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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
/x/ Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year
ended December 31, 1995 or
/ / Transition Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 [No Fee Required] for the
transition period from ________ to ________
Commission File Number 0-13401
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PHOENIX MEDICAL TECHNOLOGY, INC.
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(Name of small business issuer in its charter)
Delaware 31-092-9195
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(State or other jurisdic- (I.R.S. Employer
tion of incorporation Identification No.)
or organization)
Route 521 West
P.0. Box 346
Andrews, South Carolina 29510
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(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (803) 221-5100
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
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Title of class
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
The issuer is unable to state the aggregate market value of shares of the
issuer's no par value Common Stock, its only outstanding class of voting stock,
held by non-affiliates as of a specified
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date within 60 days prior to the date of filing. There has been no active
trading market in the Registrant's Common Stock since April 1991. Beginning in
the year ended December 31, 1995, there have been sporadic bid and asked
quotations for the Common Stock generally at the level of 1/8 bid and 5/8
asked. Based on these quotations the aggregate market value of shares of the
Common stock held by non-affiliates, as of March 15, 1996, would be $647,093.
The Registrant's revenues for the fiscal year ended December 31, 1995 were
$13,644,000.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
--- ---
The number of issued and outstanding shares of the issuer's no par value Common
Stock, its only outstanding class of Common Stock, as of February 29, 1996 was
1,963,563.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /x/
Items incorporated by reference: None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Registrant was organized as an Ohio corporation under the
name "Phoenix Glove Company" in March 1978 and commenced vinyl glove
manufacturing operations on a limited basis in February 1979. In January 1984
the Registrant reincorporated as a Delaware corporation and changed its name to
Phoenix Medical Technology, Inc. All references in this Report to the
"Registrant" are to Phoenix Medical Technology, Inc. and its predecessor unless
otherwise indicated by the context.
On August 2, 1991, the Registrant filed a petition under
Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the
District of South Carolina. On February 7, 1994, the Registrant's Plan of
Reorganization was confirmed by the Bankruptcy Court. The Registrant's
business operations and marketing efforts are hampered by the Registrant's poor
financial condition. On March 29, 1995, the Registrant completed a refinancing
of its outstanding debt with NationsBank, N.A. (Carolinas). See the discussion
under "LEGAL PROCEEDINGS" below and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under Item 6, Part II of this
Report.
The Registrant primarily manufactures and markets single use
gloves for use in various applications where clean, protective handcovers are
important, such as the medical market, beauty and barber shops, food
processing, electronics and computer assembly, photo finishing and janitorial
services. The Registrant historically has manufactured only vinyl gloves. In
the first quarter of 1989 the Registrant also began to manufacture latex
gloves. Because of adverse market conditions, the Registrant's only latex
machine did not operate from October 1990 to December 16, 1991.
During 1995 five of the Registrant's six glove making machines
operated. Not all five machines operated continually, but four machines
generally operated 24 hours per day on a five-day a week basis. The
Registrant's vinyl and latex glove manufacturing facilities operated at
approximately 56% and 59% of its five-day capacity, respectively, in 1995.
The Registrant also manufactures a line of surgical adhesive
drapes and a limited line of other single use medical items. During the second
quarter of 1990, the Registrant began to manufacture a new Microban(R)
antimicrobial surgical drape. The Registrant sold its surgical drape assets in
March of 1996. See "Sale of Surgical Drape Assets" below.
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The Registrant markets its products primarily to medical and
industrial supply companies. These supply companies frequently resell the
Registrant's products under their private labels. The Registrant has focused
on serving these supply companies as an independent product source and
generally does not make direct sales to end users.
MEDICAL MARKET
Initially the Registrant sold only vinyl gloves to the medical
market, but began selling latex gloves also in 1989. Because of changes in the
market the Registrant elected to discontinue vinyl glove sales to the medical
market in March 1993. In 1995, 56% of the Registrant's latex glove sales were
to the medical market. The Registrant sells its surgical drapes and scrub and
prep sponges exclusively to the medical market.
In the medical market, the Registrant sells its products
principally to medical supply companies, which generally resell the
Registrant's products under their private labels. The Registrant serves
medical supply companies as an independent product source without making direct
sales to their customers. The Registrant's major competitors generally sell
their products directly to end users.
NON-MEDICAL MARKET
The non-medical glove market is comprised of industries in
which clean, protective handcovers are important for employee health and safety
or to protect the integrity of the manufacturing process. For example, the
Registrant sells vinyl gloves to distributors that supply beauty and barber
shops, safety supply companies, food processors, photo finishing businesses,
janitorial supply companies and the electronics and computer assembly and
service industries. Law enforcement agencies are also emerging as a new market
for protective handcovers. Gloves sold to the non-medical market are primarily
vinyl gloves.
Since 1983, the Registrant has been increasing its marketing
efforts in the sale of vinyl gloves to the non-medical market, which is more
fragmented and less price competitive than the medical market and presents
opportunities for more favorable margins. The Registrant's principal
competitors, which are large medical products companies, have generally focused
their marketing efforts on large hospital chains and associations, rather than
the non-medical market. The Registrant's ability to compete effectively in the
non-medical market is enhanced by its willingness to provide products under
private labels for independent distributors, to develop custom packaging to
meet a distributor's requirements, and to fill orders on an immediate basis.
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DESCRIPTION OF PRODUCTS
Single Use Gloves. Vinyl and latex gloves are single use
protective handcovers which are generally worn once and discarded. They are
ambidextrous (the same glove fits either hand). Vinyl gloves range in size
from extra-small to extra-large and latex gloves range in size from small to
large.
The gloves are used in applications in which hand-contour,
tactile sensitivity, flexibility and a reduction of the risk of contamination
and disease transfer are important. The Registrant's vinyl and latex glove
lines include sterile, non-sterile, and powder free gloves. Sterile gloves are
used primarily for invasive medical procedures and in sterile laboratory
environments, while non-sterile gloves are used for other medical procedures as
well as in non-medical applications, such as beauty and barber shops, food
processing, janitorial services, photo finishing and for consumer use. Powder
free gloves are used primarily in non-medical applications such as in the
electronics and computer manufacturing industries and other "clean-room"
environments.
The Registrant has pending an application to the Food and Drug
Administration ("FDA") for approval to market a new line of antimicrobial vinyl
gloves which incorporate the antimicrobial substance Microban(R) into the
glove. The Registrant has an exclusive license in the United States and Canada
for the use of Microban(R) in its gloves. The Registrant's application has
been pending since December 1991 and is still active. The Registrant filed
requested substantiating technical data with the FDA during March of 1996.
For many applications either latex or vinyl gloves may be
used. Latex gloves stretch and are deemed more appropriate for use with small
instruments or other applications where a tight fit is important. Vinyl gloves
are appropriate in applications where maximum retention of the user's feel is
important and a snug fit is not important. Latex gloves historically have been
more expensive than vinyl gloves. However, during 1990 latex glove prices
declined substantially to the point where latex glove prices were less than or
equal to vinyl glove prices. This price relationship continued through 1995.
The Registrant offers its gloves in a variety of packages
depending upon the intended end use. Gloves are sold in flat packs, dispenser
packs, resealable bags and heat-sealed pouches. Flat packs are taped bundles
of 100 gloves which are generally sold to customers who repackage them in
various containers or in combination with other products for resale. Dispenser
packs contain up to 100 gloves and are similar to facial tissue boxes.
Dispenser packs for medical uses are generally sold to medical supply companies
which market them under private labels. Dispenser
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packs which are not resold under a customer's private label are marketed under
the Registrant's name when sold for medical uses, and under the tradename
"Sup-pli Line" when sold for non-medical uses. Sterile gloves are sold in
dispenser boxes containing heat-sealed pouches with one or two gloves in each
pouch. The Registrant uses an outside contractor to sterilize the gloves after
they have been packaged for sale.
Vinyl gloves accounted for 60.9%, 57.9% and 59.8% of the
Registrant's total sales in 1993, 1994 and 1995, respectively. Latex gloves
accounted for 33.1%, 35.6% and 35.4% of the Registrant's total sales in 1993,
1994 and 1995, respectively.
Surgical Drapes and Related Products. Surgical drapes are
body surface covers used to maintain a sterile field during medical procedures.
The Registrant's drapes, which generally are made of polyethylene film, are
produced in various configurations including incise, aperture and towel drapes.
Incise drapes are designed for making incisions directly through the drape.
Aperture drapes have an opening which is positioned around the operative site.
Towel drapes are applied with an adhesive backing along the operative site to
enhance protection of the prepared surgical area. Until 1993, one customer
accounted for a substantial portion of the Registrant's surgical drape sales.
In 1993, an additional major customer was added which accounted for 27% of
surgical drape purchases. Surgical drapes accounted for 4.6%, 4.8% and 3.7% of
total sales in 1993, 1994 and 1995, respectively. The Registrant also
manufactures scrub and prep sponges for the medical market. Sales of these
products accounted for less than 3% of total sales in 1993, 1994 and 1995. The
Registrant sold its surgical drape assets in March of 1996. See "Sale of
Surgical Drape Assets" below.
MANUFACTURING OPERATIONS
Vinyl glove manufacturing requires control in the formulation
of liquid vinyl, as well as in the dipping, molding and curing of the gloves at
specified temperatures. Gloves are manufactured on long, integrated,
continuous process machines. The Registrant currently has five vinyl glove
machines. The Registrant began manufacturing vinyl gloves on a six and
two-thirds day week, three-shift production schedule in the third quarter of
1987. Since 1989, because of an oversupply of vinyl gloves, the Registrant has
manufactured gloves on a five-day a week schedule with frequent periods of time
when one or more of the Registrant's machines was not operating. One of the
Registrant's vinyl glove machines will require up to $200,000 of upfitting to
make it operational.
Latex glove manufacturing is similar to that of vinyl gloves.
The primary difference between the two processes is that latex gloves go
through a multiple dip process while vinyl gloves
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go through a single dip process. The Registrant's latex glove machine has a
capacity of approximately 59% of the Registrant's total vinyl glove
manufacturing capacity. The latex machine operated at approximately 55% of its
five-day a week capacity during 1995.
The manufacturing process for surgical drapes involves the
layout and cutting of sheets of polyethylene film into various sizes and
configurations. Adhesive transfers are applied to the drapes before they are
individually packaged in heat-sealed pouches. The Registrant sold its surgical
drape assets in March of 1996. See "Sale of Surgical Drape Assets" below.
The Registrant places great emphasis upon controlling the
quality of its products. Quality control procedures include the testing of
statistical samples of products every 30 minutes to assure conformance to
certain specifications.
The Registrant believes that its manufacturing equipment
generally uses state-of-the-art technology.
MARKETING AND DISTRIBUTION
The Registrant conducts its marketing activities through a
network of 25 manufacturers' representatives and its President who assists
those representatives and is responsible for the Registrant's direct selling
efforts and export sales. Approximately half of the Registrant's sales are
either direct or export sales. The manufacturers' representatives market the
Registrant's products primarily to medical supply and industrial supply
distributors.
The major portion of the Registrant's products are shipped
within 30 days after being ordered; the remainder of its orders are placed from
three to nine months in advance of the requested delivery date. Advance orders
are not considered firm until the customer issues a release for shipment, so
backlog is not necessarily indicative of the Registrant's level of business
activity. The Registrant's backlogs at the end of 1993, 1994 and 1995 were
$315,000, $230,000 and $483,000, respectively. The 1995 backlog reflects a
10-day service level, the norm for the industry. The backlog figures are based
on firm orders to be filled over the subsequent four weeks.
MAJOR CUSTOMERS
The Registrant's five largest customers accounted for
approximately 28.9% of sales in 1995. No customer individually accounted for
more than 10% of total sales in 1994.
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RAW MATERIALS
The primary raw materials used in the manufacturing of vinyl
gloves are PVC resin (a granular polymer) and plasticizer, both of which are
petrochemicals and in adequate supply from several sources. The primary raw
materials used in the manufacture of surgical drapes are polyethylene film,
adhesive and release paper. Adequate supplies of these raw materials are
available from several sources. The primary raw material for latex gloves is
natural latex, which is available in adequate supply.
COMPETITION
The principal manufacturer of vinyl gloves sold in the United
States is Baxter Healthcare Corporation. Other major United States
manufacturers of vinyl gloves include MAXXIM, The Oak Rubber Company and the
Registrant. The leading United States manufacturers of latex examination
gloves include Baxter Healthcare Corporation, Tillotson Corp. and Aladan
Corporation. The Registrant's competitors are generally larger than the
Registrant and have greater financial resources.
The Registrant also faces competition from foreign
manufacturers. In addition, certain of the United States manufacturers have
foreign manufacturing plants. These manufacturing plants are generally located
in countries with labor costs significantly lower than those in the United
States.
The principal competitive factors relating to the Registrant's
products are price, quality and delivery. The Registrant believes that a
favorable competitive factor is its ability to supply a broad line of both
latex and vinyl gloves.
LICENSES AND TRADEMARKS
The Registrant has license agreements with Microban(R)
Products Co. for the use of Microban(R) and Microban(R) Extended Polymer Film
in single use gloves and surgical drapes. These agreements give the Registrant
an exclusive license in the United States and Canada for the use of such
materials in surgical drapes and for the use of Microban(R) in single use
gloves and a non-exclusive license for the sale of such drapes and gloves in
the rest of the world. The licenses are contingent on the Registrant making
purchases from or payments to Microban(R) Products Co. of up to $3,000 per
month for each agreement, once the Registrant has received FDA approval to
market the products under their respective licenses. FDA approval to market
gloves with Microban(R) has been applied for but not yet granted. The licenses
were renewed in October 1995 for additional two-year periods at the
Registrant's option. The licenses may be terminated by the Registrant on 120
days notice.
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Patents. U.S. Patent No. 5,069,907 was issued December 3,
1991 and assigned to the Registrant for its antimicrobial surgical drape. The
Registrant has a patent pending for its antimicrobial glove (Patent Application
S.N. 239,880).
SALE OF SURGICAL DRAPE ASSETS
On March 22, 1996, the Registrant sold to Microtek Medical,
Inc. ("Microtek") all of the Registrant's machinery, equipment and related
tangible property (including inventory and work-in-process) and all of its
proprietary information, and all other property and rights related to the
Registrant's manufacture and sale of adhesive skin drapes and scrub-and-prep
products. The purchase price consisted of $1,175,000 in cash and Microtek's
undertaking to make contingent payments for ten years of 11.5% of its sales of
patented incise drapes and 3% of its sales of other products in the
Registrant's product line incorporating the patented process, with a maximum of
$1,825,000 on all contingent payments, a maximum total purchase price of
$3,000,000. Registrant's sales of items produced by the assets sold to
Microtek accounted for 4% of its total sales in 1995 and 5% in 1994.
EMPLOYEES
As of December 31, 1995, the Registrant employed 286 persons,
of whom 254 were hourly employees engaged in production, 15 were engaged in
executive, administrative or clerical functions and 17 were supervisors.
The Registrant's hourly production employees are represented
by the Amalgamated Clothing and Textile Workers Union. On March 9, 1992, the
Registrant entered into a new three-year labor agreement with the union.
Successive one year extensions to the labor agreement were negotiated in
January 1994 and March 1996. The agreement now expires in March 1997. The
Registrant considers its present relationship with its employees to be good.
GOVERNMENT REGULATION
The Registrant is subject in the manufacture, testing and
marketing of certain of its products to mandatory procedures and safety
standards which are administered by the United States Food and Drug
Administration (FDA). The FDA regulates the Registrant as to the quality and
safety of its products and the practices by which they are manufactured and
sold. The FDA's regulations for patient examination gloves apply to both vinyl
and latex gloves. The FDA also regulates the introduction of new products,
makes periodic inspections of manufacturing processes to confirm that such
processes meet FDA standards, and receives, investigates and resolves any
complaints against the Registrant. The Registrant believes that all of its
products are manufactured in compliance with the FDA's manufacturing standards
which are called "Good
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Manufacturing Practices." The Registrant's most recent FDA inspection found no
deficiencies.
The U.S. Department of Health and Human Resources lists
dioctyl phthalate, a primary raw material used by most manufacturers of vinyl
gloves, as a suspected carcinogen. The Registrant has eliminated the use of
dioctyl phthalate in the manufacture of its products. No claims have been made
against the Registrant for its prior use of dioctyl phthalate and the
Registrant does not anticipate any liability associated with its prior use.
The Registrant is subject to various regulations relating to
the maintenance of safe working conditions and manufacturing practices. The
Registrant believes it is currently in compliance with all such regulations.
ENVIRONMENTAL REGULATION
The Registrant's manufacturing process involves the use of one
regulated chemical--zinc. Waste water from the Registrant's latex glove
operations is collected in leach pools and zinc is precipitated out of the
waste water. Zinc is then collected in wetcake and disposed of by a hazardous
waste disposal contractor. The waste water is disposed of in the City of
Andrews' water system.
During a Phase II environmental audit of the Registrant's properties,
an area of approximately 750 to 1000 square feet was identified as contaminated
by a petroleum product. Corrective action is currently in process. Estimated
total expenditures are $75,000 to $100,000 over a three year period.
The Registrant believes it is otherwise in compliance with all
environmental regulations. The Registrant does not believe that laws
regulating the discharge of materials into the environment have had a material
effect on the Registrant's expenditures during the prior three (3) fiscal years
and does not anticipate any material capital expenditures for environmental
control in the foreseeable future, assuming there are no changes in
environmental laws or regulations.
ITEM 2. PROPERTIES
The Registrant's executive offices, manufacturing operations
and warehouse are housed in an approximately 150,000 square foot building owned
by the Registrant and located on a 96 acre site one mile west of Andrews, South
Carolina. At December 31, 1995, such properties were subject to a mortgage
with a principal balance of $1,723,572. See also the discussion below in
"Legal Proceedings" under Item 3, Part I of this Report. The building was
constructed in phases from 1978 through 1988 specifically for use by the
Registrant. In 1988, the Registrant
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approximately doubled the size of its manufacturing and warehouse space. The
Registrant's main plant is constructed of brick and metal siding and is
designed for expansion without interruption to production.
The Registrant's vinyl and latex glove manufacturing
facilities operated at approximately 54% and 59% of its twenty-four hour,
five-day a week capacity, respectively, in 1995 versus 50% and 55%,
respectively, in 1994.
ITEM 3. LEGAL PROCEEDINGS
On August 2, 1991 the Registrant filed a petition under
Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the
District of South Carolina, Columbia Division (the "Bankruptcy Court"). The
Registrant filed the petition after consultations with its bank in order to
continue operations. At the time of the filing, the Registrant's creditors
included not only its bank, which was owed approximately $8,962,167 in
principal, interest and late fees, but also a number of other creditors, which
were owed an aggregate of $1,600,000.
On February 7, 1994 the Registrant's Plan of Reorganization
(the "Plan") was confirmed by the Bankruptcy Court. The Plan supersedes all
previous agreements between the Registrant and holders of claims or interests
against the Registrant. The Plan provides for the temporary restructuring of
the Registrant's obligations to NationsBank of South Carolina, N.A.
("NationsBank"), to be followed by either the refinancing of the NationsBank
debt by a third party, payment of the NationsBank debt through an equity
investment, or a combination of both. The Plan also provides for an amendment
to the Registrant's Articles of Incorporation to increase the authorized
capital of the Registrant from 5,000,000 to 20,000,000 shares of Common
Stock. Such amendment will be effected pursuant to bankruptcy law and
shareholders will not have the right to vote on the amendment.
Upon confirmation of the Plan, control of the Registrant was
returned to the directors of the Registrant until the first annual meeting of
shareholders following such confirmation. However, a party agreeing to make an
equity investment in the Registrant may require as a condition to such equity
investment that such party be afforded representation on the Board of
Directors.
On March 29, 1995, the Registrant completed a refinancing of its
NationsBank, N.A. (Carolinas) debt by replacing such debt with debt facilities
provided by Carolina First Bank and The CIT Group/Credit Finance and issuing a
warrant to NationsBank for 496,058 shares of Common Stock at a purchase price
of $.03125 per share. The Registrant entered into a $1,760,000 loan agreement
with Carolina First Bank secured by the Registrant's real property and
fixtures. The loan is repayable over 15 years at an interest rate of prime
plus 2%. The Registrant also entered into a loan
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agreement with The CIT Group/Credit Finance whereby CIT has made a $350,000
term loan secured by the Registrant's equipment payable over six years and a
revolving credit facility secured by the Registrant's inventory and
receivables. Pursuant to the revolving credit facility, the Registrant can
borrow up to 50% of the value of the Registrant's inventory and 85% of the
value of the Registrant's accounts receivable. The total loan availability
from CIT is $3,000,000, including the term loan. The interest rate on the CIT
facility is prime plus 5.75%. The Registrant used the net proceeds of the
Carolina First loan and the initial funding of the CIT facility to settle its
indebtedness with NationsBank, N.A. (Carolinas).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There has been no active trading market in the Registrant's
Common Stock since April 1991. During the year ended December 31, 1995, for
the first time since 1991, bid and asked quotations appeared sporadically in
the National Quotation Bureau "pink sheets." During 1995 these quotations
generally were at a bid price of 1/8 and an asked price of 5/8 per share.
The Registrant has not paid cash dividends. Because of the
Registrant's financial condition, the Registrant does not expect to pay
dividends in the foreseeable future.
As of February 29, 1996, there were 754 shareholders of
record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operations
Sales for 1995 were $13,644,000, up 7.4% over sales in 1994.
Latex glove sales were $4,730,000 in 1995, 5.9% greater than 1994's sales of
$4,466,000. Vinyl glove sales were $8,153,000, 10% greater than 1994's sales
of $7,416,000. The increase resulted from the Registrant's continuing emphasis
on sales to electronics and semiconductor manufacturers where emphasis is on
quality and service. Non-glove product sales were 5% of total sales in 1995
and 6% in 1994.
Following the refinancing of its debt in March of 1995, the
Registrant's sales in the second, third and fourth quarters of 1995 increased
2%, 14% and 26%, respectively, over the same quarters of 1994.
Cost of goods sold, as a percent of net sales, was 90% in 1995 and 88%
in 1994. The increase in 1995 is the result of significant
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cost increases for plastics raw materials, latex and paper goods, offset
somewhat by a 2% increase in selling prices. The strengthening of the world
economy in 1994 and the first half of 1995 caused substantial increases in
vinyl and latex glove raw material costs. The Registrant was unable to
increase selling prices during 1994 or adequately in 1995 to recoup all of its
increased material costs.
Selling and Administrative ("S&A") expenses decreased 2% in 1995 to
$1,644,000 from $1,678,000 in 1994. The decrease 1995 resulted from reduced
spending in process development. As a percent of sales, S&A expense was 12% in
1995 and 13% in 1994. Selling expense was $728,000, 5.3% of sales, in 1995, as
compared with $776,000, 6% of sales in 1994. Administrative expenses were
$916,000 in 1995, 6.7% of sales as compared with $902,000 in 1994, 7% of sales.
Net income for 1995 was $3,680,000 as compared with a net income of
$258,000 for 1994. These results include a $4,619,000 gain from debt discharge
in 1995 and a $1,132,000 gain from debt discharge in 1994. If these gains are
excluded, the Registrant experienced losses of $938,479 in 1995 and $873,599 in
1994.
In March of 1996 the Registrant sold its surgical drape assets for
$1,175,000 in cash and certain contingent future payments. See "Sale of
Surgical Drape Assets" in Item 1 above. The transferred assets accounted for
4% of Registrant's sales in 1995 and 5% in 1994.
Liquidity and Capital Resources
During 1995, the Registrant's operations used $383,000 of cash
compared with $57,000 in 1994. The difference is attributable mainly to
certain costs incurred in refinancing the Registrant's debt (which were
capitalized) and to a buildup of inventories and accounts receivable
commensurate with the increase in sales in the second half of 1995. The sum of
inventories, accounts receivable and prepayments increased $377,000 during
1995, compared with an increase of $280,000 during 1994. After completing the
refinancing of its debt in March of 1995, the Registrant's line of credit
borrowing at December 31, 1995 was $1,891,000. Management believes that the
line of credit limit, $2,650,000, and the available amount is adequate to
support the Registrant's 1996 operations.
The Registrant's bank debt at December 31, 1995 stood at $4,200,000
versus $9,300,000 at December 31, 1994. Debt service on the restructured debt
approximated $52,000 per month, approximately $30,000 per month less than the
monthly 1994 debt service.
As of February 29, 1996, the Registrant was in violation of two of the
financial covenants in its credit agreement but these violations had been
waived by the banks.
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In connection with the refinancing of the Registrant's debt,
Williamsburg County, South Carolina ("County") agreed to subordinate its liens
on the Registrant's real and personal property to the liens of the new lenders.
Additionally, the County waived payments on the Registrant's past due taxes
until April 1,1997, at which time the Registrant will begin making 84 monthly
payments of $7,300 plus 7% per annum interest on the balance owed.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Phoenix Medical Technology, Inc.:
We have audited the accompanying balance sheets of Phoenix Medical Technology,
Inc., (a Delaware corporation) as of December 31, 1995 and 1994, and the
related statements of operations, shareholders' investment and cash flows for
each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phoenix Medical Technology,
Inc. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As described in Note 4, the Company
has experienced significant losses from operations in the prior three fiscal
years and the losses have continued subsequent to the year ended December 31,
1995. These matters, among others, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are discussed in Note 4. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might result should the Company be unable to continue as a going concern.
13
<PAGE> 16
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule II is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Columbia, South Carolina,
February 16, 1996 (except
with respect to the matter
discussed in Note 11, as to
which the date is March 22,
1996).
14
<PAGE> 17
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BALANCE SHEETS
Phoenix Medical Technology, Inc.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,411 $ 46,419
Accounts receivable (net of allowance for doubtful
accounts of $70,000 in 1995 and 1994) . . . . . . . . . . . . . . . . . . . . . . 1,782,804 1,544,337
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,112,459 934,421
Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,417 96,182
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,041,091 2,621,359
- ----------------------------------------------------------------------------------------------------------------
OPERATING PROPERTY, PLANT AND EQUIPMENT:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000 175,000
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,521,352 4,519,363
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,993,373 6,907,000
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 16,725
- ----------------------------------------------------------------------------------------------------------------
11,689,725 11,618,088
Less-accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,748,033) (7,294,268)
- ----------------------------------------------------------------------------------------------------------------
Net operating property, plant and equipment . . . . . . . . . . . . . . . . . . . 3,941,692 4,323,820
- ----------------------------------------------------------------------------------------------------------------
NONOPERATING EQUIPMENT, NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751,008 751,008
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335,307 97,830
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,069,098 $ 7,794,017
================================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . $ 1,334,980 $ 818,656
Current portion of long term debt . . . . . . . . . . . . . . . . . . . . . . . . . 346,497 143,196
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,681,477 961,852
- ----------------------------------------------------------------------------------------------------------------
LONG TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,843,353 8,871,095
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,177,614 1,509,963
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,702,444 11,342,910
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT (DEFICIT):
Common stock - stated value $10; shares authorized,
5,000,000 in 1995 and 1994; shares issued and
outstanding, 1,963,563 in 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 196,356 196,356
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,224,503 7,224,503
Warrant (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,235,184 -0-
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,289,389) (10,969,752)
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT (DEFICIT) . . . . . . . . . . . . . . . . . . . . . 1,366,654 (3,548,893)
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT . . . . . . . . . . . . . . . . . . $ 8,069,098 $ 7,794,017
================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
15
<PAGE> 18
STATEMENTS OF OPERATIONS
Phoenix Medical Technology, Inc.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,644,441 $12,705,820 $12,692,073
- -------------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . (12,331,384) (11,195,640) (11,380,994)
Selling and administrative expenses . . . . . . . . . . . . . . (1,643,702) (1,678,014) (1,568,226)
- -------------------------------------------------------------------------------------------------------------
Total operating expenses . . . . . . . . . . . . . . . . . . . (13,975,086) (12,873,654) (12,949,220)
- -------------------------------------------------------------------------------------------------------------
Loss from operations . . . . . . . . . . . . . . . . . . . . . . (330,645) (167,834) (257,147)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . 2,591 14,983 6,994
Interest expense (Note 5)
Contractual interest . . . . . . . . . . . . . . . . . . . . (610,425) (715,198) (538,743)
Reinstated interest . . . . . . . . . . . . . . . . . . . . -0- -0- (578,868)
Other, net (Note 8) . . . . . . . . . . . . . . . . . . . . . . -0- -0- 312,137
- -------------------------------------------------------------------------------------------------------------
Loss before reorganization items and
extraordinary items . . . . . . . . . . . . . . . . . . . . . . (938,479) (868,049) (1,055,627)
- -------------------------------------------------------------------------------------------------------------
Reorganization items:
Professional fees . . . . . . . . . . . . . . . . . . . . . . . -0- 3,424 (177,249)
Trustee fees . . . . . . . . . . . . . . . . . . . . . . . . . -0- (5,001) (18,748)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- (3,973) (10,153)
- -------------------------------------------------------------------------------------------------------------
Loss before extraordinary items . . . . . . . . . . . . . . . . . (938,479) (873,599) (1,261,777)
- -------------------------------------------------------------------------------------------------------------
Extraordinary items:
Gain on debt discharge (Notes 3 and 5) . . . . . . . . . . . . 4,618,842 1,131,726 -0-
- -------------------------------------------------------------------------------------------------------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 3,680,363 $ 258,127 $(1,261,777)
=============================================================================================================
Income (loss) per share:
Before extraordinary items . . . . . . . . . . . . . . . . . . $ (0.48) $ (0.45) $ (0.64)
Extraordinary items . . . . . . . . . . . . . . . . . . . . . . 235 058 -0-
- -------------------------------------------------------------------------------------------------------------
Net income (loss) per share . . . . . . . . . . . . . . . . . . . $ 1.87 $ 0.13 $ (0.64)
=============================================================================================================
Weighted average shares and share equivalents
outstanding used to compute earnings per share . . . . . . . . 1,963,563 1,963,563 1,963,563
=============================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
16
<PAGE> 19
STATEMENTS OF SHAREHOLDERS' INVESTMENT
Phoenix Medical Technology, Inc.
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
PAID-IN EARNINGS
SHARES AMOUNT CAPITAL WARRANT (DEFICIT)
--------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 . . . . . . 1,963,563 $196,356 $7,224,503 $ -O- $(9,966,102)
Net Loss . . . . . . . . . . . . . . -0- -0- -0- -0- (1,261,777)
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 . . . . . . 1,963,563 196,356 7,224,503 -0- (11,227,879)
Net Income . . . . . . . . . . . . . -0- -0- -0- -0- 258,127
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 . . . . . . 1,963,563 196,356 7,224,503 -0- (10,969,752)
Net Income . . . . . . . . . . . . . -0- -0- -0- -0- 3,680,363
Warrant issued . . . . . . . . . . . -0- -0- -0- 1,235,184 -0-
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 . . . . . . 1,963,563 $196,356 $7,224,503 $1,235,184 $ (7,289,389)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements
17
<PAGE> 20
STATEMENTS OF CASH FLOWS
Phoenix Medical Technology, Inc
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,680,363 $ 258,127 $(1,261,777)
Adjustments to reconcile net income (loss)to net cash
(used in) provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 469,977 522,272 638,455
Extraordinary item: Gain on debt discharge . . . . . . . . . . . . . . . . . . (4,618,842) (1,131,726) -0-
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net . . . . . . . . . . . . . . (238,467) (279,474) 213,190
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . (178,038) 28,462 329,150
Decrease (increase) in prepayments and other . . . . . . . . . . . . . . . 39,765 (29,174) 67,796
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . (253,686) (97,830) -0-
Increase in accounts payable and accrued expenses
and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 715,744 671,891 489,741
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities . . . . . . . . . . . . . (383,184) (57,452) 476,555
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to operating property, plant
and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 71,640) (101,248) (82,476)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (71,640) (101,248) (82,476)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowing under (repayments on)
revolving loan agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,941 253,825 (424,676)
Reduction of long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (90,125) (191,372) (76,427)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . 497,816 62,453 (501,103)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . 42,992 (96,247) (107,024)
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,419 142,666 249,690
- ------------------------------------------------------------------------------------------------------------------------
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,411 $46,419 $ 142,666
========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest . . . . . . . . . . . . . . . . . . . . . $ 441,104 $427,702 $ 951,940
Cash paid during the year for
reorganization items:
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,857 9,186 6,147
Trustee fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 8,750 20,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 9,230 4,896
Unsecured creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,443 39,368 -0-
Supplemental schedule of non cash investing and
financing activities:
Conversion of accrued expenses to long term debt . . . . . . . . . . . . . 531,769 925,245 -0-
Conversion of long term debt to warrant . . . . . . . . . . . . . . . . . $1,235,184 -0- $ -0-
========================================================================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements
18
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
Phoenix Medical Technology, Inc.
December 31, 1995, 1994, and 1993
NOTE 1 - ORGANIZATION AND GENERAL
Phoenix Medical Technology, Inc. (a Delaware Corporation),
hereinafter referred to as the Company, manufactures, markets and distributes
a range of single use vinyl and latex gloves for use in various applications
where clean, protective handcovers are important. The Company's gloves are
primarily used for healthcare services, beauty and barber shop services, food
processing, electronics and computer manufacturing and assembly, photo
finishing and janitorial services. Additionally, the Company manufactures and
distributes a line of surgical adhesive drapes and a limited line of other
single use medical items. The Company markets its products to medical and
industrial supply companies and generally does not make direct sales to end
users.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined for substantially all inventories using the last-in,
first-out (LIFO) method of inventory accounting. If the first-in, first-out
(FIFO) method had been used, inventories would have been approximately
$313,000 and $197,000 higher than reported at December 31, 1995 and 1994,
respectively. Inventory costs include materials, direct labor and factory
overhead. Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
------------------------
<S> <C> <C>
Raw materials and supplies . . . . . $ 544,581 $ 559,288
Work-in-process . . . . . . . . . . . 8,869 7,526
Finished goods . . . . . . . . . . . 559,009 367,607
---------- ---------
$1,112,459 $ 934,421
========== =========
</TABLE>
Property, Plant and Equipment - All property, plant and equipment is
stated at cost. Interest capitalized during construction periods is included in
plant and equipment and depreciated over the life of the asset. No interest
was capitalized during 1995, 1994 or 1993. Plant and equipment are
depreciated using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings and improvements . . . . . 20-33 years
Machinery and equipment . . . . . . . 3-9 years.
</TABLE>
Other Assets - The Company capitalized certain costs related to the
refinancing of debt (see Note 5). Loan costs are amortized on a straight-line
basis over the term of the related loans.
19
<PAGE> 22
Note 2 (continued)
Income Taxes - In 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based upon the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates. There was no
cumulative effect of this change in accounting for income taxes as of January
1, 1993, and accounting for SFAS 109 had no current year effect on the
Company's results of operations or financial position.
Earnings Per Share - Earnings per share are computed based on the
weighted average number of shares of common stock and equivalents outstanding
during the year of computation.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Estimates also affect the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Reclassification - Certain prior year balances were reclassified to
conform to the 1995 presentation.
NOTE 3 - BANKRUPTCY PROCEEDINGS
In August 1991, the Company filed a petition for relief under Chapter
11 of the United States Bankruptcy Code. Under Chapter 11, certain claims
against the Company in existence prior to the filing of the petitions for
relief under the federal bankruptcy laws were stayed while the Company
continued business operations as a Debtor-in-possession.
On October 21, 1993, the Company filed a Plan of Reorganization (the
Plan) with the Bankruptcy Court. The Plan was confirmed by the Court on
February 7, 1994. The confirmed Plan provided for the following:
Administrative Claims - Fees and expenses owed to the bankruptcy and corporate
attorneys for the Company and fees and expenses owed to the attorneys for the
Unsecured Creditors Committee were to be paid in cash in 60 monthly
installment payments. All known attorney fees owed to the bankruptcy,
corporate and Unsecured Creditors Committee attorneys, in the amount of
$77,890, were paid in conjunction with the debt refinancing discussed at Note
5.
Deferred Compensation - Post-petition deferred compensation owed to two
officers of the Company in the amount of $170,000 was to be
20
<PAGE> 23
Note 3 (continued)
paid in cash over a 48 month period beginning in the thirteenth month after
Confirmation of the Plan of Reorganization. The debt refinancing, discussed
at Note 5, has modified the terms of repayment. The repetition deferred
compensation in the amount of $123,810 was disallowed by the Plan, and thus,
not required to be paid.
Secured Debt - The Williamsburg County IRB, the Term Note, and the Revolver,
along with accrued interest of $736,741, accrued late charges of $107,288 and
accrued legal fees of $81,216 incurred by NationsBank as of December 31, 1993,
were restructured into the 1993 Term Loan, the 1993 Revolver, and the End
Loan. The secured debt was restructured in the debt refinancing discussed at
Note 5.
Property Taxes - Pre- and post-petition property taxes owed were to be paid in
full in 84 equal monthly installments of $6,377, beginning on the first day of
the month following the effective date of the Plan. After 36 months of
payments, interest was to be paid on the remaining balances at a rate of 7%
per annum for the remaining 48 months. Penalties for late payments, the
accrual for which totalled $60,201 at February 7, 1994, were disallowed by the
Plan, and therefore, not paid. The debt refinancing, discussed at Note 5, has
modified the terms of repayment.
Unsecured Claims - Unsecured creditors who were owed a total of $1,475,715 in
prepetition accounts payable and accrued liabilities are being paid a pro rata
portion of $11,200, plus interest at the prime rate, on the fifteenth day of
each quarter for twenty quarters. In addition, if the Company has net income
after debt principal and interest payments in the fifth fiscal year after
Confirmation, unsecured creditors will be paid a pro rata portion of $300,000
beginning March 31 of the sixth year after Confirmation. If sufficient net
income is not generated in the fifth year after Confirmation to pay the
$300,000 in full, pro rata payments shall be made on March 31 of each year
following the year in which the Company has had net income, until the
$300,000 is paid in full. The total of both forms of payment, as allowed by
the Plan of Reorganization, is $524,000. Therefore, the amount of debt
forgiven for unsecured claims is $951,715. However, the Company made a $4,000
payment on a priority claim which had been forgiven by the Plan. The adjusted
debt forgiveness is $947,715, which is included in the gain on debt discharge
reported in the 1994 Statement of Operations.
Common Stock - Shareholders of common stock retained their interests in the
Company. As the pre-reorganization shareholders own more than 50% of the
voting shares of the emerging entity, the Company did not utilize fresh-start
reporting after the reorganization.
The Company has accounted for all transactions related to the
reorganization proceedings in accordance with Statement of
21
<PAGE> 24
Note 3 (continued)
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" issued by the American Institute of Certified Public
Accountants in November 1990. Certain expenses, primarily professional fees,
resulting from the reorganization proceedings, are reported separately in the
1994 and 1993 statement of operations as reorganization items.
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a going concern and presumes the
realization of assets and the settlement of liabilities in the ordinary course
of business. As discussed in Note 3, the Company received approval of the
reorganization plan from the Bankruptcy Court in 1994. As discussed in Note 5,
the Company completed refinancing of the NationsBank debt and modified
payment terms for certain property taxes.
The Company has continued to incur substantial operating losses that
raise substantial doubt about its ability to continue as a going concern.
Management's operating plans include the sale of assets used in their drape
and scrub and prep operations (see Note 11), adding salesmen to increase its
sales volume, and continued close monitoring of cost, as well as concentrating
their sales efforts on a more profitable product mix. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets or the amounts and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
NOTE 5 - DEBT
On March 29, 1995, the Company completed a refinancing of the
NationsBank debt by replacing such debt with debt facilities provided by
Carolina First Bank and The CIT Group/Credit Finance. The Company entered into
a $1,760,000 loan agreement with Carolina First Bank secured by the Company's
real property and fixtures. The loan is repayable in equal monthly
installments over 15 years with interest at prime plus 2%. The Company also
entered into a loan agreement with The CIT Group/Credit Finance whereby CIT
has made a $350,000 term loan, secured by certain assets of the Company,
payable over six years and a revolving credit facility secured by the
Company's eligible inventory and receivables. Pursuant to the revolving credit
facility, the Company can borrow up to 50% of the value of the Company's
eligible inventory and 85% of the value of the Company's eligible accounts
receivable. The revolving credit facility matures on March 28, 1997. The total
loan availability from CIT is $3,000,000, including the $350,000 term loan.
The interest rate on the CIT facility is prime plus 5.75%.
22
<PAGE> 25
Note 5 (continued)
The Company used the net proceeds of the Carolina First loan and the
initial funding of the CIT facility of $1,579,491 to settle its indebtedness
with NationsBank. Pursuant to such settlement, the Company also issued a note
which has been recorded in the amount of $248,959 to NationsBank and a warrant
to purchase up to 496,058 shares of the Company's Common Stock exercisable at a
price of $0.03125 per share. The warrants are exercisable within two to ten
years from March 27, 1995, the date of the loan agreement and were valued at
$1,235,184. The Company has reported in the 1995 Statement of Operations, a
gain on debt discharge of $4,618,842 related to the debt forgiven.
In conjunction with the debt refinancing, NationsBank surrendered to
the Company unexercised warrants for cancellation. In 1990, the Company had
issued these warrants for the purchase of 20,000 shares of the Company's common
stock to NationsBank, the issuer of its revolving loan. The warrants were
exercisable within two to seven years from the date of the loan at the fair
market value of the stock at the date of grant ($5.50).
The Company capitalized certain costs related to the refinancing of
debt. The total capitalized loan costs of approximately $351,516, related to
the refinancing of debt, are being amortized on a straight-line basis over the
term of the related loans.
Under separate agreements with NationsBank and CIT, two officers have
agreed to waive their right to receive payment of all or any portion of their
deferred compensation (total of $170,000) until such time as all obligations of
the Company to NationsBank and CIT have been repaid.
The payment terms for pre- and post-petition property taxes were
modified as of March 27, 1995. The agreement between the Company and
Williamsburg County, South Carolina requires interest payments at the rate of
7% on the unpaid balance and 84 monthly principal payments beginning April 1,
1997.
Attorney fees of $77,890 owed to the bankruptcy, corporate and
Unsecured Creditors' Committee attorneys were paid in conjunction with the debt
refinancing.
Summarized below is the Company's debt at December 31, 1995 and 1994 and the
terms of the debt. Substantially all assets are pledged as collateral against
the loans.
23
<PAGE> 26
Note 5 (continued)
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
1995 term loan payable to bank, due
in scheduled quarterly install-
ments of $14,583 plus interest at
prime plus 5.75% with scheduled
maturity in 2001 . . . . . . . . . . . . . . $ 306,250 -0-
1995 term loan payable to bank, due
in scheduled monthly installments
of $20,184, including interest at
prime plus 2.0% with scheduled
maturity in 2010 . . . . . . . . . . . . . . $1,723,572 -0-
1995 term note payable to bank, due
in scheduled monthly installments
of $3,000 plus interest at prime
plus 2% with scheduled maturity
in 1996 . . . . . . . . . . . . . . . . . . $ 221,959 -0-
1995 revolving loan payable to bank,
interest accrues at prime plus
5.75% (14.25% at December 31,
1995) with scheduled maturity in
1997 . . . . . . . . . . . . . . . . . . . . $1,921,015 -0-
1993 revolving loan payable to bank,
refinanced during 1995 . . . . . . . . . . . -0- 2,355,134
1993 term loan payable to bank, re-
financed during 1995 . . . . . . . . . . . -0- 2,833,054
End loan payable to bank, refinanced
during 1995 . . . . . . . . . . . . . . . . -0- 3,826,103
Other notes payable . . . . . . . . . . . . . . 17,054 -0-
---------- ----------
Total debt . . . . . . . . . . . . . . . . . . 4,189,850 9,014,291
Less - current portion . . . . . . . . . . . . (346,497) (143,196)
---------- ----------
$3,843,353 $8,871,095
========== ==========
</TABLE>
Maturities of long term debt are as follows:
<TABLE>
<S> <C>
1996 346,497
1997 2,037,994
1998 123,766
1999 131,338
2000 139,786
Thereafter 1,410,469
</TABLE>
The Company had outstanding borrowings of $1,921,015 under its revolving
loan as of December 31, 1995. Commitment fees are .50% of the unused portion of
the 1995 revolving loan. Borrowings under this arrangement are secured by liens
on receivables and inventory.
Borrowings under the Company's revolving loans averaged $1,847,000
during 1995 and $2,371,000 during 1994. Maximum borrowings were $1,985,000 in
1995 and $2,686,000 in 1994. The weighted average interest rate for such
borrowings was 12.3 in 1995 and 8.3% in 1994.
24
<PAGE> 27
Note 5 (continued)
The Company's 1995 loan agreements contain certain financial covenant
and ratio requirements such as minimum current ratio, minimum working capital,
maximum leverage and minimum net worth as defined. The Company is also
restricted to maximum annual capital expenditures. As of December 31, 1995, the
Company was in compliance with or had obtained appropriate waivers for all
covenants of the loan agreements.
NOTE 6 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
Accounts payable, accrued expenses and other liabilities consisted of
the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 727,224 $ 414,873
Accrued compensation and
payroll taxes . . . . . . . . . . . . . . . . . . . . 249,970 209,033
Accrued property taxes . . . . . . . . . . . . . . . . . 184,472 -0-
Other current liabilities . . . . . . . . . . . . . . . 173,314 194,750
---------- ----------
Total accounts payable and
accrued expenses . . . . . . . . . . . . . . . . . . $1,334,980 $ 818,656
========== ==========
Accounts payable, long term . . . . . . . . . . . . . . 396,388 439,832
Accrued property taxes . . . . . . . . . . . . . . . . . 611,226 611,226
Other . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 458,905
---------- ----------
Total Other Liabilities . . . . . . . . . . . . . . . $1,177,614 $1,509,963
========== ==========
</TABLE>
25
<PAGE> 28
NOTE 7 - INCOME TAXES
The components of deferred taxes as of December 31, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net loss carryforwards $2,480,000 $3,781,000
General business credit
carryforwards 572,000 705,000
Other liabilities and reserves 173,000 221,000
Valuation allowance (2,678,000) (4,207,000)
---------- ----------
Total deferred tax assets 547,000 500,000
---------- ----------
Deferred tax liabilities:
Basis difference in operating property, plant
and equipment 547,000 500,000
---------- ----------
Net deferred taxes -0- -0-
---------- ----------
</TABLE>
The valuation allowances of $2,678,000 and $4,207,000 as of December
31, 1995 and 1994 respectively were established because in the Company's
assessment, it is uncertain whether the deferred tax assets will be realized.
As of December 31, 1995, net operating loss carryforwards of
approximately $7,800,000 for financial reporting purposes and $6,200,000 for
tax purposes and general business credits of approximately $572,000 are
available to reduce future income taxes payable by the Company. The
carryforwards will expire as follows:
26
<PAGE> 29
Note 7 (continued)
<TABLE>
<CAPTION>
Net Net
Operating Operating General
Losses Losses Business
(book basis) (tax basis) Credits
-------------- -------------- ---------
<S> <C> <C> <C>
1996 $ - $ - $ 117,000
1997 - - 43,000
1998 - - 25,000
1999 - - 71,000
2000 - - 168,000
2001 - - 58,000
2002 - - 40,000
2003 - - 50,000
2004 - - -
2005 3,900,000 1,500,000 -
2006 1,900,000 2,400,000 -
2007 800,000 600,000 -
2008 1,200,000 1,600,000 -
2009 - 100,000 -
----------- ----------- ---------
$ 7,800,000 $ 6,200,000 $ 572,000
=========== =========== =========
</TABLE>
Due to the loss carryforward position in 1991, the Company eliminated
approximately $93,000 of deferred tax liabilities and approximately $31,000 of
income taxes payable. As the Company either provided a valuation allowance for
or did not recognize tax benefits generated from the net operating losses at
December 31, 1995, 1994 and 1993, no income tax provision or benefit was
recorded in these years. Deferred income taxes will be reinstated when the
above carryforwards are recognized for tax purposes.
The effective tax rate varied from the federal statutory rate because no
deferred tax assets applicable to the net operating losses have been recorded.
The effective tax rate varied from the federal statutory rate because of
the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate (34)% (34)% (34)%
Losses carried forward
for future years 34 34 34
---- ---- ----
- - -
==== ==== ====
</TABLE>
NOTE 8 - MAJOR CUSTOMERS, RELATED PARTY TRANSACTIONS AND OTHER MATTERS
Sales to the Company's five largest customers were approximately 29% in
1995, and 26% in 1994 and 31% in 1993. No customer individually accounted for
more than 10% of total sales in 1995, 1994 or 1993. The Company extends credit
to its customers, most of which are in the safety supply, medical supply and
contamination control industries, or are government agencies.
27
<PAGE> 30
Note 8 (continued)
The Company entered into non-competition and consulting agreements with
two of its officers. In the event of their termination, they will be required
to not compete and to provide up to 60 days consulting services per year for
two years (can be extended to a third year at the option of the Company).
Annual expenses under these agreements will equal each officer's final annual
compensation at the time of termination. Total annual compensation related to
the officers was $185,000 in 1995 and $288,000 in 1994. These officers have
forgiven $103,000 of such compensation in 1994 and have no present or future
rights to the forgiven compensation.
The Company is subject to (a) government regulations and periodic
inspection of its facilities by the United States Food and Drug Administration,
(b) various federal, state and local laws and regulations regarding the
protection of the environment, (c) manufacturers' product liability for which
the Company currently maintains liability insurance and (d) adherence to the
patent and other intellectual property rights of others.
The Company manufactures and distributes its products principally to
medical, contamination control and industrial supply companies. Substantially,
all of the Company's accounts receivable are due from companies in the above
lines of business. The Company performs periodic credit evaluations of its
customers' financial conditions and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information. The Company recognizes revenue when
goods are shipped and the resulting receivables are generally due within 30
days.
Other income in 1993 includes $300,000 related to the termination of a
stock purchase agreement with a potential acquirer of 80% of the Company's
outstanding common stock.
NOTE 9 - RETIREMENT PLAN
Effective July 1, 1988, the Company adopted the Phoenix Medical
Technology, Inc. Savings Plan (the "Savings Plan") to provide employees with a
source of income after retirement. The Savings Plan includes 401(k) salary
reduction provisions. The Company's contributions are at the discretion of the
Board of Directors, subject to certain limitations, and may be made in the form
of Company common stock. Contribution expense under the Savings Plan was
approximately $4,600 in 1995, $4,500 in 1994, and $4,400 in 1993.
NOTE 10 - STOCK OPTIONS AND OTHER SHAREHOLDERS' INVESTMENT MATTERS
28
<PAGE> 31
Note 10 (continued)
In March 1984, the Board of Directors adopted an incentive stock option
plan for management and key employees. The plan authorizes up to 50,000 shares
to be available for options to be granted by a committee of the Board. Options
will be exercisable within two to ten years from the dates of grant and at not
less than fair market value of the stock at the dates the options are granted.
In April 1988, the Company's shareholders approved a new incentive stock
option plan for management and key employees. The plan authorizes up to 50,000
shares to be available for options to be granted by a committee of the Board of
Directors. Options will be exercisable within six months to ten years from the
dates of grant at not less than the fair market value of the stock at the dates
the options are granted.
In April 1989, the Company's shareholders approved a new non-qualified
stock option plan for non-employee directors. The 1989 plan authorizes up to
28,000 shares to be available for issuance upon the exercise of options granted
under the 1989 plan. Under the 1989 plan, each eligible director will be
granted an option for 1,000 shares of the Company's common stock on May 1,
1989, 1990, 1991 and 1992. The shares granted are exercisable within six months
to ten years from the dates of the grants. In April 1989 and May 1990, options
for the purchase of 7,000 shares of common stock were granted by the Board of
Directors. In May 1991 and 1992, the Board of Directors granted options for the
purchase of 3,000 shares of common stock in accordance with the 1989 stock
option plan. Options for the purchase of 6,000 shares expired during 1990.
Changes in Stock Options are shown below:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ---------------
<S> <C> <C>
Outstanding 12/31/90 . . . . . . . . . . . . . . . 68,200 $3.38 to $15.00
Granted . . . . . . . . . . . . . . . . . . . . . . 3,000 $0.19
Expired . . . . . . . . . . . . . . . . . . . . . . (6,000) $3.38 to $8.75
Outstanding 12/31/91 . . . . . . . . . . . . . . . 65,200 $0.19 to $15.00
Granted . . . . . . . . . . . . . . . . . . . . . . 3,000 $0.06
Outstanding 12/31/92, 12/31/93 and
12/31/94 . . . . . . . . . . . . . . . . . . . . 68,200 $0.06 to $15.00
Granted . . . . . . . . . . . . . . . . . . . . . . 15,000 $0.375
Expired . . . . . . . . . . . . . . . . . . . . . . (6,750) $8.00
Outstanding 12/31/95 . . . . . . . . . . . . . . . 76,450 $0.06 to $15.00
</TABLE>
As of December 31, 1995, 128,000 shares have been reserved for issuance
under the option plans discussed above.
NOTE 11 - SUBSEQUENT EVENT
On March 22, 1996, the Company sold to Microtek Medical, Inc.
("Microtek"), all of the Company's machinery, equipment and
29
<PAGE> 32
Note 11 (continued)
related tangible property (including inventory and work-in-process) and all of
its proprietary information and other property and rights related to the
Company's manufacture and sale of adhesive skin drapes and scrub and prep
products. The purchase price consisted of $1,175,000 in cash and Microtek's
undertaking to make contingent payments for ten years of 11.5% of its sales of
patented incise drapes and 3% of its sales of other products in the Company's
product line incorporating the patented process, with a maximum of $1,825,000
of all contingent payments, a maximum total purchase price of $3,000,000. The
Company's sales of items produced by the assets sold to Microtek accounted for
4% of their total sales in 1995 and 5% of total sales in 1994.
This sale will result in a gain of approximately $750,000. The
contingent payments will be recorded when earned. Management expects that the
proceeds will be used to repay a portion of their long term debt and other
accrued liabilities.
30
<PAGE> 33
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Registrant's Board of Directors is divided into three
classes, with one class of directors elected at each annual meeting of
shareholders for a three-year term (or until their successors are elected and
qualify). Set forth below is information with respect to each director and
executive officer of the Registrant, including their business experience for at
least the last five years.
DIRECTOR ELECTED APRIL 22, 1988:
Edward W. Gallaher, Sr. Director since 1978. President of the
Registrant since its organization in 1978, Treasurer since 1981 and Chief
Executive Officer since 1987. He is 63.
DIRECTOR ELECTED APRIL 21, 1989:
Grover C. Mixon. Director since 1978. Executive Vice President and
Chief Operating Officer of the Registrant since 1988. Senior Vice President of
the Registrant from 1985 to 1988. Vice President-Operations of the Registrant
1978-1985. He is 52.
DIRECTORS ELECTED APRIL 20, 1990:
Harold H. Heath. Director since 1979. Owner/ Operator of the Big
Valley Ranch in the State of Washington since 1981. He is 73.
Byron M. Layman. Director since 1979. Retired in 1977 as Treasurer
of Payne & Company, a wholesale distributor of fabrics. He is 86.
William T. Sena. Director since 1980. Chairman of Sena, Weller,
Rohs, & Williams, Inc., an investment advisory firm, since 1977. He is 59.
The Registrant's Bylaws provide for a range in the number of
directors, with the provision that, until otherwise determined by the Board of
Directors, the number of directors shall be fixed at nine. Because of the
resignations of directors, there are currently only five directors. There has
not been a meeting of the Registrant's shareholders since April 20, 1990. The
Board of Directors met once in 1995, and all directors participated in the
meeting.
To the Registrant's knowledge, based solely on a review of the copies
of such reports furnished to the Registrant and written representations that no
other reports were required, during the
31
<PAGE> 34
fiscal year ended December 31, 1995, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10% beneficial
shareholders were complied with, except that William T. Sena failed to make
timely filing of one report, reporting one transaction. Such report has since
been filed.
32
<PAGE> 35
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid to
or for the account of the Registrant's chief executive officer. The annual
salary and bonus of no executive officer exceeded $100,000 the fiscal year
ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
-------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL COMPENSATION COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) ($)(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Edward W. Gallaher, Sr. 1995 $ 95,000(2) 0 (3) $924
------------------------------------------------------------------------------------------
President, Treasurer, Chief 1994 $ 95,000(2) 0 (3) $924
------------------------------------------------------------------------------------------
Executive Officer and Director 1993 $ 95,000(2) 0 (3) $899
==============================================================================================================================
</TABLE>
________________________
(1) Amount of vested and unvested Registrant contributions under the
Registrant's Savings Plan, a 401(k) Plan.
(2) Does not include $60,000 of annual salary forgiven by Mr. Gallaher.
Mr. Gallaher has no present or future right to such amount; however,
Mr. Gallaher's annual salary as established by the Board of Directors
remains $155,000.
(3) Mr. Gallaher did not receive personal benefits during the listed years
in excess of 10% of annual salary and bonus.
The following table shows, on an aggregated basis the 1995 fiscal
year-end value of unexercised options and SARs held by Mr. Gallaher. No stock
options or tandem SARs were exercised by Mr. Gallaher during the fiscal year
ended December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN 1995
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS AT FY-END THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE REALIZED (# SH) AT FY-END ($)
NAME EXERCISE (#SH) ($) EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edward W. Gallaher, Sr. 0 0 7,250 / 0 0
===================================================================================================================================
</TABLE>
33
<PAGE> 36
EMPLOYMENT AGREEMENTS
In March 1984, the Registrant entered into non-competition and
consulting agreements with Messrs. Gallaher and Mixon. Under these
agreements, after the officers' termination, each of them will be required not
to compete with the Registrant and to provide up to 60 days consulting services
per year for two years. Annual payments under these agreements will equal each
officer's final annual compensation at the time of termination. The current
annual salaries of Messrs. Gallaher and Mixon, as established by the Board of
Directors is $155,000 and $133,000, respectively. However, Messrs. Gallaher
and Mixon forgave $60,000 and $43,000, respectively, of such salaries for the
fiscal year ended December 31, 1995 and have no present or future right to such
forgiven amounts.
DIRECTORS' FEES
The Directors of the Company who are not employees are
traditionally paid an annual fee of $3,000 plus $500 for each Board meeting
attended and each Committee meeting attended which is not held on the same day
as a Board meeting. The Chairman of the Board traditionally receives an annual
fee of $5,000, in lieu of the $3,000 fee paid to non-employee Directors. Each
Chairman of a Committee who is not an employee traditionally receives an
additional $1,000. No fees were paid to the Directors during 1995 due to the
severe financial condition of the Registrant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March
15, 1996, with respect to the beneficial ownership of the Registrant's Common
Stock by (i) each person known by the Registrant to be the beneficial owner of
more than 5% of such outstanding shares, (ii) each director of the Registrant,
(iii) the named executive officers and (iv) all directors and officers of the
Registrant as a group:
<TABLE>
<CAPTION>
Number of Shares Percentage
and Nature of of Shares
Name and Address Beneficial Ownership(1) Outstanding
- --------------------- -------------------- -----------
<S> <C> <C>
Harold H. Heath 19,000 (2)(3) (4)
Byron M. Layman 26,000 (5) 1.2% (6)
William T. Sena 21,400 (2) 1.1%
</TABLE>
34
<PAGE> 37
<TABLE>
<S> <C> <C>
Edward W. Gallaher, Sr. 108,445 (7) 5.5% (6)
Route 521 West
P.O. Box 346
Andrews, SC 29510
Grover C. Mixon 69,584 (8) 3.5% (6)
All Officers and
Directors of the
Registrant as a Group 238,029 (9) 12.1% (10)
</TABLE>
_____________________________
(1) All shares are owned directly and with sole voting and dispositive
power except as otherwise noted.
(2) Includes 4,000 shares subject to options which are currently
exercisable or exercisable within 60 days.
(3) Includes 2,000 shares owned by Mr. Heath's daughters.
(4) Less than 1%.
(5) Includes 2,805 shares owned by Mr. Layman's wife and 4,000 shares
subject to options which are currently exercisable or exercisable
within 60 days.
(6) Based on the number of shares outstanding and shares subject to
options held by the Director which are currently exercisable or
exercisable within 60 days.
(7) Includes 7,250 shares subject to options which are currently
exercisable or exercisable within 60 days and 15,550 shares held by
Mr. Gallaher's wife.
(8) Includes 500 shares owned by Mr. Mixon's wife and 6,950 shares
subject to options which are currently exercisable or exercisable
within 60 days.
(9) Includes 24,200 shares subject to options which are currently
exercisable or exercisable within 60 days.
(10) Based on number of shares outstanding and shares subject to options
held by the officers and directors which are currently exercisable
or exercisable within 60 days.
35
<PAGE> 38
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(A) (1) FINANCIAL STATEMENTS
The following items, including financial statements of the Registrant,
are filed with this report and included in Part II, Item 7 at pages
- hereof.
Report of Independent Public Accountants
Balance Sheets - December 31, 1995 and 1994
Statements of Operations - Years ended December 31, 1995, 1994 and
1993
Statements of Shareholders' Investment - Years ended December 31,
1995, 1994 and 1993
Statements of Cash Flows - Years ended December 31, 1995, 1994 and
1993
Notes to Financial Statements
(A) (3) EXHIBITS
See INDEX to EXHIBITS.
(B) REPORTS ON FORM 8-K
The Registrant did not file any Reports on Form 8-K during the
quarter ended December 31, 1995.
ITEMS 4, 8 AND 12 ARE INAPPLICABLE AND ARE OMITTED.
36
<PAGE> 39
SIGNATURES
In accordance with Sections 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PHOENIX MEDICAL TECHNOLOGY, INC.
Dated: April 11, 1996 By: /s/ Edward W. Gallaher, Sr.
--------------------------------
Edward W. Gallaher, Sr.
President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Edward W. Gallaher, Sr. President, Treasurer April 11, 1996
- --------------------------- and Director
Edward W. Gallaher, Sr. (Principal Executive
and Financial Officer)
/s/ Grover C. Mixon Executive Vice April 11, 1996
- ----------------------- President and
Grover C. Mixon Director
/s/ Harold H. Heath Director April 11, 1996
- -----------------------
Harold H. Heath
/s/ Byron M. Layman Director April 11, 1996
- -----------------------
Byron M. Layman
/s/ William T. Sena Director April 11, 1996
- -----------------------
William T. Sena
/s/ Delores Williams Controller April 11, 1996
- ----------------------- Principal Accounting
Delores Williams Officer)
</TABLE>
37
<PAGE> 40
SCHEDULE II
PHOENIX MEDICAL TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------
Additions Deductions-
Balance at Charged Write-offs, Balance at
Beginning to Costs and net of End of
Description of Period Expenses Recoveries Period
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31,
1993:
Allowance for doubtful
accounts $122,060 $ 3,397 $(55,433) $70,024
======== ======= ======== =======
Year ended December 31,
1994:
Allowance for doubtful
accounts $ 70,024 $11,800 $(11,800) $70,024
======== ======= ======== =======
Year ended December 31,
1995:
Allowance for doubtful
accounts $ 70,024 $19,386 $(19,386) $70,024
======== ======= ======== =======
</TABLE>
38
<PAGE> 41
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
Item 13
FORM 10-KSB
ANNUAL REPORT
For the fiscal year ended Commission File Number
December 31, 1995 0-13401
PHOENIX MEDICAL TECHNOLOGY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
LOCATED AT
MANUALLY
NUMBERED PAGE
-------------
<S> <C> <C>
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
2.1 Plan of Reorganization, confirmed February 7, 1994, U.S. Bankruptcy
Court for the District of South Carolina, Columbia Division, was
filed as an Exhibit to the Registrant's Form 10-QSB for the
quarter ended October 3, 1993.............................................. *
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
3.1 Certificate of Incorporation of Phoenix Medical Technology, Inc., as
amended, was filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (Reg. No. 2-90708)................................... *
3.2 Certificate of Amendment to the Certificate of Incorporation was
filed as an Exhibit to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988....................................... *
3.3 Amendment to Article VIII of the By-Laws of Phoenix Medical Technology,
Inc., approved at the Annual Meeting of Stockholders on
</TABLE>
39
<PAGE> 42
<TABLE>
<S> <C> <C>
April 22, 1988, was filed as an Exhibit to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988...................................................... *
3.4 By-Laws of Phoenix Medical Technology, Inc., as amended, were filed as an Exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.............. *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES:
4.1 Warrant dated March 27, 1995 between the Registrant and NationsBank, N.A. (Carolinas), was
filed as an Exhibit to the Registrant's Form 8-K dated March 29, 1995..................... *
4.2 Loan Agreement dated March 27, 1995 between the Registrant and Carolina First Bank was
filed as an Exhibit to the Registrant's Form 8-K dated March 29, 1995..................... *
4.3 Loan and Security Agreement dated March 28, 1995 between the Registrant and The CIT
Group/Credit Finance, Inc. was filed as an Exhibit to the Registrant's Form 8-K
dated March 29, 1995...................................................................... *
(10) MATERIAL CONTRACTS:
10.1 1984 Incentive Stock Option Plan was filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (Reg. No. 2-90708).................................................. *
10.2 Form of Consulting and Noncompetition Agreements, dated March 23, 1984, between the Registrant
and Edward W. Gallaher, Sr. and Grover C. Mixon was filed as an Exhibit to the Registrant's
Registration Statement on Form No. S-1 (Reg. No. 2-90708).................................. *
</TABLE>
40
<PAGE> 43
<TABLE>
<S> <C> <C>
10.3 License Agreement, dated February 24, 1983, among the Registrant,
Baxter Travenol Laboratories, Inc., Travenol Laboratories, Inc.,
William E. LeMay, Edward W. Gallaher, Sr., John J. Sullivan, and
Grover C. Mixon, relating to the licensing by the Registrant of
certain technology from Baxter Travenol Laboratories, Inc. and
Travenol Laboratories, Inc. was filed as an Exhibit to the Regi-
strant's Registration Statement on Form S-1
(Reg. No. 2-90708).................................................................. *
10.4 Deferred Compensation Plan was filed as an Exhibit to the Regi-
strant's Registration Statement on
Form S-1 (Reg. No. 2-90708)........................................................ *
10.5 Form of Option dated April 24, 1987 used in connection with grant of
option to purchase 2,000 shares of Common Stock to each of six
non-employee directors of the Registrant was filed as an Exhibit to
the Registrant's Registration Statement on Form S-2 (Reg. No.
33-16918)......................................................................... *
10.6 1988 Stock Option Plan for Officers and
Other Key Employees of the Registrant,
as approved at the Annual Meeting of
Stockholders on April 22, 1988, was filed
as an Exhibit to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988........................................................... *
10.7 Registrant's Savings Plan Qualified Under
Section 401(k) of the Internal Revenue
Code, as adopted by the Board of Directors
in July, 1988, was filed as an Exhibit
to the Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1988................................................................ *
</TABLE>
41
<PAGE> 44
<TABLE>
<S> <C> <C>
10.8 1989 Nonqualified Stock Option Plan for
Non-Employee Directors, as approved
at the Annual Meeting of Stockholders
on April 21, 1989 was filed as an
Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1989........................................................ *
10.9 Asset Purchase Agreement dated as of
March 22, 1996, between the Regis-
trant and Microtek Medical, Inc. for
the sale to Microtek of all of Regis-
trant's assets relating to its
manufacture and sale of adhesive
skin drapes and scrub-and-prep
products was filed as an Exhibit
to the Registrant's Form 8-K dated
March 22, 1996........................................................... *
27. Financial Data Schedule (filed in electronic
format only).............................................................
</TABLE>
_____________________
"*" Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-KSB from a previous filing with the
Commission.
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995, INCLUDED
IN THE REGISTRANT'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 89,411
<SECURITIES> 0
<RECEIVABLES> 1,782,804
<ALLOWANCES> 70,000
<INVENTORY> 1,112,459
<CURRENT-ASSETS> 3,041,091
<PP&E> 11,689,725
<DEPRECIATION> 7,748,033
<TOTAL-ASSETS> 8,069,098
<CURRENT-LIABILITIES> 1,681,477
<BONDS> 0
0
0
<COMMON> 196,356
<OTHER-SE> 7,224,503
<TOTAL-LIABILITY-AND-EQUITY> 8,069,098
<SALES> 13,644,441
<TOTAL-REVENUES> 13,644,441
<CGS> 12,331,384
<TOTAL-COSTS> 13,975,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 610,425
<INCOME-PRETAX> (938,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (938,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,618,842
<CHANGES> 0
<NET-INCOME> 3,680,363
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
</TABLE>
