economic factors. As a result, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and investors should not rely upon
these comparisons as indications of future performance. These factors may
cause our operating results to be below market analysts expectations in some
future quarters, which could cause the market price of our stock to decline. 
 ITEM 2. PROPERTIES As of June 30, 2004, we owned no real property. Our principal executive
office is located at 4560 S. Decatur Blvd., Suite 300, Las Vegas, NV 89103,
which we lease under a five-year lease beginning in January 2003. We also
lease office, manufacturing and warehouse facilities located in Las Vegas,
Nevada, Santa Barbara, California, Glendale, California and Minneapolis,
Minnesota. We believe our current facilities, together with those we may
acquire in connection with future acquisitions, will generally be adequate for
our needs for the foreseeable future. Eurosilicone, our recently acquired
manufacturing facility in Apt, France, has three buildings with about 44,100 of
square footage. 
 ITEM 3. LEGAL PROCEEDINGS In October 1999, June 2000 and July 2003, separate but related complaints
were filed by Saul and Ruth Kwartin, Steven M. Kwartin, and Robert and Nina
Kwartin respectively, and various other unnamed plaintiffs, against our
PIP.America subsidiary as co-defendant with PIP/USA, Inc. and Poly Implants
Protheses, S.A., each unaffiliated with MediCor, and Jean Claude Mas and our
chairman, Donald K. McGhan, personally, in the Circuit Court of Miami-Dade
County, Florida. Initially, two cases were filed in October 1999, Case No. 99-25227-CA-01
and Case No. 00-14665-CA-01. Of the two, Case No. 99-25227 was dismissed. The
same plaintiffs then, in June 2000, filed Case No. 0322537-CA-27, alleging
similar claims to those included in the dismissed case. In June 2003, another
member of the same family filed Case No. 03-15006-CA-09, again alleging similar
claims, but on their own behalf. Plaintiffs are all members of one family who
purport to be shareholders of PIP/USA, Inc. suing derivatively on its behalf,
and seeking to rescind various transactions between PIP.America and Poly
Implants Protheses, S.A. and seek to impose liability against PIP.America and
its co-defendants for unspecified monetary damages arising out of alleged
tortious and other purported wrongful acts concerning alleged relationships
between plaintiffs, PIP/USA, Inc. and Poly Implants Protheses, S.A. Peggy Williams v. PIP/USA, Inc., Case No. 03 CH 9654, Jessica Fischer
Schnebel, et al. v. PIP/USA, Inc., Case No. 03CH07239, Dawn Marie Cooper, et
al. v. PIP/USA, Inc., Case No. 03CH11316, Miriam Furman, et al. v. PIP/USA,
Inc., Case No. 03CH10832 and Karen S. Witt, et al. v. PIP/USA, Inc., Case No.
03CH12928 were filed in the Circuit Court of Cook County, Chancery Division, in
or around July 2003. Counsel for Jessica Fischer Schnebel, et al. v. PIP/USA,
Inc., Case No. 03CH07239 amended her class action complaint to include
plaintiffs from the other four cases, and each of the others has been
voluntarily dismissed. The consolidated amended complaint contains counts
alleging product liability, breach of the implied warranties of merchantability
and fitness for a particular purpose, violation of the Illinois Consumer Fraud
Act and third-party beneficiary status. Unspecified monetary damages, exemplary
damages and attorneys fees and costs are sought. PIP.America has filed a motion
seeking to dismiss all counts but the third-party beneficiary claim.
Plaintiffs requested and received a two-month extension to tender written
discovery to our witnesses before filing a response to the motion to dismiss.
A ruling on the motion should come by the end of the year. PIP.America has
tendered this case to Poly Implant Prostheses, S.A., for defense and indemnity. Though it is not yet possible to predict the outcome of any of the cases
described above, MediCor and its subsidiaries, as applicable, have denied
plaintiffs allegations and are vigorously defending themselves upon the merits
of each lawsuit and against certification of any class. While MediCor and its
subsidiaries are desirous to honor their respective obligations under our
Product Replacement Programs, the purported class action case above includes
two distinctly different types of claims. The first of these arise from
products sold by PIP/USA, Inc., with whom neither MediCor nor any of its
affiliates are affiliated. This company sold implants manufactured by Poly
Implants Protheses, S.A. prior to PIP.Americas entry into the U.S. market,
which occurred in late 1999. Because PIP.America did not sell these products,
PIP.America similarly did not warrant these products. The next claims arise
from products sold by PIP.America and associated to the Product Replacement
Program administered by PIP.America. With respect to claims arising from
products sold by PIP.America, PIP.America is administering and fulfilling its
obligations to its customers in the ordinary course of business, and for which
it has taken appropriate reserves. Other than certain of its own Product
Replacement claims that it is administering, PIP.America is -13-




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indemnified by PIP/USA, Inc., Poly Implants Protheses, S.A., and Poly
Implants Protheses, S.A.s President, Jean Claude Mas, personally, from all
claims, including those asserted above. PIP.America either already has, or is in the process of, asserting its
indemnification claims and, in the event of an adverse judgment in any case,
PIP.America intends to seek the benefits of this indemnity. As a result, we
believe the costs associated with these matters will not have a material
adverse impact on our business, results of operations or financial position. MediCor and its subsidiaries have been and will continue to be
periodically named as a defendant in other lawsuits in the normal course of
business, including product liability and product warranty claims. Litigation,
particularly product liability litigation, can be expensive and disruptive to
normal business operations and the results of complex proceedings can be very
difficult to predict. Claims against MediCor or its subsidiaries have been and
are periodically reviewed with counsel in the ordinary course of business. We
presently believes we or our subsidiaries have meritorious defenses in all
lawsuits in which we or our subsidiaries are defendants, subject to the
subsidiaries continuing warranty obligations, which the subsidiaries intend to
continue to satisfy. While it is not possible to predict the outcome of these
matters, we believe that the costs associated with them will not have a
material adverse impact on our business, results of operations or financial
position. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders through the solicitation of
proxies or otherwise. 
 PART II 
 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS Market Information On September 3, 2004, we had approximately 592 stockholders of record. Our
common stock price at the close of business on September 8, 2004 was $5.00 per
share. The average of the bid and asked price on that date was $5.20. During the fourth quarter 2004 we issued 9,845 shares of preferred stock
designated as Series A 8.0% Convertible Preferred Stock to 18 accredited
investors for a total of $9,845,200. $1,150,000 was converted from long-term
convertible debentures, $5,005,000 was converted from our related-party notes
payable and $940,000 was issued for employee bonuses and consulting fees. The
remainder was sold for cash. No commissions were paid in connection with the
sale of these shares. The table below sets forth the high and low bid prices of our common stock
for the periods indicated as reported on the OTC Bulletin Board under the
symbol MDCR. Quotations reflect prices between dealers, do not reflect retail
markups, markdowns or commissions, and may not necessarily represent actual
transactions. MediCors initial registration statement on Form SB-2 was first
declared effective on September 24, 2001 and MediCors common stock commenced
trading on the OTC Bulletin Board in the quarter ended March 31, 2002, the
third quarter of MediCors 2002 fiscal year. High
    
    LowFiscal 2002Quarter ended March 31, 2002
    
    $
    0.51
    
    
    $
    0.28Quarter ended June 30, 2002
    
    $
    0.85
    
    
    $
    0.25Fiscal 2003Quarter ended September 30, 2002
    
    $
    0.20
    
    
    $
    0.20Quarter ended December 31, 2002
    
    $
    0.20
    
    
    $
    0.20Quarter ended March 31, 2003
    
    $
    5.30
    
    
    $
    0.20Quarter ended June 30, 2003
    
    $
    5.00
    
    
    $
    1.01Fiscal 2004Quarter ended September 30, 2003
    
    $
    4.70
    
    
    $
    1.01Quarter ended December 31, 2003
    
    $
    2.80
    
    
    $
    1.01Quarter ended March 31, 2004
    
    $
    5.50
    
    
    $
    1.05Quarter ended June 30, 2004
    
    $
    5.20
    
    
    $
    2.50
 -14-




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Dividends We have never paid a cash dividend on our common stock and do not
anticipate paying cash dividends on our common stock in the foreseeable future. Securities Authorized for Issuances under Equity Compensation Plans Number of securities tobe issued upon the
    
    Weighted average
    
    Number of securitiesexercise of outstanding
    
    exercise price of
    
    remaining availableoptions
    
    outstanding options
    
    for future issuanceEquity compensation
plans approved by
Stockholders
(Amended and
Restated 1999 Stock
Compensation
Program)
    
    
    
    
    
    
    
    
    
    
    1,242,680Stand-alone options
and warrants, not
approved by
Stockholders
    
    
    3,964,978
    
    
    $
    1.00
    
    
    
    Total
    
    
    3,964,978
    
    
    $
    1.00
    
    
    
    1,242,680
 Stand-alone options not approved by Stockholders In fiscal 2001, 2002, 2003 and 2004 MediCor granted 262,455, 140,052,
1,211,544 and 2,350,917 stand-alone options, respectively, and in fiscal 2002
62,135 warrants to purchase shares of common stock to employees and
consultants. The exercise price per share for each option and warrant is the
fair market value per share on the date of grant. These options and warrants
vest ratably over four years. Some or all of these options and warrants may
also vest immediately upon a change-of-control, as defined in the respective
agreements. 
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Sales Overall sales for the fiscal year ended June 30, 2004 decreased to
$1,421,583 from $1,676,905 in fiscal 2003. The 15% decrease was driven by
lower unit sales, primarily due to the decrease of orders from one large
customer. During the fiscal year ended June 30, 2004 approximately 8% of our
consolidated sales were attributable to one customer as compared to 25% for the
prior year ended June 30, 2003. Excluding the impact of this one customer,
sales would have increased 4%. These sales were exclusively from our scar
management product line; no sales were reported for our breast implant
products. Cost of Sales Total cost of sales increased in 2004 as compared to 2003: costs were
approximately 25% as a percentage of sales for the year ending June 30, 2004,
as compared to approximately 9% for the prior year. This drove gross profit
from $1,529,876 in 2003 (91.2% of sales) to $1,069,045 in 2004 (75.2% of
sales). However, this was primarily caused by several prior year adjustments
for inventory that reduced costs more substantially in 2003 than in 2004. This
prior year amount equaled $518,370 in 2003, as compared with $60,175 in 2004.
Excluding these inventory adjustments in both years, gross profit rose from
approximately 60% of sales in 2003 to about 71% of sales in 2004; or cost of
sales decreased from approximately 39% of sales in 2003 to 29% of sales in
2004. Normally, we expect that cost of sales will remain relatively constant
on a percentage basis of approximately 30% to 40% of sales. Selling, General and Administrative Selling, general and administrative expenses increased 44% to $8,483,694
for the year ended June 30, 2004, as compared to $5,876,413 for the year ended
2003. The overall change can be attributed primarily due to an increase in
payroll related expenses of $2,101,729, acquisition expenses of $747,245, an
increase in bad debt reserve of $509,429, a decrease of $495,975 in consulting
fees, and a decrease of $428,047 in legal fees. The remaining
$172,900 can be associated with ordinary increases in business
operations. As our business and sales
increase, we anticipate that SG&A expenses will increase in absolute dollars,
but decrease as a percentage of sales. Research and Development Research and development for the year ended June 30, 2004 was $2,149,049
compared to $190,625 for the same period in 2003 driven by the expenses
associated with obtaining required government approvals for both the saline
breast implant products, and other product development. We expect that
research and development expenses will decrease once we receive required
government approvals for the current saline breast implant products, but
increase as we proceed forward with other strategic product development, like
the planned introduction of Eurosilicones product line into the U.S. -15-




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Interest Expense Interest expense increased to $1,195,543 for fiscal 2004, compared to
$503,847 in fiscal 2003. Interest expense consists primarily of interest
related to borrowings. The change in interest expense was primarily due to an
increase in the average principal note payable to related party balances and an
increase in convertible debentures. Other Expense Other expense is comprised of a reserve of $1,883,000 against a deposit
made with respect to a purchase of a third-party manufacturer and a reserve of
$3,800,000 against acquisition advances with respect to an asset purchase of a
third-party distributor. Both reserves were recorded at June 30, 2004 because
of various uncertainties related to the third parties. Net Loss The net loss for fiscal 2004 increased to $16,566,773 from $5,189,731 in
fiscal 2003. Basic and diluted loss per share was ($0.94) for fiscal 2004
compared to ($0.33) for fiscal 2003. The decline was primarily driven by
higher selling, general and administrative expenses, acquisition costs and
increased research and development expenses. In general, the net losses can
be attributable to the substantial costs associated with facilitating FDA
pre-market approvals for breast implant products, research and development for
current investments, costs related to acquisitions and the reserves of the
purchase agreements non-refundable deposit, more than offsetting the limited
sales of our current scar management products. As of June 30, 2004 we had
$91,558 in deemed dividend expense for our Series A 8.0% Convertible Preferred
Stock. In addition, we incurred $27,388 for preferred shares dividends in
arrears. Liquidity and Capital Resources Our ability to make payments to refinance our debt and to fund planned
capital expenditures and operations will depend on our ability to secure
additional significant financing and generate sufficient cash in the future.
Currently, we have only limited product sales in the United States and will not
be in a position to materially increase United States sales until the FDA
issues a Pre-market Approval relating to one or more of the products sought to
be sold by us. We recently acquired Laboratoires Eurosilicone, in connection
with which we substantially increased our indebtedness to our affiliates. We
have historically raised funds to support our operating expenses and capital
requirements through sales of equity or debt securities or through other credit
arrangements, including borrowing from our affiliates. Our existing cash, cash
equivalents and cash generated from operations, including the operations of
Laboratoires Eurosilicone, will be insufficient to meet our anticipated cash
needs for the next 12 months. To satisfy our liquidity requirements, we will
need to raise additional funds. To the extent additional sales of equity or
debt securities are insufficient to satisfy our liquidity requirements, we plan
on being able to obtain any necessary additional funds through the incurrence
of additional indebtedness to our affiliates. We have received a written
commitment from III, LLC, an affiliate of our chairman, to provide sufficient
cash to fund any operating expenses and capital expenditures through July 1,
2005. The same entity has provided to us over $50 million in funding through
June 30, 2004. The future funding may take the form of debt or equity or a
combination thereof. 
 ITEM 7. FINANCIAL STATEMENTS The Financial Statements begin on page F-1. 
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE Not applicable. 
 ITEM 8A. CONTROLS AND PROCEDURES As of the end of fiscal year 2004, management, with the participation of
the chief executive and financial officers, carried out an evaluation of the
effectiveness of our disclosure controls and procedures pursuant to Exchange
Act Rule 15d-15. Based upon that evaluation, the chief executive officer and
the chief financial officer believe that, as of end of the fiscal quarter
covered by this report, our disclosure controls and procedures were effective
in making known to them material information relating to MediCor (including its
consolidated subsidiaries) required to be included in this report. As of the
end of the fiscal year, management adopted formal disclosure controls and
procedures which were employed in the preparation of this report. Disclosure controls and procedures, no matter how well designed and
implemented, can provide only reasonable assurance of achieving an entitys
disclosure objectives. The likelihood of achieving such objectives is affected
by limitations inherent in disclosure controls and procedures. These include
the fact that human judgment in decision-making can be faulty and that
breakdowns in internal control can occur because of human failures such as
simple errors or mistakes -16-




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##### Table of Contents



or intentional circumvention of the established process. Management will
review our disclosure controls and procedures periodically to determine their
effectiveness and to consider modifications or additions to them. 
 PART III 
 ITEM 9. DIRECTORS AND OFFICERS OF THE REGISTRANT The information required in this item is incorporated herein by reference
to the information contained in the registrants Proxy Statement for Annual
Meeting of Stockholders to be filed with the SEC not later than October 28,
2004. 
 ITEM 10. EXECUTIVE COMPENSATION The information required in this item is incorporated herein by reference
to the information contained in the registrants Proxy Statement for Annual
Meeting of Stockholders to be filed with the SEC not later than October 28,
2004. 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS The information required in this item is incorporated herein by reference
to the information contained in the registrants Proxy Statement for Annual
Meeting of Stockholders to be filed with the SEC not later than October 28,
2004. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS] The information required in this item is incorporated herein by reference
to the information contained in the registrants Proxy Statement for Annual
Meeting of Stockholders to be filed with the SEC not later than October 28,
2004. 
 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K (a) Exhibits and List See Exhibit Index at Page E-1. (b) Current Reports on Form 8-K On May 19, 2004, MediCor filed a Current Report on Form 8-K relating to
the press release announcing the definitive agreement signed by MediCor to
acquire Laboratoires Eurosilicone S.A. On July 6, 2004, MediCor filed a Current Report on Form 8-K relating to
the press release announcing MediCor had completed the acquisition of
Laboratoires Eurosilicone S.A. On September 13, 2004, MediCor filed a Current Report on Form 8-K relating
to the press release announcing MediCors French subsidiary ES Holdings SAS had
signed a loan agreement with BNP Paribas providing for up to $20 million in
financing. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required in this item is incorporated herein by reference
to the information contained in the registrants Proxy Statement for Annual
Meeting of Stockholders to be filed with the SEC not later than October 28,
2004. -17-




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. MEDICOR LTD.By:
    
    /s/ Theodore R. MaloneyTheodore R. MaloneyChief Executive OfficerSeptember 20, 2004
 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
registrant and in the capacities and on the dates indicated. /s/ Theodore R. MaloneyChief Executive Officer

    
    September 20, 2004Theodore R. Maloney
    
    (Principal Executive Officer)/s/ Thomas R. MoyesChief Financial Officer

    
    September 20, 2004Thomas R. Moyes
    
    (Principal Financial Officer)/s/ Donald K. McGhanChairman
    
    September 20, 2004Donald K. McGhan/s/ Jim J. McGhanDirector
    
    September 20, 2004Jim J. McGhan/s/ Mark E. BrownDirector
    
    September 20, 2004Mark E. Brown
 -18-




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders
MEDICOR LTD.
Las Vegas, Nevada We have audited the accompanying consolidated balance sheet of MEDICOR LTD. and
Subsidiaries (collectively, the Company) as of June 30, 2004, and the
related consolidated statements of operations, shareholders equity, and
cash flows for each of the two years in the period ended June 30, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of June 30, 2004, and the results of its operations and its cash
flows for each of the two years in the period ended June 30, 2004, in
conformity with U.S. generally accepted accounting principles. As discussed in Note U to the consolidated financial statements, the Company completed the acquisition of Laboratoires Eurosilicone S.A. GREENBERG AND COMPANY LLC Springfield, New Jersey
August 20, 2004
(Except as to Note U, which date is September 16, 2004) F-1




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##### Table of Contents



MediCor Ltd.
Consolidated Balance Sheet June 30, 2004AssetsCurrent assets:Cash
    
    $
    165,092Receivables, less allowance for doubtful accounts of $213,021
    
    
    224,205Notes receivable, less allowance for doubtful accounts of $304,428
    
    
    Inventories
    
    
    103,886Prepaid expenses and other current assets
    
    
    259,920Total current assets
    
    
    753,103Property, plant and equipment, net
    
    
    261,382Goodwill and other intangibles, net
    
    
    4,070,262Deposits
    
    
    16,700Investment advances and deferred charges
    
    
    29,019,801Other assets
    
    
    30,094Total assets
    
    $
    34,151,342Liabilities and Stockholders EquityCurrent liabilities:Short term convertible debentures
    
    $
    275,000Notes payable
    
    
    1,069,711Note payable to related party
    
    
    34,316,401Accounts payable
    
    
    3,277,165Accrued expenses and other current liabilities
    
    
    1,619,440Payroll taxes payable
    
    
    45,125Interest payable to related party
    
    
    507,962Total current liabilities
    
    
    41,110,804Long-term convertible debentures
    
    
    500,000Long-term accrued liabilities
    
    
    1,339,417Total liabilities
    
    
    42,950,221Commitments and contingencies (Note T)Stockholders equity (deficit)Preferred shares, $.001 par value, 45,000 shares authorized, 9,845
issued and outstanding; liquidation preference $9,845,000
    
    
    10Additional
paid in capital - preferred stock
    
    
    9,936,748Common shares, $.001 par value, 100,000,000 shares authorized,
18,065,563 shares issued, 18,045,265 shares outstanding and 20,298
shares retired
    
    
    18,046Additional
paid in capital - common stock
    
    
    17,477,614Accumulated (deficit)
    
    
    (36,231,297
    )Stockholders equity (deficit)
    
    
    (8,798,879
    )Total liabilities and stockholders equity
    
    $
    34,151,342
 See accompanying notes to consolidated financial statements F-2




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##### Table of Contents



MediCor Ltd.
Consolidated Statements of Operations
For the Periods Ended As Noted Year Ended
    
    Year EndedJune 30, 2004
    
    June 30, 2003Net sales
    
    $
    1,421,583
    
    
    $
    1,676,905Cost of sales
    
    
    412,713
    
    
    
    665,399Return of consigned inventory previously written down
and prior year adjustment for discontinued product line
    
    
    (60,175
    )
    
    
    (518,370
    )Gross profit
    
    
    1,069,045
    
    
    
    1,529,876Operating expenses:Selling, general and administrative expenses
    
    
    8,483,694
    
    
    
    5,876,413Research and development
    
    
    2,149,049
    
    
    
    190,625Other expenses
    
    
    5,686,849
    
    
    
    Operating income / (loss)
    
    
    (15,250,547
    )
    
    
    (4,537,162
    )Net interest expense / (income)
    
    
    1,195,543
    
    
    
    503,847Income / (loss) before income taxes
    
    
    (16,446,090
    )
    
    
    (5,041,009
    )Income taxes
    
    
    1,737
    
    
    
    870Net income / (loss)
    
    
    (16,447,827
    )
    
    
    (5,041,879
    )Preferred dividends
    
    
    
    
    
    
    147,852Preferred dividends deemed
    
    
    91,558
    
    
    
    Preferred dividends in arrears Series A Preferred 8%
    
    
    27,388
    
    
    
    Net loss attributable to common stockholders
    
    $
    (16,566,773
    )
    
    $
    (5,189,731
    )Earnings per share data:Weighted average shares, basic and diluted
    
    
    17,633,120
    
    
    
    15,733,011Basic and dilutedNet loss per share
    
    $
    (0.94
    )
    
    $
    (0.33
    )
 See accompanying notes to consolidated financial statements F-3




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##### Table of Contents



MediCor Ltd.
Consolidated Statements of Cash Flows
For the Periods Ended As Noted Year Ended
    
    Year EndedJune 30, 2004
    
    June 30, 2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (16,447,827
    )
    
    $
    (5,041,879
    )Adjustments to reconcile net loss to net cash
utilized by operating activities:Depreciation and amortization
    
    
    488,503
    
    
    
    251,368Provision for doubtful accounts
    
    
    (2,634,384
    )
    
    
    (53,417
    )Inventory write down
    
    
    60,175
    
    
    
    Loss on disposal of property, plant and equipment
    
    
    22,928
    
    
    
    1,846Non-employee stock options
    
    
    74,156
    
    
    
    Employee/consultants preferred stock
    
    
    940,000
    
    
    
    Changes in operating assets and liabilitiesReceivables
    
    
    2,908,240
    
    
    
    159,609Notes receivable
    
    
    (277,043
    )
    
    
    (27,384
    )Inventories
    
    
    (24,233
    )
    
    
    (31,192
    )Prepaid expenses and other current assets
    
    
    (153,692
    )
    
    
    (30,958
    )Investment advances and deferred charges
    
    
    (29,019,801
    )
    
    
    Deposits
    
    
    5,062,910
    
    
    
    (2,350,000
    )Other assets
    
    
    17,179
    
    
    
    (43,882
    )Bank overdraft
    
    
    (128,387
    )
    
    
    128,387Accounts payable
    
    
    1,281,620
    
    
    
    (950,922
    )Accrued expenses and other current liabilities
    
    
    54,890
    
    
    
    (81,571
    )Income taxes payable
    
    
    
    
    
    
    Payroll taxes payable
    
    
    20,450
    
    
    
    10,879Interest payable
    
    
    177,437
    
    
    
    330,525Long term accrued liabilities
    
    
    (74,180
    )
    
    
    423,729Net cash utilized by operating activities
    
    
    (37,651,059
    )
    
    
    (7,304,862
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (44,994
    )
    
    
    (242,494
    )Net cash utilized by investing activities
    
    
    (44,994
    )
    
    
    (242,494
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of convertible debentures
    
    
    1,350,000
    
    
    
    560,000Payments on convertible debentures
    
    
    (60,000
    )
    
    
    Proceeds from issuance of short term debt
    
    
    33,798,790
    
    
    
    7,586,528Payments on short term debt
    
    
    
    
    
    
    (800,999
    )Issuance of preferred stock
    
    
    2,750,200
    
    
    
    120,599Issuance of common stock
    
    
    11,523
    
    
    
    262,462Purchase of treasury stock
    
    
    (39,999
    )
    
    
    Dividends paid
    
    
    
    
    
    
    (147,852
    )Net cash provided by financing activities
    
    
    37,810,514
    
    
    
    7,580,738Net increase in cash
    
    
    114,461
    
    
    
    33,382Cash at beginning of period
    
    
    50,631
    
    
    
    17,249CASH AT END OF PERIOD
    
    $
    165,092
    
    
    $
    50,631SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIESOn
March 18, 2003, the Company acquired all of the outstanding
shares of capital stock of Intellectual Property International Inc.,
a Delaware corporation (IPI), an intellectual property
holding company, in consideration for the issuance of an aggregate of
600,000 shares of the Companys common stock to the stockholders of IPI. The company received patents valued at $3,000,000.Preferred
stock valued at $3,079,058 was converted to 510,059 share of common
stock during the year ended June 30, 2003.Conversion of short-term debt to preferred stock
    
    $
    6,155,000
    
    
    $
    Conversion of short-term debt to common stock
    
    $
    482,041
    
    
    $
    Issuance of preferred stock to employees/consultants
    
    $
    940,000
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    1,142,337
    
    
    $
    705Taxes
    
    $
    1,737
    
    
    $
    870
 See accompanying notes to consolidated financial statements F-4




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MediCor Ltd.
Consolidated Statement of Stockholders Equity
For the Periods Ended As Noted Par ValueNumber of Shares
    
    Preferred
    
    Preferred
    
    Common
    
    Capital in excess
    
    AccumulatedPreferred
    
    Common
    
    Shares $.01
    
    Shares $.001
    
    Shares $.001
    
    of par value
    
    Deficit
    
    TotalBalance - July 1, 2002
    
    
    391,786
    
    
    
    14,569,087
    
    
    
    3,918
    
    
    
    
    
    
    
    14,569
    
    
    
    13,526,402
    
    
    
    (14,462,192
    )
    
    
    (917,303
    )Issuance of Preferred Shares
    
    
    18,824
    
    
    
    
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    120,411
    
    
    
    
    
    
    
    120,599Issuance of Common Shares
    
    
    
    
    
    
    1,776,915
    
    
    
    
    
    
    
    
    
    
    
    1,777
    
    
    
    3,260,023
    
    
    
    
    
    
    
    3,261,800Reverse Acquisition
    
    
    
    
    
    
    661,900
    
    
    
    
    
    
    
    
    
    
    
    662
    
    
    
    
    
    
    
    
    
    
    
    662Conversion of Preferred to Common
    
    
    (410,610
    )
    
    
    510,259
    
    
    
    (4,106
    )
    
    
    
    
    
    
    510
    
    
    
    3,596
    
    
    
    
    
    
    
    Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,041,879
    )
    
    
    (5,041,879
    )Dividends Paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147,852
    )
    
    
    (147,852
    )Balance - June 30, 2003
    
    
    
    
    
    
    17,518,161
    
    
    
    
    
    
    
    
    
    
    
    17,518
    
    
    
    16,910,432
    
    
    
    (19,651,923
    )
    
    
    (2,723,973
    )Issuance of Preferred Shares
    
    
    9,845
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    9,936,748
    
    
    
    
    
    
    
    9,936,758Issuance of Common Shares
    
    
    
    
    
    
    547,402
    
    
    
    
    
    
    
    
    
    
    
    548
    
    
    
    493,026
    
    
    
    
    
    
    
    493,573Non-Employee Stock Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,156
    
    
    
    
    
    
    
    74,156Repurchase and retirement of Common Stock
    
    
    
    
    
    
    (20,298
    )
    
    
    
    
    

    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (39,989
    )
    
    
    (40,008
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,447,827
    )
    
    
    (16,447,827
    )Preferred Deemed Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91,558
    )
    
    
    (91,558
    )Dividends Paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance - June 30, 2004
    
    
    9,845
    
    
    
    18,045,265
    
    
    
    
    
    
    $
    10
    
    
    $
    18,046
    
    
    $
    27,414,362
    
    
    $
    (36,231,297
    )
    
    $
    (8,798,879
    )
 See accompanying notes to consolidated financial statements F-5




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##### Table of Contents



MEDICOR LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 Note A - Description of Business MediCor Ltd. (the Company or MediCor) is a global health care company that
acquires, develops, manufactures and markets products primarily for the
aesthetic plastic surgery and dermatology markets. Current products include
breast implants and scar management products. The Companys products are sold
worldwide to hospitals, surgery centers and physicians mostly through various
distributors as well as through some direct sales personnel. Note B - Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and
all of its subsidiaries in which a controlling interest is maintained. All
inter-company accounts and transactions have been eliminated. Certain prior
year amounts in previously issued financial statements have been reclassified
to conform to the current year presentation. The consolidated financial
statements have been prepared in United States dollars. Critical Accounting Policies and Use of Estimates The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates and judgments,
including those related to revenue recognition, inventories, adequacy of
allowances for doubtful accounts, valuation of long-lived assets and goodwill,
income taxes, litigation and warranties. We base our estimates on historical
and anticipated results and trends and on various other assumptions that we
believe are reasonable under the circumstances, including assumptions as to
future events. The policies discussed below are considered by management to be
critical to an understanding of our financial statements. These estimates form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By their nature,
estimates are subject to an inherent degree of uncertainty. Actual results may
differ from those estimates. Revenue Recognition We recognize product revenue, net of sales discounts, returns and allowances,
in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition and SFAS No. 48 Revenue Recognition When Right of Return Exists.
These statements establish that revenue can be recognized when persuasive
evidence of an arrangement exists, delivery has occurred and all significant
contractual obligations have been satisfied, the fee is fixed or determinable,
and collection is considered probable. We recognize revenue upon delivery of
product to third party distributors and customers. Due to the widespread
holding of consignment inventory in our industry, we also recognize revenue
when the products are withdrawn from consignment inventory in hospitals,
clinics and doctors offices. Appropriate reserves are established for
anticipated returns and allowances based on our product return history. We
believe our estimates for anticipated returns is a critical accounting
estimate because it requires us to estimate returns and, if actual returns
vary, it could have a material impact on our reported sales and results of
operations. Historically our estimates of return rates have not fluctuated from
the actual returns by more than 1% to 2%. Allowance for Doubtful Accounts MediCor maintains allowances for doubtful accounts for estimated losses
resulting from the inability of some of its customers to make required
payments. The allowances for doubtful accounts are based on the analysis of
historical bad debts, customer credit-worthiness, past transaction history with
the customer, current economic trends, and changes in customer payment terms.
If the financial condition of MediCors customers were to deteriorate,
adversely affecting their ability to make payments, additional allowances may
be required. Inventories Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method. The Company capitalizes inventory costs associated
with certain product candidates prior to regulatory approval, based on
managements judgment of probable future commercialization. We could be
required to expense previously capitalized costs related to pre-approval
inventory upon a change in such judgment, due to, among other factors, a
decision denying approval of the product candidate by the necessary regulatory
bodies. F-6




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Property and Equipment Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is recorded on the straight-line basis over the
estimated useful lives of the assets, which range from three to ten years.
Amortization of leasehold improvements is based upon the estimated useful lives
of the assets or the term of the lease, whichever is shorter. Significant
improvements and betterments are capitalized, while maintenance and repairs are
charged to operations as incurred.. Asset retirements and dispositions are
accounted for in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144 as described below. Accounting for Long-Lived Assets The Company accounts for long-lived assets, other than goodwill, in accordance
with the provisions of SFAS No. 144, Accounting for the Impairment and
Disposal of Long Lived Assets, which supersedes SFAS No. 121 Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed
of. This statement creates one accounting model, based on the framework
established in SFAS No. 121, to be applied to all long-lived assets including
discontinued operations. Adoption of this statement had no material effect on
its financial position or results of operations. SFAS No. 144 requires, among
other things, that an entity review its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. We believe the
estimate of our valuation of Long-lived Assets is a critical accounting
estimate because if circumstances arose that led to a decrease in the
valuation it could have a material impact on our results of operations. With
the exception of the third party purchase agreements in June of 2004, see Note
J to the notes to the consolidated financial statements, we do not believe that
any other changes have taken place. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair
value of identified assets the businesses acquired. Other intangible assets are
recorded at fair value and amortized over periods ranging from 3 to 17 years.
The Company adopted SFAS No. 142 Goodwill and Other Intangible Assets, in
January 2002. As a result, goodwill is no longer amortized, but was subject to
a transitional impairment analysis and is tested for impairment on an annual
basis. The test for impairment involves the use of estimates related to the
fair values of the business operations with which goodwill is associated and is
usually based on a market value approach. Other intangible assets are amortized
using the straight-line method over their estimated useful lives and are
evaluated for impairment under SFAS No. 144. Product Replacement Programs III Acquisition Corp. d/b/a PIP.America (PIP.America), a subsidiary of the
Company, provides a product replacement program to surgeons for deflations of
breast implant products for a period of ten (10) years from the date of
implantation. For each deflation, the surgeon receives financial assistance
plus a free replacement. Management estimated the amount of potential future
product replacement claims based on statistical analysis. Expected future
obligations are determined based on the history of product shipments and claims
and are discounted to a current value, and this amount is reserved. Changes to
actual claims, interest rates or other estimations could have a material impact
on the statistical calculation which could materially impact the Companys
reserves and results of operations. Although these products are not currently
being sold (because they are in the process of obtaining FDA approval more
fully described below), they were sold under a distribution agreement prior to
November 2000 and a warranty reserve is maintained for these products sold in
prior years. Accrued WarrantyBalance at June 30, 2003
    
    $
    1,818,188Accruals for warranties issued during the period
    
    
    809,528Settlements made during the period
    
    
    (569,725
    )Balance at June 30, 2004
    
    $
    2,057,991
 Shipping and Handling Costs The Companys shipping and handling costs are included under cost of sales. Research and Development Research and development costs are expensed by the Company as incurred,
including the costs of clinical studies and other regulatory approval
activities. F-7




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##### Table of Contents



Stock-Based Compensation The Company has adopted the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. In accordance with SFAS No. 123, MediCor has elected
the disclosure-only provisions related to employee stock options and follows
the intrinsic value method in Accounting Principals Board Opinion (APB) No. 25
in accounting for stock options issued to employees. Under APB No. 25,
compensation expense, if any, is recognized as the difference between the
exercise price and the fair value of the common stock on the measurement date,
which is typically the date of grant, and is recognized over the service
period, which is typically the vesting period. The Company accounts for options and warrant grants to non-employees using the
guidance prescribed by SFAS No. 123, Financial Accounting Standards Board
(FASB) Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation, and interpretation of APB No. 25, and Emerging Issue Task
Force No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or In Conjunction with Selling, Goods, or
Services, whereby the fair value of such option and warrant grants are
measured using the Fair Value Based Method at the earlier of the date at which
the non-employees performance is completed or a performance commitment is
reached. Income Taxes Deferred income tax assets or liabilities are computed based on the temporary
differences between the financial statement and income tax bases of assets and
liabilities using the statutory marginal income tax rate in effect for the
years in which the differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period. A valuation allowance against deferred
tax assets is required if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The valuation allowance should be sufficient to reduce the
deferred tax asset to the amount that is more likely than not to be realized. Effects of Recent Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. A variable interest entity (VIE) is one where
the contractual or ownership interest in an entity change with changes in the
entitys net asset value. This interpretation requires the consolidation of a
VIE by the primary beneficiary, and also requires disclosure about VIEs where
an enterprise has a significant variable interest but is not the primary
beneficiary. At the effective date, the Company has not entered into any VIEs. In April 2003, the FASB issued SFAS No. 149 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. This statement is effective for contracts entered into or modified
after June 30, 2003. The adoption of SFAS No. 149 did not have a material
effect on the Companys financial position or results from operations. In May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
changes the accounting for certain financial instruments that, under previous
guidance, were accounted for as equity. This statement is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after
September 15, 2003. The adoption of SFAS No. 150 did not have a material
effect on the Companys financial position or results from operations. In December 2003, the SEC Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition, which codifies, revises, and rescinds certain sections of SAB No.
101, Revenue Recognition, in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The changes in SAB No. 104 did not have a material
impact on our financial position or results of operations. On March 31, 2004, the FASB issued an exposure draft, Share-Based Payment, an
Amendment of SFAS No. 123 and 95. The exposure draft proposes to expense the
fair value of share-based payments to employees beginning in 2005. We are
currently evaluating the impact of this proposed standard on our financial
statements. Note C  Major Customer During the fiscal year ended June 30, 2003 approximately 25% of the Companys
consolidated revenue was attributable to one customer while revenue related to
that same customer for the year ended June 30, 2004 was about 8%. F-8




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##### Table of Contents



Note D  Cash and Cash Equivalents All highly liquid investments with original maturities of three months or less
at the date of purchase are considered to be cash equivalents. Note E  Accounts Receivable Accounts receivable at June 30, 2004 consisted of: June 30, 2004Accounts receivable
    
    $
    437,226Allowance for doubtful accounts
    
    
    (213,021
    )Total
    
    $
    224,205
 The Companys PIP.America subsidiary has a distribution agreement with Poly
Implants Protheses S.A.(PIP), a third-party manufacturer of breast implants
located in France. This agreement covers the sale by the Company of PIPs
saline, pre-filled breast implant products in North America; although no sales
were reported in the year ending June 30, 2004 these products are not currently
approved for distribution on North America. During the third quarter of fiscal
2004, the Company had $3,444,802 in accounts receivable from the manufacturer,
representing amounts owed to the Company under the terms of the distribution
agreement relating to prior year sales. These amounts had been fully reserved
for, with an allowance for doubtful account, due to the lack of payment and
uncertain prospect of collection. Effective March 30, 2004, the Company and
the manufacturer amended the distribution agreement and the Company forgave
certain amounts owed by the manufacturer in return for the transference of the
pre-market approval application. See Note T for more detail. Changes in allowance for doubtful accounts are as follows: Balance July 1, 2003
    
    $
    3,151,832Provisions/(recovery)
    
    
    505,991Write-offs
    
    
    (3,444,802
    )Balance June 30, 2004
    
    $
    213,021
 Note F  Notes Receivable Notes receivable at June 30, 2004 consisted of: June 30,
2004Notes receivable
    
    $
    304,428Allowance for doubtful accounts
    
    
    (304,428
    )Total
    
    $
    
 Poly Implants Protheses S.A.(PIP), a third-party manufacturer of breast
implants located in France issued to the Company a revolving promissory note
for certain sums to come due to the Company based on the Companys and the
manufacturers administration of product warranty and product warranty related
claims. These amounts had been fully reserved for, with an allowance for
doubtful account, due to the lack of payment and uncertain prospect of
collection. F-9




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##### Table of Contents



Note G  Inventories Inventories at June 30, 2004 consisted of: June 30, 2004
    
    June 30, 2003Raw Materials
    
    $
    91,249
    
    
    $
    125,607Finished Goods
    
    
    12,637
    
    
    
    14,221Total
    
    $
    103,886
    
    
    $
    139,828
 The 2002 value of consigned inventory of implants in physician offices on the
books of the PIP.America subsidiary of the Company was uncertain. A voluntary
withdrawal of such inventory from the market was initiated subsequent to June
30, 2002 in conjunction with an agreement reached between the FDA and
PIP.America. Accordingly, the Company wrote down such inventory to a fair
market value of zero as of June 30, 2002. During the year ended June 30, 2004,
inventory previously written down to a fair market value of zero was returned
to the manufacturer for credit. Note H  Property and Equipment Property and equipment at June 30, 2004 consisted of: June 30,
2004Leasehold Improvements
    
    $
    107,748Furniture, Fixtures and equipment
    
    
    339,452Computer Equipment and tools and dies
    
    
    205,830Subtotal
    
    
    653,030Accumulated depreciation
    
    
    (391,648
    )Total
    
    $
    261,382
 Depreciation expense was $132,027 for the year ended June 30, 2004 and $110,394
for the year ended June 30, 2003. Note I  Goodwill and Other Intangibles Goodwill and other intangibles as of June 30, 2004 consisted of: June 30, 2004Goodwill
    
    $
    1,221,793Distribution Agreements
    
    
    225,000Non-compete
    
    
    130,000Patents
    
    
    3,100,000Other
    
    
    20,501Subtotal
    
    
    4,697,294Accumulated
Amortization - Goodwill
    
    
    (41,973
    )Accumulated
Amortization - Distribution Agreements
    
    
    (75,000
    )Accumulated
Amortization - Non-compete
    
    
    (108,333
    )Accumulated
Amortization - Patents
    
    
    (381,225
    )Accumulated
Amortization - Other
    
    
    (20,499
    )Subtotal
    
    
    (627,030
    )Total
    
    $
    4,070,264
 F-10




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##### Table of Contents



Amortization for the year ended June 30, 2004 was $356,317 compared to $140,384
from the prior period ending June 30, 2003. The increase in amortization can
be attributed to the purchase of patents in March 2003. During the year ended
June 30, 2004, the Company completed a revaluation of our goodwill and
determined that there was no amortization needed for this asset. We based this
valuation on relevant comparable public company multiples of sales, EBITDA, and
net income in determining annual amortization of our goodwill asset. The estimated amortization for the next five years consists of: June 30, 2005
    
    June 30, 2006
    
    June 30, 2007
    
    June 30, 2008
    
    June 30, 2009Distribution Agreements
    
    
    22,500
    
    
    
    22,500
    
    
    
    22,500
    
    
    
    22,500
    
    
    
    22,500Non-compete
    
    
    21,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Patents
    
    
    295,029
    
    
    
    295,029
    
    
    
    295,029
    
    
    
    295,029
    
    
    
    295,029Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    339,196
    
    
    $
    317,529
    
    
    $
    317,529
    
    
    $
    317,529
    
    
    $
    317,529
 The Companys other intangible assets were fully amortized during the year
ended June 30, 2004. Note J  Deposits and Advances for Acquisitions Deposits at June 30, 2004 totaled $16,700. In 2000, the Company obtained the
right to purchase a 7.5% common equity interest in a third-party manufacturer
from its founder for $3,750,000. In 2000, the Company made a non-refundable
deposit of $1,883,000 against the purchase price. The Company is under no
obligation to fund the remainder of the payment or the exercise the purchase
right. At June 30, 2004 the Company had a reserve against this deposit due to
the uncertainties with respect to the third party manufacturer. A deposit of $3,800,000 is related to an asset purchase agreement described in
Note T. As of June 30, 2004 the Company recorded a reserve for this entire
deposit due to various uncertainties related to this third party distributor. Pursuant to an agreement to acquire Laboratoires Eurosilicone S.A.
(Eurosilicone), the Company made advances for this investment at June 30, 2004
of $28,407,371. The Company incurred deferred charges of $612,430 relating to
direct acquisition costs and $443,781 in indirect costs. See Note U for more
information relating to this subsequent event. Note K  Accrued Expenses Accrued expenses and other current liabilities at June 30, 2004 consisted of: June 30, 2004Consulting
    
    $
    466,647Product replacement reserve
    
    
    718,574Other
    
    
    434,219Total
    
    $
    1,619,440
 Consulting fees consisted of amounts relating to various consulting agreements. Other accrued expenses included salaries and employee benefits, legal, research
and development, acquisition costs and other miscellaneous accrued expenses. Long-term accrued liabilities of $1,339,417 at June 30, 2004 consisted of
product warranty reserves. F-11




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##### Table of Contents



Note L  Convertible Debentures Short-term convertible debentures at June 30, 2004 were $275,000. These
convertible debentures pay 10% interest. Interest is prepaid and amortized
over the life of the convertible debenture. The convertible debentures are
convertible within one year at the holders discretion to shares of Company
common stock at a price of $4.02. These convertible debentures mature between
July and December 2004. Long-term convertible debentures at June 30, 2004 were $500,000. During the
year ended June 30, 2004, $1,150,000 was converted to preferred stock. The
convertible debentures are convertible after one year and at the 18-month,
24-month, 30-month and 36-month anniversary of the issuance date at the
holders discretion to shares of Company common stock at a price equal to the
greater of $5.00 or seventy-five percent (75%) of the daily weighted average
trading price per share of the Companys common stock over a period of twenty
(20) trading days prior to the conversion date. These convertible debentures
mature between April 2006 and August 2006. During the year ending 2003, we incurred costs of $44,770 in association with
the above convertible debentures. During the year ending June 30, 2004, we had
incurred additional costs of $208,667 for an aggregate of $253,437. Of this
amount, $888 was amortized at June 30, 2003 and $225,845 was amortized at June
30, 2004. The remaining balance of $26,704 will continue to be amortized over
the life of the convertible debentures. Note M  Notes Payable Notes payable of $1,069,711 at June 30, 2004 consisted of $750,000 for a term
of 10 days at a daily rate of 0.3% interest, a $150,000 in a one year note
paying an annual rate of 8% interest, and $169,711 for financing of insurance.
Interest on the daily 0.3% note was to be paid at the time principal balance
was repaid. Interest on the annual 8% note was prepaid and is amortized on a
quarterly basis. Note N  Related Party Transactions International Integrated Industries, LLC (LLC) is a company in which the
Companys Chairman has a controlling interest. Neither the Company nor any of
its subsidiaries has any direct ownership in LLC. LLC acted on behalf of the
Company by funding significant expenses incurred for which the Company has a
revolving loan agreement as shown on the Companys Balance Sheet of $34,316,401
at June 30, 2004. The outstanding balance of the note payable accrues interest
at an annual interest rate of ten percent (10%). During the year ended June
30, 2004, LLC advanced $32,957,100 to the Company, of which $5,005,000 was
converted to preferred stock, $412,292 was converted to common stock and none
of was repaid. Interest expense relating to this note payable was $1,008,077
for the year ended June 30, 2004. The unpaid liability for these expenses are
included in the Companys note payable to affiliates, which is contained in the
financial statements presented herein. The Company had a commitment from LLC
to fund operating shortfalls as necessary for the period presented. In October 2003, the Company entered into a Reimbursement Agreement with a
company controlled by the Companys Chairman, Mr. Donald K. McGhan, for the
reimbursement of expenses incurred in the operation of its private plane when
used for MediCor business. The Reimbursement Agreement is effective for
expenses incurred for MediCor business purposes. The Company recognized a
total of $649,792 for the twelve months ended June 30, 2004 in expenses
pursuant to the Reimbursement Agreement. All expenses recognized pursuant to
the Reimbursement Agreement have been included by the Company in selling,
general, and administrative expenses. In June 2004, MediCor modified its
Reimbursement Agreement to reflect a Dry Lease: effective June 1, 2004, only
costs directly tied to MediCors use of the planes asset will be reimbursable
to the company controlled by the Companys Chairman. All other operating costs
(like fuel, pilot wages, food etc) will be paid directly by the Company or
through a disbursement agent to those third parties and only when the plane is
used for MediCor business purposes. F-12




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##### Table of Contents



Note O  Federal Income Taxes The company follows FAS 109 for reporting income taxes. The benefit for income
taxes reflected in the Consolidated Statements of Operations for the Company
for the periods noted consist of: June 30, 2004
    
    June 30, 2003Current
    
    $
    5,592,408
    
    
    $
    1,814,778Deferred
    
    
    (718,644
    )
    
    
    240,568Total Benefit
    
    $
    4,873,764
    
    
    $
    2,055,346Less allowance for realization of deferred tax asset
    
    
    4,873,764
    )
    
    
    (2,055,346
    )Total Tax Expense
    
    $
    
    
    
    $
    
 As of June 30, 2004 and June 30, 2003, the Company recorded allowances of
$11,365,988 and $6,492,224 respectively, against certain future tax benefits,
the realization of which is currently uncertain. The deferred differences
related to certain accounts receivable, accrued warranties, and
depreciation/amortization not currently deductible as expenses under IRS
provisions. Although the Company recorded this allowance to the deferred tax
assets, the Company may still utilize the future tax benefits from net
operating losses for 20 years from the year of the loss to the extent of future
taxable income. The estimated net operating losses for tax purposes of
approximately $15 million will expire over several years ending in 2024. Primary components of the deferred tax asset at the periods noted were
approximately as follows: June 30, 2004
    
    June 30, 2003Computed expected income tax asset/(liability) at 34%
    
    $
    5,592,408
    
    
    $
    1,814,778AdjustmentsNet operating loss
    
    
    4,732,842
    
    
    
    2,918,064Allowance for bad debt
    
    
    175,933
    
    
    
    1,071,617Warranty reserve
    
    
    699,717
    
    
    
    624,677Depreciation and amortization
    
    
    165,088
    
    
    
    63,088Income tax benefit
    
    $
    11,365,988
    
    
    $
    6,492,224Less allowance for realization of deferred tax asset
    
    
    11,365,988
    
    
    
    (6,492,224
    )Deferred tax asset, net
    
    $
    
    
    
    $
    
 Note P  Preferred Stock The Company created a series of 45,000 shares of preferred stock designated as
Series A 8.0% Convertible Preferred Stock. The stock has a par value of $.001
per share with a liquidation preference of $1,000 per share. In the event of
liquidation, shareholders of preferred stock shall be entitled to receive
priority as to distribution over common stock. The preferred stock is
convertible into common stock at any time at a conversion price of $3.85 per
share until June 30, 2010. One June 30, 2011
all unconverted shares to common stock will be subject to a mandatory
redemption. The redemption price of $1,000 per share plus $1,000 per whole
share for all accrued and unpaid paid-in-kind dividends and any other accrued
and unpaid dividends whether or not declared which amount will be payable by
the Company in cash. The Company issued 9,845 shares in 2004 for $9,845,200. F-13




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##### Table of Contents



Note Q  Loss per Share A reconciliation of weighted average shares outstanding, used to calculate
basic loss per share, to weighted average shares outstanding assuming dilution,
used to calculate diluted loss per share, follows: Year Ended
    
    Year EndedJune 30, 2004
    
    June 30, 2003Income
    
    Shares
    
    Per-Share
    
    Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    Amount
    
    (Numerator)
    
    (Denominator)
    
    AmountNet Income (Loss)
before preferred stock dividends
    
    
    (16,447,827
    )
    
    
    
    
    
    
    
    
    
    
    (5,041,879
    )Less: Preferred stock dividends
    
    
    118,946
    
    
    
    
    
    
    
    
    
    
    

    147,852Basic EPS
    
    
    (16,566,773
    )
    
    
    17,633,120
    
    
    
    (0.94
    )
    
    
    (5,189,731
    )
    
    
    15,733,011
    
    
    
    (0.31
    )Effect of dilutive securities
    
    
    Diluted EPS
    
    $
    (16,566,773
    )
    
    
    17,633,120
    
    
    
    (0.93
    )
    
    $
    (5,189,731
    )
    
    
    15,733,011
    
    
    
    (0.31
    )
 4,611,423 common equivalent shares have been excluded from the computation of
diluted earnings per share because their effect would be anti-dilutive. Note R  Stock Options and Warrants The Company has a stock option plan for key employees and consultants. There
were 1,242,680 shares reserved for issuance pursuant to the Companys stock
option plan and up to 6,000,000 shares were reserved for issuance pursuant to
stand-alone options granted in connection with employment agreements. During
the year ended June 30, 2004, the Company granted 300,000 shares of common
stock options and issued 590 shares of Series A 8% Convertible preferred
stock to non-employees. The Companys share option activity and related information is summarized
below: Weighted AverageOptions

    
    Exercise PriceOutstanding Options at July 1, 2002
    
    
    1,323,457
    
    
    $
    0.74Granted
    
    
    832,596
    
    
    $
    1.88Exercised
    
    
    (913,371
    )
    
    $
    0.08Cancelled
    
    
    
    
    
    $
    0.00Outstanding Options at June 30, 2003
    
    
    1,242,682
    
    
    $
    1.35Granted
    
    
    1,680,000
    
    
    $
    3.32Exercised
    
    
    (739,396
    )
    
    $
    0.95Cancelled
    
    
    (62,134
    )
    
    $
    1.61Outstanding Options at June 30, 2004
    
    
    2,121,152
    
    
    $
    2.84Options exercisable at end of period
    
    
    365,920
    
    
    $
    2.20
 F-14




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The following table summarizes information about stock options outstanding at
June 30, 2004: Outstanding
    
    ExercisableWeightedAverageRemaining
    
    Weighted
    
    
    
    
    
    WeightedYears of
    
    Average
    
    
    
    
    
    AverageRange of
    
    Number of
    
    Contractual
    
    Exercise
    
    Number of
    
    ExerciseExercise Prices
    
    Options
    
    Life
    
    Price
    
    Options
    
    Price$
    1.00 - $2.01
    
    
    
    861,152
    
    
    
    4.5
    
    
    $
    1.45
    
    
    
    300,503
    
    
    $
    1.83$
    3.00 - $3.80
    
    
    
    260,000
    
    
    
    6.5
    
    
    $
    2.19
    
    
    
    36,250
    
    
    $
    3.67$
    4.15 - $4.30
    
    
    
    1,000,000
    
    
    
    6.9
    
    
    $
    0.85
    
    
    
    29,167
    
    
    $
    4.00
 The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation including the required disclosures of FAS 148. Year Ended
    
    Year EndedJune 30, 2004
    
    June 30, 2003Net Loss, as reported
    
    $
    (16,566,773
    )
    
    $
    (5,189,731
    )Add: Total stock-based non-employee compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    74,157
    
    
    
    Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects
    
    
    (494,157
    )
    
    
    (192,537
    )Pro forma net loss
    
    $
    (16,986,773
    )
    
    $
    (5,382,268
    )Loss per share:Basic and diluted
    
    $
    (0.94
    )
    
    $
    (0.33
    )Basic and
diluted - pro forma
    
    $
    (0.96
    )
    
    $
    (0.34
    )
 These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The estimated fair value of each MediCor option granted is calculated using the
Black-Scholes pricing model The weighted average assumptions used in the model
were as follows: 2004
    
    2003Risk-free interest rate
    
    
    3.50
    %
    
    
    6.00-6.50
    %Expected years until exercise
    
    7 Years
    
    3-4 YearsExpected stock volatility
    
    
    50.0
    %
    
    
    0.0
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
 The Company also issued warrants to purchase 80,776 shares of common stock to
consultants in connection with consulting agreements. Warrants were granted
between 1999 and 2001 at prices between $.08 and $1.61. All warrants granted
had an exercise price equal to the market value of the underlying common stock
on the date of grant. At June 30, 2004 we issued 350 shares of Series A 8.0% Convertible
Preferred Stock to employees as additional compensation to their salaries. F-15




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Note S  Business Segment Information The Company is a corporate entity with a number of wholly-owned, autonomous
subsidiaries which operate as single business units in multiple geographic
locations within the U.S. and internationally and, as such, does not have
multiple segments to report. Revenues from customers attributable to any
individual foreign country were not material. Note T  Commitments and Contingencies The Company has received a written commitment from International Integrated
Industries, LLC, an affiliate of the Companys chairman, to provide sufficient
cash to fund any operating loss through July 1, 2005. The same entity has
provided the Company an aggregate of over $52 million in funding from the
Companys inception through June 30, 2004. The future funding may take the
form of debt or equity or a combination thereof. Pursuant to an Asset Purchase Agreement signed April 25, 2002, the Company
agreed to acquire substantially all of the assets of a privately-held United
States medical products distributor. Pursuant to an amendment dated October
16, 2003 to the Asset Purchase Agreement, the purchase price was amended to
equal the deposits made by the Company as of October 16, 2003, plus an
additional agreed payment in cash at closing and issuance of MediCor Ltd.
equity at closing. The closing is
conditioned upon the distributor acquiring necessary governmental approvals for
commercialization in the United States of the products to be distributed, which
the Company currently anticipates will occur before the quarter ending March
2005. The Company is no longer obligated to make additional deposits against
the purchase price, but the Company has committed to fund all future expenses
associated with obtaining required government approvals. As of June 30, 2004
the Company booked a reserve for the entire deposit, due to various
uncertainties related to this third party distributor. The Companys PIP.America subsidiary has a distribution agreement with Poly
Implants Protheses S.A.(PIP), a third-party manufacturer of breast implants
located in France. This agreement covers the sale by the Company of PIPs
saline, pre-filled breast implant products in North America; although no sales
were reported in the year ending June 30, 2004 because these products are not
currently approved for distribution in North America. Previously, the
manufacturer was undertaking the process of securing FDA approval for these
products. At March 30, 2004, the Company had $3,444,802 of accounts
receivable from the manufacturer, representing amounts owed to the Company
under the terms of the distribution agreement. These amounts have been fully
reserved for, with an allowance for doubtful account, due to the lack of
payment and uncertain prospect of collection. Effective March 30, 2004, the
Company and the manufacturer amended the distribution agreement to provide for,
among other things, transferring administration, funding and ownership of the
pre-market approval application process to the Companys subsidiary. In
conjunction with this change, the Company forgave certain amounts owed by the
manufacturer, and the parties amended the pricing terms. The amendments
obligate the Company to fund the ongoing clinical and regulatory costs and
expenses. The amount and timing of these costs is unknown and may be material.
Because the Company has just undertaken management of the application process,
the likelihood and timing of obtaining FDA approval are also uncertain.
Concurrently, the manufacturer issued to the Company a revolving promissory
note for certain sums to come due to the Company based on the Companys and the
manufacturers administration of product warranty and product warranty related
claims. The principal amount under the note as of June 30, 2004 was $304,428. In October 1999, June 2000 and July 2003, separate but related complaints were
filed by Saul and Ruth Kwartin, Steven M. Kwartin, and Robert and Nina Kwartin
respectively, and various other unnamed plaintiffs, against the Companys
PIP.America subsidiary as co-defendant with PIP/USA, Inc. and Poly Implants
Protheses, S.A., each unaffiliated with MediCor, and Jean Claude Mas and our
chairman, Donald K. McGhan personally, in the Circuit Court of Miami-Dade
County, Florida. Initially, two cases were filed in October 1999, Case No. 99-25227-CA-01 and
Case No. 00-14665-CA-01. Of the two, Case No. 99-25227 was dismissed. The same
plaintiffs then, in June 2000, filed Case No. 0322537-CA-27, alleging similar
claims to those included in the dismissed case. In June 2003, another member of
the same family filed Case No. 03-15006-CA-09, again alleging similar claims,
but on their own behalf. Plaintiffs are all members of one family who purport
to be shareholders of PIP/USA, Inc. suing derivatively on its behalf, and
seeking to rescind various transactions between PIP.America and Poly Implants
Protheses, S.A. and seek to impose liability against PIP.America and its
co-defendants for unspecified monetary damages arising out of alleged tortious
and other purported wrongful acts concerning alleged relationships between
plaintiffs, PIP/USA, Inc. and Poly Implants Protheses, S.A. Peggy Williams v. PIP/USA, Inc., Case No. 03 CH 9654, Jessica Fischer Schnebel,
et al. v. PIP/USA, Inc., Case No. 03CH07239, Dawn Marie Cooper, et al. v.
PIP/USA, Inc., Case No. 03CH11316, Miriam Furman, et al. v. PIP/USA, Inc., Case
No. 03CH10832 and Karen S. Witt, et al. v. PIP/USA, Inc., Case No. 03CH12928
were filed in the Circuit Court of Cook County, Chancery Division, in or around
July 2003. Counsel for Jessica Fischer Schnebel, et al. v. PIP/USA, Inc., Case
No. 03CH07239 amended her class action complaint to include plaintiffs from the
other four cases, and each of the others has been voluntarily dismissed. The
consolidated amended complaint contains counts alleging product liability,
breach of the F-16




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##### Table of Contents



implied warranties of merchantability and fitness for a
particular purpose, violation of the Illinois Consumer Fraud Act and
third-party beneficiary status. Unspecified monetary damages, exemplary damages
and attorneys fees and costs are sought. PIP.America has filed a motion seeking
to dismiss all counts but the third-party beneficiary claim. Plaintiffs
requested and received a two month extension to tender written discovery to our
witnesses before filing a response to the motion to dismiss. A ruling on the
motion should come by the end of the year. PIP.America has tendered this case
to Poly Implant Prostheses, S.A., for defense and indemnity. Though it is not yet possible to predict the outcome of any of the cases
described above, MediCor and its subsidiaries, as applicable, have denied
plaintiffs allegations and are vigorously defending themselves upon the merits
of each lawsuit and against certification of any class. Further, PIP.America
either already has, or is in the process of, asserting its indemnification
claims and, in the event of an adverse judgment in any case, PIP.America
intends to seek the benefits of this indemnity. As a result, the Company
believes the costs associated with these matters will not have a material
adverse impact on the Companys business, results of operations or financial
position. The Company and its subsidiaries have been and will continue to be periodically
named as a defendant in other routine litigation, including product liability
and product warranty claims that are incidental to the Companys business.
Many of
these cases allege damages in amounts the Company, upon advice of counsel,
determines are somewhat or extremely unreasonable. The Company believes that
all such litigation that is material to the Company (whether or not routine and
incidental to the business) has been disclosed. Litigation, particularly
product liability litigation, can be expensive and disruptive to normal
business operations and the results of complex legal proceedings can be very
difficult to predict. Claims against the Company or its subsidiaries have been
and are periodically reviewed with counsel in the ordinary course of business.
The Company presently believes it or its subsidiaries have meritorious defenses
in all lawsuits in which the Company or any of its subsidiaries are defendants,
subject to the subsidiaries continuing warranty obligations, which the
subsidiaries intend to continue to satisfy. While it is not possible to
predict the outcome of these matters, we believe that the costs associated with
them will not have a material adverse impact on the Companys business, results
of operations or financial position. Events may change in litigation, and, as
a result, the Companys litigation disclosures are reviewed, revised and
updated from time to time. The Company leased office, manufacturing and warehouse facilities and office
equipment under various terms. Lease expenses amounted to $387, 247 and
$519,398 for the years ended June 30, 2004 and 2003, respectively. Future
minimum lease payments are approximated as follows: Year ended June 30,
    
    Amount2005
    
    
    228,9382006
    
    
    237,7572007
    
    
    247,0272008
    
    
    163,446
 Note U  Subsequent Event On May 17, 2004, the Company agreed to acquire all of the capital stock of
Laboratories Eurosilicone S.A., a privately-held medical device manufacturer
based in Apt, France. The closing of the acquisition was subject to obtaining
necessary financing and other customary closing conditions. The Company agreed
to advance certain deposits in connection with the closing of this acquisition
which equaled $28,407,371 at June 30, 2004. Additionally, the Company incurred
direct fees and expenses in connection with this acquisition, of approximately
$612,430. On July 5, 2004, the Company completed this acquisition, the financing of which
was provided primarily by additional loans from International Integrated
Industries, LLC, an affiliate of the Companys chairman, as more fully
described in notes N and T. Also, the Company has filed a current report on
Form 8-K concurrent with the filing of this annual report on Form 10-K,
containing additional pro forma and historical financials. On August 27, 2004, the Company completed the acquisition of the privately-held
Dermatological Medical Products and Specialties, S.A. de C.V., a leading
distributor of aesthetic plastic and reconstructive surgery devices in Mexico. On September 10, 2004, a French subsidiary of MediCor entered into a senior
bank loan agreement with BNP Paribas. This loan has a maximum borrowing of
16,400,000 Euros (or approximately $20,000,000) over a term of approximately
seven years. It has customary fees and covenants associated with senior bank
facilities. F-17




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##### Table of Contents



The Companys PIP.America subsidiary has reached settlement with plaintiffs in
the matter of Salinas Landers, et. al. v. Poly Implant Protheses, S.A., et. al.
Case No. 030377, filed in June 2003 in the Superior Court of San Luis Obispo
County, California. The settlement requires PIP.America to pay the Product
Replacement Program claims of certain named plaintiffs, a portion of their
legal fees, and continue to administer its Product Replacement program in
California. A motion for Good Faith Determination has been scheduled for
mid-September, 2004. Pending an affirmative ruling from the Court, PIP.America
will be dismissed from the case, which will proceed against the remaining
defendants, none of whom are affiliated with PIP.America, its parent,
subsidiaries or affiliates. PIP.America has tendered this case to Poly Implant
Prostheses, S.A., for defense and indemnity. PIP.America has reached settlement in Marsha Dicken, et al. v. PIP/USA, Inc.,
et al., Case No. 2003-05588, filed in January 2003 in the District Court of
Harris County, Texas. The settlement requires PIP.America pay the Product
Replacement Program claims of the named plaintiffs and a portion of their legal
fees. Plaintiffs have dismissed PIP.America from the case, which will proceed
against the remaining defendants, none of whom are affiliated with PIP.America,
its parent, subsidiaries or affiliates. PIP.America has tendered this case to
Poly Implant Prostheses, S.A., for defense and indemnity. F-18




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description2.1
    
    Agreement of Merger dated as of February 7, 2003, by and among Scientio, Inc., International
Integrated Incorporated, SCMerger Ltd., certain members of International Integrated Incorporated and
certain stockholders of Scientio, Inc.  Incorporated by reference to Exhibit 2.1 to the Registrants
Current Report on Form 8-K filed February 24, 2003.3.1
    
    Certificate of Incorporation of the Registrant  Incorporated by reference to Exhibit 3.1 to the
Registrants Registration Statement on Form SB-2A filed September 14, 2001.3.2
    
    Certificate of Amendment of
Incorporation of the Registrant - Incorporated by reference to Exhibit
3.2 of the Registrants Annual Report on Form 10-KSB for the year ended June 30, 2003.3.3
    
    Amended and Restated Bylaws of the Registrant  Incorporated by reference to Exhibit 3.3 of the
Registrants Annual Report on Form 10-KSB for the year ended June 30, 2003.4.1
    
    Form of Convertible Debenture Loan Agreement  Incorporated by reference to Exhibit 4.1 of the
Registrants Quarterly Report on From 10-QSB for the quarter ended September 30, 2003.4.2
    
    Form of Convertible Debenture  Incorporated by reference to Exhibit 4.2 of the Registrants
Quarterly Report on Form 10-QSB for the quarter ended September 30, 2003 and December 31, 2003.4.3
    
    Form of Amendment to Convertible Debenture  Incorporated by reference to Exhibit 4.3 of the
Registrants Quarterly Report on From 10-QSB for the quarter ended September 30, 2003.4.4
    
    Form of Convertible Debenture Agreement  Incorporated by reference to Exhibit 4.4 of the
Registrants Quarterly Report on Form 10-QSB for the quarter ended September 30, 2003.4.5
    
    Form of Convertible Debenture  Incorporated by reference to Exhibit 4.5 of the Registrants
Quarterly Report on Form 10-QSB for the quarter ended September 30, 2003.4.6
    
    Form of Investment Agreement  Incorporated by reference to Exhibit 4.1 of the Registrants Quarterly
Report on Form 10-QSB for the quarter ended December 31, 2003.10.1
    
    Agreement of Merger, dated as of February 7, 2003, by and among Scientio, Inc., International
Integrated Incorporated, SC Merger, Ltd., certain members of International Integrated Incorporated
and certain stockholders of Scientio, Inc.  Incorporated by reference to Exhibit 10.1 of the
Registrants Quarterly Report on Form 10-QSB for the quarter ended March 31, 200310.2*
    
    Securities Purchase Agreement, dated as of March 18, 2003, by and among the Registrant, Graeco2,
Limited and AAB Corporation - Incorporated by reference to Exhibit 10.1 of the Registrants Quarterly
Report on Form 10-QSB for the quarter ended March 31, 200310.3*
    
    Asset Purchase Agreement, dated as of April 25, 2002  Incorporated by reference to Exhibit 10.2 of
the Registrants Annual Report on Form 10-KSB for the year ended June 30, 2003.10.4
    
    MediCor Ltd. 1999 Amended and Restated Stock Compensation Program  Incorporated by reference to
Exhibit 10.3 of the Registrants Annual Report on Form 10-KSB for the year ended June 30, 2003.10.5
    
    Lease Agreement between the Registrant and Skyview Business Park, LLC  Incorporated by reference to
Exhibit 10.4 of the Registrants Annual Report on Form 10-KSB for the year ended June 30, 2003.10.6
    
    Lease Agreement Addendum between the Registrant and Skyview Business Park, LLC  Incorporated by
reference to Exhibit 10.5 of the Registrants Annual Report
on Form 10-KSB for the year ended June 30, 2003.10.7
    
    Employment Agreement dated June 2, 2003 between the Registrant and Thomas R. Moyes  Incorporated by
reference to Exhibit 10.6 of the Registrants Annual Report on Form 10-KSB for the year ended June
30, 2003.10.8
    
    Option Agreement dated July 18, 2003 between the Registrant and Thomas R. Moyes  Incorporated by
reference to Exhibit 10.7 of the Registrants Annual Report on Form 10-KSB for the year ended June
30, 2003.10.9
    
    Form of Consultant Warrant  Incorporated by reference to Exhibit 10.8 of the Registrants Annual
Report on Form 10-KSB for the year ended June 30, 2003.10.10
    
    Form of Employee Stock Option  Incorporated by reference to Exhibit 10.9 of the Registrants Annual
Report on Form 10-KSB for the year ended June 30, 2003.10.11*
    
    Amendment No. 1 to Asset Purchase Agreement, dated as of November 20, 2002  Incorporated by
reference to Exhibit 10.10 of the Registrants Annual Report on Form 10-KSB for the year ended June
30, 2003.10.12
    
    Employment Agreement dated October 1, 2003 between the Registrant and Jim J. McGhan  Incorporated by
reference to Exhibit 10.1 of the Registrants Quarterly Report on Form 10-QSB for the quarter ended
 E-1




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##### Table of Contents



Exhibit No.
    
    DescriptionSeptember 30, 2003.10.13
    
    Option Agreement dated October 27, 2003 between the Registrant and Jim J. McGhan  Incorporated by
reference to Exhibit 10.2 of the Registrants Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2003.10.14
    
    Employment Agreement dated September 1, 2003 between the Registrant and Theodore R. Maloney 
Incorporated by reference to Exhibit 10.3 of the Registrants Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2003.10.15
    
    Option Agreement dated September 2, 2003 between the Registrant and Theodore R. Maloney 
Incorporated by reference to Exhibit 10.4 of the Registrants Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2003.10.16
    
    Amendment No. 2 to Asset Purchase Agreement, dated as of October 16, 2003  Incorporated by reference
to Exhibit 10.5 of the Registrants Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2003.10.17*
    
    Form of Amended Distribution Agreement  Incorporated by Reference to Exhibit 10.1 of the
Registrants Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004.10.18*
    
    Form of Promissory Note  Incorporated by Reference to Exhibit 10.2 of the Registrants Quarterly
Report on From 10-QSB for the Quarter ended March 31, 2004.10.19
    
    Certificate of Designation, Preferences and Rights of Series A 8.0% Convertible Preferred Stock10.20*
    
    Agreement for the Sale and Purchase of the Shares of Laboratoires Eurosilicone S.A dated May 17, 2004.10.21*
    
    Stock Purchase Agreement between MediCor Latin America, International Integrated Management, Inc.
Carlos Francisco Lazo de la Vega Jasso and Héctor Jesús Chuliá de la Torre dated August 27, 2004.10.22
    
    Transportation Dry Lease Agreement
between MediCor and Global Aviation, LLC dated June 1, 200410.23*
    
    Loan Agreement with BNP Paribas dated September 10, 200421
    
    Subsidiaries of the Registrant31.1
    
    Principal Executive Officer Certification Pursuant To 17 C.F.R. Section 240.15d-14(a)31.2
    
    Principal Financial Officer Certification Pursuant To 17 C.F.R. Section 240.15d-14(a)32.1
    
    Principal Executive Officer Certification Pursuant To 18 U.S.C. Section 135032.2
    
    Principal Financial Officer Certification Pursuant To 18 U.S.C. Section 1350
  *
    
    Certain portions of this Exhibit, for which confidential treatment has been
requested, have been redacted and filed separately with the Securities and
Exchange Commission. E-2