UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q SB-A
Amendment No. 1
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarter ended JUNE 30, 1997
|_| 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
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MEDICAL STERILIZATION, INC.
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(Exact name of small business issuer specified in its character)
NEW YORK 11-2621408
- --------------------------------- ------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 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
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Number of shares of Common Stock, $.01 par value, outstanding as of June 30,
1997.
3,170,496 shares
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Transitional Small Business Disclosure Format (Check One) Yes No X
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<PAGE>
MEDICAL STERILIZATION, INC.
INDEX
Page No.
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Part I. Financial Information
Balance Sheet as of June 30, 1997 (unaudited) .............. 3 - 4
Statements of Operations for the six months
ended June 30, 1997 and June 30, 1996
(unaudited) ................................................ 5
Statements of Operations for the three months
ended June 30, 1997 and June 30, 1996
(unaudited) ................................................ 6
Statements of Cash Flows for the six months
ended June 30, 1997 and June 30, 1996
(unaudited) ................................................ 7
Notes to Consolidated Financial Statements ................. 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 9 - 12
Part II. Other Information .......................................... 13
Signatures ................................................. 13
2
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MEDICAL STERILIZATION, INC.
Balance Sheet
June 30,1997
(unaudited)
------------
ASSETS
Current assets
Cash $ 23,127
Accounts receivable, less allowance for
doubtful accounts of $139,283 2,501,841
Inventory 95,477
Prepaid expenses 142,498
----------
Total current assets 2,762,943
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Fixed assets, at cost, less accumulated
depreciation and amortization 4,876,170
Other assets 189,943
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Total assets $7,829,056
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $1,294,628
Short term note payable 124,856
Deposits Payable 150,000
Current maturities of long-term debt 1,818,515
Current obligation under capital lease 168,160
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Total current liabilities 3,556,159
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Long-term liabilities
Long-term debt, less current maturities 486,176
Obligation under capital lease 687,548
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Total liabilities 4,729,883
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Commitment 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 687,500 shares 1,729,728
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Continued
See notes to financial statements
3
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MEDICAL STERILIZATION, INC.
Balance Sheet
Continued
June 30, 1997
(unaudited)
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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 3,170,496 shares 31,704
Additional paid-in capital 7,762,760
Accumulated deficit (8,370,644)
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Shareholders' equity 1,369,445
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Total liabilities and shareholders' equity $7,829,056
==========
See notes to financial statements
4
<PAGE>
MEDICAL STERILIZATION, INC.
Statements of Operations
(Unaudited)
For the six months
ended June 30,
------------------
1997 1996
---- ----
Income
- ------
Revenue $4,732,894 $4,214,279
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4,732,894 4,214,279
Costs and Expenses
- ------------------
Operating 3,161,401 2,938,529
Selling, general and administrative 1,159,401 1,200,498
Interest 208,637 118,782
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4,529,439 4,257,809
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Income (loss) before income taxes 203,455 (43,530)
Income taxes 0 0
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Net income (loss) 203,455 (43,530)
Preferred stock dividends 61,776 61,776
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Net income (loss) applicable to common
shareholders $ 141,679 $ (105,306)
========== ==========
Weighted average shares of common stock
outstanding 5,410,853 2,982,579
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Net income (loss) per share of common
stock (Note 2) $ .03 $ (.04)
========== ==========
See notes to financial statements
5
<PAGE>
MEDICAL STERILIZATION, INC.
Statements of Operations
(Unaudited)
For the three months
ended June 30,
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1997 1996
---- ----
Income
- ------
Revenue $2,466,879 $2,158,189
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2,466,879 2,158,189
Costs and Expenses
- ------------------
Operating 1,607,015 1,459,443
Selling, general and administrative 643,234 601,417
Interest 105,175 43,790
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2,355,424 2,104,650
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Income (loss) before income taxes 111,455 53,539
Income taxes 0 0
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Net income (loss) 111,455 53,539
Preferred stock dividends 30,888 30,888
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Net income (loss) applicable to common
shareholders $ 80,567 $ 22,651
========== ===========
Weighted average shares of common stock
outstanding 5,369,193 5,101,498
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Net income (loss) per share of common
stock (Note 2) $ .02 $ .00
========== ==========
See notes to financial statements
6
<PAGE>
MEDICAL STERILIZATION, INC.
Statements of Cash Flows
(Unaudited)
For the six months
ended June 30,
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1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 203,455 $ (43,530)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 340,630 294,068
Changes in assets and liabilities:
(Increase) in receivables (92,786) (207,707)
Decrease in inventory 25,598 6,523
(Increase) in prepaid expenses (105,118) (337,339)
(Increase) in other assets (29,524) (2,555)
Increase in deposits payable 150,000 0
(Decrease) increase in accounts payable
and accrued expenses (304,925) 736,332
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Net cash provided by operating activities 187,330 445,792
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Cash flows from investing activities:
Capital expenditures (266,661) (725,884)
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Net cash used in investing activities (266,661) (725,884)
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Cash flows from financing activities:
Proceeds from exercise of options 0 2,500
Registration costs (18,000) (20,156)
Borrowing under financing agreement 1,249 60,981
(Repayment) borrowing under
short-term notes payable (8,189) 80,003
Borrowing (repayment) of long-term debt 70,522 (121,456)
(Repayment) borrowing under
capital lease obligations (18,827) 163,955
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Net cash provided by financing activities 26,755 165,827
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Net (decrease) in cash (52,576) (114,265)
Cash at beginning of period 75,703 175,390
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Cash at end of period $ 23,127 $ 61,125
========= =========
See notes to financial statements
7
<PAGE>
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. 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, 1996.
2. Net Income Per Share of Common Stock:
Net Income 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 of
approximately 2,200,000 shares have been included for the computation of
net income per share for June 30, 1997. Common stock equivalents have been
excluded from the computation of net income per share of common stock for
June 30, 1996 since the result would be anti-dilutive.
3. Earnings Per Share Calculation:
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), which establishes standards for computing and presenting
Earnings per Share (EPS). SFAS No. 128 will be effective for financial
statements issued for periods ending after December 15, 1997. Earlier
application is not permitted. There will not be a significant difference
in earnings per share on a fully diluted basis.
4. Subsequent Events:
In July 1997, the Company was notified, pursuant to the Amendment made on
March 17, 1997 (the "Amendment") to the Toll Processing Agreement dated
November 1, 1994 (the "Toll Processing Agreement") between the Company and
Shamrock Technologies, Inc. and to the Agreement dated November 1, 1995,
modifying and extending the terms of the Toll Processing Agreement (the
"Modification and Extension Agreement"), that Shamrock elects to extend
the term of the Toll Processing Agreement through December 31, 1997.
8
<PAGE>
MEDICAL STERILIZATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Current Assets have increased approximately $120,000 to $2,762,943 at June
30, 1997 compared to $2,643,213 at December 31, 1996. The increase was primarily
due to a $105,118 increase in prepaid expenses (primarily insurance) and a
$92,786 increase in accounts receivable offset partially by a $52,576 decrease
in cash. The Company had negative working capital of approximately ($793,216) at
June 30, 1997 compared to positive working capital of approximately $292,458 at
December 31, 1996. This decrease of approximately $1,085,674 was the result of
the reclassification of the note payable to a commercial lender of approximately
$1,274,899 from long-term liabilities to current liabilities reflecting the due
date of January 1998, the loan agreement with TFX Equities, Inc. of $500,000 due
January 31, 1998, a royalty deposit of $150,000 related to the sale of the
contract sterilization services effective December 31, 1997, and a decrease of
$52,576 in cash offset by a $304,925 decrease in accounts payable and accrued
expenses, an additional $300,000 decrease in accounts payable owed to a
subsidiary of Teleflex, Inc., in exchange for the Company's issuance of 150,000
shares of its common stock to TFX Equities, Inc., a wholly owned subsidiary of
Teleflex, Inc., for $2.00 per share in February, 1997, a $105,118 increase in
prepaid expenses (primarily insurance) and an increase of $92,786 in accounts
receivable. There was a decrease in the working capital ratio, to .78 to 1 at
June 30, 1997 versus 1.12 to 1 at December 31, 1996. This was directly the
result of the loan reclassifications described above.
In April, 1997, the Company entered into a master lease agreement with
North Fork Bank in the amount of $1,500,000. The lease provides for draw downs
to purchase instruments for inventory and will be classified as an operating
lease. The agreement has an interest rate of prime plus 1/2 percent which is set
at each draw down. The lease agreement is guaranteed by Teleflex, Inc.
In May, 1997, the Company and TFX Equities, Inc., announced the formation
of a joint venture company named SSI Surgical Services, Inc. ("SSI"). Another
Teleflex subsidiary, Endoscopy Specialists, Inc. (ESI), which owns and manages
endoscopic and specialized instrumentation and provides on-site processing
services, will also contribute its know-how to the joint venture. The mission of
SSI will be to join the Company with ESI into a total instrument management
solution and provide these services to individual hospitals and hospital
networks throughout North America.
9
<PAGE>
MEDICAL STERILIZATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS, continued
Under the agreement, the Company will remain as an independent public
entity, whose territory will encompass the greater Northeast United States,
including New England, New York, New Jersey and Pennsylvania. In this territory,
which accounts for approximately 20 percent of the surgical procedures in the
United States, the Company will continue to provide its instrument management
and sterilization services. SSI will be responsible for marketing and delivering
these same services to the remainder of the United States and Canada. ESI will
also independently provide its rapidly expanding services where applicable.
Terms of the agreement provide that TFX Equities, Inc. will own 62.5
percent of the common shares of SSI and the Company will own the remaining 37.5
percent. The Company will contribute personnel and know-how, including its
proprietary multi-hospital tracking system and a developing customer list in
select highly populated urban centers. TFX Equities will provide the initial
operating and project capital required to fund expansion into markets as SSI
contracts are executed.
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 1997. 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.
As mentioned above the Company's working capital line of credit becomes
due in January 1998. While the Company believes it will be able to refinance
and/or restructure this agreement there can be no assurance, however, that it
will be able to do so.
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.
10
<PAGE>
MEDICAL STERILIZATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS, continued
RESULTS OF OPERATIONS
REVENUES
Revenues for the six months ended June 30, 1997 increased approximately
$519,000 or 12.3% to approximately $4,733,000 from revenues of approximately
$4,214,000 for the six months ended June 30, 1996. The increase in revenues was
primarily attributable to an approximate $246,000 increase in revenues or a
10.2% increase in the Company's revenues in its hospital services division, an
approximate $222,000 increase or a 16.2% increase in the Company's revenues in
its radiation processing of industrial products services, and an approximate
$51,000 increase in revenues or a 11.7% increase in the Company's contract
sterilization services.
Revenues for the three months ended June 30, 1997 increased approximately
$309,000 or 14.3% to approximately $2,467,000 from revenues of approximately
$2,158,000 for the three months ended June 30, 1996. The increase in revenues
was primarily attributable to an approximate $206,000 increase in revenues or a
16.9% increase in the Company's revenues in its hospital services division, an
approximate $139,000 increase or a 20.1% increase in the Company's revenues in
its radiation processing of industrial products services, partially offset by an
approximate $36,000 decrease in revenues or a 14.6% decrease in the Company's
contract sterilization services.
COSTS AND EXPENSES
Total expenses increased approximately $272,000 or 6.4% to approximately
$4,529,439 for the six months ended June 30, 1997 compared to approximately
$4,257,809 for the six months ended June 30, 1996. Operating expenses have
increased approximately $223,000 or 7.6% due to increases in labor and benefits,
and supplies to support the increased sales volume. Selling, general and
administrative expenses have decreased approximately $41,000 or 3.4% due
primarily to certain national marketing expenses being borne by SSI whereas last
year they were borne by the Company and reduced legal expenses. Interest expense
increased approximately $90,000 or 75.6% due to the timing of increased capital
lease expense incurred in the purchase of surgical instruments and the
additional borrowing of $500,000 from TFX Equities, Inc.
11
<PAGE>
MEDICAL STERILIZATION, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS, continued
Total expenses increased approximately $251,000 or 11.9% to approximately
$2,355,424 for the three months ended June 30, 1997 compared to approximately
$2,104,650 for the three months ended June 30, 1996. Operating expenses have
increased approximately $148,000 or 10.1% due to increases in labor and benefits
and supplies to support increased sales volume. Selling, general and
administrative expenses have increased approximately $42,000 or 7.0% due
primarily to an increase in provision for bad debt offset by certain national
marketing expenses being borne by SSI whereas last year they were borne by the
Company and reduced legal expenses. Interest expense increased approximately
$61,000 or 140.2% due to the timing of increased capital lease expense incurred
in the purchase of surgical instruments and the additional borrowing of $500,000
from TFX Equities, Inc..
NET INCOME (LOSS)
APPLICABLE TO COMMON SHAREHOLDERS
Net income applicable to common shareholders was approximately $142,000 or
$.03 per share for the six months ended June 30, 1997 compared to net (loss) of
approximately ($105,000) or ($.04) per share for the six months ended June 30,
1996.
Net income applicable to common shareholders was approximately $81,000 or
$.02 per share for the three months ended June 30, 1997 compared to net income
of approximately $23,000 or $.00 per share for the three months ended June 30,
1996.
12
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MEDICAL STERILIZATION, INC.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(b) There were no reports on Form 8-K filed by the registrant during the
three months ended June 30, 1997.
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 August 13, 1997
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D. Michael Deignan, President/C.E.O. and
Principal Financial Officer
13
