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 quarter ended MARCH 31, 1998
|_| 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
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(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
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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 |_|
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, 1998 (unaudited) .............. 3 - 4
Statements of Operations for the three months
ended March 31, 1998 and March 31, 1997 (unaudited) ........ 5
Statements of Cash Flows for the three months ended
March 31, 1998 and March 31, 1997 (unaudited) .............. 6
Notes to Financial Statements ............................... 7 - 8
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, 1998
(unaudited)
--------------
ASSETS
------
Current assets
Cash $ 62,229
Accounts receivable, less allowance for
doubtful accounts of $152,539 1,925,883
Inventory 47,353
Prepaid expenses 274,698
Assets held for sale 1,250,000
----------
Total current assets 3,560,163
----------
Fixed assets, at cost, less accumulated
depreciation and amortization 5,295,159
Other assets 128,815
----------
Total assets $8,984,137
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses $1,091,452
Short term note payable 71,663
Current maturities of long-term debt 714,336
Current obligation under capital lease 486,365
----------
Total current liabilities 2,363,816
----------
Long-term liabilities
Long-term debt, less current maturities 1,312,097
Obligation under capital lease 1,780,734
----------
Total liabilities 5,456,647
----------
Commitment and contingencies:
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 1,777,504
----------
Continued
See notes to financial statements
3
<PAGE>
MEDICAL STERILIZATION, INC.
Balance Sheet
Continued
March 31, 1998
(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 7,732,984
Accumulated deficit (7,960,327)
-----------
Shareholders' equity 1,749,986
-----------
Total liabilities and shareholders' equity $ 8,984,137
===========
See notes to financial statements
4
<PAGE>
MEDICAL STERILIZATION, INC.
Statements of Operations
(Unaudited)
For the three months
ended March 31,
--------------------------
1998 1997
----------- -----------
Income
Revenue $ 2,011,102 $ 2,266,015
----------- -----------
2,011,102 2,266,015
Costs and Expenses
Operating 1,240,759 1,443,621
Distribution 176,632 110,765
Selling, general and administrative 477,209 516,167
Interest 116,104 103,462
----------- -----------
2,010,704 2,174,015
----------- -----------
Income before income taxes 398 92,000
Income taxes 0 0
----------- -----------
Net income 398 92,000
Preferred stock dividends 27,381 30,888
----------- -----------
Net (loss) income applicable to common
shareholders $ (26,983) $ 61,112
=========== ===========
Earnings per common shares - basic $ (.01) $ .02
=========== ===========
Earnings per common shares - diluted $ (.01) $ .01
=========== ===========
Weighted average common shares 3,170,496 3,120,496
=========== ===========
Weighted dilutive common shares 5,276,261 5,185,022
=========== ===========
See notes to financial statements
5
<PAGE>
MEDICAL STERILIZATION, INC.
Statements of Cash Flows
(Unaudited)
For the three months
ended March 31,
----------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 398 $ 92,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 155,875 188,097
Changes in assets and liabilities:
Decrease in receivables 465,250 (36,754)
Decrease in inventory 23,250 15,934
(Increase) in prepaid expenses (169,654) (140,558)
Decrease in other assets 10,881 (85,769)
Increase in accounts payable and accrued
expenses 160,277 54,944
--------- ---------
Net cash provided by operating
activities 646,277 87,894
--------- ---------
Cash flows from investing activities:
Capital expenditures (271,699) (365,435)
--------- ---------
Net cash used in investing activities (271,699) (365,435)
--------- ---------
Cash flows from financing activities:
Net (repayments) proceeds from revolving line
of credit (137,912) 107,633
Borrowings (repayments) under short-term notes
payable 21,663 (35,466)
(Repayments) borrowings of long-term debt (137,500) 199,067
Net (repayments) under capital lease obligations (91,046) (47,132)
--------- ---------
Net cash (used) provided by financing
activities (344,795) 224,102
--------- ---------
Net increase (decrease) in cash 29,783 (53,439)
Cash at beginning of period 32,446 75,703
--------- ---------
Cash at end of period $ 62,229 $ 22,264
========= =========
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, 1997.
2. 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. SFAS No. 128 requires presentation of both basic and
diluted earnings per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed in a
similar manner except that the weighted average number of common shares is
increased for dilutive securities. Potentially dilutive securities for the
1998 computation of diluted earnings per share consist of options for
approximately 160,140 shares and Series C Convertible Preferred Stock for
approximately 1,945,625 shares. Potentially dilutive securities for the
1997 computation of diluted earnings per share consist of options for
approximately 118,901 shares and Series C Convertible Preferred Stock for
approximately 1,945,625 shares. Series B Preferred Stock was excluded from
the 1998 and 1997 calculation of diluted earnings per share since the
result would be anti-dilutive.
3. Subsequent Events:
On April 30, 1998, the Company successfully completed divestiture of its
electron beam accelerator and related equipment for the approximate sum of
$1,250,000. The proceeds of the sale were immediately used by the Company to
repay the entire balance of a bank note against the beam for approximately
$402,000, with the residual monies to be applied against the Company's financing
agreement with its commercial lender.
7
<PAGE>
The sale of the beam completes the decision by the Company's Board of Directors
to focus the Company on its core Instrument Set sterilization processing
business. In conjunction with this decision, the Company evaluated opportunities
to maximize the value of its electron beam businesses, including its contract
sterilization of disposable medical products units and its radiation processing
of industrial products unit. As a result, as of April 9, 1997, the Company
entered into a joint marketing program with E-BEAM Services, Inc.("E-BEAM") to
provide stability for its remaining contract sterilization and industrial
processing 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
commissions earned at up to 15% of related revenues from January 1, 1998 to
December 31, 1999. At the time of the agreement with E-BEAM, the Company also
received a $150,000 deposit on the sale which is nonrefundable.
With the consummation of the sale of the electron beam accelerator and the
remaining contract sterilization and industrial processing business to E-BEAM,
the Company will be relying on revenues from its sterilization processing of
Surgical Instrument Sets. Revenues from the business divested approximated
$4,100,000 and $3,800,000 for the years ended December 31, 1997 and 1996,
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 decreased approximately $289,000 to $3,560,163 at
March 31, 1998 compared to $3,849,226 at December 31, 1997. The decrease was
primarily due to an approximate $465,250 decrease in accounts receivable offset
partially by an approximate $169,654 increase in prepaid expenses. The Company
had positive working capital of approximately $1,196,347 at March 31, 1998
compared to approximately $1,529,850 at December 31, 1997. This decrease of
approximately $333,503 was the result of the decrease in accounts receivable of
approximately $465,250 offset in part by the increase in prepaid expenses.of
approximately $169,654. There was a decrease in the working capital and current
ratio, to 1.51 to 1 at March 31, 1998 versus 1.66 to 1 at December 31, 1997.
This was directly the result of the decrease in accounts receivable and
offsetting increase in prepaid expenses described above.
The Company currently plans to expand its business by increasing its
portfolio of reprocessing services to include new service offerings such as
consulting, on-site management services and EtO sterilization. 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 and
the completion of the sale of the electron beam accelerator in April, 1998, will
be sufficient to meet working capital requirements during 1998. 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.
Management plans to purchase additional surgical instruments, as and if
required to support the Company's hospital sterilization growth objectives. Cash
flows from operating activities will provide support for these expenditures,
however, additional external financing may also be required. 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.
9
<PAGE>
RESULTS OF OPERATIONS
REVENUES
Revenues for the three months ended March 31, 1998 decreased approximately
$255,000 or 11.3% to approximately $2,011,000 from revenues of approximately
$2,266,000 for the three months ended March 31, 1997. The decrease in revenues
was attributable to an approximate $655,000 decrease in revenues or a 62.9%
decrease in the Company's contract sterilization and radiation processing of
industrial products services in line with the Company's decision to divest this
business, offset by an approximate $400,000 or 32.7% increase in the Company's
revenue in its hospital services division.
COSTS AND EXPENSES
Total expenses decreased approximately $163,000 or 7.5% to approximately
$2,011,000 for the three months ended March 31, 1998 compared to approximately
$2,174,000 for the three months ended March 31, 1997. Operating expenses have
decreased approximately $203,000 or 14.1% due to a reduction in salary, utility
and other costs related to the divestiture of the electron beam accelerator
partially offset by increases in salaries and supplies to support the increased
sales volume in the hospital services division. Distribution costs have
increased approximately $66,000 or 59.5% due to increased sales volume in the
hospital services division. Selling, general and administrative expenses have
decreased approximately $39,000 or 7.6% due primarily to reduced administrative
salary expenditure attributed to the hospital services division. Interest
expense increased approximately $13,000 or 12.2% due to increased capital leases
used to purchase surgical instruments.
NET (LOSS) INCOME APPLICABLE TO COMMON SHAREHOLDERS
Net loss applicable to common shareholders was approximately ($27,000) or
($.01) per share on a diluted basis compared to net income applicable to common
shareholders of approximately $61,000 or $.01 per share for the three months
ended March 31, 1997 on a diluted basis. Basic earnings per share for the three
months ended March 31, 1998 represented a net loss per share of approximately
($.01) compared to net income per share of approximately $.02 for the three
months ended March 31, 1997.
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,
1998.
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.
This Form 10-QSB contains statements concerning certain trends and other
forward-looking information affecting or relating to the Company and its
industry that are intended to qualify for the protections afforded
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. There are many important factors that could cause actual results to
differ materially from those in the forward-looking statements. Many of these
important factors are outside MEDICAL STERILIZATION, INC.'s control. Changes in
market conditions, including competitive factors and changes in government
regulations, could cause actual results to differ materially from the Company's
expectations. No assurance can be provided as to any future financial results.
MEDICAL STERILIZATION, INC.
/s/ D. Michael Deignan
-----------------------------------------
Date May 14, 1998 D. Michael Deignan, President/C.E.O. and
Principal Financial Officer
/s/ Ivan Zubin
-----------------------------------------
Ivan Zubin, Director of Finance and
Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 62,229
<SECURITIES> 0
<RECEIVABLES> 2,078,422
<ALLOWANCES> (152,539)
<INVENTORY> 47,353
<CURRENT-ASSETS> 3,560,163
<PP&E> 10,559,423
<DEPRECIATION> (5,264,264)
<TOTAL-ASSETS> 8,984,137
<CURRENT-LIABILITIES> 2,363,816
<BONDS> 0
0
1,777,504
<COMMON> 31,704
<OTHER-SE> 1,718,282
<TOTAL-LIABILITY-AND-EQUITY> 8,984,137
<SALES> 2,011,102
<TOTAL-REVENUES> 2,011,102
<CGS> 1,240,759
<TOTAL-COSTS> 1,894,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,104
<INCOME-PRETAX> 398
<INCOME-TAX> 0
<INCOME-CONTINUING> 398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,983)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
