<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
--------- --------
Commission File No. 0-13401
PHOENIX MEDICAL TECHNOLOGY, INC.
- - -------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Delaware 31-092-9195
- - ---------------------------- --------------------------------
(State or other jurisdic- (I.R.S. Employer
tion of incorporation Identification No.)
or organization)
U.S. Hwy. 521 West, Andrews, South Carolina 29510
- - --------------------------------------------------------------------------------
Address of principal executive offices) (Zip Code)
(803)221-5100
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Registrant's telephone number, including area code
Not Applicable
---------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years.
Check whether the registrant 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
--- ---
Common Stock, without par value 1,963,563
-------------------------------
(Outstanding at March 31, 1996)
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PHOENIX MEDICAL TECHNOLOGY, INC.
CONDENSED BALANCE SHEET
March 31, 1996 and December 31, 1995
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------------------------------------
(Unaudited)
<S> <C> <C>
Current assets
Cash $ 52,095 $ 89,411
Receivables 1,893,759 1,782,804
Inventories (Note 2) 1,066,450 1,112,459
Prepaid expenses 34,285 56,417
----------- -----------
Total current assets 3,046,589 3,041,091
Operating property, plant and equipment - at cost 11,393,124 11,689,725
Less accumulated depreciation (7,541,589) (7,748,033)
----------- -----------
Net operating property, plant and equipment 3,851,535 3,941,692
----------- -----------
Nonoperating equipment, net 751,008 751,008
Other assets, net 343,957 335,307
----------- -----------
Total assets $ 7,993,089 $ 8,069,098
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities
Accounts payable and accrued expenses $ 1,278,526 $ 1,334,980
Current portion of long term debt 266,409 346,497
----------- -----------
Total current liabilities 1,544,935 1,681,477
----------- -----------
Long term debt 3,238,691 3,843,353
Other Liabilities 1,166,753 1,177,614
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Total liabilities 5,950,379 6,702,444
Shareholders' investment
Shares issued and outstanding:
1,963,563 shares 3/31/96 and 12/31/95 196,356 196,356
Paid-in capital 7,224,503 7,224,503
Warrant 1,235,184 1,235,184
Deficit (6,613,333) (7,289,389)
----------- -----------
Total shareholders' investment 2,042,710 1,366,654
----------- -----------
Total liabilities and shareholders' investment $ 7,993,089 $ 8,069,098
=========== ===========
</TABLE>
*Condensed from audited financial statements.
See accompanying notes to Unaudited Condensed Financial Statements.
2
<PAGE> 3
PHOENIX MEDICAL TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
March 31, 1996 April 2,1995
-------------- ------------
<S> <C> <C>
Net sales $3,659,333 $3,206,790
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Operating expenses:
Cost of goods sold (3,217,996) (2,956,961)
Selling and administrative expense (423,586) (391,288)
---------- ----------
Income from operations 17,751 (141,459)
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Other expense and income:
Interest expense, net (131,625) (194,252)
Miscellaneous income, net 29,199 395
Gain on sale of assets 760,731 -0-
---------- ----------
Income (Loss) before extraordinary item 676,056 (335,316)
Extraordinary item - debt discharge -0- 4,618,842
---------- ----------
Net income $ 676,056 $4,283,526
========== ==========
Earnings (Loss) per share:
Income(Loss) before extraordinary item $ 0.35 $ (0.17)
Extraordinary item -0- 2.35
---------- ----------
Net income per share $ 0.35 $ 2.18
========== ==========
Weighted average shares outstanding used
to compute earnings per share 1,963,563 1,963,563
</TABLE>
See accompanying Notes to unaudited Condensed Financial Statements
3
<PAGE> 4
PHOENIX MEDICAL
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
March 31, 1996 April 2, 1995
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 676,056 $ 4,283,526
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 114,933 106,949
Extraordinary item - gain on debt discharge -0- (4,618,842)
Gain on sale of assets (760,731) -0-
Changes in assets and liabilities:
Increase in accounts receivable, net (110,955) (162,471)
Increase in inventories (287,601) (119,519)
Decrease in prepayments 22,132 56,235
Increase in other assets (8,650) (122,552)
(Decrease) Increase in accounts payable
and accrued liabilities (87,315) 455,918
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Net cash used in operating activities (442,131) (120,756)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (24,776) (16,230)
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Cash flows from financing activities:
Net proceeds from sale of assets (apply to debt) 1,114,341 -0-
(Reduction) increase in line of credit (341,906) 294,061
Reduction of long term debt (342,844) -0-
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Net cash provided by financing activities: 429,591 294,061
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Net (decrease) increase in cash (37,316) 157,075
Cash at beginning of period 89,411 46,419
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Cash at end of period $ 52,095 $ 203,494
=========== ===========
Cash paid during the period for interest $ 133,936 $ 25,349
=========== ===========
Supplemental schedule of noncash investing
and financing activities:
Conversion of accrued expenses to long term debt $ -0- $ 531,769
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Condensed Financial Statements.
4
<PAGE> 5
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. General
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These unaudited condensed financial
statements should be read in conjunction with the annual financial statements
and related notes contained in the Company's Form 10-KSB for the year ended
December 31, 1995.
In the opinion of the management, the accompanying unaudited condensed
financial statements include all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the information
therein. Results of operations for interim periods should not be regarded as
necessarily indicative of the results to be expected for the full year.
On March 29, 1995, the Company completed a refinancing of its
outstanding debt. This debt refinancing is further discussed in the Form
10-KSB for the year ending December 31, 1995 and in the form 1O-QSB for the
quarter ended April 2, 1995. In the first quarter of 1995 the Company
recognized a $4,618,842 gain on debt discharge resulting from the refinancing
of its debt.
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 and 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.
2. Inventories
Inventories at March 31, 1996 and December 31, 1995 have been stated
at the lower of cost or market. Cost is determined for substantially all
inventories using the last-in, first-out (LIFO) method.
5
<PAGE> 6
<TABLE>
<CAPTION>
Mar 31, 1996 Dec 31, 1995
------------ ------------
<S> <C> <C>
Raw Materials $ 392,470 $ 544,581
Work-in-Process -0- 8,869
Finished Goods 673,980 559,009
---------- ----------
$1,066,450 $1,112,459
========== ==========
</TABLE>
The sale of skin drapes and scrub-and-prep to Microtek decreased
inventories by $333,610. Without this transaction, inventories would have
increased by $287,601.
4. Earnings
Earnings per share for the quarters ended March 31, 1996 and December
31, 1995 were based on the weighted average number of common shares
outstanding, 1,963,563 for each period.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
Operations
Sales for the first quarter of 1996 were $3,659,300, up 14% over sales
in the similar quarter of 1995. Vinyl glove sales were $2,446,000, 32% greater
than in the similar quarter of 1995. Latex glove sales were $1,040,000, 13%
less than in the 1995 first quarter. The increase in vinyl glove sales
resulted from the Registrant's continuing emphasis on sales to electronics and
semiconductor manufacturers where emphasis is on quality and service. The
decrease in latex glove sales resulted from the completion in November 1995 of
a Department of Defense ("DPSC") contract that represented 21% of 1995 first
quarter latex glove sales. Ignoring the DPSC contract volume, regular latex
glove sales were up 10% over the 1995 quarter's results. Non-glove product
sales were 4.8% of total sales in the first quarter of 1996 and 4.6% in the
prior year quarter.
Following the refinancing of its debt in March 1995, the Registrant's
sales have increased in each quarter, with double digit growth in each of the
last three quarters.
Cost of goods sold, as a percent of net sales, was 87.9% in the current
quarter as compared with 92.2% is the prior year similar quarter. The decrease
is the result of higher average selling prices and improved product mix. The
significant cost increases for plastics raw materials and paper goods have
retreated slightly from fourth quarter 1995 levels but are still above early
1995 costs.
Selling and administrative ("S&A") expenses increased to $424,000, an 8%
increase over 1995 first quarter expenses. Increases were growth related. As
a percent of sales, S&A expense was 11.6% compared with 12.2% in the 1995 first
quarter.
Net income for the first quarter of 1996 was $676,000 as compared with a
net income of $4,284,000 for the 1995 quarter. These results include a
$761,000 gain on the sale of an asset in the 1996 first quarter and a gain of
$4,619,000 from debt discharge in the 1995 quarter. If these gains are
excluded, the Registrant experienced losses of $85,000 in the 1996 first
quarter and $335,000 in the 1995 first quarter.
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
7
<PAGE> 8
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 and 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.
Liquidity and Capital Resources
During the first quarter of 1996, the Registrant's operations used
$442,000 of cash compared with $121,000 in the similar quarter of the prior
year. The difference is attributable mainly to the increase in inventories and
accounts receivable to support the increased sales levels. Accounts payable
decreased $136,000 while the sum of inventories, accounts receivable and
prepayments increased $328,000. At March 31, 1996, the Registrant's line of
credit borrowing was $1,579,000, $342,000 less than at year end 1995.
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 March 31, 1996 was $3,505,000, $685,000
less than at year end 1995.
8
<PAGE> 9
PART 11 - OTHER INFORMATION
PHOENIX MEDICAL TECHNOLOGY, INC.
ITEMS 1, 2, 3, 4 AND 5 ARE INAPPLICABLE AND ARE OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 27, Financial Data Schedule filed in electronic format only.
b. Exhibits and Reports on Form 8-K. The Registrant filed a Current Report
on Form 8-K dated March 22, 1996 during the quarter ended March 31, 1996
reporting the disposition of certain assets pursuant to Item 3 of Form 8-K.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOENIX MEDICAL TECHNOLOGY, INC.
BY: /s/ Edward N. Gallaher, Sr.
----------------------------
Edward N. Gallaher, Sr.
President and Treasurer
BY: /s/ Delores P. Williams
----------------------------
Delores P. Williams
Controller
DATE: May 9, 1996
--------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
BALANCE SHEETS AND STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 52,095
<SECURITIES> 0
<RECEIVABLES> 1,928,044<F1>
<ALLOWANCES> 0
<INVENTORY> 1,066,450
<CURRENT-ASSETS> 3,046,589
<PP&E> 4,946,500<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,993,089
<CURRENT-LIABILITIES> 1,544,935
<BONDS> 4,405,444
0
0
<COMMON> 0
<OTHER-SE> 1,846,354
<TOTAL-LIABILITY-AND-EQUITY> 7,993,089
<SALES> 3,659,333
<TOTAL-REVENUES> 789,930
<CGS> 3,217,996
<TOTAL-COSTS> 3,217,996
<OTHER-EXPENSES> 423,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,625
<INCOME-PRETAX> 676,056
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 676,056
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
<FN>
<F1>*REPRESENTS NET AMOUNT
<F2>*REPRESENTS NET AMOUNT
</FN>
</TABLE>
