U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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Commission file number 2-85008-NY
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MEDICAL STERILIZATION, INC.
- --------------------------------------------------------------------------------
(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)
(516) 496-8822
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(Issuer's Telephone Number, Including Area Code)
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
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As of March 31, 1996 there were 2,980,496 shares of Common Stock $.01 par value
per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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MEDICAL STERILIZATION, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Balance Sheet as of March 31, 1996 (unaudited)..................................... 3-4
Statements of Operations for the three months ended March 31, 1996
and March 31, 1995 (unaudited)..................................................... 5
Statements of Cash Flows for the three months ended March 31, 1996
and March 31, 1995 (unaudited)..................................................... 6
Notes to Financial Statements...................................................... 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 8-9
Part II. Other Information.................................................................. 10
Signatures......................................................................... 11
</TABLE>
2
MEDICAL STERILIZATION, INC.
Balance Sheet
<TABLE>
<CAPTION>
ASSETS March 31, 1996
(unaudited)
-----------
<S> <C>
Current assets
Cash $ 9,851
Accounts receivable, less allowance
for doubtful accounts of $34,000 2,619,378
Inventory 126,141
Prepaid expenses 295,466
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Total current assets 3,050,566
---------
Fixed Assets, at cost, less accumulated
depreciation and amortization 4,028,890
Other assets 201,529
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Total assets $7,280,985
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $1,400,686
Short term note payable 140,519
Current maturities of long-term debt 150,000
Current obligation under capital lease 19,770
-----------
Total current liabilities 1,710,975
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Long-term liabilities
Long-term debt, less current maturities 2,037,761
Obligation under capital lease 0
---------
Total liabilities 3,748,736
Commitments and contingencies (Note 4)
Preferred Stock
Convertible redeemable cumulative preferred stock, par value $.01per share,
Series B Authorized 1,000,000 shares, issued and outstanding
687,500 shares 1,575,288
---------
</TABLE>
Continued
See notes to financial statements
3
MEDICAL STERILIZATION, INC.
Balance Sheet
Continued
<TABLE>
<CAPTION>
March 31, 1996
(unaudited)
-----------
<S> <C>
Shareholders' equity
Convertible preferred stock Series C
Authorized 2,000,000 shares, issued and
outstanding 1,945,625 shares 1,946,625
Common stock, par value $.01 per share
Authorized 10,000,000 shares, issued and outstanding
2,980,496 shares 29,804
Additional paid-in capital 7,657,256
Accumulated deficit (7,675,724)
---------
Shareholders' equity 1,956,961
---------
Total liabilities and shareholders' equity $7,280,985
==========
</TABLE>
See notes to financial statements
4
MEDICAL STERILIZATION, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Income
Revenue $2,056,090 $2,140,422
Interest 0 808
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2,056,090 2,141,230
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Costs and Expenses
Operating 1,479,086 1,532,511
Selling, general and administrative 599,081 455,738
Interest 74,992 77,682
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2,153,159 2,065,931
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Income (loss) before income taxes (97,069) 75,299
Income taxes 0 0
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Net income (loss) (97,069) 75,299
Preferred stock dividends 30,888 27,500
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Net income (loss) applicable to common shareholders $ (127,957) $ 47,799
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Weighted average shares of common stock
outstanding 2,980,496 5,062,834
--------- ---------
Net income (loss) per share of common
stock $ (.04) $.01
------ ----
</TABLE>
See notes to financial statements
5
MEDICAL STERILIZATION, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $( 97,069) $ 75,299
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 151,098 189,470
Changes in assets and liabilities:
(Increase) in receivables (162,671) (154,565)
Decrease in inventory 6,523 2,442
(Increase) decrease in prepaid expenses (223,710) 50,576
(Increase) decrease in other assets (6,200) 2,337
Increase (decrease) in accounts payable
and accrued expenses 407,265 (34,736)
-------- ---------
Net cash provided by operating
activities 75,236 130,823
-------- ---------
Cash flows from investing activities:
Capital expenditures (406,966) (230,797)
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Net cash used in investing activities (406,966) (230,797)
-------- ---------
Cash flows from financing activities:
(Repayment) borrowing under
financing agreement (362,360) 242,806
Borrowing (repayment) under
short term notes payable 81,514 (112,500)
Borrowing (repayment) of long-term debt 456,018 (40,409)
Principal payments under capital lease
obligations (9,251) (12,984)
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Net cash provided by
financing activities 165,921 76,913
-------- ---------
Net (decrease) in cash (165,809) 23,061
Cash at beginning of period 175,390 46,512
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Cash at end or period $ 9,581 $ 23,421
======= ========
</TABLE>
See notes to financial statements
6
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. In the opinion of management, the accompanying financial
statements contain all adjustments necessary to present a fair
statement of the results for the interim periods 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. Revenues and net income (loss) for any interim period are not
necessarily indicative of results that may be expected for the entire
year.
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 loss per
share of common stock for March 31, 1996 since the result would be
anti-dilutive. Common stock equivalents of approximately 2,082,338 have
been included in the computation of net income per share of common
stock for March 31, 1995.
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 from 70% to 75%.
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 into compliance with these
standards. The Company has hired consultants to measure the Company's
ozone emissions and, in conjunction with Statement 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 condition.
7
MEDICAL STERILIZATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Current assets have increased $214,049 to $3,050,566 at March 31, 1996 compared
to $2,834,517 at December 31, 1995. The increase was primarily due to a $162,671
increase in accounts receivable and a $223,710 increase in prepaid expenses
(primarily insurance) offset partially by a $165,809 decrease in cash. The
Company had working capital of $1,339,591 at March 31, 1996 compared to
$1,607,220 at December 31, 1995. This decrease of $267,629 was the result
primarily of the acquisition of fixed assets (instruments) as the Company
invested in its instrument kits to better serve its customers. The working
capital ratio decreased to 1.78 to 1 at March 31, 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 endoscopy procedures 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 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 a 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.
RESULTS OF OPERATIONS
REVENUES
Revenues for the three months ended March 31, 1996, decreased
approximately $85,000 or 4% to approximately $2,056,000 from revenues of
approximately $2,141,000 for the three months ended March 31, 1995. The decrease
in revenues was primarily attributable to an approximate $143,000 or 42.8%
decrease in revenues in the Company's contract sterilization business, an
approximate $29,000 or 4.1% decrease in revenues in the
8
Company's radiation processing of industrial products business, partially offset
by an $87,000 or 7.9% increase in the Company's revenues in its hospital
services division.
COSTS AND EXPENSES
Total expenses increased approximately $87,000 or 4.2% to approximately
$2,153,000 for the three months ended March 31, 1996 compared to approximately
$2,065,000 for the three months ended March 31, 1995. Operating expenses have
decreased approximately $53,000 or 3.4% due to efficiencies attained in the
Company's processing operations. Selling, general and administrative expenses
have increased approximately $144,000 or 31.6% due primarily to investments
being made in the management and sales areas of the Company.
NET INCOME (LOSS)
APPLICABLE to COMMON SHAREHOLDERS
Net income (loss) applicable to common shareholders was a loss of
approximately ($128,000) or ($.04) per share for the three months ended March
31, 1996 compared to net income of approximately $48,000 or $.01 per share for
the three months ended March 31, 1995.
9
MEDICAL STERILIZATION, INC.
PART II - Other Information
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 during the
quarter ended March 31, 1996.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDICAL STERILIZATION, INC.
Dated: May 14, 1996 /s/ D. Michael Deignan
-------------------------------------
D. Michael Deignan
President and Chief Executive Officer
Dated: May 14, 1996 /s/ Paul V. Rossi
-------------------------------------
Paul V. Rossi
Chief Financial Officer
11
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27.1 Financial Data Schedule 13
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,581
<SECURITIES> 0
<RECEIVABLES> 2,653,378
<ALLOWANCES> 34,000
<INVENTORY> 126,141
<CURRENT-ASSETS> 3,050,566
<PP&E> 11,462,426
<DEPRECIATION> 7,433,536
<TOTAL-ASSETS> 7,280,985
<CURRENT-LIABILITIES> 1,710,975
<BONDS> 0
1,575,288
1,945,625
<COMMON> 29,804
<OTHER-SE> 18,468
<TOTAL-LIABILITY-AND-EQUITY> 7,280,985
<SALES> 2,056,090
<TOTAL-REVENUES> 2,056,090
<CGS> 1,479,086
<TOTAL-COSTS> 2,078,167
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,992
<INCOME-PRETAX> (97,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (97,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (30,888)
<NET-INCOME> (127,957)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
