UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file 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 XNo
As of August 7, 1996, the registrant had 11,271,108 shares of its common
stock issued and outstanding.
Page 1 of 12 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, 1996. 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
months ended June 30, 1996, may not be indicative of the results that
may be expected for the year ending March 31, 1997.
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, March 31,
1996 1996
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,503,403 $ 3,168,826
Accounts Receivable, net 51,084 145,535
Other Current Assets 617,968 354,269
Inventories 285,398 285,398
Marketable Securities 660,526 650,256
Total Current Assets 5,118,379 4,604,284
PROPERTY AND EQUIPMENT: At Cost 352,751 569,661
Less: Accumulated Depreciation (143,185) (256,087)
209,566 313,574
INTANGIBLE AND OTHER ASSETS, net 930,590 1,750,547
Total Assets $ 6,258,535 $ 6,668,405
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ - $ 77,228
Current Portion of Long-Term Obligations - 961,050
Accrued Liabilities 345,212 154,848
Total Current Liabilities 345,212 1,193,126
STOCKHOLDERS' EQUITY:
Common Stock (Par Value $0.01
Authorized 30,000,000 Shares,
Issued and Outstanding, 2,271,108
and 2,117,275 Shares 22,711 21,173
Capital in Excess of Par Value 10,827,394 10,218,932
Retained Earnings (4,595,373) (4,423,417)
Stockholders' Receivables (341,409) (341,409)
Total Stockholders' Equity 5,913,323 5,475,279
Total Liabilities and
Stockholders' Equity $ 6,258,535 $ 6,668,405
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
Ended June 30,
1996 1995
REVENUES $ 6,211$ 475,810
COST OF REVENUES 36,845 360,923
Gross Margin (30,634) 114,887
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 199,628 345,032
Income (Loss) From
Operations (230,262) (230,145)
OTHER INCOME (EXPENSE), NET 58,306 84,831
Income (Loss) From
Operations Before Income Taxes (171,956) (145,314)
PROVISION FOR (BENEFIT FROM) INCOME TAXES - -
DISCONTINUED OPERATIONS, NET - 173,931
NET INCOME (LOSS) $ (171,956)$ 28,617
NET INCOME (LOSS) PER COMMON SHARE
Loss from Continuing Operations $ (.08) $ (.08)
Income from Discontinued Operations - .09
Net Income (Loss) per Common Share $ (.08) $ .01
Weighted Average Shares
Outstanding 2,271,108 1,867,656
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 Three Months
Ended June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (171,956) $ 28,617
Adjustments to Reconcile Net Income (Loss)to Net Cash
Used in Operating Activities:
Depreciation and Amortization 32,737 87,397
Provision for Losses on Accounts Receivable(7,714) 503
(Gain) Loss on Sale of Property and Equipment8,861 (59,795)
(Increase) Decrease in Receivables 94,451 (88,865)
(Increase) Decrease in Inventories - (316,209)
(Increase) Decrease in Other Current Assets(263,699) (11,541)
(Increase) Decrease in Intangible and Other Assets(108,845)112,325
Increase (Decrease) in Accounts Payable (77,228) (183,517)
Increase (Decrease) in Accrued Liabilities 190,364 (243,031)
Total Adjustments (131,073) (702,733)
Net Cash Used in Operating Activities (303,029) (674,116)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment - (118,005)
Maturities of Marketable Securities (10,270) 127,452
Proceeds from Sale of Property and Equipment31,700 397,350
Payments Received on Notes Receivable 967,226 1,173,420
Net Cash Provided by Investing Activities 988,656 1,580,217
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Long-Term Obligations(961,050) (39,848)
Proceeds From Issuance of Long-Term Obligations - 43,447
Net Change in Revolving Bank Loan - (545,505)
Proceeds From Sale of Common Stock 610,000 -
Net Cash Provided by (Used in) Financing Activities (351,050) (541,906)
Net Decrease in Cash and Cash Equivalents 334,577 364,195
Cash and Cash Equivalents at Beginning of Period 3,168,826 184,826
Cash and Cash Equivalents at End of Period$3,503,403 $ 549,021
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period For:
Interest $ - $ 19,134
Income Taxes $ -$ -
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
On June 30, 1996 vehicles were transferred to certain officers of the Company
in exchange for salaries.
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 filing for the year ended March 31, 1996. 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 months ended June 30, 1996, may not be indicative of
the results that may be expected for the year ending March 31, 1997.
NOTE 2
On July 15, 1996 the Company merged with 4-Health, Inc. The merger was
recorded as a reverse purchase. As part of the merger the common stock of
the Company was reverse split 2 for 4. The effect of the reverse stock split
have been retroactively applied to the financial statements presented.
Pursuant to the Merger Agreement, Surgical will continue as the surviving
corporate entity, with its name changed to "4Health, Inc." 4Health was
organized in February 1993, and formulates and supplies nutritional supplements
which are available nationwide through health food stores, pharmacies and
health care providers.
The Merger Agreement between Surgical and 4Health provided for the merger
of 4Health with and into the Company, pursuant to which: (a) the shares of
4Health common stock and the shares of 4Health Series A preferred stock
were exchanged for approximately 9,000,000 shares of Surgical Common Stock,
(b) each four shares of Surgical common stock issued and outstanding were
converted into two shares of Surgical common stock (or 2,271,108 shares) and
one warrant to purchase a share of the surviving corporation (the "Surviving
Corporation") common stock at $11.00 per share (or 1,135,554 total shares),
(c) the board of directors of Surgical, as the Surviving Corporation, was
reconstituted to include five designees of 4Health and two designees of
Surgical, and (d) the articles of incorporation of Surgical were amended
to (i) change its name to "4Health, Inc.," (ii) increase the authorization of
New Common Stock to 30,000,000 shares, (iii) add a "fair price" provision in
the event of certain corporate transactions, and (iv) restrict the use of
written consents of stockholders in lieu of meetings. The warrants may be
redeemed by the Surviving Corporation at $0.01 per warrant, provided that the
trading price of the underlying Common Stock equals $13.75 per share for 30
consecutive days.
Outstanding options to purchase an aggregate of 651,000 shares of
Surgical common stock at a weighted average price of $2.23 per share were
converted into options to purchase an aggregate of 325,000 shares of Surgical
common stock, at a weighted average price of $4.45 per share. In addition,
outstanding options to purchase an aggregate of 599,999 shares of 4Health
common stock at a weighted average price of $6.70 per share were converted
into options to purchase an aggregate of 902,800 shares of Surgical common
stock at a weighted average price of $4.45 per share.
The number of shares of Surgical common stock issuable to the holders of
4Health common stock and Series A preferred stock is subject to adjustment in
the event that the Surviving Corporation does not realize at least $2,000,000
in earnings, before interest and income taxes, computed in accordance with
generally accepted accounting principles from exploitation of Surgical's ID
Technology, the sale of products based on its ID Technology, or joint venture
income based on the ID Technology by increasing the number of shares of
Surgical common stock issuable to the former 4Health stockholders, on a pro
rata basis based on the number of shares of Surgical common stock issued to
them in the merger,
SURGICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 (Continued)
in an amount equal to the quotient calculated by dividing (a) the amount by
which $2,000,000 exceeds the ID Technology earnings by b $4.00.
The merger will be accounted for under the purchase method of accounting
wherein the related assets and liabilities of the Company will be adjusted to
reflect their estimated fair market values at the effective date of the merger.
The merger will be treated for accounting purposes as a reverse merger
wherein 4Health will be treated as the acquiring entity because 4Health's
current stockholders will control the Surviving Corporation.
The following unaudited pro forma condensed combined balance sheet is
based on the June 30, 1996, historical consolidated balance sheets of Surgical
and its subsidiaries contained elsewhere herein and 4Health. The unaudited pro
forma condensed statement of operations is based on 4Health's historical
statement of operations for the three months ended June 30, 1996, adjusted
for management's estimate of Surgical's normal operations as if the merger
had occurred April 1, 1996, because the majority of Surgical's operations
have been sold. The unaudited pro forma condensed combined financial
statements give effect to the transaction using the purchase method of
accounting, with 4Health treated as the acquiring entity for financial
reporting purposes. The unaudited pro forma condensed combined balance sheet
presenting the financial position of the Surviving Corporation assumes the
purchase occurred as of June 30, 1996. The unaudited pro forma condensed
combined statement of operations presents the results of operations of the
Surviving Corporation, assuming the Merger was completed on April 1, 1996.
The unaudited pro forma condensed combined financial statements have been
prepared by management of Surgical and 4Health based on the financial
statements included elsewhere herein. The pro forma adjustments include certain
assumptions and preliminary estimates as discussed in the accompanying notes
and are subject to change. These pro forma statements may not be indicative
of the results that actually would have occurred if the combination had been
in effect on the dates indicated or which may be obtained in the future.
These pro forma financial statements should be read in conjunction with the
accompanying notes and with historical financial information of both Surgical
and 4Health (including the notes thereto) included in the Joint Proxy
Statement/Prospectus dated June 27, 1996.
4Health, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 1996
NOTE 2 (Continued)
Pro Forma
Surgical Pro Forma Combined
Technologies 4Health Adjustments Balance
ASSETS:
Cash & cash
equivalents $ 3,503,403$ 219,740$ - $ 3,723,143
Marketable securities 660,525 - 660,525
Accounts receivable, net 51,084 3,732,115 - 3,783,199
Inventories 285,398 1,800,684 - 2,086,082
Current portion of notes
receivable 233,325 - - 233,325
Other current assets 43,215 221,350 - 264,565
Total current assets 4,776,950 5,973,889 - 10,750,839
Net fixed assets 209,566 2,297,428 2,506,994
Notes receivable, less current
portion 125,504 125,504
Intangible and other assets 1,146,515 327,771 (582,500) A
373,011 B 1,264,797
Totals assets $ 6,258,535$ 8,599,088$ (209,489) $14,648,134
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Note payable $ -$ 1,299,900$ - $ 1,299,900
Accounts payable - 3,526,281 - 3,526,281
Accrued liabilities 345,212 615,531 - 960,743
Total current liabilities 345,212 5,441,712 - 5,786,924
Obligations under capital lease 2,409 2,409
Other liabilties 50,450 50,450
Preferred stock 15,000 (15,000) C 0
Common stock 22,711 1,071,305 (981,305) C 112,711
Capital in excess of par value 10,827,394 1,397,771 (582,500)A
(3,226,057)B&C8,416,608
Treasury stock (50,000) (50,000)
Retained earnings (4,595,373) 670,441 4,595,373 C 670,441
Stockholder receivables (341,409) (341,409)
Total stockholders' equity 5,913,323 3,104,517 (209,489) 8,808,351
Total liabilities and
stockholders' equity $ 6,258,535$ 8,599,088$ (209,489) $14,648,134
4Health, Inc.
Unaudited Pro Forma Condensed Statement of Operations
For the Three Months June 30, 1996
NOTE 2 (Continued)
Pro Forma Pro Forma
4Health Adjustments Balance
Revenues $ 8,055,066$ 60,000 A$ 8,115,066
Cost of Revenues 3,286,241 48,000 A 3,334,241
Gross margin 4,768,825 12,000 4,780,825
Selling, general and
administrative costs 4,742,154 47,582A&B 4,789,736
Other expense, net 13,823 - 13,823
Income before income taxes 12,848 (35,582) (22,734)
Benefit from income taxes 86,801 13,877 A 100,678
Net income $ 99,649$ (21,705) $ 77,944
Net income per common share $ 0.01 $ 0.01
Weighted average shares
outstanding 8,693,449 2,271,108 10,964,557
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. General
Surgical has not yet performed a detailed evaluation and appraisal of
the fair market value of the net assets sold in order to allocate the purchase
price among the assets sold. For purposes of preparing these pro forma
financial statements, certain assumptions set forth in the notes to the pro
forma adjustments have been made in allocating the sales price to the net
assets sold. As such, the pro forma adjustments discussed below are subject
to change based on final determination of the fair market value of the assets
and liabilities of Surgical.
2. Fiscal Year Ends
4Health has a year end of December 31. The unaudited pro forma condensed
statements of operations for the quarter ended June 30, 1996, have been shown
as if 4Health had a fiscal year end of March 31 and therefore no calendar
year to date information has been presented.
3. Pro Forma Adjustments
The adjustments to the accompanying unaudited pro forma condensed combined
balance sheet as of June 30, 1996, are described below:
(A) Reclassification of merger costs to stockholders' equity.
(B) Adjustment to reflect goodwill, calculated based on the closing
bid price of Surgical Stock for the 20 day period prior to the announcement
of the signing of the letter of intent with 4Health, less the estimated fair
market value of the net assets of Surgical to be acquired in the Merger.
Since the majority of the net assets of Surgical consist of cash, marketable
securities, and short-term receivables, all of which approximate current fair
value, the excess purchase price has been recorded as goodwill which will be
amortized over 15 years.
(C) Record the Merger by converting 4Health Common Stock, 4Health
Series A Stock, and Surgical Stock to newly issued shares of New common Stock,
par value $0.01 per share.
The adjustment to the accompanying unaudited pro forma condensed combined
statement of operations as of June 30, 1996, are described below:
(A) The income and expense items reflect management's estimate of
the effect of the continuing operation of Surgical's ID Technology business
after the completion of the merger.
(B) There is $5,582 amortization of goodwill related to the Merger
included in this item. The amortization is based upon a 15 year estimated life.
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 Registrant's annual report on form 10-K for the year ended March 31, 1996.
Results of Operations
During the quarter ended June 30, 1996, revenues decreased approximately
$470,000 compared to the first quarter of the prior year. The decrease is
primarily the result of the sale of the drape and pack divisions of the
medical products segment during the fiscal year ended March 31, 1996.
Cost of revenues during the first quarter of the current fiscal year
increased as a percent of sales primarily due to the amortization of
intangibles.
Selling, general and administrative expenses decreased $145,000 over the
prior year first quarter. The decrease in administrative expense is in part
the result of cost cutting measures implemented during the later part of the
prior year and reduced administrative expenses resulting from the sale of the
drape and pack business.
The net income during the first quarter of 1995 included a gain of
$60,000 from the sale of surplus land (which is the majority of the $89,000
net other income). Other income for the first quarter of 1996 reflects
decreased interest expense and an increase in interest income due to the
reduction of debt and interest earnings on cash balances.
Liquidity and Capital Resources
The Company's liquidity and capital resources improved during the first
quarter. Current assets increased $514,000 while current liabilities decreased
$848,000 for a net increase in working capital of $1,362,000. The improvement
in working capital is primarily the result of the sale of property and
equipment and the use of the proceeds to pay off current liabilities.
Operating activities used $303,000 in cash during the quarter ended June
30, 1996 compared to such activities using $674,000 in the comparable period
of the preceding year. During the quarter, the majority of the changes in the
use of operating cash was the result of the Company decreasing inventory by
$83,000, accounts receivable by $121,000 and increasing accounts payable and
accrued expenses by $113,000.
Investing activities provided net cash of $988,000 primarily from the
payments received on notes receivable from previous asset sales.
Financing activities used net cash of $351,000 primarily in the reduction
of $961,000 of the long-term debt. The Issuance of common stock provided
$610,000 cash.
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: August 22, 1996 By /s/
Todd B. Crosland,
Vice-President-Finance
(Principal financial and
Accounting Officer)
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF SURGICAL TECHNOLOGIES, INC. AS OF JUNE 30, 1996 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
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