FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997 Commission File Number 0-16594
MEDICAL TECHNOLOGY SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 59-2740462
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(State or other jurisdiction of (I.R.S. Employer ID Number)
incorporation or organization)
12920 Automobile Boulevard, Clearwater, Florida 33762
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(address of principal executive offices)
Registrant's telephone number, including area code: (813) 576-6311
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (for 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
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Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1997
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Common Stock, $.01 par value 6,107,173
Preferred Stock, $.0001 par value 6,500,000
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
Index
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and September 30,1997................ 1
Consolidated Statements of Operations -
Three months and Six months ended September 30, 1997 and 1996 2
Consolidated Statements of Changes in Stockholders' Equity (Deficit) -
Six months ended September 30, 1997................. 3
Consolidated Statements of Cash Flow -
Six months ended September 30, 1997 and 1996........ 4
Notes to Consolidated Financial Statements............ 5 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8 - 10
Part II - Other Information
Item 1.
Legal Proceedings..................................... 10
Item 4.
Submission of Matters to a Vote of Security Holders... 10
Item 6.
Exhibits and Reports on Form 8-K...................... 10
Signature............................................. 10
i
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
<S> <C> <C>
Current Assets: (Unaudited)
Cash................................ $ 445 $ 616
Accounts Receivable, Net............ 3,689 3,041
Inventories......................... 2,411 2,260
Prepaids and Other.................. 171 222
Other Receivables................... 50 350
--------- ---------
Total Current Assets................ 6,766 6,489
Property and Equipment, Net.............. 3,645 4,004
Other Assets, Net......................... 3,093 2,050
--------- ---------
Total Assets.............................. $ 13,504 $ 12,543
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Debt... $ 465 $ 310
Accounts Payable-Trade and Accrued
Liabilities.......................... 2,692 2,190
--------- ---------
Total Current Liabilities.............. 3,157 2,500
Liabilities Subject to Compromise......... 1,087 -0-
Long-Term Debt, Less Current Maturities... 15,288 15,459
--------- ---------
Total Liabilities......................... 19,532 17,959
--------- ---------
Stockholders' Equity (Deficit):
Voting Preferred Stock.............. 1 1
Common Stock........................ 61 60
Capital in Excess of Par Value...... 8,582 8,433
Retained Earnings (Deficit)......... (14,341) ( 13,579)
Less: Treasury Stock................ ( 331) ( 331)
--------- ---------
Total Stockholders' Equity (Deficit) ( 6,028) ( 5,416)
--------- ---------
Total Liabilities and Stockholders' Equity $ 13,504 $ 12,543
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands; except Earnings Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenue:
Net Sales and Services.................... $ 5,611 $ 4,755 $10,758 $ 9,637
Costs and Expenses:
Cost of Sales.............................. 2,917 2,492 5,802 5,338
Selling, General and Administrative........ 2,414 1,501 4,414 2,837
Depreciation and Amortization.............. 389 341 747 680
Interest, Net.............................. 283 72 556 70
-------- -------- ------- -------
Total Costs and Expenses 6,003 4,406 11,519 8,925
-------- -------- ------- -------
Net Income (Loss) From Continuing Operations
Before Discontinued Operations and
Extraordinary Gain......................... $ (392) $ 349 $ (761) $ 712
Gain on Forgiveness of Debt of Discontinued
Operations................................. -0- 2,700 -0- 2,700
Extraordinary Gain on Forgiveness of Debt..... -0- 2,101 -0- 2,101
------- ------- ------- -------
Net Income (Loss) ............................ $ (392) $ 5,150 $ (761) $ 5,513
======= ======= ======== =======
Earnings (Loss) per Common Share Outstanding
Continuing Operations ..................... $ (.07) $ .06 $ (.13) $ .13
Discontinued Operations.................... .00 .48 .00 .49
Extraordinary Gain......................... .00 .37 .00 .37
------- ------- ------- -------
Net Income (Loss) ......................... $ (.07) $ .91 $ (.13) $ .99
======= ======= ======= =======
Weighted average Common Shares outstanding.... 5,918 5,680 5,918 5,563
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
SIX MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------------------------------
Number $.01 Capital in Retained
of Par Excess of Earnings Treasury
Shares Value Par Value (Deficit) Stock Total
------ ----- --------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997...... 5,957,173 $ 60 $8,433 $(13,579) $ (331) $ (5,417)
Net (Loss) for Three Months
Ended June 30, 1997......... (370) (370)
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Balance, June 30, 1997....... 5,957,173 $ 60 $8,433 $(13,949) $ (331) $ (5,787)
Stock Issued................. 150,000 1 149 150
Net (Loss) for Three Months
Ended September 30, 1997.... (392) (392)
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Balance, September 30, 1997.. 6,107,173 $ 61 $8,582 $(14,341) $ (331) $ (6,029)
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VOTING PREFERRED STOCK
-----------------------------------------------------------------------------
Number $.0001
of Par
Shares Value
------ -----
<S> <C> <C> <C>
Balance, March 31, 1997 6,500,000 $ 1 $ 1
--------- ------ --------
Balance, June 30, 1997 6,500,000 $ 1 $ 1
--------- ------ --------
Balance, September 30, 1997 6,500,000 $ 1 $ 1
--------- ------ --------
Total Stockholders' Equity (Deficit),
September 30, 1997 $ (6,028)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1997 1996
---- ----
(Restated)
<S> <C> <C>
Operating Activities
Net Income (Loss) ........................................ $ (761) $5,513
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization........................... 747 680
Extraordinary Gain...................................... -0- (2,101)
Gain on Forgiveness of Debt of Discontinued Operations.. -0- (2,700)
(Increase) Decrease in:
Accounts Receivable.................................. (205) (66)
Income Taxes Receivable.............................. -0- 880
Inventories.......................................... (120) 153
Prepaid Expenses and Other Assets.................... 351 (24)
Increase (Decrease) in:
Accounts Payable and Other Accrued Liabilities....... 501 (482)
------ ------
Total Adjustments......................................... 1,274 (3,660)
------ ------
Net Cash Provided by Operations........................... 513 1,853
------ ------
Investing Activities
Expended for Property and Equipment.................... (197) (111)
Acquisition, Net of Cash Acquired...................... (195) -0-
Expended for Product Development....................... (198) (63)
Expended for Other Assets.............................. (79) -0-
------ ------
Net Cash Used by Investing Activities.................. (669) (174)
------ ------
Financing Activities
Payments on Notes Payable, Long-Term Debt.............. (216) (1,213)
Net Proceeds from Borrowing on Notes Payable and
Long-Term Debt....................................... 51 -0-
Issuance of Common Stock............................... 150 114
------ ------
Net cash (Used) by Financing Activities................ (15) (1,099)
------ ------
Net Increase (Decrease) in Cash........................... (171) 580
Cash at Beginning of Period............................... 616 965
------ ------
Cash at End of Period..................................... $ 445 $1,545
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended March 31, 1998. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 1997.
NOTE B - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---- ----
(In Thousands)
<S> <C> <C>
Raw Materials $ 494 $ 588
Finished Good and Work in Progress 1,917 1,672
------ ------
$2,411 $2,260
====== ======
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
NOTE C - EARNINGS PER SHARE
Earnings (loss) per common share were computed using the weighted average
number of shares outstanding. Common stock equivalents (warrants and options)
were excluded from the calculation, as their effect would be antidilutive.
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---- ----
(In Thousands)
<S> <C> <C>
Plan Note I; interest only at 7.5% payable monthly until September 1, 1998;
installments of interest and principal monthly for ten years ending September
1, 2006, with a lump sum payment of approximately $11.4 million on that
date........................................................................... $15,000 $15,000
Seller Financing Under Tampa Pathology Acquisition Agreement, face
value of $478,000 discounted at 10%, with variable monthly payments
until satisfied ................................................................ 246 273
</TABLE>
5
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
NOTE D - LONG-TERM DEBT, Continued
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---- ----
(In Thousands)
<S> <C> <C>
Other Notes and Agreements; interest and principal payable monthly and
annual at various amounts through March 2000.................................... 507 496
-------- -------
Total Long-Term Debt.............................................................. 15,753 15,769
Less Current Portion.............................................................. (465) (310)
-------- -------
LONG-TERM DEBT DUE AFTER 1 YEAR................................................... $15,288 $15,459
======== =======
</TABLE>
NOTE E - SEGMENT INFORMATION
The Company is a holding company operating through a number of separate
subsidiaries. The operations of these subsidiaries are comprised of two business
segments; (1) the Medication Dispensing Systems segment which manufactures and
distributes equipment, systems and supplies to pharmacies who service nursing
homes and hospitals, and (2) the Clinical Laboratory Services segment which
provides diagnostic laboratory services to physicians.
The following is operating information for these business segments for the
three months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Revenue of each Segment:
Medication Dispensing Systems $ 4,062 $ 3,331 $ 7,380 $ 6,617
Clinical Laboratory Services 1,549 1,424 3,378 3,020
------- ------- -------- --------
Total Revenue $ 5,611 $ 4,755 $ 10,758 $ 9,637
======= ======= ======== ========
Operating Profit (Loss) of each Segment:
Medication Dispensing Systems $ 515 $ 913 $ 672 $ 1,599
Clinical Laboratory Services (35) 105 246 259
Corporate (872) (669) (1,679) (1,146)
------- ------- -------- --------
Total Operating Profit (Loss) $ (392) $ 349 $ (761) $ 712
======== ======= ======== ========
Depreciation and Amortization Expense
of each Segment:
Medication Dispensing Systems $ 216 $ 166 $ 393 $ 326
Clinical Laboratory Services 65 55 126 122
Corporate 108 120 228 232
------- ------- -------- --------
Total Depreciation and Amortization $ 389 $ 341 $ 747 $ 680
======= ======= ======== ========
</TABLE>
6
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
NOTE E - SEGMENT INFORMATION, Continued
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Identifiable Assets of each Segment:
Medication Dispensing Systems $ 8,522 $ 8,534 $ 8,522 $ 8,534
Clinical Laboratory Services 2,627 2,899 2,627 2,899
Corporate 2,355 2,367 2,355 2,367
------- ------- -------- --------
Total Assets $13,504 $13,800 $ 13,504 $ 13,800
======= ======= ======== ========
Capital Expenditures of each Segment:
Medication Dispensing Systems $ 29 $ 7 $ 121 $ 45
Clinical Laboratory Services 5 62 56 64
Corporate 5 2 20 2
------- ------- -------- --------
Total Capital Expenditures $ 39 $ 71 $ 197 $ 111
======= ======= ======== ========
</TABLE>
NOTE F - BUSINESS ACQUISITION
On June 20, 1997, the Company, through its subsidiary Medication
Management Technologies, Inc. (MMT) concluded a merger with Cygnet Laboratories,
Inc. (Cygnet), a California company which distributes obstetrical information
systems. The plan of merger provided for the Cygnet shareholders to receive
nominal cash consideration in exchange for their shares. MMT assumed all the
liabilities of Cygnet as a result of the merger. The business combination of MMT
and Cygnet has been accounted for using the purchase method. Accordingly, the
difference between the cost of the assets acquired, of $526,000, and the
liabilities assumed, of $1,440,000, has been recorded as goodwill in the amount
of $914,000. The results of operation for Cygnet from the date of the merger
through June 30, 1997 were not significant. The proforma results, as if the
business combination occurred April 1, 1996 and April 1, 1997, has not been
presented as the results of operation are not significant.
NOTE G - BANKRUPTCY MATTERS
On July 10, 1997, Medication Management Technologies, Inc. (MMT) filed a
voluntary petition for relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code in the Middle District of Florida, Tampa Division. MMT is
currently in the process of preparing a plan of reorganization to present to the
bankruptcy court for approval. The results of operation for the three and six
months ended September 30, 1997 do not include any restructuring charges
relating to the MMT bankruptcy which are material to the financial statements.
NOTE H - LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise of $1,087,000 at September 30, 1997
represent the amounts payable to unsecured creditors of Cygnet Laboratories,
Inc. which were assumed by Medication Management Technologies, Inc. as part of
the merger with Cygnet Laboratories, Inc.
NOTE I - RESTATED RESULTS OF OPERATION
The results of operation for the three and six months ended September 30,
1996 have been restated for certain amounts relating to the restructuring of the
Company's bank debt and forgiveness of debt. The restructuring of bank debt and
forgiveness of debt resulted from the confirmation of the plan of reorganization
of the Company's major subsidiaries by the bankruptcy court on September 4,
1996. These items are more fully described in Note 19 to the unaudited
consolidated financial statements of the Company for the fiscal year ended March
31, 1997 which are included in Form 10-K dated July 2, 1997.
NOTE J - ISSUANCE OF COMMON STOCK
The Company issued 150,000 shares of Common Stock to a former officer and
director in September 1997. The stock was issued pursuant to a severance
agreement which was entered into between the Company and the officer in March
1996.
7
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of
that term in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Additional written or oral forward-looking
statement may be made by the Company from time to time, in filings with the
Securities and Exchange Commission or otherwise. Statements contained herein
that are not historical facts are forward-looking statements made pursuant to
the safe harbor provisions described above. Forward-looking statements may
include, but are not limited to, projections of revenues, income or losses,
capital expenditures, plans for future operations, the elimination of losses
under certain programs, financing needs or plans, compliance with financial
covenants in loan agreements, plans for sale of assets or businesses, plans
relating to products or services of the Company, assessments of materiality,
predictions of future events and the effects of pending and possible litigation,
as well as assumptions relating to the foregoing. In addition, when used in this
discussion, the words "anticipates," "estimates," "intends," "expects," "plans"
and variations thereof and similar expressions are intended to identify
forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which can be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained herein. Statements of the Quarterly Report,
particularly in "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes to Condensed Consolidated
Financial Statements, describe factors, among others, that could contribute to
or cause such differences. Other factors that could contribute to or cause such
differences include, but are not limited to, unanticipated increases in
operating costs, labor disputes, capital requirements, increases in borrowing
costs, product demand, pricing, market acceptance, intellectual property rights
and litigation, risks in product and technology development and other risk
factors detailed in the Company's Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions of
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
Three Months Ended September 30, 1997 and 1996
Net sales for the three months ended September 30, 1997 increased 18% to
$5,611,000 from $4,755,000 during the same period the previous year. The
increase in net sales resulted from an increase in revenues of 21.9% in the
medication dispensing systems business segment. Revenues in this business
segment increased primarily as a result of (a) increased sales of disposable
medication punch cards to existing customers who have expanded their business
through the acquisition of additional pharmacies and (b) sales of obstetrical
information systems by the Company's subsidiary, Medication Management
Technologies, Inc. which acquired Cygnet Laboratories in June 1997. Revenues for
the clinical laboratory services segment increased 8.8% in the three months
ended September 30, 1997 compared to the same period the previous year. The
increase in this segment resulted primarily from an increase in the number of
physicians serviced.
Cost of sales for the three months ended September 30, 1997 increased 17.0%
to $2,917,000 from $2,492,000 the same period the previous year. Cost of sales
as a percentage of sales decreased to 52.0% for the three months ended September
30, 1997 compared to 52.4% the same period the previous year. The minor decrease
in cost of sales as a percentage of sales resulted from incremental gross margin
on increased sales which was partially offset by increases in costs. Cost of
sales as a percentage of sales for the medication dispensing system segment was
49.7% compared to 50.7% the prior year. Cost of sales as a percentage of sales
for the clinical laboratory services segment increased in fiscal 1998 to 58.0%
from 56.4% the previous year.
Selling, general and administrative expenses increased 60.8% from
$1,501,000 to $2,414,000 for the three months ended September 30, 1997 as
compared to the same period the previous year. The increase in SG&A expenses
resulted primarily from increases in personnel and selling related costs in the
medication dispensing business. In addition, the acquisition of Cygnet
Laboratories, Inc. in June 1997 resulted in the addition of personnel necessary
to sell and service the customers of this business. SG&A expenses increased
$745,000 in the medication dispensing business segment, $4,000 in the holding
company and $163,000 in the clinical laboratory segment.
Depreciation and amortization expense increased $48,000 to $389,000 (14.1%)
for the three months ended September 30, 1997 from $341,000 during the same
period the previous year. The increase resulted from depreciation and
amortization of assets acquired during the first six months of fiscal 1998.
Interest expense (net of interest income) for the three months ended
September 30, 1997 increased $210,000 compared to the same period the previous
year. During the three months ended September 30, 1996, the Companies major
subsidiaries were in Chapter 11, consequently interest payments on the
outstanding secured debt were suspended until confirmation of the plan of
reorganization on September 4, 1996.
Net loss from continuing operations and before extraordinary items for the
three months ended September 30, 1997 was $392,000 compared to a net income of
$349,000 in the same period the previous year. The net loss for the three months
ended September 30, 1997 compared to the net income during the same period the
previous year resulted from increased SG&A expenses and interest expense, which
offset increased gross margin realized on higher revenues.
Extraordinary income for the three months ended September 30, 1996 was $0
compared to $2,101,000 the prior year. The extraordinary income the prior year
resulted from the adjustment of the unsecured claims held by creditors of the
Company's subsidiaries pursuant to the plan of reorganization approved by the
bankruptcy court.
Gain on forgiveness of debt of discontinued operations for the three months
ended September 30, 1997 was $0 compared to $2,700,000 during the same period
the previous year. The gain recognized in the three months ended September 30,
1996 resulted from the adjustment in the amount to be paid to the unsecured
creditors of the Company's subsidiary, Vangard Labs, Inc., pursuant to the plan
of reorganization which was confirmed by the bankruptcy court.
8
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
Six Months Ended September 30, 1997 and 1996
Net sales for the six months ended September 30, 1997 increased 11.6% to
$10,758,000 from $9,637,000 during the same period the previous year. The
increase in net sales resulted primarily from increased sales of MTS Packaging,
Inc. products and an increase in the number of physicians serviced by MT Labs,
Inc. Revenues for the medication dispensing systems business segment increased
11.5% in fiscal 1998 compared to the previous year. Revenues for the clinical
laboratory services segment increased 11.9% in fiscal 1998 compared to the
previous year.
Cost of sales for the six months ended September 30, 1997, increased
$464,000 (8.7%) to $5,802,000 from $5,338,000 during the same period the
previous year. The increase resulted primarily from the increase in revenues in
each business segment. Cost of sales as a percentage of sales was decreased to
53.9% in the three months ended September 30, 1997 from 55.4% the same period
the previous year. Cost of sales as a percentage of sales in the medication
dispensing systems business segment decreased to 53.9% from 54.3% during the
same period the previous year primarily as a result of incremental profit margin
on increased revenue. Cost of sales as a percentage of sales decreased to 54.0%
in fiscal 1998 from 57.7% the prior year in the clinical laboratory segment
primarily as a result of additional revenues which did not require increases in
certain fixed operating costs.
Selling, general and administrative expenses increased $1,577,000 (55.6%)
to $4,414,000 from $2,837,000 for the six months ended September 30, 1997
compared to the same period the previous year. The reasons for the increase are
substantially the same as those outlined in the comparative quarterly
discussions. SG&A expenses increased $1,242,000 in the medication dispensing
segment, $50,000 in the holding company and $285,000 in the clinical laboratory
segment.
Depreciation and amortization expense increased $67,000 to $747,000 (9.9%)
for the six months ended September 30, 1997 compared to $680,000 during the same
period the previous year. The reasons for the increase in depreciation and
amortization for the six months ended September 30, 1997 are substantially the
same as those outlined in the comparative quarterly discussions.
Interest expense (net of interest income) increased $486,000 during the
six months ended September 30, 1997 compared to the previous year. The reasons
for the increase in interest expense during the six months ended September 30,
1997 are substantially the same as those outlined in the comparative quarterly
discussions.
Net loss from continuing operations and before extraordinary items was
$761,000 for the six months ended September 30, 1997 compared to net income of
$712,000 the same period the previous year. The reasons for the net loss from
continuing operations for the six months ended September 30, 1997 compared to
net income the prior year are substantially the same as those outlined in the
comparative quarterly discussions.
Extraordinary income for the six months ended September 30, 1997 was $0
compared to $2,101,000 the prior year. The extraordinary income the prior year
resulted from the adjustment of the unsecured claims held by creditors of the
Company's subsidiaries pursuant to the plan of reorganization approved by the
bankruptcy court.
Gain on forgiveness of debt of discontinued operations for the six months
ended September 30, 1997 was $0 compared to $2,700,000 during the same period
the previous year. The gain recognized in the three months ended September 30,
1996 resulted from the adjustment in the amount to be paid to the unsecured
creditors of the Company's subsidiary, Vangard Labs, Inc., pursuant to the plan
of reorganization which was confirmed by the bankruptcy court.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from continuing operations for the six months ended
September 30, 1997 was $513,000 compared to $1,853,000 during the previous year.
Cash was provided from continuing operations primarily as a result of increases
in trade credit provided to the Company.
Investing activities utilized $669,000 during the six months ended
September 30, 1997 compared to $174,000 the previous year. The increase in cash
used by investing activities resulted from product development and capital
expenditure programs which resumed in fiscal 1998, as well as the acquisition of
Cygnet Laboratories, Inc. in June 1997.
Financing activities used $15,000 during the six months ended September
30, 1997 compared to $1,099,000 the previous year. The Company made certain
payments to its secured lender during the first six months of the prior year as
part of the Chapter 11 reorganization of its principal subsidiaries. The
Company's current secured debt requires interest only payments until September
1998, therefore financing activities currently do not require repayment of
principal on outstanding secured debt.
9
<PAGE>
The Company had working capital of $3,609,000 as of September 30, 1997 and
has no other source of working capital other than that which is generated from
operations.
On October 28, 1997, the bankruptcy court ordered the Company to make
payments of approximately $270,000 to unsecured creditors pursuant to the plan
of reorganization which was confirmed on September 4, 1996 for MTS Packaging,
Inc. and MT Laboratories, Inc. In addition, approximately $172,000 in
administrative claims have been filed with the court of which approximately
$67,000 have previously been paid, resulting in a balance of $105,000 to be
paid. The Company had placed $250,000 in escrow with its bankruptcy counsel to
provide for payments to unsecured creditors and administrative claims. The
amounts remaining to be paid to unsecured creditors and administrative claims
($375,000) will be paid from the escrow funds, as well as funds generated from
future operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 10, 1997, Medication Management Technologies, Inc. (MMT) filed a
voluntary petition for relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code in the Middle District of Florida, Tampa Division. MMT is
currently in the process of preparing a plan of reorganization to present to the
bankruptcy court for approval.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Shareholders of the Company was held on September
10, 1997. Messrs. Todd E. Siegel, David Kazarian, Michael Conroy and John
Stanton were elected directors of the Company for one year terms with 5,112,303
shares of Common Stock and 6,500,000 shares of Voting Preferred Stock voting in
favor, 11,819 shares of Common Stock and zero shares of Voting Preferred Stock
voting against, and 178,705 shares of Common Stock and zero shares of Voting
Preferred Stock abstaining.
In addition, the appointment of Grant Thornton as the Company's independent
certified public accountants for the fiscal year 1998 was ratified by a vote of
5,204,456 shares of Common Stock and 6,500,000 shares of Voting Preferred Stock
in favor, and 39,050 shares of Common Stock and zero shares of Voting Preferred
Stock voting against, and 45,353 shares of Common Stock and zero shares of
Voting Preferred Stock abstaining.
The proposal to adopt the adoption and amendment of the Company's 1997
Stock Option Plan was approved by a vote of 4,819,914 shares of Common Stock and
6,500,000 shares of Voting Preferred Stock. There were 354,058 shares of
Common
Stock and zero shares of Voting Preferred Stock voting against the proposal and
114,887 shares of Common Stock and zero shares of Voting Preferred Stock
abstaining.
Item 6. Exhibits and Reports on Form 8-K
27 - Financial data schedule as of September 30, 1997 (for SEC use only),
filed herewith.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Pinellas, State of
Florida, on the 13th day of November, 1997.
MEDICAL TECHNOLOGY SYSTEMS, INC.
By: /s/ Michael P. Conroy
------------------------------------------
Michael P. Conroy
Vice President & Chief Financial Officer
10
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