UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 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.
- --------------------------------------------------------------------------------
(Exact name of small business issuer specified in its charter)
NEW YORK 11-2621408
------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 UNDERHILL BOULEVARD, SYOSSET, NEW YORK 11791
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 496-8822
- --------------------------------------------------------------------------------
(Issuer's telephone number)
NONE
- --------------------------------------------------------------------------------
(Former name,former address and former fiscal year,if changed since last 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
----- -----
MEDICAL STERILIZATION, INC.
<TABLE>
<CAPTION>
INDEX
Page No.
Part I. Financial Information
<S> <C>
Balance Sheet as of June 30, 1996 (unaudited).......................................... 3-4
Statements of Operations for the six months ended June 30, 1996
and June 30, 1995 (unaudited).......................................................... 5
Statements of Operations for the three months ended June 30,
1996 and June 30, 1995 (unaudited)..................................................... 6
Statements of Cash Flows for the six months ended June 30, 1996
and June 30, 1995 (unaudited).......................................................... 7
Notes to Consolidated Financial Statements............................................. 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 9-10
Part II. Other Information
Submission of Matters to a Vote of Security-Holders.................................... 11-13
Exhibits and Reports on Form 8-K....................................................... 13
Signatures............................................................................. 14
</TABLE>
-2-
MEDICAL STERILIZATION, INC.
Balance Sheet
<TABLE>
<CAPTION>
June 30, 1996
(unaudited)
ASSETS
<S> <C>
Current assets:
Cash $ 61,125
Accounts receivable, less allowance for 2,664,414
doubtful accounts of $54,000
Inventory 126,141
Prepaid expense 409,095
---------
Total current assets 3,260,775
---------
Fixed assets, at cost, less accumulated depreciation and amortization 4,204,838
Other assets 197,884
----------
Total assets $7,663,497
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $1,729,753
Short term note payable 80,003
Current maturities of long-term debt 150,000
Current obligation under capital lease 13,622
----------
Total current liabilities 1,973,378
---------
Long-term liabilities
Long-term debt, less current maturities 1,942,633
Obligation under capital lease 179,354
---------
Total liabilities 4,095,365
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 1,606,176
---------
</TABLE>
Continued
See notes to financial statements
-3-
MEDICAL STERILIZATION, INC.
Balance Sheets
Continued
<TABLE>
<CAPTION>
June 30, 1996
<S> <C>
(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 7,608,462
Accumulated deficit (7,622,185)
---------
Shareholders' equity 1,961,956
---------
Total liabilities and shareholders' equity $7,663,497
==========
</TABLE>
See notes to financial statements
-4-
MEDICAL STERILIZATION, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
-------------------------------------------
1996 1995
-------- -------
<S> <C> <C>
Income
Revenue $4,214,279 $4,293,816
Interest 0 1,608
---------- ---------
4,214,279 4,295,424
--------- ---------
Costs and Expenses
Operating 2,938,529 3,080,951
Selling, general and administrative 1,200,498 935,987
Interest 118,782 161,876
---------- ----------
4,257,809 4,178,814
--------- ---------
(Loss) income before income taxes ( 43,530) 116,610
Income taxes 0 0
---------- ----------
Net (loss) income ( 43,530) 116,610
Preferred stock dividends 61,776 55,000
--------- ---------
Net (loss) income applicable to common shareholders $( 105,306) $ 61,610
======== =========
Weighted average shares of common stock outstanding 2,982,579 5,099,415
--------- ---------
Net (loss) income per share of common stock (Note 2) $(.04) $.01
--- ---
</TABLE>
-5-
MEDICAL STERILIZATION, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended June 30,
-------------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Income
Revenue $2,158,189 $2,153,394
Interest 0 800
---------- ---------
2,158,189 2,154,194
--------- ---------
Costs and Expenses
Operating 1,459,443 1,548,440
Selling, general and administrative 601,417 480,249
Interest 43,790 84,194
--------- --------
2,104,650 2,112,883
--------- ---------
Income before income taxes 53,539 41,311
Income taxes 0 0
---------- ----------
Net income 53,539 41,311
Preferred stock dividends 30,888 27,500
--------- ---------
Net income applicable to common shareholders $ 22,651 $ 13,811
========= =========
Weighted average shares of common stock outstanding 5,101,498 5,099,415
--------- ---------
Net income per share of common stock (Note 2) $ .00 $ .00
---- ----
</TABLE>
See notes to financial statements
-6-
MEDICAL STERILIZATION, INC.
Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
-------------------------------------------
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $( 43,530) $ 116,610
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 294,068 383,027
Changes in assets and liabilities:
(Increase) in receivables (207,707) (313,717)
Decrease (increase) in inventory 6,523 (2,408)
(Increase) decrease in prepaid expenses (337,339) 24,469
(Increase) decrease in other assets (2,555) 3,347
Increase in accounts payable and accrued expenses 736,332 4,400
---------- ----------
Net cash provided by operating activities 445,792 215,728
---------- ----------
Cash flows from investing activities:
Capital expenditures (725,884) (391,807)
----------- -----------
Net cash used in investing activities (725,884) (391,807)
----------- -----------
Cash flows form financing activities:
Proceeds from exercise of options 2,500 0
Registration costs (20,156) 0
Borrowing under financing agreement 60,981 508,168
Borrowing (repayment) under short term notes payable 80,003 (137,500)
(Repayment) of long-term debt (121,456) (188,550)
Borrowing (repayment) under capital lease obligations 163,955 (26,545)
---------- ----------
Net cash provided by financing activities 165,827 155,573
---------- ----------
Net (decrease) in cash (114,265) (20,506)
Cash at beginning of period 175,390 46,512
---------- ----------
Cash at end of period $ 61,125 $ 26,006
=========== ===========
</TABLE>
See notes to financial statements
-7-
MEDICAL STERILIZATION, INC.
Notes to Financial Statements
l. 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. These financial statements should 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 six months ending June 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.
Continued
-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 $424,000 to $3,260,775 at
June 30, 1996 compared to $2,836,517 at December 31, 1995. The increase was
primarily due to a $337,000 increase in prepaid expenses (primarily insurance
and real estate taxes) and $207,000 increase in accounts receivable offset
partially by a $114,000 decrease in cash. The Company had working capital of
approximately $1,287,397 at June 30, 1996 compared to approximately $1,607,220
at December 31, 1995. This decrease of approximately $319,823 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 1.65 to 1 at June 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, if at all.
Inflation
The Company does not anticipate that inflation will have any
significant effect on its business particularly since the United States, the
only market in which the Company currently intends to operate, is presently
experiencing a relatively low rate of inflation.
REVENUES
Revenues for the six months ended June 30, 1996 decreased approximately
$79,000 or 0.2% to approximately $4,214,279 from revenues of approximately
$4,295,424 for the six months ended June 30, 1995. The decrease in revenues was
primarily attributable to an approximate $257,000 decrease in revenues or a
37.1% decrease in the Company's contract sterilization business, partially
offset by an approximate $151,000 increase or a 6.7% increase in the Company's
revenues in its hospital services business and an approximate $25,000 increase
or a 1.9% increase in the Company's radiation processing of industrial products
business.
Continued
-9-
MEDICAL STERILIZATION INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS, continued
Revenues for the three months ended June 30, 1996 increased
approximately $4,000 or 0.2% to approximately $2,158,189 from revenues of
approximately $2,153,394 for the three months ended June 30, 1995. The increase
in revenues was primarily attributable to an approximate $64,000 increase in
revenues or a 5.5% increase in the Company's hospital services business, and an
approximate $54,000 increase or an 8.5% increase in the Company's revenues in
its radiation processing of industrial products business, partially offset by an
approximate $114,000 decrease in revenues or a 37.5% decrease in the Company's
contract sterilization business.
COSTS AND EXPENSES
Total expenses increased approximately $78,000 or 1.9% to approximately
$4,257,809 for the six months ended June 30, 1996 compared to approximately
$4,178,814 for the six months ended June 30, 1995. Operating expenses decreased
approximately $142,000 or 4.6% due to efficiencies attained in the Company's
processing operations. Selling, general and administrative expenses increased
approximately $264,000 or 28.2% due primarily to investments being made in the
management and sales areas of the Company.
Total expenses decreased approximately $8,000 or 0.3% to approximately
$2,104,650 for the three months ended June 30, 1996 compared to approximately
$2,112,883 for the three months ended June 30, 1995. Operating expenses
decreased approximately $89,000 or 5.7% due to efficiencies attained in the
Company's processing operations. Selling, general and administrative expenses
increased approximately $121,000 or 25.3% due primarily to investments being
made in the management and sales areas of the Company.
NET INCOME (LOSS)
APPLICABLE TO COMMON SHAREHOLDERS
Net (loss) applicable to common shareholders was approximately
($105,306) or ($.04) per share for the six months ended June 30, 1996 compared
to a net income of approximately $61,610 or $.0l per share for the six months
ended June 30, 1995.
Net income applicable to common shareholders was approximately $22,651
or $.00 per share for the three months ended June 30, 1996 compared to a net
income of approximately $13,811 or $.00 per share for the three months ended
June 30, 1995.
-10-
MEDICAL STERILIZATION INC.
PART II -- OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The Special Meeting in Lieu of Annual Meeting of Shareholders
of the Company was held on May 30, 1996.
(b) (1) The following individuals were reelected to the Board of
Directors by the holders of the Company's Common Stock, each to serve until the
next annual meeting of Shareholders:
Director
Harvey Cohen
John R. Hoover
Kennard H. Morganstern
D. Michael Deignan
The number of votes cast for the reelection of each of the above
directors was as follows:
DIRECTOR FOR AGAINST WITHHELD
- -------- --- -------- --------
Harvey Cohen 2,651,866 0 88,337
John R. Hoover 2,651,866 0 88,337
Kennard H. Morganstern 2,651,866 0 88,377
D. Michael Deignan 2,651,866 0 88,337
-11-
MEDICAL STERILIZATION INC.
PART II -- OTHER INFORMATION, continued
(b) (2) The following individuals were reelected to the Board of
Directors by the holders of the Company's Preferred Stock, each to serve until
the next annual meeting of Shareholders:
DIRECTOR
William R. Lonergan
Kenneth W. Rind
Forrest A. Whittaker
The number of votes cast for the reelection of each of the above
Directors was as follows:
DIRECTOR FOR AGAINST WITHHELD
- -------- --- ------- --------
William R. Lonergan 2,368,335 0 0
Kenneth W. Rind 2,368,335 0 0
Forrest A. Whittaker 2,368,335 0 0
(c) (1) The adoption by the Board of Directors of the Company's
1996 Stock Plan was retified by the following vote:
NUMBER OF SHARES
For 3,676,217
Against 177,564
Abstained 42,980
Non-Votes 1,245,277
-12-
MEDICAL STERILIZATION INC.
PART II -- OTHER INFORMATION, continued
(c) (2) The Amendment to the Company's Restated Certificate of
Incorporation to permit the Company to issue certain
additional securities without triggering anti-dilution
provisions with respect to the Company's Preferred Stock was
ratified by the following vote:
NUMBER OF SHARES
For 3,676,217
Against 166,264
Abstained 20,780
NUMBER OF SHARES
Non-Votes 1,245,277
(c) (3) The selection of the firm of Coopers & Lybrand L.L.P. as
auditors for the fiscal year ending December 31, 1996 was
ratified by the following vote:
NUMBER OF SHARES
For 5,066,404
Against 24,877
Abstained 17,257
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed by the registrant during
the three months ended June 30, 1996.
-13-
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 July 30, 1996 /s/ D. Michael Deignan, President/C.E.O.
-------------- ----------------------------------------
D. Michael Deignan, President/C.E.O.
Date July 30, 1996 /s/ Paul V. Rossi, Treasurer and Chief
------------- ---------------------------------------
Financial Officer
-----------------
Paul V. Rossi, Treasurer and Chief
Financial Officer
-14-
EXHIBIT INDEX
Exhibit No. Description Page
----------- ----------- ----
27.1 Financial Data Schedule 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Jun-30-1995
<CASH> 61,125
<SECURITIES> 0
<RECEIVABLES> 2,718,000
<ALLOWANCES> (54,000)
<INVENTORY> 126,141
<CURRENT-ASSETS> 3,260,775
<PP&E> 11,798,621
<DEPRECIATION> 7,593,783
<TOTAL-ASSETS> 7,663,497
<CURRENT-LIABILITIES> 1,973,378
<BONDS> 0
1,606,176
1,945,625
<COMMON> 30,054
<OTHER-SE> (13,723)
<TOTAL-LIABILITY-AND-EQUITY> 7,663,497
<SALES> 4,214,279
<TOTAL-REVENUES> 4,214,279
<CGS> 2,938,529
<TOTAL-COSTS> 4,139,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,782
<INCOME-PRETAX> (43,530)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 61,776
<NET-INCOME> (105,306)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
