<PAGE>
(1)
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 December 31, 1997 Commission File Number 0-16594
MEDICAL TECHNOLOGY SYSTEMS, INC.
-----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 59-2740462
-------- ----------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
12920 Automobile Boulevard, Clearwater, Florida 33762
(address of principal executive offices)
Registrant's telephone number, including area code: (813) 576-6311
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 (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 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at December 31, 1997
- ----- --------------------------------
<S> <C>
Common Stock, $.01 par value 6,089,673
Preferred Stock, $.0001 par value 6,500,000
</TABLE>
<PAGE>
(2)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
- ------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1997 and March 31, 1997............................ 1
Consolidated Statements of Operations -
Three Months and Nine Months ended December 31, 1997 and 1996... 2
Consolidated Statements of Changes in Stockholders' Equity (Deficit) -
Nine Months ended December 31, 1997............................. 3
Consolidated Statements of Cash Flow -
Nine Months ended December 31, 1997 and 1996.................... 4
Notes to Condensed Consolidated Financial Statements.................. 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations... ................ 9-11
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings......................................... 12
Item 6. Exhibits and Reports on Form 8-K........................ 12
Signature............................................... 12
</TABLE>
i
<PAGE>
(3)
Item 1. Financial Statements
Part I - FINANCIAL INFORMATION
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
----------- ---------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash ............................................... $ 102 $ 616
Accounts Receivable, Net ........................... 3,836 3,041
Inventories ........................................ 2,651 2,260
Prepaids and Other ................................. 160 222
Other Receivables .................................. 50 350
------- --------
Total Current Assets ............................... 6,799 6,489
Property and Equipment, Net ........................... 3,357 4,004
Other Assets, Net ..................................... 3,159 2,050
-------- --------
Total Assets .......................................... $ 13,315 $ 12,543
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Current Maturities of Long-Term Debt ............... $ 404 $ 310
Accounts Payable-Trade and Accrued Liabilities ..... 2,731 2,190
-------- --------
Total Current Liabilities .......................... 3,135 2,500
Liabilities Subject to Compromise ..................... 1,087 -0-
Long-Term Debt, Less Current Maturities ............... 15,261 15,459
-------- --------
Total Liabilities ..................................... 19,483 17,959
-------- --------
Stockholders' Equity (Deficit):
Voting Preferred Stock ............................ 1 1
Common Stock ...................................... 62 60
Capital in Excess of Par Value .................... 8,588 8,433
Retained Earnings (Deficit) ....................... (14,488) (13,579)
Less: Treasury Stock .............................. (331) (331)
-------- --------
Total Stockholders' Equity (Deficit) ............ (6,168) (5,416)
-------- --------
Total Liabilities and Stockholders' Equity ............ $ 13,315 $ 12,543
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
(4)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands; Except Earnings Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Month Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
------- ------- ------- -------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenue:
Net Sales and Services ............................... $ 5,551 $ 4,624 $ 16,309 $ 14,264
Costs and Expenses:
Cost of Sales ........................................ 3,085 2,433 8,889 7,773
Selling, General and Administrative .................. 2,248 1,847 6,660 4,685
Depreciation and Amortization ........................ 387 343 1,134 1,023
Interest, Net ........................................ 248 265 805 336
-------- -------- -------- --------
Total Costs and Expenses ..................... 5,968 4,888 17,488 13,817
-------- -------- -------- --------
Net Income (Loss) From Continuing Operations Before Income
Taxes, Discontinued Operations and Extraordinary Gain . (417) (264) (1,179) 447
Income Taxes Recovered ................................... (270) -0- (270) -0-
-------- -------- -------- --------
Net Income (Loss) from Continuing Operations Before ...... (147) (264) (909) 447
Discontinued Operations and Extraordinary Gain
Gain on Forgiveness of Debt of Discontinued Operations ... -0- -0- -0- 2,700
Extraordinary Gain on Forgiveness of Debt ................ -0- -0- -0- 2,101
-------- -------- -------- --------
Net Income (Loss) ........................................ $ (147) $ (264) $ (909) $ 5,248
======== ======== ======== ========
Earnings (Loss) Per Common Share Outstanding:
Basic Earnings (Loss) Per Share
Continuing Operations ................................ $ (0.02) $ (0.04) $ (0.15) $ 0.08
Discontinued Operations .............................. 0.00 0.00 0.00 0.47
Extraordinary Gain ................................... 0.00 0.00 0.00 0.37
-------- -------- -------- --------
Net Income (Loss) .................................... $ (0.02) $ (0.04) $ (0.15) $ 0.92
======== ======== ======== ========
Weighted average Common Shares outstanding ............... 6,083 5,904 6,005 5,677
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
(5)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED DECEMBER 31, 1997
(In Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------------------------
Number $0.01 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)
--------------------------------------------------------------
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)
--------------------------------------------------------------
Balance, September 30, 1997 ........ 6,107,173 $ 61 $ 8,582 $(14,341) $(331) $(6,029)
Stock Issued ....................... 22,500 $ 1 $ 6 $ 7
Net (Loss) for Three Months
Ended December 31, 1997 ......... $ (147) $ (147)
--------------------------------------------------------------
Balance, December 31, 1997 ......... 6,129,673 $ 62 $ 8,588 $(14,488) $(331) $(6,169)
=========== ====== ======= ========= ====== =========
</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
----------- ------- -------
Balance December 31, 1997 .......... 6,500,000 $ 1 $ 1
----------- ------- -------
Total Stockholders' Equity
(Deficit), December 31, 1997 ...... $(6,168)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
(6)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1997 1996
------- -------
(Restated)
<S> <C> <C>
Operating Activities:
Net Income (Loss) ................................................. $ (909) $ 5,248
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization ................................. 1,134 1,023
Extraordinary Gain ............................................ -0- (2,101)
Gain on Forgiveness of Debt of Discontinued Operations ........ -0- (2,700)
Loss on Disposition of Property and Equipment ................. 46 -0-
(Increase) Decrease in:
Accounts Receivable ........................................... (339) 35
Income Taxes Receivable ....................................... -0- 880
Inventories ................................................... (360) 27
Prepaid Expenses and Other Assets ............................. 315 (31)
Increase (Decrease) in:
Accounts Payable and Other Accrued Liabilities ................ 540 (688)
------- -------
Total Adjustments ................................................. 1,336 (3,555)
------- -------
Net Cash Provided by Operating Activities.......................... 427 1,693
------- -------
Investing Activities
Expended for Property and Equipment ........................... (279) (136)
Proceeds from Disposition of Property and Equipment ........... 7 -0-
Acquisition, Net of Cash Acquired ............................. (195) -0-
Expended for Product Development .............................. (273) (249)
Expended for Other Assets ..................................... (106) -0-
------- -------
Net Cash Used by Investing Activities ......................... (846) (385)
------- -------
Financing Activities
Payments on Notes Payable, Long-Term Debt ..................... (303) (1,311)
Net Proceeds from Borrowing on Notes Payable and Long-Term Debt 51 -0-
Issuance of Common Stock ...................................... 157 114
------- -------
Net cash Used by Financing Activities.......................... (95) (1,197)
------- -------
Net Increase (Decrease) in Cash ................................... (514) 111
Cash at Beginning of Period ....................................... 616 965
------- -------
Cash at End of Period ............................................. $ 102 $ 1,076
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
(7)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 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 nine months ended December
31, 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>
December 31, March 31,
1997 1997
------------ --------
(In Thousands)
<S> <C> <C>
Raw Materials .............................. $ 667 $ 588
Finished Good and Work in Progress .......... 1,984 1,672
------ ------
$2,651 $2,260
====== ======
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
NOTE C - EARNINGS PER SHARE
The Company adopted Statement of Financial Standards 128. Earnings per
share effective October 1, 1997. The implementation of this standard did not
have a material effect on the financial statements.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>
December 31, 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 1ump payment of approximately $11.4 million on that date...........$ 15,000 $ 15,000
Seller Financing Under Tampa Pathology Acquisition Agreement, face value of
$487,000 discounted at 10%, with variable monthly payments until satisfied..... 232 273
</TABLE>
<PAGE>
(8)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
NOTE D - LONG-TERM DEBT, CONTINUED
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
---- ----
(In Thousands)
<S> <C> <C>
Other Notes and Agreements; interest and principal payable monthly and
annual at various amounts through March 2000 .................................. 433 496
--------- --------
Total Long-Term Debt ........................................................... 15,665 15,769
Less Current Portion............................................................ (404) (310)
--------- --------
Long-Term Debt Due After 1 Year.................................................$ 15,261 $ 5,459
========= =========
</TABLE>
On December 5, 1997, the Company received a notification from its bank that
certain events of default had occurred under the Loan Agreement between the bank
and the Company. The Company has notified the bank that in its opinion, the
events of default asserted by the bank have not occurred. The Company and its
bank have exchanged additional information and conducted several meetings since
December 5, 1997 in an attempt to resolve issues relating to the alleged
defaults, as well as issues relating to restructuring the Loan Agreement. There
can be no assurances that the Company and its bank will reach a mutually
satisfactory resolution of this matter. The balance sheet reflects $15,000,000
of the bank debt as long term at December 31, 1997.
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 and nine months ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Month Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
--------- ---------- --------- --------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Revenue of each Segment:
Medication Dispensing Systems . $ 3,715 $ 3,069 $ 11,094 $ 9,690
Clinical Laboratory Services .. 1,836 1,555 5,215 4,574
-------- -------- -------- --------
Total Revenue .......................... $ 5,551 $ 4,624 $ 16,309 $ 14,264
======== ======== ======== ========
Operating Profit (Loss) of each Segment:
Medication Dispensing Systems . $ 280 $ 518 $ 945 $ 4,295
Clinical Laboratory Services .. 84 65 329 177
Corporate ..................... (511) (847) (2,183) 776
-------- -------- -------- --------
Total Operating Profit (Loss) .......... $ (147) $ (264) $ (909) $ 5,248
======== ======== ======== ========
Depreciation and Amortization
Expense of each Segment:
Medication Dispensing Systems . $ 208 $ 165 $ 595 $ 494
Clinical Laboratory Services .. 61 61 183 183
Corporate ..................... 118 117 356 346
-------- -------- -------- --------
Total Depreciation and Amortization .... $ 387 $ 343 $ 1,134 $ 1,023
======== ======== ======== ========
</TABLE>
<PAGE>
(9)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
NOTE E - SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
Three Month Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
--------- ---------- --------- --------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Identifiable Assets of each Segment:
Medication Dispensing Systems . $ 7,625 $ 6,053 $ 7,625 $ 6,053
Clinical Laboratory Services .. 2,732 2,760 2,732 2,760
Corporate ..................... 2,958 4,423 2,958 4,423
-------- -------- -------- --------
Total Assets ........................... $ 13,315 $ 13,236 $ 13,315 $ 13,236
======== ======== ======== ========
Capital Expenditures of each Segment:
Medication Dispensing Systems . $ 69 $ 17 $ 190 $ 62
Clinical Laboratory Services .. 3 1 59 65
Corporate ..................... 10 7 30 9
-------- -------- -------- --------
Total Capital Expenditures ............. $ 82 $ 25 $ 279 $ 136
======== ======== ======== ========
</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 nine
months ended December 31, 1997 do not include any restructuring charges related
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 December 31, 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.
<PAGE>
(10)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
NOTE I - RESTATED RESULTS OF OPERATION
The results of operation for the three and nine months ended December 31,
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 audited
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. In addition, 22,500 shares of Common Stock was issued to certain employees
in October 1997 pursuant to the Company's Employee Stock Plan.
NOTE K - INCOME TAXES
The Company amended it Federal Income Tax Return for the fiscal year ended
March 31, 1992 in order to carryback a net operating loss incurred in the fiscal
year ended March 31, 1995. As a result of this amendment during the three months
ended December 31, 1997, the Company recovered approximately $270,000 of income
taxes previously paid as well as approximately $46,000 in interest which is
reflected in the statement of operations for the three and nine months ended
December 31, 1997.
<PAGE>
(11)
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
statements 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", "expects", "intends", "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 December 31, 1997 and 1996
Net sales for the three months ended December 31, 1997 increased 20% to
$5,551,000 from $4,624,000 during the same period the previous year. The
increase in net sales resulted from an increase in revenues of 21% 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) increases in the number
of pharmacy management information systems installed. Revenues for the clinical
laboratory services segment increased 18% in the three months ended December 31,
1997 compared to 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 December 31, 1997 increased 27% to
$3,085,000 from $2,433,000 the same period the previous year. Cost of sales as a
percentage of sales increased to 56% for the three months ended December 31,
1997 compared to 53% during the same period the previous year. Cost of sales
increased as a result of increased revenue. The increase in cost of sales as a
percentage of sales resulted from increases in fixed costs, primarily personnel,
in the medication dispensing segment. Cost of sales as a percentage of sales for
the medication dispensing system segment was 55% compared to 48% the prior year.
Cost of sales as a percentage of sales for the clinical laboratory services
segment decreased to 57% from 61% the previous year. The decrease in this
segment resulted primarily from increased revenues which did not require a
corresponding increase in fixed operating costs.
Selling, general and administrative expenses increased 22% to $2,248,000
from $1,847,000 for the three months ended December 31, 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 segment. 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
$290,000 in the medication dispensing business segment, $151,000 in the clinical
laboratory segment. SG & A expenses in the holding company decreased $41,000.
Depreciation and amortization expense increased $44,000 to $387,000 for the
three months ended December 31, 1997 from $343,000 during the same period the
previous year. The increase resulted from depreciation and amortization of
assets acquired during the first nine months of fiscal 1998.
<PAGE>
(12)
Interest expense (net of interest income) for the three months ended
December 31, 1997 decreased $17,000 to $248,000 from $265,000 during the same
period the previous year. The decrease resulted primarily from the fact that the
Company received approximately $46,000 in interest on a Federal Income Tax
refund.
The Company received an income tax refund of approximately $270,000 during
the three months ended December 31, 1997 which resulted from an amendment to its
1992 tax return. The refund is reflected in the Statement of Operations for the
three and nine months ended December 31, 1997.
Net loss from continuing operations and before extraordinary items for the
three months ended December 31, 1997 was $147,000 compared to a net loss of
$264,000 during the same period the previous year. The net loss for the three
months ended December 31, 1997 decreased from the prior year primarily as a
result of an income tax refund of $270,000.
Nine Months Ended December 31, 1997 and 1996
Net sales for the nine months ended December 31, 1997 increased 14% to
$16,309,000 from $14,264,000 during the same period the previous year. The
increase in net sales resulted primarily from increased sales of MTS Packaging,
Inc. products, an increase in the number of physicians serviced by MT Labs, Inc.
and sales of obstetrical information systems by Medication Management
Technologies, Inc. Revenues for the medication dispensing systems business
segment increased 15% in fiscal 1998 compared to the previous year. Revenues for
the clinical laboratory services segment increased 14% in fiscal 1998 compared
to the previous year.
Cost of sales for the nine months ended December 31, 1997, increased 14% to
$8,889,000 from $7,773,000 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 55% this year and the
previous year. Cost of sales as a percentage of sales in the medication
dispensing systems business segment increased to 54% in the nine months ended
December 31, 1997 from 52% during the same period the previous year primarily as
a result of increased fixed costs primarily personnel. Cost of sales as a
percentage of sales decreased to 55% in fiscal 1998 from 59% 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 42% to $6,660,000
from $4,685,000 for the nine months ended December 31, 1997 compared to the same
period the previous year. The increase resulted primarily from increases in
personnel and selling related costs. SG&A expenses increased $1,242,000 in the
medication dispensing segment, $285,000 in the clinical laboratory segment and
$50,000 in the holding company.
Depreciation and amortization expense increased $111,000 to $1,134,000 for
the nine months ended December 31, 1997 from $1,023,000 during the same period
the previous year. The reasons for the increase in depreciation and amortization
for the nine months ended December 31, 1997 are substantially the same as those
outlined in the comparative quarterly discussions.
Interest expense (net of interest income) increased $469,000 to $805,000
during the nine months ended December 31, 1997 from $336,000 to the previous
year. The increase resulted primarily from the fact that the Company's major
subsidiaries were in Chapter 11 during the first six months of 1996.
Consequently interest payments on the outstanding secured debt were suspended
until confirmation of the plan of reorganization on September 4, 1996.
The Company received an income tax refund of approximately $270,000 during
the nine months ended December 31, 1997 which resulted from an amendment to its
1992 tax return. The refund is reflected on the Statement of Operations for the
three and nine months ended December 31, 1997.
Net loss from continuing operations and before extraordinary items was
$909,000 for the nine months ended December 31, 1997 compared to net income of
$447,000 the same period the previous year. The net loss from continuing
operations for the nine months ended December 31, 1997 compared to net income
the prior year resulted from increased SG & A costs and interest expense.
Extraordinary income for the nine months ended December 31, 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.
<PAGE>
(13)
Gain on forgiveness of debt of discontinued operations for the nine months
ended December 31, 1997 was $0 compared to $2,700,000 during the same period the
previous year. The gain recognized in the nine months ended December 31, 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 by operating activities for the nine months ended December
31, 1997 was $427,000 compared to $1,693,000 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 $846,000 during the nine months ended
December 31, 1997 compared to $385,000 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 $95,000 during the nine months ended December 31,
1997 compared to $1,197,000 the previous year. The Company made certain payments
to its secured lender during the first nine 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.
The Company had working capital of $3,664,000 as of December 31, 1997 and
has no other source of working capital other than that which is generated from
operations.
On December 5, 1997, the Company received a notification from its bank that
certain events of default had occurred under the Loan Agreement between the bank
and the Company. The Company has notified the bank that in its opinion, the
events of default asserted by the bank have not occurred. The Company and its
bank have exchanged additional information and conducted several meetings since
December 5, 1997 in an attempt to resolve issues relating to the alleged
defaults, as well as issues relating to restructuring the Loan Agreement. There
can be no assurances that the Company and its bank will reach a mutually
satisfactory resolution of this matter. The balance sheet reflects $15,000,000
of the bank debt as long term at December 31, 1997.
<PAGE>
(14)
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
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 6. Exhibits and Reports on Form 8-K
27 - Financial data schedule as of December 31,, 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 February 1998.
MEDICAL TECHNOLOGY SYSTEMS, INC.
By: /s/ Michael P. Conroy
Michael P. Conroy
Vice President & Chief Financial Officer
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF MEDICAL TECHNOLOGY SYSTEMS, INC. FOR THE NINE
MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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