SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[ ] For the quarterly period ended December 31, 1999 or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ______________________ to _______________________
0-16594
Commission file number ________________________________________________________
MEDICAL TECHNOLOGY SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-2740462
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S.) Employer
Incorporation or Organization) Identification No.)
12920 Automobile Boulevard, Clearwater, Florida 33762
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
727-576-6311
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If changed since last report)
Indicate by check mark 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 ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
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 ______
<PAGE>
i
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
Index
Page
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999 and March 31, 1999............................ 1
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended December 31, 1999 and 1998... 2
Condensed Consolidated Statements of Changes in Stockholders'
Equity (Deficit) - Nine Months Ended December 31, 1999.......... 3
Condensed Consolidated Statements of Cash Flow -
Nine Months Ended December 31, 1999 and 1998.................... 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 4. Submission of Matters to a Vote of Security-Holders.............. 12
Item 6. Exhibits and Reports on Form 8-K................................. 12
Signature........................................................ 12
1
<PAGE>
Item 1. Financial Statements
PART 1 - FINANCIAL INFORMATION
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
--------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 107 $ 205
Accounts Receivable, Net 2,531 2,473
Inventories 2,267 1,990
Prepaids and Other 154 69
------------- -------------
Total Current Assets 5,059 4,737
Property and Equipment, Net 1,684 2,013
Other Assets, Net 1,296 1,761
------------- -------------
Total Assets $ 8,039 $ 8,511
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current Maturities of Long-Term Debt $ 771 $ 874
Accounts Payable and Accrued Liabilities 2,472 2,405
--------------- ---------------
Total Current Liabilities 3,243 3,279
Net Liabilities of Discontinued Operations 528 1,917
Long-Term Debt, Less Current Maturities 14,432 14,915
--------------- ---------------
Total Liabilities 18,203 20,111
=============== ===============
Stockholders' Equity (Deficit):
Voting Preferred Stock 1 1
Common Stock 64 64
Capital In Excess of Par Value 8,583 8,583
Retained Earnings (Deficit) (18,484) (19,920)
Less: Treasury Stock (328) (328)
--------------- ---------------
Total Stockholders' Equity (Deficit) (10,164) (11,600)
--------------- ---------------
Total Liabilities and Stockholders' Equity (Deficit) $ 8,039 $ 8,511
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Net Sales $ 4,213 $ 3,808 $ 12,283 $ 10,800
Costs and Expenses:
Cost of Sales 2,169 2,070 6,416 6,122
Selling, General and Administrative 1,189 1,027 3,499 2,949
Depreciation and Amortization 240 235 749 721
Interest, Net 293 300 884 870
------------ ------------ --------- ----------
Total Costs and Expenses 3,891 3,632 11,548 10,662
------------ ------------ --------- ----------
Income (Loss) Before Discontinued Operations 322 176 735 138
and Extraordinary Gain
(Loss) from Operations of Discontinued Operations (24) (645) (1,121) (1,743)
Extraordinary Gain on Forgiveness of Debt 0 0 0 662
Gain on Disposal of Discontinued Operations 0 0 1,822 0
------------ ------------ ------------ ------------
Net Income (Loss) $ 298 $ (469) $ 1,436 $ (943)
============ ============ ============ ============
Earnings (Loss) Per Basic and Diluted Common Share:
Income from Continuing Operations 0.05 0.03 0.12 0.02
Income (Loss) from Discontinued Operations 0.00 (0.11) 0.11 (0.18)
------------ ------------ ------------ ------------
Earnings (Loss) per Basic and Diluted Common Share $ 0.05 $ (0.08) $ 0.23 $ (0.16)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED DECEMBER 31, 1999
(In Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------------------------
Number Par Capital in Retained Treasury
of Value Excess of Earnings Stock Total
Shares Par Value (Deficit)
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1999 6,406,191 $ 64 $ 8,583 $ (19,920) $ (328) $ (11,601)
Stock Issue 40,000
Net Income for Nine Months
Ended December 31, 1999 - - - 1,436 - 1,436
--------------------------------------------------------------------------------------
Balance, December 31, 1999 6,446,191 $ 64 $ 8,583 $ (18,484) $ (328) $ (10,165)
=========== =========== =========== ============ ============= ===========
VOTING PREFERRED STOCK
--------------------------------------------------------------------------------------
Number Par
of Value
Shares
----------- -----------
Balance, March 31, 1999 6,500,000 $ 1 $ 1
----------- ----------- -----------
Balance, December 31, 1999 6,500,000 $ 1 $ 1
----------- ----------- -----------
Total Stockholders' Equity -----------
(Deficit), December 31, 1999 $ (10,164)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
--------------------------------------
1998 1999
------------- --------------
<S> <C> <C>
Operating Activities
Net Income (Loss) from Continuing Operations $ 735 $ 138
------------- --------------
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 749 721
(Increase) Decrease in:
Accounts Receivable (58) (108)
Inventories (277) (166)
Prepaids and Other (41) (57)
Increase (Decrease) in:
Accounts Payable and Other Accrued Liabilities 49 140
------------- --------------
Total Adjustments 422 530
------------- --------------
Net Cash Provided by Operating Activities 1,157 668
------------- --------------
Investing Activities
Expended for Property and Equipment (260) (173)
Expended for Product Development (78) (157)
Expended for Other Assets (68) (135)
------------- --------------
Net Cash Used by Investing Activities (406) (465)
------------- --------------
Financing Activities
Payments on Notes Payable and Long-Term Debt (597) (100)
Proceeds from Borrowing on Notes Payable and Long-Term Debt 0 350
Advances to Affiliates - Discontinued Operations (252) (378)
------------- --------------
Net Cash Used by Financing Activities (849) (128)
------------- --------------
Net Decrease in Cash (98) 75
Cash at Beginning of Period 205 465
------------- --------------
Cash at End of Period $ 107 $ 540
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
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 nine-month period ended December 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended March 31, 2000. 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, 1999.
The unaudited condensed consolidated financial statements include the
accounts of the Company and its subsidiaries, MTS Packaging Systems, Inc. ("MTS
Packaging"), Medical Technology Laboratories, Inc. ("MTL") and LifeServ
Technologies, Inc. ("LifeServ"). MTL and LifeServ represent discontinued
operations, and accordingly, these discontinued businesses' net liabilities are
shown as one amount under the captions "Net Liabilities of Discontinued
Operations" for fiscal 2000 and fiscal 1999. The results of operations of these
discontinued businesses for fiscal 2000 and fiscal 1999 have been excluded from
the components of "Income (Loss) from Continuing Operations" and shown under the
caption "Loss from Operations of Discontinued Operations" in the Statements of
Operations.
The unaudited condensed consolidated financial statements include the
classification of the amounts due pursuant to the Company's bank term loan
according to the repayment terms of the loan agreement. Certain events of
default under the loan agreement may have occurred and the Company has requested
a waiver of these events of default. Although the Company is discussing the
waivers with the bank, there are no assurances that the waivers will be
obtained. In the event that waivers are not obtained and the bank exercises its
rights regarding the repayment of the loan, the classification of the amounts
due to the bank on the balance sheet may change from long-term to current. If
the bank elects to exercise its rights under the loan agreement regarding the
repayment of the indebtedness, the Company's results of operations, liquidity
and financial condition would be adversely affected (See Note E).
NOTE B - INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
---------------- ----------------
(In Thousands)
<S> <C> <C>
Raw Materials $ 1,131 $ 767
Finished Goods and Work in Progress 1,276 1,363
Less: Inventory Valuation Allowance (140) (140)
---------------- ----------------
$ 2,267 $ 1,990
================ ================
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
NOTE C - EARNINGS PER SHARE
Net income per common share is computed by dividing net income by the basic
and diluted weighted average number of shares of common stock outstanding. For
diluted weighted average shares outstanding, the Company used the Treasury stock
method to calculate the common stock equivalents that stock options would
represent. The effect of all options and warrants were not included in the
calculation of net income per diluted common share as the effect would have been
anti-dilutive.
6
<PAGE>
NOTE D - DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 1999, the Company implemented a
strategy of focusing its resources on its core business, MTS Packaging, and
divesting the other two businesses it historically operated.
In May 1999, the Company sold LifeServ, its Health Care Information Systems
subsidiary. The Asset Acquisition Agreement provided, among other things, for
the buyer to receive substantially all the assets of LifeServ in consideration
for the assumption of certain stated liabilities of approximately $5 million.
The sale resulted in a gain of approximately $1.8 million, which has been
recognized in the accompanying financial statements as a gain on disposal of
discontinued operations. During the first quarter, LifeServ had revenue of
$454,000 and costs and expenses of $978,000 resulting in a loss from
discontinued operations of $524,000. LifeServ had no operations after the first
quarter.
In January 2000, the Company concluded a sale of certain assets of its
Clinical Laboratory Services subsidiary, Medical Technology Laboratories, Inc.
("MTL"). The Company sold the goodwill, laboratory equipment, computer equipment
and certain accounts receivable for one million dollars ($1,000,000) and the
assumption of approximately four hundred thousand dollars ($400,000) in
liabilities. The proceeds of the sale were primarily used to reduce the
Company's outstanding indebtedness to its principal lender. According to the
terms of the Asset Purchase Agreement, the Company will continue to operate MTL
for six months or until the buyer receives its Medicare provider number. During
the fourth quarter of fiscal 1999, the Company estimated a loss on the disposal
of MTL and recorded a charge of $2.5 million. The loss on disposal included a
reserve for $500,000 for the estimated costs of disposal and operating losses
through the disposal date. The net loss from the operations of the discontinued
operation through December 31, 1999 was $1,097,000 of which $500,000 was charged
to the reserve and the balance of $597,000 was recorded as a loss from
operations of discontinued operations. The sale of the assets and liquidation of
the remaining assets is not expected to result in any further losses. The
Company anticipates that the gain realized on the sale of assets, which will be
recognized during the fourth quarter, will be approximately $400,000. The amount
of the potential gain on the liquidation can not be accurately determined until
the liquidation of the remaining assets, comprised of approximately $1,800,000
in accounts receivable, is complete and a final resolution of remaining
liabilities of approximately $3.2 million not assumed by the buyer is obtained.
The Company anticipates that the final liquidation of assets and resolution of
liabilities will not be concluded until fiscal 2001.
The carrying value of the net liabilities of discontinued operations at
December 31, 1999 and March 31, 1999 is comprised of the following.
<TABLE>
<CAPTION>
Total
LifeServ MTL Discontinued
Operations
--------------------------- --------------------------- ----------------------------
December 31, March 31, December 31, March 31, December 31, March 31,
1999 1999 1999 1999 1999 1999
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets $ 0 $ 1,047 $ 2,963 $ 3,945 $ 2,963 $ 4,992
Other Assets 0 2,088 98 71 98 2,159
------------ ------------ ------------ ------------ ------------ ------------
Total Assets $ 0 $ 3,135 $ 3,061 $ 4,016 $ 3,061 $ 7,151
------------ ------------ ------------ ------------ ------------ ------------
Current Liabilities $ 0 $ 4,532 $ 2,280 $ 2,876 $ 2,280 $ 7,408
Long-Term Liabilities 0 346 1,309 1,314 1,309 1,660
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities $ 0 $ 4,878 $ 3,589 $ 4,190 $ 3,589 $ 9,068
------------ ------------ ------------ ------------ ------------ ------------
Net Liabilities of
Discontinued Operations $ 0 $ 1,743 $ 528 $ 174 $ 528 $ 1,917
============ ============ ============ ============ ============ ============
</TABLE>
7
<PAGE>
NOTE E - LONG-TERM DEBT
Long-term debt related to continuing operations consists of the
following:
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------- --------------
(In Thousands)
<S> <C> <C>
Bank Term Loan; payable in installments of interest at 7.5% and principal
monthly for ten years ending September 1, 2006, with a lump sum payment of
approximately $9.3 million on that date secured by all tangible and
intangible assets of the Company. $ 14,371 $ 14,806
Unsecured Notes Payable plus interest at 12% through February 1999, and 18%
until repaid. 150 150
Unsecured Notes Payable plus interest at 13% in monthly installments of
$8,905 through September 2001. 164 200
Unsecured Note Payable plus interest at 3%, payable in monthly installments
of $2,394 through September 2006. 152 193
Unsecured Note Payable under settlement agreement with State of Florida
Department of Revenue, payable in monthly installments of $2,500-$3,500
over a period of four to eight years. 270 284
Other Notes and Agreements; interest and principal payable monthly and
annually at various amounts through March 2000. 96 156
------------- --------------
Total Long -Term Debt 15,203 15,789
Less Current Portion (771) (874)
------------- --------------
LONG-TERM DEBT DUE AFTER 1 YEAR $ 14,432 $ 14,915
============= ===============
</TABLE>
The bank notes payable are collateralized by the Company's accounts
receivables, inventory, equipment and intangibles.
On July 15, 1999, the Company received a waiver of certain defaults that
occurred under its bank term loan agreement through June 30, 1999. In addition,
the bank and the Company agreed to modify the loan agreement for results of
operations subsequent to July 1, 1999. To date the bank and the Company have not
agreed on the terms of the modification. The Company has requested that the bank
extend its waiver of certain defaults past June 30, 1999 and has requested the
bank to waive certain other events of default that may have occurred. There are
no assurances that the bank will extend the waiver or waive any additional
events of default that may have occurred. If the bank does not ultimately
provide a waiver of events of default and/or a loan agreement modification is
not executed, long-term debt of approximately $14.4 million may be reclassified
as current and thereby, adversely affect the Company's results of operations,
liquidity and financial condition.
8
<PAGE>
NOTE F - CONTINGENCIES
On November 19, 1998, MTL received a refund request in the amount of $1.8
million from Medicare Program Safeguards ("MPS") and $104,000 from the State of
Florida Agency for Health Care Administration ("AHCA"). The request follows an
onsite review in May 1997, by federal and state agencies, of MTL's Medicare and
Medicaid billing practices in 1996. MTL has conducted an internal review of the
billing procedures, records and services in question and disputes MPS's findings
and determination. On December 17, 1998, MTL responded to the MPS determination
and subsequently received a response from MPS in which MPS informed MTL that
recoupment of the refund amount would be stayed while MPS reviewed MTL's
response. Although MTL believes that MPS's determination and the request for
refund are without merit, there can be no assurance that this matter will be
resolved over the near term or that the ultimate outcome of the matter will not
have a material adverse affect on the amount of the gain the Company may realize
in the sale of assets and liquidation of MTL.
The Company is involved in certain claims and other legal actions arising
in the ordinary course of business. There can be no assurances that these
matters will be resolved on terms acceptable to the Company. In the opinion of
management, based upon advice of counsel and consideration of all facts
available at this time, the ultimate disposition of these matters will not have
a material adverse affect on the financial position, results of operations or
liquidity of the Company.
NOTE G - INCOME TAXES
The Company's utilization of net operating loss carry forwards from
continuing and discontinued operations that have not been previously recognized
substantially eliminated the current periods income tax provision.
NOTE H - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
------------ -------------
(In Thousands)
<S> <C> <C>
Cash Paid for Interest - Continuing Operations $ 883 $ 870
Cash Flow Information for Discontinued Operations:
Operating Activities
Net Cash (Used) by Discontinued Operations (284) (370)
Investing Activities
Net Cash (Used) by Investing Activities of Discontinued Operations (103) (186)
Financing Activities
Net Cash Provided by Financing Activities of Discontinued Operations 96 320
------------ ------------
Net (Decrease) in Cash - Discontinued Operations (291) (236)
Cash at Beginning of Period - Discontinued Operations 61 (142)
Cash Provided by Continuing Operations 252 378
------------ ------------
Cash at End of Period - Discontinued Operations $ 22 $ 0
============ ============
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 in this 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.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1999 and 1998
- ---------------------------------------------
Net sales for the three months ended December 31, 1999 increased 10.5% to
$4.2 million from $3.8 million during the same period the prior year.
Net sales increased primarily as a result of a greater number of punch
cards and other disposable supplies sold to existing customers. In addition,
prices to customers, for certain punch cards, have increased approximately 3%.
MTS Packaging also continues to increase its customer base both in the US and
Canada.
Cost of sales and services for the three months ended December 31, 1999
increased 5% to $2.2 million from $2.1 million during the same period the prior
year. Cost of sales and services as a percentage of sales decreased to 51.4%
from 54.4% during the same period the prior year. The decrease is primarily due
to certain fixed components of cost of sales and services not increasing as
revenue increased. Price increases to customers have generally offset increases
in raw material and direct labor costs incurred by the Company.
10
<PAGE>
Selling, general and administration expenses for the three months ended
December 31, 1999 increased 20% to $1.2 million from $1.0 million during the
same period the prior year. The increase resulted primarily from an increase in
personnel costs that resulted from the addition of personnel to accommodate
increased sales and services. In addition, the Company has dedicated more
resources to trade show and other marketing activities during fiscal 2000.
Depreciation and amortization expenses for the three months ended December
31, 1999 increased 2% to $240,000 from $235,000 during the same period the prior
year. This increase is a result of new assets being placed into service.
Interest expense for the three months ended December 31, 1999 decreased 2%
to $293,000 from $300,000 during the same period the prior year. The decrease
results from a reduction in long-term debt associated with the continued
amortization of the its bank indebtedness.
Nine Months Ended December 31, 1999 and 1998
- --------------------------------------------
Net sales for the nine months ended December 31, 1999 increased 13.7% to
$12.3 million from $10.8 million during the same period the prior year.
Net sales increased primarily as a result of a greater number of punch
cards and other disposable supplies sold to existing customers. In addition,
prices to customers, for certain punch cards, have increased approximately 3%.
MTS Packaging also continues to increase its customer base both in the US and
Canada.
Cost of sales and services for the nine months ended December 31, 1999
increased 4.9% to $6.4 million from $6.1 million during the same period the
prior year. Cost of sales and services as a percentage of sales decreased to
52.2% from 56.7% during the same period the prior year. The decrease is
primarily due to certain fixed components of cost of sales and services not
increasing as revenue increased. Price increases to customers have generally
offset increases in raw material and direct labor costs incurred by the Company.
Selling, general and administration expenses for the nine months ended
December 31, 1999 increased 21.0% to $3.5 million from $2.9 million during the
same period the prior year. The increase resulted primarily from an increase in
personnel costs that resulted from the addition of personnel to accommodate
increased sales and services. In addition, the Company has dedicated more
resources to trade shows and other marketing activities.
Depreciation and amortization expenses for the nine months ended December
31, 1999 increased 3.9% to $749,000 from $721,000 during the same period of the
prior year. This increase is a result of new assets being placed into service.
Interest expense for the nine months ended December 31, 1999 increased 1.6%
to $884,000 from $870,000 during the same period of the prior year. The increase
results from additional debt, which the Company incurred during the fourth
quarter of the previous fiscal year ending March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of the current fiscal year, the Company had
net income from continuing operations of 735,000 compared to a net income of
$138,000 in the prior year. Cash provided by operating activities of continuing
operations was $1,157,000 during the nine months ended December 31, 1999
compared to $668,000 provided in the prior year. The Company had working capital
of $1,816,000 at December 31, 1999.
Cash was provided by operating activities of continuing operations during
the nine months ended December 31, 1999 primarily due to profitable operations.
Investing activities used $406,000 during the nine months ended December
31, 1999 as a result of expenditures for capital equipment and product
development.
11
<PAGE>
Financing activities used $849,000 during the nine months ended December
31, 1999 primarily as a result of payments made to the Company's principal
lenders. In addition, the operations of MTL required cash to support working
capital needs while potential buyers were identified.
The Company's short-term and long-term liquidity is primarily dependent on
its ability to generate cash flow from operations. Inventory levels are not
expected to change significantly based upon the Company's current level of
operation. Increases in revenue have generally resulted in corresponding
increases in accounts receivable. Cash flow from operations is currently
anticipated to support increases in accounts receivable and required inventory
levels.
The Company has several new product development projects underway that are
expected to be funded by cash flow from operations. These projects are monitored
on a regular basis to attempt to ensure that the anticipated costs associated
with them do not exceed the Company's ability to fund them from cash flow from
operations.
The Company believes that cash generated from operations will be sufficient
to meet its capital expenditures, product development and working capital needs
for the next twelve months.
In January 2000, the Company concluded the sale of certain assets of its
Clinical Laboratory Services subsidiary, MTL. The consideration received
included $1,000,000 in cash, which was used primarily to reduce the Company's
outstanding indebtedness to its principal lender. The remaining assets will be
liquidated by MTL, and the proceeds of the liquidation, less the costs
associated with the liquidation, will be used to further reduce long-term debt.
Certain events of default may have occurred under the Company's loan
agreement with its bank. Although the Company has requested a waiver of these
events of default, there are no assurances that the waivers will be obtained. If
the bank elects to exercise its rights under the loan agreement regarding the
repayment of the indebtedness, the Company's results of operations, liquidity
and financial condition would be adversely affected.
YEAR 2000 COMPLIANCE
The Company did not experience any significant interruptions or
difficulties related to Y2K readiness, however, internal systems as well as
third party compliance continues to be monitored. Notwithstanding the foregoing,
there can be no assurances that difficulties will not arise that may have a
material adverse effect on the operations of the Company.
12
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
NONE
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 - Financial data schedule as of December 31, 1999 filed
herewith (for SEC use only).
B. Reports on Form 8-K
Form 8-K dated January 18, 2000
Signature
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.
MEDICAL TECHNOLOGY SYSTEMS, INC.
Date: February 14, 2000 By: /s/ Michael P. Conroy
--------------------------------------------------
Michael P. Conroy
Vice President & Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000823560
<NAME> Medical Technology Systems, Inc.
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-START> Apr-1-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,787
<ALLOWANCES> (256)
<INVENTORY> 2,267
<CURRENT-ASSETS> 5,059
<PP&E> 6,428
<DEPRECIATION> (4,744)
<TOTAL-ASSETS> 8,039
<CURRENT-LIABILITIES> 3,243
<BONDS> 0
0
1
<COMMON> 64
<OTHER-SE> 8,583
<TOTAL-LIABILITY-AND-EQUITY> 8,039
<SALES> 12,283
<TOTAL-REVENUES> 12,283
<CGS> 6,416
<TOTAL-COSTS> 11,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 884
<INCOME-PRETAX> 1,436
<INCOME-TAX> 0
<INCOME-CONTINUING> 735
<DISCONTINUED> 701
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,436
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
