UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q SB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
[ ] 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 2-85008-NY
MEDICAL STERILIZATION, INC.
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(Exact name of small business issuer specified in its charter)
NEW YORK 11-2621408
------------------ ------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 UNDERHILL BOULEVARD, SYOSSET, NEW YORK 11791
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(Address of principal executive offices) (Zip Code)
(516) 496-8822
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(Issuer's telephone number)
NONE
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(Former name, former address and former fiscal year,if changed sincelast report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Number of shares of Common Stock, $.01 par value, outstanding as of March 31,
1996.
3,005,496 shares
---------
Transitional Small Business Disclosure Format (Check One) Yes No X
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MEDICAL STERILIZATION,INC.
INDEX
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Page No.
--------
Part I. Financial Information
Balance Sheet as of September 30,1996 (unaudited) 3-4
Statements of Operations for the nine months
ended September 30, 1996 and September 30, 1995
(unaudited)..................................... 5
Statements of Operations for the three months
ended September 30, 1996 and September 30, 1995
(unaudited)..................................... 6
Statements of Cash Flows for the nine months
ended September 30, 1996 and September 30, 1995
(unaudited)..................................... 7
Notes to Consolidated Financial Statements...... 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations... 9-11
Part II. Other Information............................... 12
Signatures...................................... 12
- 2 -
MEDICAL STERILIZATION, INC.
Balance Sheet
-------------
September 30,
1996
(unaudited)
ASSETS
------
Current assets
Cash $ 21,266
Accounts receivable, less allowance
for doubtful accounts of $54,000 2,769,847
Inventory 126,141
Prepaid expenses 259,211
---------
Total current assets 3,176,465
---------
Fixed assets, at cost, less accumulated
depreciation and amortization 4,402,845
Other assets 201,884
---------
Total assets $7,781,194
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 1,908,145
Short term note payable 43,518
Current maturities of long-term debt 150,000
Current obligation under capital lease 50,725
---------
Total current liabilities 2,152,388
---------
Long-term liabilities
Long-term debt, less current maturities 2,147,338
Obligation under capital lease 168,359
---------
Total liabilities 2,315,697
Commitments and contingencies (Note 4):
Preferred Stock
Convertible redeemable cumulative
preferred stock, par value $.01 per
share, Series B Authorized 1,000,000
shares, issued and outstanding
803,088 shares 1,637,064
---------
Continued
See notes to financial statements
-3-
MEDICAL STERILIZATION, INC.
Balance Sheet
-------------
Continued
September 30,
1996
(unaudited)
Shareholders' equity
Convertible preferred stock Series C
Authorized 2,000,000 shares, issued
and outstanding 1,945,625 shares 1,945,625
Common stock, par value $.01 per share
Authorized 10,000,000 shares, issued
and outstanding 3,005,496 shares 30,054
Additional paid-in capital 7,573,574
Accumulated deficit (7,873,208)
---------
Shareholders' equity 1,676,045
---------
Total liabilities and shareholders' equity $7,781,194
=========
See notes to financial statements
-4-
MEDICAL STERILIZATION, INC.
Statements of Operations
------------------------
(Unaudited)
For the nine months
ended September 30,
-------------------
1996 1995
---- ----
Income
Revenue $6,346,668 $6,549,635
---------- ----------
Costs and Expenses
Operating 4,512,596 4,674,039
Selling, general and administrative 1,908,053 1,452,642
Interest 220,572 246,151
--------- ---------
6,641,221 6,369,832
--------- ---------
(Loss) income before income taxes ( 294,553) 179,803
Income taxes 0 0
--------- ---------
Net (loss) income ( 294,553) 179,803
Preferred stock dividends ( 92,664) 82,500
---------- ---------
Net (loss) income applicable to common
shareholders $( 387,217) $ 97,303
========== ========
Weighted average shares of common stock
outstanding 3,005,496 5,099,415
--------- ---------
Net (loss) income per share of common
stock (Note 2) $(.13) $.02
---- ---
See notes to financial statements
-5-
MEDICAL STERILIZATION, INC.
Statements of Operations
------------------------
(Unaudited)
For the three months
ended September 30,
-------------------
1996 1995
---- ----
Income
Revenue $2,132,389 $2,254,211
---------- ----------
Costs and Expenses
Operating 1,574,067 1,590,088
Selling, general and administrative 707,555 516,655
Interest 101,790 84,275
--------- ---------
2,383,412 2,191,018
--------- ---------
(Loss)income before income taxes ( 251,023) 63,193
Income taxes 0 0
--------- ---------
Net (loss) income ( 251,023) 63,193
Preferred stock dividends 30,888 27,500
--------- ---------
Net (loss) income applicable to common
shareholders $( 281,911) $ 35,693
========== ========
Weighted average shares of common stock
outstanding 3,005,496 5,099,415
--------- ---------
Net (loss) income per share of common
stock (Note 2) $( .09) $.01
------ ---
See notes to financial statements
-6-
MEDICAL STERILIZATION,INC.
Statements of Cash Flows
------------------------
(Unaudited)
For the nine months
ended September 30,
-------------------
1996 1995
---- ----
Cash flows from operating activities:
Net (loss) income $( 294,553) $ 179,803
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 471,501 580,760
Changes in assets and liabilities:
(Increase) in receivables (313,140) (275,853)
Decrease (increase) in inventory 6,523 (22,458)
(Increase) in prepaid expenses (187,455) (40,972)
(Increase) decrease in other assets (6,555) 175,347
Increase (decrease) in accounts payable
and accrued expenses 914,724 (75,561)
----------- ----------
Net cash provided by operating
activities 591,045 521,066
----------- ----------
Cash flows from investing activities:
Capital expenditures ( 1,101,324) (567,124)
------------ -----------
Net cash used in investing
activities ( 1,101,324) (567,124)
------------ -----------
Cash flows from financing activities:
Proceeds from exercise of options 2,500 0
Registration costs (24,156) 0
Borrowing under financing agreement 315,686 572,212
Borrowing (repayment) under
short term notes payable 43,518 (175,000)
(Repayment) of long-term debt (171,456) (258,896)
Borrowing (repayment) under
capital lease obligations 190,063 (40,715)
---------- ---------
Net cash provided by
financing activities 356,155 97,601
---------- ---------
Net (decrease) increase in cash (154,124) 51,543
Cash at beginning of period 175,390 46,512
---------- ---------
Cash at end of period $ 21,266 $ 98,055
========== =========
See notes to financial statements
-7-
MEDICAL STERILIZATION, INC.
Notes to Financial Statements
1. Unaudited Statements:
The accompanying unaudited financial statements have been prepared by the
Company in accordance with generally accepted accounting principles,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements have been condensed or omitted pursuant to such
rules and regulations although management believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, the accompanying financial statements contain all adjustments
necessary to present a fair statement of the results for the interim period
presented. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report filed on Form 10-KSB for the year ended December 31,
1995.
2. Net Income (loss) Per Share of Common Stock:
Net income (loss) per share of common stock is based on the weighted average
number of shares of common stock outstanding during each period adjusted for
undeclared dividends on Preferred Stock. Common stock equivalents have been
excluded from the computation of net income per share of common stock for
the nine months ending September 30, 1996 since the result would be
anti-dilutive.
3. Subsequent Event:
In April 1996 the Company entered into an agreement modifying and extending
its financing agreement with its commercial lender. The agreement was
extended to January 31, 1998 and the advance rate on the Company's eligible
Accounts Receivable was increased to 75% from the existing 70%.
4. Contingencies:
In July 1994 the New York State Department of Environmental Conservation
announced stringent standards with regard to the emission of ozone. The
Company is working with State and County authorities on an established
timeline to bring the Company in compliance with these standards. The
Company has hired consultants to measure the Company's ozone emissions and,
in conjunction with State and County authorities, to design necessary
pollution control equipment to meet these standards. The estimated cost of
such pollution control equipment is approximately $300,000. In the event the
Company does not install such pollution control equipment, it will not
obtain a permit to operate its electron beam accelerator, which would result
in a significant reduction in revenues and would have a material adverse
effect on the Company's business, results of operations and financial
conditions.
-8-
MEDICAL STERILIZATION INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Current assets have increased approximately $340,000 to $3,176,465 at
September 30, 1996 compared to $2,836,517 at December 31, 1995. The increase was
primarily due to a $313,000 increase in accounts receivable and $187,000 in
prepaid expenses (primarily insurance and real estate taxes) offset partially by
a $154,000 decrease in cash. The Company had working capital of approximately
$1,024,077 at September 30, 1996 compared to approximately $1,607,220 at
December 31, 1995. This decrease of approximately $583,000 was the result
primarily of the acquisition of fixed assets (surgical instruments) as the
Company invested in its instrument kits to better serve its customers. The
working capital ratio decreased to 1.48 to 1 at September 30, 1996 compared to
2.3 to 1 at December 31, 1995.
The Company currently plans to expand its business both geographically
and by increasing its portfolio of reprocessing services to include new service
offerings such as endoscopic procedure specific instrument sets. In addition,
the Company will be required to expend approximately $300,000 on pollution
control equipment in the future. The Company believes that the anticipated
future cash flow from operations, along with its cash on hand and available
funds under its working capital line of credit will be sufficient to meet its
working capital requirements during 1996. There can be no assurance, however,
that the Company will not require additional working capital and, if it does
require such capital, that such capital will be available to the Company on
acceptable terms, it at all.
Inflation
- ---------
The Company does not anticipate that inflation will have any
significant effect on its business particularly since the United State, the only
market in which the Company currently intends to operate, is presently
experiencing a relatively low rate of inflation.
Continued
-9-
MEDICAL STERILIZATION INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS, continued
REVENUES
- --------
Revenues for the nine months ended September 30, 1996 decreased
approximately $201,000 or 3% to approximately $6,346,668 from revenues of
approximately $6,547,236 for the nine months ended September 30, 1995. The
decrease in revenues was primarily attributable to an approximate $366,000
decrease in revenues or a 35.0% decrease in the Company's contract sterilization
business, partially offset by an approximate $152,000 increase or a 4.4%
increase in the Company's revenues in its hospital services business and an
approximate $13,000 increase or a 0.6% increase in the Company's radiation
processing of industrial products business.
Revenues for the three months ended September 30, 1996 decreased
approximately $122,000 or 5.4% to approximately $2,132,389 from revenues of
approximately $2,253,420 for the three months ended September 30, 1995. The
decrease in revenues was primarily attributable to an approximate $109,000
decrease in revenues or a 31.1% decrease in the Company's contract sterilization
business and an approximate $13,000 decrease or a 1.8% decrease in the Company's
revenues in its radiation processing of industrial products business. The
Company's revenues in its hospital services business were flat from quarter to
quarter.
COSTS AND EXPENSES
- ------------------
Total expenses increased approximately $271,000 or 4.2% to
approximately $6,641,221 for the nine months ended September 30, 1996 compared
to approximately $6,369,832 for the nine months ended September 30, 1995.
Operating expenses decreased approximately $158,000 or 3.3% due to efficiencies
attained in the Company's processing operations. Selling, general and
administrative expenses increased approximately $455,000 or 23.9% due primarily
to investments being made in the management and sales areas of the Company. The
Company has made a commitment to extend its marketing effort to a full national
program. In order to do this the Company has hired a national sales programs
coordinator to implement its programs.
Continued
-10-
MEDICAL STERILIZATION INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS, continued
Total expenses increased approximately $192,000 or 9.0% to
approximately $2,383,412 for the three months ended September 30, 1996 compared
to approximately $2,191,018 for the three months ended September 30, 1995.
Operating expenses decreased approximately $16,000 or 1.0% due to efficiencies
attained in the Company's processing operations. Selling, general and
administrative expenses increased approximately $191,000 or 36.9% due primarily
to investments being made in the management and sales areas of the Company,
primarily in the national sales programs.
NET INCOME (LOSS)
- -----------------
APPLICABLE TO COMMON SHAREHOLDERS
- ---------------------------------
Net (loss) applicable to common shareholders was approximately
($387,217) or ($.13) per share for the nine months ended September 30, 1996
compared to a net income of approximately $61,610 or $.01 per share for the nine
months ended September 30 ,1995.
Net (loss) applicable to common shareholders was approximately
($281,911) or ($.09) per share for the three months ended September 30, 1996
compared to a net income of approximately $35,693 or $.01 per share for the
three months ended September 30, 1995.
-11-
MEDICAL STERILIZATION INC.
PART II - OTHER INFORMATION
---------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(6) There were no reports on Form 8-K for the nine months ended September
30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDICAL STERILIZATION INC.
Date November 7, 1996 /s/ D. Michael Deignan
------------------------------------
D. Michael Deignan, President/C.E.O.
Date November 7, 1996 /s/ Paul V. Rossi
------------------------------------
Paul V. Rossi, Treasurer and Chief
Financial Officer
-12-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,266
<SECURITIES> 0
<RECEIVABLES> 2,769,847
<ALLOWANCES> (53,553)
<INVENTORY> 126,141
<CURRENT-ASSETS> 259,211
<PP&E> 12,174,061
<DEPRECIATION> (7,771,216)
<TOTAL-ASSETS> 7,781,194
<CURRENT-LIABILITIES> 2,152,388
<BONDS> 0
0
1,637,064
<COMMON> 30,054
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,781,194
<SALES> 6,346,668
<TOTAL-REVENUES> 6,346,668
<CGS> 4,512,596
<TOTAL-COSTS> 6,641,221
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220,572
<INCOME-PRETAX> (294,553)
<INCOME-TAX> 0
<INCOME-CONTINUING> (294,553)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (387,217)
<EPS-PRIMARY> ($0.13)
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</TABLE>
