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 September 26, 1999
------------------
|_| 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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SSI SURGICAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer specified in its charter)
NEW YORK 11-2621408
- ------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5776 HOFFNER AVENUE, SUITE 200, ORLANDO, FLORIDA 32822
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(407) 249-1946
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Medical Sterilization, Inc. 225 Underhill Boulevard, Syossett, New York 11791
- --------------------------------------------------------------------------------
(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 |_| No |X|
Number of shares of Common Stock, $.01 par value, outstanding as of Nov. 12,
1999.
19,491,216 shares
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Transitional Small Business Disclosure Format (Check One) Yes |_| No |X|
<PAGE>
SSI SURGICAL SERVICES, INC.
INDEX
Page No.
--------
Part I. Financial Information
Balance Sheets as of Sept. 26, 1999 (unaudited) and
December 31, 1998 (audited).................................. 3
Statements of Operations for the three months and the nine
months ended Sept. 26, 1999 and Sept. 30, 1998
(unaudited).................................................. 4
Statements of Cash Flows for the nine months
ended Sept. 26, 1999 and Sept. 30, 1998
(unaudited).................................................. 5
Notes to Financial Statements................................ 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 9 - 13
Part II. Other Information............................................ 14
Signatures................................................... 15
2
<PAGE>
SSI Surgical Services, Inc.
Balance Sheets
Sept. 26,
1999 December 31,
(Unaudited) 1998
----------- ------------
Assets: (In thousands)
Cash $ 132 $ 57
Accounts receivable, net 7,934 1,967
Prepaid expenses 909 317
-------- --------
Total current assets 8,975 2,341
Fixed assets, net 17,965 6,281
Other assets (principally goodwill) 5,744 129
-------- --------
Total assets $ 32,684 $ 8,751
======== ========
Liabilities and Shareholders Equity:
Accounts payable and accrued expenses $ 3,693 $ 1,612
Current maturities of long-term debt 885 50
Current obligations under capital leases 927 561
Current income taxes payable 199 --
-------- --------
Total current liabilities 5,704 2,223
Long-term debt, less current maturities -- 1,182
Obligations under capital leases 1,305 1,571
Payable to affiliates 11,412 1,550
-------- --------
Total liabilities 18,421 6,526
Convertible redeemable cummulative preferred stock -- 1,945
Convertible preferred stock - series C -- 1,946
Common stock 195 32
Additional paid-in capital 22,911 7,565
Accumulated deficit (8,843) (9,263)
-------- --------
Total shareholders' equity 14,263 280
-------- --------
Total liabilities and equity $ 32,684 $ 8,751
======== ========
See notes to financial statements
3
<PAGE>
SSI Surgical Services, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- -------------------
Sept. 26, Sept. 30, Sept. 26, Sept. 30,
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenues $ 7,518 $ 1,899 $ 22,980 $ 5,795
Cost of revenues 4,932 1,350 14,755 4,221
-------- -------- -------- --------
Gross profit 2,586 549 8,225 1,574
Selling, general and administrative expenses 2,401 641 6,990 1,660
Interest expense, net 283 88 616 323
-------- -------- -------- --------
Income (loss) before income taxes (98) (180) 619 (409)
Income taxes (benefit) (32) -- 199 --
-------- -------- -------- --------
Net income (loss) (66) (180) 420 (409)
Preferred stock dividends -- 27 -- 82
-------- -------- -------- --------
Net income (loss) available for common
shareholders $ (66) $ (207) $ 420 $ (491)
======== ======== ======== ========
Net income (loss) per common share:
Basic Nil (.06) .02 (.15)
Diluted Nil (.06) .02 (.15)
Weighted average common shares outstanding:
Basic 19,491 3,170 19,491 3,170
Diluted 19,491 3,170 19,491 3,170
</TABLE>
See notes to financial statements
4
<PAGE>
SSI Surgical Services, Inc.
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
-------------------------
Sept. 26, Sept. 30,
1999 1998
---------- -----------
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 420 $ (409)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,784 496
Changes in assets and liabilities:
(Increase) decrease in receivables (1,625) 658
(Increase) in prepaid expenses (16) (32)
(Increase) decrease in other assets (853) 8
Increase in accounts payable
and accrued expenses 155 564
Increase in income taxes payable 199 --
------- -------
Net cash provided by operating
activities 1,064 1,285
Cash flows for investing activities:
Capital expenditures (3,503) (68)
------- -------
Net cash used by investing
activities (3,503) (68)
Cash flows from financing activities:
Net repayments of revolving line
of credit -- (483)
Borrowings under short-term
notes payable -- 265
Repayments of long-term debt (347) (852)
Net (repayments) borrowings under
capital lease obligations (648) (79)
Borrowings from affiliate 3,509 --
------- -------
Net cash from (used for)
financing activities 2,514 (1,149)
------- -------
Net increase in cash 75 68
Cash at beginning of period 57 32
------- -------
Cash at end of period $ 132 $ 100
======= =======
See notes to financial statements
5
<PAGE>
SSI SURGICAL SERVICES, INC.
Notes to Financial Statements
(In thousands)
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, 1998.
2. Earnings Per Share Calculation:
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.
3. Acquisitions:
In January, 1999, the Company acquired Endoscopy Specialists, Incorporated
("ESI"), a Florida-based surgical instrument management services firm, and
the remaining 62.5% of the shares of SSI Surgical Services, Inc. ("SSI"),
a joint venture in which the Company had held a 37.5% interest. Both
businesses were acquired from TFX Equities, Incorporated ("TFX"), a wholly
owned subsidiary of Teleflex Incorporated, a diversified publicly held
company, in exchange for 13.4 million common shares of the Company and
warrants for an additional 1.5 million common shares. TFX also converted
the preferred shares of the Company it owned into common shares of the
Company. As a result of this transaction, TFX now owns a majority
(approximately 84.5%) of the outstanding common stock of the Company.
6
<PAGE>
SSI SURGICAL SERVICES, INC.
Notes to Financial Statements (continued)
The acquisition was accounted for as a purchase. Net assets of the
acquired businesses amounted to $13.0 million and the acquisition was
financed through a combination of the equity transactions noted above and
the assumption of approximately $6.5 million of intercompany financing
from TFX. The preliminary excess purchase price over the fair market value
of the assets acquired, approximately $5.1 million, was recorded as
goodwill and will be amortized to expense over 15 years. A preliminary
summary of the net assets acquired follows:
(In thousands)
Current assets $ 5,073
Current liabilities (2,273)
--------
Working capital 2,800
Fixed assets 10,640
Capital leased obligations (401)
--------
Net assets acquired 13,039
Affiliate borrowings assumed 6,508
Retirement of preferred stock (3,891)
Issuance of common stock 15,509
--------
Purchase price 18,126
Excess purchase price (goodwill) $ 5,087
========
The pro forma unaudited results of operations, assuming the acquisition
had occurred in January, 1998 are:
Three Months Nine Months
Ended Ended
Sept. 30, 1998 Sept. 30, 1998
-------------- --------------
(In thousands)
Revenues $ 7,399 $ 21,580
Net Income (loss) $ (40) $ (83)
Net income (loss) per common share Nil Nil
7
<PAGE>
SSI SURGICAL SERVICES, INC.
Notes to Financial Statements (continued)
4. Reclassification:
Certain items in the 1998 financial statements have been reclassified to
conform to the 1999 presentation of the financial statements.
5. Divestiture of Electron Beam Accelerator:
On April 30, 1998, the Company successfully completed divestiture of its
electron beam accelerator and related equipment for the approximate sum of
$1,250. 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, and the residual monies were applied against the Company's financing
agreement with its commercial lender.
8
<PAGE>
SSI SURGICAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(In thousands)
Results of Operations
In January, 1999, the Company acquired Endoscopy Specialists, Incorporated
("ESI") and SSI Surgical Services, Inc. ("SSI"). See footnote 3.
ESI is a surgical instrument management services firm that provides endoscopic
instruments sets and other specialty products to hospitals and other medical
facilities on a per procedure basis. SSI provides a broad menu of services, both
on-site (at customer locations) and off-site (at five SSI facilities), to
hospitals and other facilities. See the Company's Annual Report filed on Form
10-KSB for the year ended December 31, 1998 for a more detailed explanation of
ESI's and SSI's business.
Revenues for the nine months ended Sept. 26, 1999 of $22,980 increased $17,185
or 297%, from revenues of $5,795 for the nine months ended Sept. 30, 1998.
Revenues for the three months ended Sept. 26, 1999 of $7,518 increased $5,619 or
296%, from revenues of $1,899 for the three months ended Sept. 30, 1998.
Cost of Revenues for the nine months ended Sept. 26, 1999 of $14,755 increased
$10,534 or 250%, from cost of revenues of $4,221 in the nine months ended Sept.
30, 1998. Cost of revenues for the three months ended Sept. 26, 1999 of $4,932
increased $3,582 or 265%, from cost of revenues of $1,350 in the three months
ended Sept. 30, 1998. Gross profits increased from 27.2% in the nine months
ended Sept. 30, 1998 to 35.8% in the nine months ended Sept. 26, 1999 and also
increased from 28.9% in the three months ended Sept. 30, 1998 to 34.4% in the
three months ended Sept. 26, 1999.
The increases in revenues and cost of revenues, as well as the higher gross
profits in both comparable periods, are the result of the acquisition of ESI and
SSI in January, 1999.
Selling, general and administrative expenses of $6,990 increased $5,330 or 321%,
from $1,660 of comparable expenses in the nine months ended Sept. 30, 1998.
Selling, general and administrative expenses of $2,401 for the three months
ended Sept. 26, 1999 increased $1,760 or 275%, from the comparable expenses of
$641 reported in the three months ended Sept. 30, 1998. The increases in both
comparable periods reflect the increased general and administrative expenses
resulting from the acquisition of ESI and SSI. Amortization of goodwill amounted
to $325 and $108 in the nine months and three months ended Sept. 26, 1999,
respectively, related to the acquisition of ESI and SSI.
9
<PAGE>
SSI SURGICAL SERVICES, INC.
Management's Discussion and Analysis, etc. (continued)
Interest expense of $616 for the nine months ended Sept. 26, 1999 increased $293
or 91%, from interest expense of $323 reported in the nine months ended Sept.
30, 1998. Interest expense of $283 in the three months ended Sept. 26, 1999
increased $195 or 222%, from interest expense of $88 reported in the three
months ended Sept. 30, 1998. The increase in both comparable periods is due
primarily to increased intercompany financing from TFX assumed in the
acquisition of ESI and SSI.
Net income of $420 in the nine months ended Sept. 26, 1999 increased $829 from
the $409 net loss incurred in the nine months ended Sept. 30, 1998. A net loss
of $66 in the three months ended Sept. 26, 1999 decreased $114 from the net loss
of $180 reported in the three months ended Sept. 30, 1998.
Significant Company and Management Changes:
Effective January 8, 1999, the Company's headquarters and principal place of
business was moved to Orlando, Florida. Management believes this move will help
strengthen the Company's operational, administrative and management information
systems infrastructure.
Effective May 28, 1999, the Company changed its name to SSI Surgical Services,
Inc. Management believes this change will better reflect the range of services
offered by the Company.
Effective August 20, 1999, Scott Bartos, President and Chief Executive Officer
resigned from the Company to pursue other interests. Effective September 9,
1999, Todd Riddell was elected Senior Vice President and Chief Operating Officer
of the Company. Mr. Riddell was formerly a senior vice president of the Company.
10
<PAGE>
SSI SURGICAL SERVICES, INC.
Management's Discussion and Analysis, etc. (continued)
Liquidity and Capital Resources
Current assets increased $6,634 or 283%, from $2,341 at December 31, 1998 to
$8,975 at Sept. 27, 1999. Current liabilities increased $3,481 or 157%, from
$2,223 at December 31, 1998 to $5,704 at Sept. 26, 1999. Working capital
improved, from a current ratio of 1.05 at December 31, 1998 to a current ratio
of 1.57 at Sept. 26, 1999.
The increase in current assets and current liabilities, as well as the
improvement in working capital, are a result of the acquisition of ESI and SSI
in January 1999.
Effective December 1998, the Company has a $1,300 loan from TFX, due January
2000, and a revolving loan agreement for up to $750, due in no more than two
years. Effective with the acquisition of ESI and SSI in January 1999, the
Company assumed approximately $6.5 million of intercompany financing from TFX
and Teleflex is providing the Company with intercompany divisional cash
management, whereby all cash receipts and cash disbursements are coordinated by
Teleflex and interest, at 8 percent, is either charged or credited to the
Company each month on the net intercompany balance. While there is no guarantee
or obligation by Teleflex to provide these services or financing in the future,
management believes that the Company will continue to receive support from
Teleflex for its external financing needs.
Management plans to purchase additional surgical instruments and invest in other
growth initiatives for the Company. 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
generate cash flows from operating activities or that external financing will be
available from Teleflex, or any other source, or on acceptable terms to the
Company.
Year 2000 Issue
The Company is dependent on computer systems and applications to conduct its
business. Some computer systems and applications include programming code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are commonly referred to as the "Millennium Bug" or "Year 2000
Problem."
The Company is currently executing a risk-based plan designed to make its
computer systems, applications and facilities Year 2000 ready. The plan covers
four stages including (i) identification, (ii) assessment, (iii) remediation,
and (iv) testing.
11
<PAGE>
SSI SURGICAL SERVICES, INC.
Management's Discussion and Analysis, etc. (continued)
The Company has identified substantially all of the major computers, software
applications, and related equipment used in connection with its internal
operations that must be modified, upgraded, or replaced to minimize the
possibility of a material disruption to its business. The Company has completed
the assessment and is in the process of modifying, upgrading, and replacing
major systems that have been identified as adversely affected.
In addition to computers and related systems, the operation of sterilization
equipment, other plant floor equipment and office equipment, such as fax
machines, photocopiers, security systems, and other common devices may be
affected by the Year 2000 Problem. The Company is currently assessing the
potential effects of the Year 2000 Problem on this type of equipment and any
needed remediation is underway.
The Company has incurred costs to date of approximately $250 through Sept. 26,
1999, and estimates the total cost of any required modifications, upgrades, or
replacements of its internal systems will be approximately $260. While the
estimated cost of these efforts are not expected to be material to the Company's
financial position or any year's results of operations, there can be no
assurance to this effect. The estimated cost will be monitored and will be
revised as additional information becomes available.
The Company has initiated communications with its major customers and suppliers
to determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 Problems. There can be no
assurance that these customers and suppliers will resolve any or all Year 2000
Problems with its systems before the occurrence of a material disruption to the
business of the Company. Any failure of these customers and suppliers to resolve
Year 2000 Problems with their systems in a timely manner could have a material
adverse effect on the Company's business, financial condition, and results of
operation.
The Company is also developing contingency plans to be implemented as part of
its efforts to identify and correct Year 2000 Problems affecting its internal
systems. Depending on the systems affected, these plans include accelerated
replacement of affected equipment or software, the use of Year 2000 compliant
backup equipment and software, increased work hours for Company personnel and/or
the use of contract personnel to accelerate remedial actions on any Year 2000
Problems.
The discussion of the Company's efforts, and management's expectations, related
to Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.
12
<PAGE>
SSI SURGICAL SERVICES, INC.
Management's Discussion and Analysis, etc. (continued)
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.
13
<PAGE>
SSI SURGICAL SERVICES, INC.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-KSB
(b) There were no reports on Form 8-KSB filed by the registrant during
the three months ended September 26, 1999.
14
<PAGE>
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 SSI SURGICAL SERVICES, 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.
SSI SURGICAL SERVICES, INC.
Date 11/15/99 /s/ Todd Riddell
-----------------------------------------
Todd Riddell
Senior Vice President and
Chief Operating Officer
/s/ Paul A. D'Alesio
-----------------------------------------
Paul A. D'Alesio
Treasurer and
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SSI Surgical
Services, Inc. Form 10QSB quarter ended September 26, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> JUN-28-1999
<PERIOD-END> SEP-26-1999
<CASH> 132
<SECURITIES> 0
<RECEIVABLES> 7,934
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,975
<PP&E> 26,244
<DEPRECIATION> 8,279
<TOTAL-ASSETS> 32,684
<CURRENT-LIABILITIES> 5,704
<BONDS> 12,717
0
0
<COMMON> 195
<OTHER-SE> 14,068
<TOTAL-LIABILITY-AND-EQUITY> 32,684
<SALES> 0
<TOTAL-REVENUES> 7,518
<CGS> 0
<TOTAL-COSTS> 4,932
<OTHER-EXPENSES> 2,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (98)
<INCOME-TAX> (32)
<INCOME-CONTINUING> (66)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
