UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
|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
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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|
<PAGE>
MEDICAL STERILIZATION, INC.
INDEX
Page No.
--------
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
2
<PAGE>
MEDICAL STERILIZATION, INC.
Balance Sheet
March 31, 1997
(unaudited)
--------------
ASSETS
------
Current assets
Cash $ 22,264
Accounts receivable, less allowance for
doubtful accounts of $207,850 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
<PAGE>
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
<PAGE>
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
<PAGE>
MEDICAL STERILIZATION, INC.
Statements of Cash Flows
(Unaudited)
For the three months
ended March 31,
--------------------
1997 1996
---- ----
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 54,944 407,265
--------- ---------
Net cash provided by
operating activities 87,894 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)
--------- ---------
0
--------- ---------
Net cash provided by
financing activities 224,102 165,921
--------- ---------
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
========= =========
See notes to financial statements
6
<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 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 of
approximately 2,133,000 shares 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
<PAGE>
In April 1997, the Company entered into a joint marketing agreement and
an agreement to sell its contract sterilization services to E-BEAM
Services, Inc. effective December 31, 1997. 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
<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 $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
<PAGE>
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 contract sterilization services, an approximate
$82,000 or 12.1% increase in revenues in the Company's radiation processing of
industrial products services, 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
<PAGE>
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 September 5, 1997
/s/ D. Michael Deignan
----------------------------------------
D. Michael Deignan, President/C.E.O. and
Principal Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<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
0
1,698,840
<COMMON> 31,704
<OTHER-SE> 1,275,176
<TOTAL-LIABILITY-AND-EQUITY> 8,124,817
<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> $0.02
<EPS-DILUTED> $0.01
</TABLE>
