SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 11, 1999
MEDICAL STERILIZATION, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 2-85008-NY 11-2621408
(State or other (Commission (IRS employer
jurisdiction of file number) identification no.)
incorporation or
organization)
225 UNDERHILL BOULEVARD
SYOSSET, NEW YORK 11791
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code:
(516) 496-8822
<PAGE>
On January 26, 1999, the Registrant filed with the Securities and Exchange
Commission, a Current Report on Form 8-K reporting, among other things, its
acquisition of Endoscopy Specialists Incorporated and SSI Surgical Services,
Inc. on January 11, 1999. The Registrant stated in such report that it would
file financial statements on the companies acquired by amendment, as permitted
under Form 8-K, Item 7. The purpose of this amendment is to file such financial
statements.
ITEM 7. PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENT OF THE BUSINESSES ACQUIRED
The Report of Independent Accountants dated April 16, 1999, and the
following audited financial statements of Endoscopy Specialists, Inc. and SSI
Surgical Services, Inc. are included herein:
(i) Report of Independent Accountants;
(ii) Combined Balance Sheet at December 31, 1998 and 1997;
(iii) Combined Statement of Operations for the years ended December 31,
1998 and 1997;
(iv) Combined Statement of Shareholders' Investment for years ended
December 31, 1998 and 1997;
(v) Combined Statement of Cash Flows for the years ended December 31,
1998 and 1997; and
(vi) Notes to the Combined Financial Statements
(b) EXHIBITS
The following Exhibits are filed herewith:
27 Financial Data Schedule
The Report of Independent Accountants dated April 16, 1999, and the
audited financial statements of Sterilization Management Group.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned hereunder duly authorized.
MEDICAL STERILIZATION, INC.
Date: June 24, 1999 By: /s/ Scott Bartos
----------------------------------------
Name: Scott Bartos
Title: President and Chief Executive Officer
<PAGE>
Endoscopy Specialists
Incorporated, and
SSI Surgical Services
Incorporated
Combined Financial Statements
December 31, 1998 and 1997
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Index to the Combined Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Page(s)
Combined Financial Statements:
Report of Independent Accountants 1
Combined Balance Sheet at December 31, 1998 and 1997 2
Combined Statement of Operations for the years ended
December 31, 1998 and 1997 3
Combined Statement of Shareholders' Investment 4
Combined Statement of Cash Flows 5
Notes to the Combined Financial Statements 6-11
<PAGE>
[Letterhead of PricewaterhouseCoopers LLP]
Report of Independent Accountants
To the Board of Directors
of Teleflex Incorporated
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in shareholders' investment and of
cash flows present fairly, in all material respects, the combined financial
position of Endoscopy Specialists Inc. and SSI Surgical Services, Inc., at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Companies' managements. Our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
April 16, 1999
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Combined Balance Sheet
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 155,441 $ 175,155
Accounts receivable, net of allowance for doubtful accounts
of $135,000 and $30,000 4,341,663 1,108,095
Prepaid expenses and other assets 418,032 76,812
Deferred income taxes 157,868 151,753
----------- -----------
Total current assets 5,073,004 1,511,815
Property and equipment, net 10,639,888 1,674,477
Intangibles, net 1,655,047 1,781,365
----------- -----------
$17,367,939 $ 4,967,657
=========== ===========
Liabilities and Shareholders' Investment
Current liabilities:
Accounts payable $ 1,127,957 $ 287,782
Accrued expenses 798,241 323,384
Current portion of capital lease obligations 346,600 112,018
----------- -----------
Total current liabilities 2,272,798 723,184
Capital lease obligations 401,425 190,692
----------- -----------
Total liabilities 2,674,223 913,876
----------- -----------
Net shareholders' investment 14,693,716 4,053,781
----------- -----------
$17,367,939 $ 4,967,657
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Combined Statement of Operations
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
Net revenues $15,968,436 $ 6,007,302
----------- -----------
Costs and expenses:
Cost of sales 8,749,273 2,554,937
Selling, general and administrative 6,098,149 3,299,112
----------- -----------
Total costs and expenses 14,847,422 5,854,049
----------- -----------
Income before interest and income taxes 1,121,014 153,253
Interest income (expense) 41,779 (5,841)
----------- -----------
Income before income taxes 1,162,793 147,412
Income taxes 441,861 56,017
----------- -----------
Net income $ 720,932 $ 91,395
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Combined Statement of Shareholders' Investment
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Balance at December 31, 1996 $ 1,603,091
Net transactions with Teleflex Incorporated 2,359,295
Net income 91,395
-----------
Balance at December 31, 1997 4,053,781
Net transactions with Teleflex Incorporated 9,919,003
Net income 720,932
-----------
Balance at December 31, 1998 $14,693,716
===========
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Combined Statement of Cash Flows
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 720,932 $ 91,395
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,353,373 495,434
Deferred income taxes (6,115) (151,753)
Changes in operating assets and liabilities:
Accounts receivables (2,158,658) (530,195)
Prepaid expenses and other assets (83,282) (75,457)
Accounts payable and accrued liabilities 923,155 565,113
------------ ------------
Net cash provided by operating activities 749,405 394,537
------------ ------------
Cash flows from investing activities:
Purchase of equipment (4,725,537) (1,351,786)
Acquisition of businesses (6,407,900) (1,588,412)
------------ ------------
Net cash used in investing activities (11,133,437) (2,940,198)
------------ ------------
Cash flow from financing activities:
Net shareholders' investment 9,919,003 2,359,295
Net borrowings under capital leases 445,315 302,710
------------ ------------
Net cash provided by financing activities 10,364,318 2,662,005
------------ ------------
(Decrease) increase in cash and cash equivalents (19,714) 116,344
Cash and cash equivalents at beginning of the period 175,155 58,811
------------ ------------
Cash and cash equivalents at the end of the period $ 155,441 $ 175,155
============ ============
</TABLE>
Supplemental disclosure:
During 1998 and 1997, the Companies recorded capital lease obligations of
$703,744 and $336,054, respectively.
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Notes to Combined Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Basis of Presentation and Nature of Business
The accompanying combined financial statements include the balance sheets,
results of operations, shareholders' investment, and cash flows of
Endoscopy Specialists, Incorporated ("ESI") and SSI Surgical Services,
Incorporated ("SSI"), subsidiaries of Teleflex Incorporated ("Teleflex").
Throughout the years covered by the Combined Financial Statements, the
operations were conducted and accounted for as divisions of Teleflex.
Accordingly, stand-alone financial statements were not prepared for the
combined operations.
ESI provides specified endoscopic instruments and specialty products as
well as highly trained service technicians required to perform designated
endoscopic surgical procedures to hospitals and other medical facilities.
SSI was formed in 1997 as a joint venture between Teleflex and Medical
Sterilization, Inc. ("MSI"). SSI provides general and specialty
instruments sets, basins and surgical gowns and towels to hospitals and
other medical facilities. SSI also provides outsourcing and consulting
services, including facility assessment, on-site department management and
staffing, asset inventory management systems and surgical instrument
management.
On August 1, 1998, SSI acquired Sterilization Management Group ("SMG").
SMG provides off-site sterile reprocessing of surgical instruments, gowns
and towels for hospitals and other medical facilities. SMG operates five
surgical instrument and linen reprocessing facilities located in major
metropolitan areas (Baltimore, Chicago, Detroit, Houston, and Tampa) in
the United States.
ESI, SSI and SMG are referred herein as the Companies.
The Combined Statement of Operations includes all revenues and costs
directly attributable to these operations. The results of operations of
the Companies also include cost allocations for corporate administrative
functions and services such as treasury, legal, finance, accounting and
general administrative. These charges amounted to $250,000 and $150,000
for the years ended December 31, 1998 and December 31, 1997, respectively.
2. Significant Accounting Policies
Combination. The combined financial statements include the accounts of ESI
and SSI. See Note 1. Significant inter-company balances and transactions
are eliminated in combination.
Fiscal Year. The Companies' fiscal year ends the last Sunday in December.
There were 52 weeks in both fiscal 1998 and 1997.
Cash and cash equivalents. All highly liquid investments with maturities
of three months or less when purchased are classified as cash equivalents.
Property and equipment. Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the related assets, ranging from 3 to
15 years. Maintenance and repairs are expensed as incurred.
-6-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Notes to Combined Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
Intangibles. Intangible assets consist principally of excess purchase
price over the fair value of the assets of businesses acquired.
Intangibles assets are amortized on a straight-line basis over their
estimated useful lives, not exceeding 15 years.
Revenue recognition. Revenue is recognized as the services are performed
and billed.
Income taxes. During 1998 and 1997, the taxable income of ESI was included
in the consolidated tax returns of Teleflex under a formal tax sharing
arrangement. For purposes of these financial statements, income taxes have
been recorded at an effective rate of 38%. Income taxes are deemed settled
on a current basis with Teleflex through Shareholders' Net Investment.
Taxable income of SSI was included in a separate tax return given less
than majority ownership by Teleflex, and provided for at an effective rate
of 38%.
Asset valuation. The Companies' management periodically reviews the
recoverability of property and equipment and intangibles based principally
on an analysis of cash flows.
Use of Estimates. Generally accepted accounting principles require
management to make estimates and assumptions that affect assets and
liabilities, contingent assets and liabilities, and revenues and expenses.
Actual results could differ from those estimates.
Concentration of credit risk. Accounts receivable arise from long-term and
short-term contracts with healthcare providers in the Companies' area of
operations. ESI provided services to approximately 100 hospitals and
medical facilities during 1998. SSI provided on-site services to hospitals
and medical facilities and off-site sterilization services to more than
100 customers during 1998.
To reduce credit risk, the Companies perform credit evaluations of its
customers but does not generally require collateral. Credit risk is
affected by conditions within the economy and the healthcare industry. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and
other information.
At December 31, 1998, three customers represented approximately 35% of the
accounts receivable balance.
3. Acquisitions
During the year ended December 31, 1997 ESI completed several
acquisitions, all of which were accounted for using the purchase method.
The total purchase consideration for these acquisitions was $1,588,412
cash. The excess purchase price over the fair value of net tangible assets
acquired amounting to $1,331,537 was recorded as goodwill.
On August 1, 1998 SSI completed the acquisition of SMG for $6,407,900
cash. Liabilities of approximately $392,000 were assumed in connection
with the acquisition. The acquisition of SMG was accounted for as a
purchase which resulted in no goodwill.
-7-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Notes to Combined Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
The following represents the unaudited pro forma combined results of
operations as if the above noted acquisitions had occurred at the
beginning of the years presented:
Unaudited 1998 1997
Revenues $21,407,436 $17,102,302
Net income 318,703 235,395
4. Prepaid Expenses and Other Assets
Prepaid expenses and other assets at December 31, 1998 and December 31, 1997
are summarized as follows:
1998 1997
Consumables and supplies $ 287,000 $ 75,000
Prepaid insurance 105,594 --
Other 25,438 1,812
----------- -----------
$ 418,032 $ 76,812
=========== ===========
5. Property and Equipment
A summary of fixed assets and related depreciation and amortization for the
years ended December 31, 1998 and 1997 are as follows:
1998 1997
Leasehold improvements $ 1,169,296 $ --
Machinery and equipment 2,561,316 $ --
Instruments and gowns 7,995,750 1,829,652
Furniture and fixtures 932,859 549,442
----------- -----------
12,659,221 2,379,094
Less accumulated depreciation and amortization 2,019,333 704,617
----------- -----------
Property and equipment, net $10,639,888 $ 1,674,477
=========== ===========
Depreciation expense for the years ended December 31, 1998 and 1997 was
$1,227,055 and $419,577, respectively. Assets recorded as capital leases, net of
accumulated amortization, amounting to $748,025 and $302,710 at December 31,
1998 and December 31, 1997 are included above.
-8-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Notes to Combined Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
6. Intangibles
1998 1997
Goodwill $ 1,894,871 $ 1,894,871
Accumulated amortization (239,824) (113,506)
----------- -----------
$ 1,655,047 $ 1,781,365
=========== ===========
7. Accrued Expenses
Accrued expenses at December 31, 1998 and December 31, 1997 are summarized
as follows:
1998 1997
Accrued salaries and compensation benefits $ 570,712 $ 283,197
Other taxes 97,545 40,187
Other 129,984 --
----------- -----------
$ 798,241 $ 323,384
=========== ===========
8. Lease Obligations
Future minimum payments as of December 31, 1998 under capital leases for
property and equipment, principally instruments are as follows:
1999 $ 399,288
2000 360,874
2001 101,581
-----------
Total minimum lease payments $ 861,743
Less amount representing interest 113,718
-----------
Present value of minimum lease payment $ 748,025
Less current portion 346,600
-----------
$ 401,425
===========
The Companies also have entered into certain non-cancelable operating
leases for their offices and other facilities with terms ranging from 1 to
10 years with certain renewal options. In addition to monthly rental
payments, the Companies also pay for insurance, repairs and maintenance on
the leased premises.
-9-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Notes to Combined Financial Statements
December 31, 1998 and 1997
Future minimum rentals under non-cancelable operating leases as of
December 31, 1998 are as follows:
1999 $1,317,795
2000 1,292,803
2001 1,309,139
2002 837,907
2003 174,162
Total rental expense for the years ended December 31, 1998 and 1997 was
$458,829 and $33,000, respectively.
9. Related Party Transactions
The Companies participate in Teleflex's centralized cash management system
to finance operations. Cash deposits from customers are transferred to
Teleflex on a daily basis and Teleflex funds disbursement bank accounts as
required. Unpaid balances of checks are included in accounts payable.
In addition to cash management services, Teleflex provided the Companies
with general and administrative services including executive management,
finance, legal, systems and tax services. These expenses were allocated to
the Companies based on methods which management believes to be reasonable.
These allocated costs amounted to $250,000 in 1998 and $150,000 in 1997.
The expenses allocated to the Companies for these services are not
necessarily indicative of the expenses that would have been incurred if
the Companies had been separate, independent entities and had managed
these functions.
The Companies purchase from surgical instrument manufacturers, instruments
used in providing certain of the Companies' services. Pilling Weck, a
national surgical instrument manufacturer and a subsidiary of Teleflex
supplies certain instruments to the Companies on commercial terms.
Instrument purchases from Pilling Weck for the year ended December 31,
1998 were approximately $446,391 and no purchases were made in 1997.
10. Income Taxes
The provision for income taxes consists of the following:
1998 1997
Federal $406,978 $51,595
State (net of Federal tax benefit) 34,883 4,422
-------- -------
$441,861 $56,017
======== =======
-10-
<PAGE>
Endoscopy Specialists Incorporated and
SSI Surgical Services Incorporated
Notes to Combined Financial Statements
December 31, 1998 and 1997
- --------------------------------------------------------------------------------
The following is a reconciliation of the effective income tax rate with
the U.S. Federal statutory income tax rate:
1998 1997
Federal statutory income tax rate 35% 35%
State tax (net of Federal tax benefit) 3% 3%
---- ----
38% 38%
==== ====
Deferred income taxes amounting to $157,868 and $151,753 at December 31,
1998 and December 31, 1997 comprise tax loss carryforwards from SSI.
The Companies believe it is more likely than not to realize the net
deferred tax asset and accordingly, no valuation allowance has been
provided. This conclusion is based on the Companies' expected future
profitability, and the period of time that is available to realize the
future tax benefits.
-11-
<PAGE>
Sterilization
Management Group
Financial Statements
Seven Months Ended July 31, 1998
and Eleven Months Ended
December 31, 1997
<PAGE>
Sterilization Management Group
Index to the Financial Statements
Seven Months Ended July 31, 1998 and
Eleven Months Ended December 31, 1997
- --------------------------------------------------------------------------------
Page(s)
Financial Statements:
Report of Independent Accountants 1
Balance Sheet at July 31, 1998 and December 31, 1997 2
Statement of Operations for the Seven Month Period Ended
July 31, 1998 and the Eleven Month Period Ended December 31, 1997 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to the Financial Statements 6-8
<PAGE>
[Letterhead of PricewaterhouseCoopers LLP]
Report of Independent Accountants
To the Board of Directors
of Teleflex Incorporated
In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and of changes in partners' capital present fairly, in
all material respects, the financial position of Sterilization Management Group,
at July 31, 1998 and December 31, 1997, and the results of its operations and
its cash flows for the seven month period ended July 31, 1998 and the eleven
month period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management, our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
April 16, 1999
<PAGE>
Sterilization Management Group
Balance Sheet
July 31, 1998 and December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 168,545 $ 110,914
Accounts receivable, net of allowance for
doubtful accounts of $105,493 in 1998 and 1997 1,074,910 1,587,979
Prepaid expenses and other assets 257,937 256,195
----------- -----------
Total current assets 1,501,392 1,955,088
Property and equipment, net 558,181 283,515
----------- -----------
$ 2,059,573 $ 2,238,603
=========== ===========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable $ 175,493 $ 258,990
Accrued expenses 227,251 344,166
Current portion of notes payable 197,176 188,460
Other current liabilities 3,132 10,402
----------- -----------
Total current liabilities 603,052 802,018
Deferred credit 198,000 212,000
Notes payable, net of current portion 710,724 811,540
----------- -----------
Total liabilities 1,511,776 1,825,558
----------- -----------
Total Partners' capital 547,797 413,045
----------- -----------
$ 2,059,573 $2,238,603
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
Sterilization Management Group
Statement of Operations
Seven Months Ended July 31, 1998 and
Eleven Months Ended December 31, 1997
- --------------------------------------------------------------------------------
1998 1997
Net revenues $ 5,438,967 $10,596,845
----------- -----------
Costs and expenses:
Cost of sales 3,863,147 6,655,713
Selling, general and administrative 1,441,197 3,221,209
----------- -----------
Total costs and expenses 5,304,344 9,876,922
----------- -----------
Income before interest 134,623 719,923
Interest expense 35,102 69,103
----------- -----------
Net income $ 99,521 $ 650,820
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
Sterilization Management Group
Statement of Partners' Capital
Seven Months Ended July 31, 1998 and
Eleven Months Ended December 31, 1997
- --------------------------------------------------------------------------------
Balance at January 31, 1997 $ --
Net transactions with Partners (237,775)
Net income 650,820
---------
Balance at December 31, 1997 413,045
Net transactions with Partners 35,231
Net income 99,521
---------
Balance at July 31, 1998 $ 547,797
=========
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
Sterilization Management Group
Statement of Cash Flows
Seven Months Ended July 31, 1998 and
Eleven Months Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 99,521 $ 650,820
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 53,403 30,458
Changes in operating assets and liabilities:
Accounts receivable 513,070 (1,587,979)
Prepaid expenses and other assets (1,742) (44,195)
Accounts payable and accrued expenses (221,683) 613,558
----------- -----------
Net cash provided by (used in) operating activities 442,569 (337,338)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (328,069) (313,973)
----------- -----------
Net cash used in investing activities (328,069) (313,973)
----------- -----------
Cash flows from financing activities:
Proceeds from note payable -- 2,200,000
Net Partners' capital 35,231 (237,775)
Payments of principal on amounts borrowed (92,100) (1,200,000)
----------- -----------
Net cash (used in) provided by financing activities (56,869) 762,225
----------- -----------
Increase in cash and cash equivalents 57,631 110,914
Cash and cash equivalents at beginning of the period 110,914 --
----------- -----------
Cash and cash equivalents at end of the period $ 168,545 $ 110,914
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
Sterilization Management Group
Notes to Financial Statements
July 31, 1998
- --------------------------------------------------------------------------------
1. Basis of Presentation and Nature of Business
The accompanying financial statements include the balance sheet, results
of operations, partners' capital and cashflows of Sterilization Management
Group, L.L.C. ("SMG" or the "Company").
The "Company" was incorporated as a limited liability company in Michigan
on January 1, 1997 for the purposes of providing off-site sterile
reprocessing of surgical instruments, gowns and towels for healthcare
providers, such as hospitals, hospital networks and ambulatory surgery
centers. The Company operates five surgical instrument and linen
reprocessing facilities located in major metropolitan areas (Baltimore,
Chicago, Detroit, Houston, and Tampa) in the United States.
On January 31, 1997 the assets of this business were purchased by the
founding partner from a third party for consideration of one dollar. The
acquisition of the business was accounted for as a purchase. The excess of
fair value of the net tangible assets acquired over the purchase price
amounting to approximately $6,212,000 has been used first to reduce the
value of non-current assets acquired, with $212,000 recorded as a deferred
credit and is being amortized on a straight-line basis over a period of 15
years.
2. Significant Accounting Policies
Cash and cash equivalents. All highly liquid investments with maturities
of three months or less when purchased are classified as cash equivalents.
Property and equipment. Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the related assets ranging from 3 to 15
years. Maintenance and repairs are expensed as incurred.
Revenue recognition. Revenue is recognized as the services are preformed
and billed.
Income taxes. No provision or benefit for income taxes is included in
these financial statements because the Company as an S-Corporation, is not
subject to income tax. The tax effect of its activities accrues directly
to its partners.
Use of estimates. Generally accepted accounting principles require
management to make estimates and assumptions that affect assets and
liabilities, contingent assets and contingent liabilities, and revenues
and expenses. Actual results could differ from those estimates.
Concentration of credit risk. Accounts receivable arise from long-term and
short-term contracts with healthcare providers in the Company's area of
operations. SMG provided services to more than 100 hospitals and medical
facilities during both periods presented herein.
To reduce credit risk, the Company performs credit evaluations of its
customers but does not generally require collateral. Credit risk is
affected by conditions within the economy and the healthcare industry. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and
other information.
-6-
<PAGE>
Sterilization Management Group
Notes to Financial Statements
July 31, 1998
- --------------------------------------------------------------------------------
3. Prepaid Expenses and Other Assets
Prepaid expenses and other assets at July 31, 1998 and December 31, 1997
are summarized as follows:
1998 1997
Consumables and supplies $207,000 $212,000
Prepaid rent 32,383 14,605
Prepaid insurance -- 11,603
Deposits 18,554 17,987
-------- --------
$257,937 $256,195
======== ========
5. Property and Equipment
A summary of fixed assets and related depreciation for the periods ended
July 31, 1998 and December 31, 1997 are as follows:
1998 1997
Machinery and equipment $642,042 $313,973
Less accumulated depreciation (83,861) (30,458)
-------- --------
Property and equipment, net $558,181 $283,515
======== ========
Depreciation expense for the periods ended July 31, 1998 and December 31,
1997 was $53,403 and $30,458, respectively.
6. Accrued Expenses
Accrued expenses are summarized as follows:
1998 1997
Property taxes $ 85,000 $135,000
Accrued salaries and compensation benefits 100,027 126,987
Interest payable 42,224 56,015
Other -- 26,164
-------- --------
$227,251 $344,166
======== ========
-7-
<PAGE>
Sterilization Management Group
Notes to Financial Statements
July 31, 1998
- --------------------------------------------------------------------------------
7. Notes Payable
Borrowings are comprised of notes payable to a third party, due February
1, 2002 with interest payable monthly at the rate of 9.25% per annum.
Principal payments are due on long-term debt in future periods as follows:
1998 $ 96,360
1999 206,295
2000 225,820
2001 247,191
2002 132,234
8. Lease Obligations
The Company has entered into certain non-cancelable operating leases for
its offices and facilities with terms ranging from 1 to 10 years with
certain renewal options. In addition to monthly rental payments, the
Company must also pay for insurance, repairs and maintenance on the leased
premises.
Future minimum rentals under these noncancelable operating leases for the
next five years are as follows:
1998 $383,378
1999 777,795
2000 752,803
2001 769,139
2002 765,907
Rental expense for the periods ended July 31, 1998 and December 31, 1997
was $534,892 and $870,503, respectively.
9. Subsequent Events
SMG was acquired by SSI Surgical Services Incorporated ("SSI"), a
subsidiary of Teleflex Incorporated on August 1, 1998.
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