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 MARCH 31, 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
--------------
MEDICAL STERILIZATION, INC.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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,
1997.
3,170,496 shares
-------------
Transitional Small Business Disclosure Format (Check One) Yes No X
MEDICAL STERILIZATION, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page No.
-------
<S> <C> <C>
Part I. Financial Information
Balance Sheet as of March 31, 1997 (unaudited). . . . . . . . . . . . . . . 3 - 4
Statements of Operations for the three months
ended March 31, 1997 and March 31, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows for the three months ended March 31,
1997 and March 31, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 8 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . 9 - 10
Part II. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
MEDICAL STERILIZATION, INC.
Balance Sheet
-------------
March 31, 1997
(unaudited)
ASSETS --------------
------
Current assets
Cash $ 22,264
Accounts receivable, less allowance for
doubtful accounts of $105,141 2,445,809
Inventory 105,141
Prepaid expenses 177,938
------------
Total current assets 2,751,152
Fixed assets, at cost, less accumulated
depreciation and amortization 5,127,477
Other assets 246,188
------------
Total assets $8,124,817
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $1,654,494
Short term note payable 97,579
Current maturities of long-term debt 2,007,944
Current obligation under capital lease 168,160
------------
Total current liabilities 3,928,177
Long-term liabilities
Long-term debt, less current maturities 531,676
Obligation under capital lease 659,244
-----------
Total liabilities 5,119,097
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 1,698,840
----------
Continued
See notes to financial statements
3
MEDICAL STERILIZATION, INC.
Balance Sheet
-------------
Continued
March 31, 1997
(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 3,170,496 shares 31,704
Additional paid-in capital 7,811,648
Accumulated deficit (8,482,097)
Shareholders' equity 1,306,880
Total liabilities and shareholders' equity $8,124,817
See notes to financial statements
4
MEDICAL STERILIZATION, INC.
Statements of Operations
--------------------------
(Unaudited)
For the three months
ended March 31,
------------------------
1997 1996
--------- ----------
Income
- ------
Revenue $2,266,015 $2,056,090
2,266,015 2,056,090
Costs and Expenses
Operating 1,554,386 1,479,086
Selling, general and administrative 516,167 599,081
Interest 103,462 74,992
2,174,015 2,153,159
Income (loss) before income taxes 92,000 (97,069)
Income taxes 0 0
--------------------------
Net income (loss) 92,000 (97,069)
Preferred stock dividends 30,888 30,888
--------------------------
Net income (loss) applicable to common
shareholders $ 61,112 $ (127,957)
==========================
Weighted average shares of common stock
outstanding 5,289,415 2,980,496
--------------------------
Net income (loss) per share of common
stock (Note 2) $ 01 $ (.04)
==========================
See notes to financial statements
5
MEDICAL STERILIZATION, INC.
Statements of Cash Flows
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 92,000 $(97,069)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 188,097 151,098
Changes in assets and liabilities:
(Increase) in receivables (36,754) (162,671)
Decrease in inventory 15,934 6,523
(Increase) in prepaid expenses (140,558) (223,710)
(Increase) in other assets ( 85,769) ( 6,200)
Increase in accounts payable
and accrued expenses (245,056) 407,265
--------- ---------
Net cash provided by
operating activities (212,106) 75,236
--------- ---------
Cash flows from investing activities:
Capital expenditures (365,435) (406,966)
--------- ---------
Net cash used in investing
activities (365,435) (406,966)
--------- ---------
Cash flows from financing activities:
Borrowing (repayment) under
financing agreement 107,633 (362,360)
(Repayment) borrowing under
short-term notes payable ( 35,466) 81,514
Borrowing of long-term debt 199,067 456,018
Principal payments under capital lease
obligations ( 47,132) ( 9,251)
Sale of stock in exchange for debt 300,000 0
--------- ---------
Net cash provided by
financing activities 524,102 165,921
--------- ---------
Net (decrease) in cash ( 53,439) ( 165,809)
Cash at beginning of period 75,703 175,390
--------- ----------
Cash at end of period $ 22,264 $ 9,581
========= ==========
</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, 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,
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 have been included for the computation of
net income per share for March 31, 1997. Common stock equivalents
have been excluded from the computation of net income per share of
common stock for March 31, 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. Management has not yet evaluated the effects of this
change on the Company's financial statements.
4. Subsequent Events:
In April 1997 the Company entered into a master operating 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% which is set at
each draw down. The lease agreement is guaranteed by Teleflex,
Inc.
7
In April 1997 the Company entered into a joint marketing agreement
with E-Beam Services Inc. for its contract sterilization business.
Under the terms of the agreement the Company will receive a
maximum purchase price of $350,000 for the business based on a
schedule of royalties earned at up to 15% of related revenues from
January 1, 1998 to December 31, 1999. The Company received a
$150,000 deposit on the sale which is nonrefundable and is to be
applied to the first $150,000 of royalties. The Company is
obligated to pay commissions of 10% of revenues in excess of
$50,000 per month of contract sterilization business during the
period of April 17, 1997 and the expiration of the Company's toll
processing agreement.
Upon consummation of the sale of the electron beam accelerator
(see 1996 10-KSB) to Shamrock and the remaining contract
sterilization and industrial processing business to E-BEAM (see
above), the Company will be relying on revenues from its
sterilization processing of Surgical Instrument Sets. Revenue
generated by the Accelerator to be sold approximated $3,900,000
and $4,061,000 in 1996 and 1995, respectively.
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 $108,000 to $2,751,152 at
March 31, 1997 compared to $2,643,213 at December 31, 1996. The increase
was primarily due to a $140,558 increase in prepaid expenses (primarily
insurance) offset partially by a $53,439 decrease in cash. The Company had
negative working capital of approximately ($1,177,025) at March 31, 1997
compared to approximately $292,458 at December 31, 1996. This decrease of
approximately $1,469,483 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
and a decrease of $53,439 in cash offset by a $140,558 increase in prepaid
expenses (primarily insurance) and an increase of $36,754 in accounts
receivable. There was a decrease in the working capital ratio, to .70 to 1
at March 31, 1997 versus 1.12 to 1 at December 31, 1996. This was directly
the result of the loan reclassifications described above.
In February 1997 the Company issued an additional 150,000 shares of its
common stock to TFX Equities, Inc., for $2.00 per share. The shares were
used to reduce accounts payable owed to another subsidiary of Teleflex,
Inc., incurred for instrument purchases.
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%
which is set at each draw down. The lease agreement is guaranteed by
Teleflex, Inc.
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 EtO sterilization and consulting services. 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.
9
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.
RESULTS OF OPERATIONS
REVENUES
Revenues for the three months ended March 31, 1997 increased
approximately $209,000 or 10% to approximately $2,266,000 from revenues of
approximately $2,056,000 for the three months ended March 31, 1996. The
increase in revenues was attributable to an approximate $87,000 increase in
revenues or a 45.7% increase in the Company's radiation processing of
industrial products business, an approximate $82,000 or 12.1% increase in
revenues in the Company's contract sterilization business, and an
approximate $40,000 or 3.4% increase in the Company's revenue in its
hospital services division.
COSTS AND EXPENSES
Total expenses increased approximately $21,000 or 1% to approximately
$2,174,000 for the three months ended March 31, 1997 compared to
approximately $2,153,000 for the three months ended March 31, 1996.
Operating expenses have increased approximately $75,000 or 5.1% due to
increases in salaries and supplies to support the increased sales volume.
Selling, general and administrative expenses have decreased approximately
$83,000 or 13.8% due primarily to certain national marketing expenses being
borne by Teleflex, Inc. whereas last year they were borne by MSI and at
reduced legal expenses. Interest expense increased approximately $28,000 or
37.9% due to increased capital leases used to purchase 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 $61,000
or $.01 per share for the three months ended March 31, 1997 compared to net
(loss) of approximately ($128,000) or ($.04) per share for the three months
ended March 31, 1996.
10
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 three months ended March
31, 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 May 12, 1997 D. Michael Deignan, President/C.E.O.
------------------------------------
Date May 12, 1997 Paul V. Rossi, Treasurer and Chief
Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 22,264
<SECURITIES> 0
<RECEIVABLES> 2,550,950
<ALLOWANCES> (105,141)
<INVENTORY> 105,141
<CURRENT-ASSETS> 177,938
<PP&E> 13,086,790
<DEPRECIATION> (7,959,313)
<TOTAL-ASSETS> 8,124,817
<CURRENT-LIABILITIES> 3,928,177
<BONDS> 0
31,704
0
<COMMON> 1,698,840
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,817,937
<SALES> 2,266,015
<TOTAL-REVENUES> 2,266,015
<CGS> 1,554,386
<TOTAL-COSTS> 2,070,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,462
<INCOME-PRETAX> 92,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 92,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,112
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
