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 28, 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 October 22,
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 March 28, 1999 (unaudited) and
December 31, 1998 (audited)................................ 3
Statements of Operations for the three months
ended March 28, 1999 and March 31, 1998
(unaudited)................................................ 4
Statements of Cash Flows for the three months
ended March 28, 1999 and March 31, 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
March 28
1999 December 31
(Unaudited) 1998
----------- -------------
(In thousands)
Assets:
Cash $ 175 $ 57
Accounts receivable, net 6,107 1,967
Prepaid expenses 878 317
-------- --------
Total current assets 7,160 2,341
Fixed assets, net 17,044 6,281
Other assets (principally goodwill) 5,257 129
-------- --------
Total assets $ 29,461 $ 8,751
======== ========
Liabilities and Shareholders Equity:
Accounts payable and accrued expenses $ 2,810 $ 1,612
Current maturities of long-term debt 1,307 50
Current obligations under capital leases 1,136 561
Current income taxes payable 106 --
-------- --------
Total current liabilities 5,359 2,223
Long-term debt, less current maturities -- 1,182
Obligations under capital leases 1,758 1,571
Payable to affiliates 8,275 1,550
-------- --------
Total liabilities 15,392 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 (9,037) (9,263)
-------- --------
Total shareholders' equity 14,069 280
-------- --------
Total liabilities and equity $ 29,461 $ 8,751
======== ========
See notes to financial statements
3
<PAGE>
SSI Surgical Services, Inc.
Statements of Operations
(Unaudited)
Three Months Ended
------------------------
March 28 March 31
1999 1998
---------- ----------
(In thousands)
Revenues $ 7,715 $ 2,011
Cost of revenues 4,820 1,418
------- -------
Gross profit 2,895 593
Selling, general and administrative expenses 2,401 477
Interest expense, net 162 116
------- -------
Income (loss) before income taxes 332 --
Income taxes 106 --
------- -------
Net income (loss) 226 --
Preferred stock dividends -- 28
------- -------
Net income (loss) available for common
shareholders $ 226 $ (28)
======= =======
Net income (loss) per common share:
Basic .01 (.01)
Diluted .01 (.01)
Weighted average common shares outstanding:
Basic 19,491 3,170
Diluted 19,491 3,170
See notes to financial statements
4
<PAGE>
SSI Surgical Services, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
March 28 March 31
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 226 --
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 925 $ 156
Changes in assets and liabilities:
Decrease in receivables 202 465
Decrease (increase) in prepaid expenses 15 (146)
(Increase) decrease in other assets (149) 11
(Decrease) increase in accounts payable
and accrued expenses (728) 160
Increase in income taxes payable 106 --
-------- --------
Net cash provided by operating activities 597 646
Cash flows for investing activities:
Net capital expenditures (940) (271)
Net cash used in investing activities (940) (271)
-------- --------
Cash flows from financing activities:
Net repayments of revolving line of credit -- (138)
Borrowings under short-term notes payable -- 22
Borrowings (repayments) of long-term debt 75 (138)
Net borrowings (repayments) under capital lease obligations 14 (91)
Borrowings from affiliate 372 --
-------- --------
Net cash provided by (used in) financing activities 461 (345)
-------- --------
Net increase in cash 118 30
Cash at beginning of period 57 32
-------- --------
Cash at end of period $ 175 $ 62
======== ========
</TABLE>
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. Acquisition:
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
occurred in January, 1998 are:
Three Months
Ended
March 31, 1998
--------------
Revenues $6,927
Net income (loss) $ (42)
Net income (loss) per common share Nil
7
<PAGE>
SSI SURGICAL SERVICES, INC.
Notes to Financial Statements (continued)
4. Reclassifications:
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 Conditions
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 increased $5,704 or 284%, from $2,011 in the three months ended March
31, 1998 to $7,715 in the three months ended March 28, 1999. Cost of revenues
increased $3,402 or 240%, from $1,418 in the three months ended March 31, 1998
to $4,820 in the three months ended March 28, 1999. Both the increase in
revenues and the increase in cost of revenues are a result of the acquisition of
ESI and SSI in January, 1999.
Gross profit increased from 29.5% of revenues in the three months ended March
31, 1998, to 37.5% of revenues in the three months ended March 28, 1999. The
increase in gross profit reflects the higher gross margin contribution of the
newly acquired ESI and SSI businesses.
Selling, general and administrative increased $1,924 or 403%, from $477 in the
three months ended March 31, 1998 to $2,401 in the three months ended March 28,
1999. The increase in selling, general and administrative expenses result from
the acquisition of ESI and SSI, including approximately $108 amortization of
goodwill in the three months ended March 28, 1999, related to the acquisition of
ESI and SSI.
Interest expense increased $46 or 39.7%, from $116 in the three months ended
March 31, 1998 to $162 in the three months ended March 28, 1999, primarily as a
result of the increased intercompany financing from TFX assumed in connection
with the acquisition of ESI and SSI.
Net income increased to $226 in the three months ended March 28, 1999, compared
to breakeven net income for the three months ended March 31, 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.
9
<PAGE>
SSI SURGICAL SERVICES, INC.
Management's Discussion and Analysis, etc. (continued)
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 $4,819 or 206%, from $2,341 at December 31, 1998 to
$7,160 at March 28, 1999. Current liabilities increased $3,136 or 141%, from
$2,223 at December 31, 1998 to $5,359 at March 28, 1999. Working capital
improved, from a current ratio of 1.05 at December 31, 1998 to a current ratio
of 1.34 at March 28, 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 $130 through March 28,
1999, and estimates the total cost of required modifications, upgrades, or
replacements of its internal systems will be approximately $250. 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On January 8, 1999 a Special Meeting of Shareholders was held.
(b) The meeting did not involve the election of directors.
(c) At the meeting the shareholders authorized the Acquisition Agreement
dated November 19, 1998 between the Company and TFX Equities
Incorporated and a Certificate of Amendment to the Company's
Restated Certificate of Incorporation increasing the number of
authorized shares of Common Stock, par value $.01 per share, of the
Company. The following votes were cast in favor of the proposal:
4,118,159; 97,198 votes were cast in opposition; and abstentions
totaled 12,068.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-KSB
(a) Exhibits
1. The Acquisition Agreement dated November 19, 1998 between the
Company and TFX Equities Incorporated was filed as Exhibit 1
to Form 8-KSB filed on January 11, 1999 and is incorporated
herein by reference.
2. The Certificate of Amendment to the Company's Restated
Certificate of Incorporation was filed as Exhibit (3)(7) to
Form 10-KSB for the year ended December 31, 1998 and is
incorporated herein by reference.
(b) Reports on Form 8-KSB
1. The Company filed a Form 8-KSB on January 11, 1999 and an
amended Form 8-KSB on June 24, 1999, both related to its
acquisition of Endoscopy Specialists, Incorporated and SSI
Surgical Services, Inc.
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 11/10/99 /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 10-QSB Quarter Ended March 28, 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> JAN-01-1999
<PERIOD-END> MAR-28-1999
<CASH> 175
<SECURITIES> 0
<RECEIVABLES> 6,107
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,160
<PP&E> 23,682
<DEPRECIATION> 6,638
<TOTAL-ASSETS> 29,461
<CURRENT-LIABILITIES> 5,359
<BONDS> 10,033
0
0
<COMMON> 195
<OTHER-SE> 13,874
<TOTAL-LIABILITY-AND-EQUITY> 29,461
<SALES> 0
<TOTAL-REVENUES> 7,715
<CGS> 0
<TOTAL-COSTS> 4,820
<OTHER-EXPENSES> 2,401
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162
<INCOME-PRETAX> 332
<INCOME-TAX> 106
<INCOME-CONTINUING> 226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
