<PAGE>
This Conforming Format Document is Being Submitted Pursuant to Rule 901 (d) of
Regulation S-T
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
________
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 30, 1996
For the quarterly period end....................................................
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from...................to.............................
1-11109
Commission File Number..........................................................
Lukens Medical Corporation
................................................................................
(Exact name of registrant as specified in its charter.)
Delaware 22-2429965
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3820 Academy Parkway North NE, Albuquerque, NM 87109
................................................................................
(Address of principal executive offices) (Zip Code)
(505) 342-9638
Issuer's telephone number, including area code..................................
Indicate by check mark whether the registrant has (1) 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 ___
---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at September 30, 1996
................................ .................................
Common Stock, $.01 Par Value 2,743,505 Shares
Page 1 of 12
Exhibit Index on Page 12
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II OTHER INFORMATION
Item 6 Exhibits and Report on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
</TABLE>
2
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
(UNAUDITED) AUDITED
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
------ --------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 115,199 $ 39,049
Accounts receivable, net of allowance
for doubtful accounts of $5,790 2,043,535 1,269,211
Inventory (Note 2) 4,406,383 3,849,051
Prepaid expenses 43,969 23,456
--------------- ---------------
TOTAL CURRENT ASSETS 6,609,086 5,180,767
Land, building and equipment, net of accumulated depreciation
of $1,344,500 at September 30, and $1,150,024 at December 31 1,919,890 1,710,633
Intangible assets, net of accumulated amortization of
$927,222 at September 30, and $707,036 at December 31 1,015,363 469,408
Other assets 135,082 97,980
--------------- ---------------
TOTAL ASSETS $ 9,679,421 $ 7,458,788
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,033,635 $ 665,080
Accrued liabilities 121,075 111,439
Current maturities of long-term debt and
capital leases 815,191 376,475
---------------- ----------------
TOTAL CURRENT LIABILITIES 1,969,901 1,152,994
Long-term debt, excluding current maturities 1,254,236 729,979
Obligations under capital leases, excluding
current maturities 70,033 37,227
---------------- ----------------
TOTAL LIABILITIES 3,294,170 1,920,200
Stockholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares: issued and outstanding
2,743,505 shares 27,281 26,115
Additional paid-in capital 17,209,846 16,938,696
Accumulated deficit (10,851,876) (11,426,223)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 6,385,251 5,538,588
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLERRS' EQUITY $ 9,679,421 $ 7,458,788
================ ================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets
3
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 2,236,282 $ 1,477,124 $ 6,143,783 $ 3,669,566
Cost of sales 1,414,224 1,035,867 4,127,099 2,495,195
------------ ------------ ------------ ------------
GROSS PROFIT 822,058 441,257 2,016,684 1,174,371
------------ ------------ ------------ ------------
Selling expenses 245,932 99,070 511,031 258,256
General and administrative expenses 233,121 165,562 683,612 568,250
Research and development expenses 35,748 32,167 108,619 118,064
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 514,801 296,799 1,303,262 944,570
------------ ------------ ------------ ------------
Earnings from operations 307,257 144,458 713,422 229,801
------------ ------------ ------------ ------------
OTHER (EXPENSES) INCOME:
Interest income 1,114 7,303 5,246 16,729
Interest expenses (70,850) (48,145) (122,411) (199,070)
Other, net (8,377) (213,688) (21,910) (210,586)
------------ ------------ ------------ ------------
TOTAL OTHER (EXPENSES) INCOME (78,113) (254,530) (139,075) (392,927)
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 229,144 (110,072) 574,347 (163,126)
Income tax expenses (note 3) - - - -
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEM 229,144 (110,072) 574,347 (163,126)
EXTRAORDINARY ITEM - GAIN ON
EXTINGUISHMENT OF DEBT - 233,240 - 233,240
------------ ------------ ------------ ------------
NET EARNING (LOSS) $ 229,144 $ 123,168 $ 574,347 $ 70,114
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding 3,045,060 2,698,665 3,045,060 2,686,602
============ ============ ============ ============
Income (loss) per common and common
equivalent share before extraordinary item: $ 0.08 $ (0.04) $ 0.19 $ (0.06)
============ ============ ============ ============
Income (loss) per common and common
equivalent share: $ 0.08 $ 0.05 $ 0.19 $ 0.03
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
4
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net income $ 574,347 $ 70,114
Adjustments to reconcile net loss to cash
used by operating activities:
Gain on extinguishment of debt - (233,240)
Depreciation 194,476 223,763
Amortization of intangible assets 220,186 73,310
Product line restructuring charge - 509,457
Gain on sale of land, plant and equipment - (150,720)
Changes in current assets and liabilities:
Accounts receivable (774,324) (567,876)
Inventory (557,332) (159,902)
Prepaid expenses (20,513) (17,870)
Accounts payable 368,555 (224,542)
Accrued liabilities 9,636 1,052
Change in other assets (37,102) 14,118
------------ ------------
Net cash used by operating activities (22,071) (462,336)
------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment (403,733) (12,891)
Sale of land, plant and equipment - 1,751,190
Purchase of intangible assets (766,141) -
------------ ------------
Net cash (used) provided by investing activities (1,169,874) 1,738,299
------------ ------------
Cash flows from financing activities:
Proceeds from the issuance of common stock and equivalents 272,316 -
Borrowings on long-term debt & obligations under capital leases 1,074,516 850,000
Principal payments on long-term debt & obligations under capital leases (78,737) (2,630,184)
------------ ------------
Net cash provided (used) by financing activities 1,268,095 (1,780,184)
------------ ------------
Net increase (decrease) in cash and cash equivalents 76,150 (504,221)
Cash and cash equivalents at beginning of period 39,049 712,665
============ ============
Cash and cash equivalents at the end of period $ 115,199 $ 208,444
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
5
<PAGE>
LUKENS MEDICAL CORPORATION
Notes to Consolidated Financial Statements
September 30, 1996
(unaudited)
(1) Summary of Significant Accounting Policies
------------------------------------------
The Company's principal business activity is the manufacture and sale of
disposable surgical products. The Company's main product lines are surgical
sutures, lancets, and diagnostic products. The accompanying unaudited
financial statements have been prepared in accordance with the instructions
to Form 10-QSB and therefore do not include all information and footnote
disclosure necessary for a full presentation of financial position, results
of operations, and cash flows. The information furnished, in the opinion of
management, reflects all adjustments necessary to present fairly the
results of operations of the Company for the nine-month period ended
September 30, 1996 and 1995. The accounting policies followed by the
Company are set forth in note (1) of Notes to the Company's Consolidated
Financial Statements in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995 (the "1995 Form 10-K") filed with the
Securities and Exchange Commission. The results of operations of interim
periods are not necessarily indicative of results which may be expected for
any other interim period or for the year as a whole.
(2) Inventory
---------
Inventory consists of the following components at:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
Raw Materials $1,817,985 $1,821,321
Work-in-Process 1,087,923 874,080
Finished Goods 1,500,475 1,153,650
---------- ----------
$4,406,383 $3,849,051
========== ==========
</TABLE>
(3) Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes.
6
<PAGE>
Components of the net deferred income tax asset at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
Deferred income tax assets:
Resulting from net operating
loss carryforwards $ 3,844.000
Carryforward of capital loss $ 105,000
Carryforward credit from
increasing research
activities $ 105,000
Other $ 244,000
-----------
$ 4,298,000
Deferred income tax liabilities:
Depreciation and other
basis differences $ (62,000)
-----------
Net deferred tax asset before
valuation allowance $ 4,236,000
Valuation allowance $(4,236,000)
Net deferred income tax asset $ -0-
===========
</TABLE>
The Company conducts a periodic evaluation of its valuation allowance. Factors
considered in the evaluation include recent demonstrable future earnings, the
Company's liquidity and equity positions. For 1995, all deferred tax assets were
reserved for in the valuation allowance given the Company's limited history of
profitable operations.
There is no income tax payable at December 31, 1995 or at September 30, 1996
because of the usage of net operating loss carryforwards, which expire as
follows:
<TABLE>
<CAPTION>
Approximate Increasing Research
Net Operating Activities Book/Tax
Loss Carryforward Credits
--------------------------- ----------------------
State Loss Federal Loss
Amount Amount Tax Effect Tax Effect
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
1998 $ 20,000 $ --- 1,000 $ ---
1999 2,601,000 225,000 202,000 3,800
2000 --- 2,187,000 743,000 37,200
2001 --- 1,835,000 624,000 37,500
2002 --- 920,000 313,000 1,400
2003 1,480,000 2,086,000 780,000 25,100
2004 315,000 390,000 148,000 ---
2005 161,000 278,000 103,000 ---
2006 --- 50,000 17,000 ---
2008 --- 86,000 29,000 ---
2009 --- 2,601,000 884,000 ---
-------------- ----------- ---------- --------
$ 4,577,000 $10,658,000 $3,844,000 $ 105,000
============== =========== ========== ========
</TABLE>
The capital loss carryforwards of approximately $271,000, tax effect of
$105,000, expire in 1998.
7
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
---------------------
Three Months Ended September 30, 1996
- -------------------------------------
Sales increased approximately $759,000 or 51% for the quarter ended September
30, 1996 compared to the quarter ended September 30, 1995 due to revenue
generated from the new product lines acquired from Ulster Scientific, Inc. in
March (the "Acquisition").
The gross margin percentage increased due to shifts in product mix, with the
third quarter generating 37% margins compared to 30% last year. Selling expenses
increased $147,000 to $246,000 for the 1996 quarter, versus $99,000 for the 1995
quarter. Approximately all of this increase was a result of the addition of
sales personnel for new product lines purchased in the Acquisition. General and
Administrative expenses and Research & Development expenses both increased in
the 1996 quarter versus the 1995 quarter, with G&A up $68,000 to $233,000, and
R&D increased $4,000 to $36,000. The increase in G&A expense is mostly
attributable to the amortization of capitalized costs as a result of the
Acquisition.
As a result of the foregoing, Income from Operations increased 113%, or
$163,000, to $307,000 for the 1996 quarter versus income from Operations of
$144,000 for the same quarter in 1995.
Interest expense increased $23,000 from $48,000 in 1995 to $71,000 in 1996 due
to the increases in net borrowings to finance the Acquisition in March.
As a result of the foregoing, the Company incurred a net profit for the quarter
of $229,000, or $.08 per share, for 1996, compared to a net profit of $123,000,
or $.05 per share, in 1995. On a proforma basis, without including the $385,000
of extraordinary and other income recognized in the third quarter of 1995 (due
to the sale of the Company's facility and the prepayment of certain capitalized
leases during such quarter), net profit increase 187%, or $491,000 for the third
quarter of 1996 compared to the third quarter of 1995.
Nine Months Ended September 30, 1996
- ------------------------------------
Sales increased approximately $2,474,000, or 67% for the nine months ended
September 30, 1996, compared to the nine months ended September 30, 1995 due to
increased suture sales to the veterinary market and the U.S. Government, as well
as approximately $1,986,000 of revenue generated from the new product lines
acquired in connection with the Acquisition.
Gross margins increased to 33% from 32%. The margin increase is due to shifts in
the product mix, mostly as a result of the acquired product lines.
Gross profits were $2,017,000 for the nine months ended September 30, 1996,
compared to $1,174,00 for the nine months ended September 30, 1995. Total
operating expenses increased $359,000 or 38% for the nine months ended September
30, 1996 due to increases in sales and administrative staff, and as a result of
the amortization of capitalized costs incurred in connection with the
Acquisition.
8
<PAGE>
Interest income decreased $11,000 during the 1996 nine-month period as a result
of lower investment balances. Interest expense decreased $77,000 due to lower
levels of borrowing.
As a result of the foregoing, the Company incurred a net profit of $574,000, or
$.19 per share, for the nine months ended September 30, 1996 compared to a net
profit of $70,000, or $.03 per share, during the comparable period of 1995. On a
proforma basis, without including the $385,000 of extraordinary and other income
recognized in the third quarter of 1995 (due to the sale of the Company's
facility and the prepayment of certain capitalized leases during such quarter,
net profit increased 282%, or $889,000, for the nine months ended September 30,
1996 compared to the nine months ended September 30, 1995.
Liquidity and Capital Resources
-------------------------------
At September 30, 1996, the Company had cash and cash equivalents of $115,000 and
working capital of $4,639,000.
In September 1996, the Company's lines of credit were renewed through August 31,
1997. As part of this renewal, the working capital line of credit was increased
from $500,000 to $1,000,000, and the letter-of-credit line was increased from
$700,000 to $1,500,000.
As of September 30, 1996, the Company had drawn advances on the working capital
line of $675,000, and there were approximately $762,000 in letters-of-credit
outstanding relating to raw material purchases and other general purposes.
In February 1996, the Company received SBA approval for a new revolving working
capital line of credit which allows the Company to draw up to $420,000 to
finance labor costs and inventory purchases relating to U.S. Government
contracts. At September 30, 1996, the balance due on this line was approximately
$36,000, and proceeds from contracts in the same amount were assigned to the
bank.
The Company also has an SBA export working capital line-of-credit agreement,
which provides working capital for export sales up to the lesser of (a) $350,000
or (b) 80 percent of the face amount of negotiated Letters of Credit issued for
the benefit of the Borrower and delivered to Lender. At September 30, 1996,
there was $126,000 outstanding under this line-of-credit agreement.
In March 1996, the Company borrowed $400,000 from a major shareholder, with
interest at 9%, and principal and interest due in September 1997. These proceeds
were used to pay certain amounts assumed as a part of the Acquisition.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(i) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
10
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LUKENS MEDICAL CORPORATION
Date: November 13, 1996 By: /s/ Robert S. Huffstodt
---------------------------------------
Robert S. Huffstodt
President and Chief Executive Officer
Date: November 13, 1996 By: /s/ Robert S. Huffstodt
---------------------------------------
Robert S. Huffstodt
Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page #
------- ------
27.00 Financial Data Schedule
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 0 115,199
<SECURITIES> 0 0
<RECEIVABLES> 0 2,043,535
<ALLOWANCES> 0 5,790
<INVENTORY> 0 4,406,383
<CURRENT-ASSETS> 0 6,609,086
<PP&E> 0 1,919,890
<DEPRECIATION> 0 1,344,500
<TOTAL-ASSETS> 0 9,679,421
<CURRENT-LIABILITIES> 0 1,969,901
<BONDS> 0 0
0 0
0 0
<COMMON> 0 27,281
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 9,679,421
<SALES> 2,236,282 6,143,783
<TOTAL-REVENUES> 2,236,282 6,143,783
<CGS> 1,414,224 4,127,099
<TOTAL-COSTS> 1,929,025 5,430,361
<OTHER-EXPENSES> 78,113 139,075
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 70,850 122,411
<INCOME-PRETAX> 229,144 574,347
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 229,144 574,347
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 229,144 574,347
<EPS-PRIMARY> .08 .21
<EPS-DILUTED> .08 .19
<FN>
<F1> The accompanying notes to consolidated financial statements are an integral
part of these statements.
</FN>
</TABLE>
