UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18160
Surgical Technologies, Inc.
(Exact name of registrant as specified in charter)
Utah 87-0468225
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2801 South Decker Lake Lane, Salt Lake City, Utah 84119
(Address of principal executive offices) (Zip Code)
(801) 974-5555
(Registrant's telephone number, including area code)
None
(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
As of November 13, 1995, the registrant had 4,218,687 shares of its
common stock issued and outstanding.
Page 1 of 9 pages
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements presented
herein have been prepared by the Company in accordance with the instructions to
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K filing for the year ended March 31, 1995. The accompanying financial
statements have not been examined by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of management such
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Company's financial
position and results of operations. The results of operations for the three and
six months ended September 30, 1995, may not be indicative of the results that
may be expected for the year ending March 31, 1996.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, March 31,
1995 1995
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 669,922 $ 184,826
Accounts Receivable 670,173 633,668
Other Current Assets 1,149,678 1,698,171
Inventories 1,719,565 1,504,350
Marketable Securities 500,000 601,988
Total Current Assets 4,709,338 4,623,003
PROPERTY AND EQUIPMENT 3,195,960 3,358,718
Less: Accumulated Depreciation (859,601) (726,839)
2,336,359 2,631,879
INTANGIBLE AND OTHER ASSETS 1,888,238 2,855,455
Total Assets $ 8,933,935 $10,110,337
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 88,017 $ 299,075
Revolving Bank Loan - 545,505
Current Portion of Long-Term
Obligations 1,023,554 1,083,484
Accrued Expenses 74,783 333,663
Total Current Liabilities 1,186,354 2,261,727
LONG-TERM OBLIGATIONS, net of
current portion - 1,760
STOCKHOLDERS' EQUITY
Common Stock (Par Value $0.01,
Authorized 20,000,000 Shares,
Issued and Outstanding 4,328,741
Shares) 43,287 43,287
Additional Paid-in Capital 10,670,034 10,670,034
Retained Earnings (Deficit) (2,466,772) (2,367,503)
Less Common Stock in Treasury,
at cost, 110,054 shares (498,968) (498,968)
Total Stockholders' Equity 7,747,581 7,846,850
Total Liabilities and
Stockholders' Equity $ 8,933,935 $10,110,337
The accompanying notes are an integral part of the condensed consolidated
financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
REVENUES $1,031,722 $1,262,842 $2,232,010 $2,483,192
COST OF REVENUES 837,566 955,917 1,676,856 1,987,778
Gross Margin 194,156 306,925 555,154 495,414
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES 366,489 512,994 773,000 1,113,646
Loss From Operations (172,333) (206,069) (217,846) (618,232)
OTHER INCOME (EXPENSE),
NET 9,142 (83,273) 98,285 (267,557)
Loss From Continuing
Operations Before
Income Taxes (163,191) (289,342) (119,561) (885,789)
BENEFIT FROM INCOME
TAXES 35,305 44,221 20,292 258,938
NET LOSS $ (127,886) $ (245,121) $ (99,269) $ (626,851)
NET LOSS PER
COMMON SHARE $ (.03) $ (.06) $ (.02) $ (.17)
Weighted Average Shares
Outstanding 4,218,687 3,825,205 4,218,687 3,780,504
The accompanying notes are an integral part of the condensed consolidated
financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
For the Six Months
Ended September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (99,269) $(626,851)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities
Depreciation and Amortization 174,558 252,612
Provision for Losses on Accounts Receivable (38) 11,297
(Gain) Loss on Sale of Assets (59,795) 191,029
Increase (Decrease) in Deferred Income Tax
Liability - (121,785)
(Increase) Decrease in Receivable (36,543) (118,116)
(Increase) Decrease in Inventories (215,215) (82,484)
(Increase) Decrease in Other Current Assets (829,097) (347,687)
(Increase) Decrease in Intangible and Other
Assets 925,421 203,338
Increase (Decrease) in Accounts Payable (211,058) (334,118)
Increase (Decrease) in Accrued Expenses (258,880) (61,161)
Total Adjustments (510,647) (407,075)
Net Cash Provided by (Used in) Operating
Activities (609,916) (1,033,926)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (151,310) (33,449)
Maturities of Marketable Securities 601,988 464
Purchase of Marketable Securities (500,000) -
Proceeds from Sale of Property and Equipment 397,350 922,252
Payments Received on Notes Receivable 1,354,179 -
Net Cash Provided by Investing Activities 1,702,207 889,267
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Long-Term Obligations (105,137) (1,717,465)
Proceeds From Issuance of Long-Term Obligations 43,447 1,048,877
Principle Payments on Note Payable to Related
Party - (370,918)
Proceeds From Note Payable to Related Party - 771,963
Net Change in Revolving Bank Loan (545,505) (157,273)
Proceeds From Sale of common Stock - 694,625
Net Cash Provided by (Used in) Financing
Activities (607,195) 269,809
Net Increase (Decrease) in Cash and
Cash Equivalents 485,096 125,150
Cash and Cash Equivalents at Beginning of Period 184,826 39,117
Cash and Cash Equivalents at End of Period $ 669,922 $ 164,267
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 40,665 $ 103,476
Income Taxes $ - $ -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On June
22, 1994 the two small buildings located in North Salt Lake were sold for
$50,000 in cash and notes receivable of $210,000. 4,200 shares of common stock
were issued on August 31, 1994 in exchange for professional fees valued at
$20,000.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1
The unaudited condensed consolidated financial statements presented
herein have been prepared by the Company in accordance with the instructions to
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These 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, 1995. The accompanying
financial statements have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the Company's
financial position and results of operations. The results of operations for the
three and six months ended September 30, 1995, may not be indicative of the
results that may be expected for the year ending March 31, 1996.
NOTE 2
On September 1, 1995 the revolving bank loan was renewed for a
maximum of $500,000 at an interest rate of 8.25% and expires on September 1,
1996. The revolving bank loan is secured by a money market account in the
amount of $500,000. At September 30, 1995 the Company had not yet drawn upon
the revolving bank loan.
NOTE 3
On September 15, 1995 the Board of Directors made the determination
that it is in the best interest of the Company to discontinue the medical and
specialty metal fabrication divisions. As part of this decision,the Board
approved the sale of Rex Industries, Inc., is pursuing the disposal of the
medical division and has begun the analysis of other business opportunities for
the Company to pursue.
The Board has approved an agreement between Rex Industries
Acquisition Corporation (owned by Todd B. Crosland, an officer and director of
the Company) whereby the Company will sell essentially all of the assets used by
Rex Industries, Inc. in the specialty metal fabrication business for
$3,600,000 ($3,500,000 in cash and the assumption of specified liabilities).
Accounting Principles Board ("APB") Opinion 30 states that when an
enterprise disposes of a significant segment of its business, the results of
discontinued operations should be disclosed separately after income from
continuing operations. The APB Opinion is not applicable to this situation
because it is anticipated that all current operations will be discontinued.
Management currently anticipates that the changes in the focus of the Company's
business will not result in a loss to the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General - This discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's annual report on Form 10-K for the year ended March 31, 1995.
Results of Operations - During the three and six months ended September 30,
1995, revenues decreased approximately 18% and 10%, respectively, from the
corresponding periods during the preceding year. The decrease is primarily the
result of the medical division revenues decreasing 9% and 3% respectively over
the prior year three and six month periods, while the specialty metal
fabrication division decreased revenues 21% and 15% for these two periods. The
specialty metal fabrication decrease is primarily the result of the completion
of a major job for a customer early in fiscal year 1995. The cost of revenues
decreased 5% for the three month period compared to the three months ended
September 30, 1994, however the cost of revenues for the six month period
increased 5% compared to the six months ended September 30, 1994. In spite of
this minor variance, the gross margins the Company is expected to obtain for the
entire year should remain relatively constant.
In the second quarter of fiscal year 1996 the medical division
provided 42% of total revenues of the Company compared to 39% of total revenues
in the second quarter of fiscal 1995.
Selling, general and administrative expenses decreased $147,000
during the second quarter of fiscal 1996 compared to the second quarter of the
prior fiscal year and decreased $341,000 for the six month period ended
September 30, 1995 compared to the six months ended September 30, 1994. The
decrease in administrative expenses is in part the result of cost cutting
measures implemented during the later part of the prior year. Approximately
25% of the decreased expense was the result of the elimination of duplicate
facilities. In addition to the cost cutting measures implemented, amortization
expense was reduced by $36,000 due to the write-off of goodwill in the forth
quarter of the prior year.
The net income during the six months ended September 30, 1995
included a gain of $60,000 from the sale of surplus land (which is the
majority of the $98,000 net other income). The reduction of the net loss
also reflects decreased interest expense and increase in interest income due to
the reduction of debt.
Liquidity and Capital Resources - During the first six months of fiscal year
1996 the Company's liquidity and capital increased primarily due to the sale of
surplus land and the collections on notes receivable. Current assets increased
$86,000 while current liabilities decreased $1,075,000 for a net increase in
working capital of $1,162,000.
Operating activities used $623,000 in cash during the six months
ended September 30, 1995, compared to such activities using $1,034,000 during
the corresponding period in the prior year. During the six months ended
September 30, 1995, the majority of the changes in the use of operating cash
was the result of the Company increasing inventory by $215,000, and decreasing
accrued expenses $259,000 and accounts payable $211,000.
Investing activities provided net cash of $1,702,000 primarily from
the collection of notes receivable. Financing activities used net cash of
$594,000 primarily from the pay-off of the revolving bank line loan.
As noted, the board of directors has determined that it is in the
best interests of the Company to discontinue its medical products and specialty
metal fabrication divisions and has approved the sale of the specialty metal
fabrication division to a related party for $3,600,000 ($3,500,000 in cash and
the assumptionof specific liabilities). The Company anticipates that the sale
of the specialty metal fabrication division willbe completed by the end of 1995.
There is no pending agreement for the disposition of the medical products
division, although discussions are ongoing respecting the sale of certain
components of the medical division. Although the Company does not anticipate
losses from the disposition of the current operations, there can be no
assurance that all or any of these dispositions can be completed timely on terms
favorable to the Company, that such dispositions will not result in the
recognition of losses, or that the consideration received will consist of
sufficient cash or other liquid assets to enable the Company to acquire other
operations or assets. The impact on the Company's financial statements of any
disposition of any of its assets and operations will depend on the terms of the
individual transactions, the allocation of the sales price among the various
assets sold, the nature and value of the consideration received, and other
factors.
If the Company successfully completes the sale of its current
operations for cash or assets readily convertible into cash, the Company
intends to seek an acquisition of a larger and potentially more profitable
business. The Company intends to focus on opportunities to acquire new products
or technologies in development as well as those currently being operated,
including complete operating business, either within or outside the medical
products industry, that have demonstrated long-term growth potential, strong
marketing presence, and the basis for continuing profitability. The Company has
not identified any specific target or possible acquisition. As the Company
pursues its acquisition program, it will incur costs for ongoing general
and administrative expenses as well as for identifying, investigating, and
negotiating a possible acquisition.
In order to complete any acquisition, the Company may be required to
supplement its available cash and other liquid assets with proceeds from
borrowings, the sale of additional securities, or other sources. There can be
no assurance that any such required additional funding will be available or, if
available, that it can be obtained on terms favorable to the Company.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) During the quarter for which this report is filed, no
reports have been filed on form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be a signed on its behalf by the
undersigned, thereunto duly authorized.
SURGICAL TECHNOLOGIES, INC.
Dated: November 13, 1995 By /s/ Todd B. Crosland
Todd B. Crosland,
Vice-President-Finance
(Principal financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF SURCIGAL TECHNOLOGIES, INC. AS OF SEPTEMBER 30, 1995 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE SIX MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> SURGICAL TECHNOLOGIES INC
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