<PAGE>
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
March 31, 1997
For the quarterly period ended ................................................
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 March 31, 1997
.................................. .................................
Common Stock, $.01 Par Value 2,731,988 Shares
1
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LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
<TABLE>
<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
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LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
(Unaudited) Audited
March 31, December 31,
Assets 1997 1996
------ ----------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 174,110 $ 878,090
Accounts receivable, net of allowance
for doubtful accounts of $5,790 2,120,064 1,901,947
Inventory (Note 2) 5,526,873 5,565,210
Prepaid expenses 109,139 34,290
----------------- -----------------
Total current assets 7,930,186 8,379,537
Land, building and equipment, net of accumulated depreciation
of $1,440,389 at March 31, and $1,358,081 at December 31 2,012,081 2,062,842
Intangible assets, net of accumulated amortization of
$1,009,220 at March 31, and $966,065 at December 31 1,078,245 1,098,487
Investment in Joint Venture 583,689 0
Other assets 344,900 261,294
----------------- -----------------
Total assets $ 11,949,101 $ 11,802,160
================= =================
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 1,392,457 $ 1,406,243
Accrued liabilities 227,673 62,139
Current maturities of long-term debt and
capital leases 2,056,001 2,042,016
----------------- -----------------
Total current liabilities 3,676,131 3,510,398
Long-term debt, excluding current maturities 500,451 796,446
Stockholder payable and accrued interest 1,183,408 1,157,408
Obligations under capital leases, excluding
excluding current maturities 44,030 59,378
----------------- -----------------
Total liabilities 5,404,020 5,523,630
Stockholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares: issued and outstanding
2,731,988 shares 27,425 27,320
Additional paid-in capital 17,227,001 17,213,952
Accumulated deficit (10,709,345) (10,962,742)
----------------- -----------------
Total stockholders' equity 6,545,081 6,278,530
----------------- -----------------
Total liabilities and stockholders' equity $ 11,949,101 $ 11,802,160
================= =================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets
-3-
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LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------------- --------------
<S> <C> <C>
Sales $ 2,403,939 $ 1,544,563
Cost of sales 1,638,284 1,078,933
-------------- --------------
Gross profit 765,655 465,630
-------------- --------------
Selling expenses 228,374 100,717
General and administrative expenses 218,758 218,556
Research and development expenses 12,020 36,860
-------------- --------------
Total operating expenses 459,152 356,132
-------------- --------------
Earnings (loss) from operations 306,503 109,498
-------------- --------------
Other income (expense):
Interest income 1,860 2,729
Interest expense (53,466) (21,446)
Other, net (1,500) 13,085
-------------- --------------
Total other (expense) income (53,106) (5,633)
-------------- --------------
Earnings (loss) before income taxes 253,397 103,865
Income tax expense (note 3) - -
-------------- --------------
Net earnings (loss) $ 253,397 $ 103,865
============== ==============
Weighted average number of common and common
equivalent shares outstanding 3,315,737 2,890,351
============== ==============
Earnings (loss) per common and common
equivalent share: $ 0.08 $ 0.04
============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-4-
<PAGE>
LUKENS MEDICAL CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
Three months
Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operations:
Net earnings (loss) $ 253,397 $ 103,865
Adjustments to reconcile net earnings (loss)
to cash provided (used) by operating activities:
Depreciation 82,309 52,495
Amortization of intangible assets 37,049 121,708
Changes in current assets and liabilities:
Accounts receivable (218,117) 75,658
Inventory 38,337 (63,395)
Prepaid expenses (74,849) (10,211)
Accounts payable (13,786) (74,283)
Accrued liabilities 165,534 85,383
Change in other assets (83,606) (55,504)
------------ ------------
Net cash provided (used) by operating activities 186,268 235,716
------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment (31,547) (51,721)
Payments for intangible assets (22,913) (576,518)
Investment in Joint Venture (583,689) -
------------ ------------
Net cash used in investing activities (638,149) (628,239)
------------ ------------
Cash flows from financing activities:
Borrowings on long-term debt & obligations under capital leases (239,470) 500,000
Principal payments on long-term debt & obligations under capital leases (25,783) (27,344)
Issuance of Common Stock 13,154 -
------------ ------------
Net cash (used) provided in financing activities (252,099) 472,656
------------ ------------
Net (decrease) increase in cash and cash equivalents (703,980) 80,133
Cash and cash equivalents at beginning of period 878,090 39,049
============ ============
Cash and cash equivalents at end of period $ 174,110 $ 119,182
============ ============
</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
March 31, 1997
(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 three-month period ended March
31, 1997 and 1996. 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, 1996 (the "1996 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>
March 31 December 31
1997 1996
---------- -----------
<S> <C> <C>
Raw Materials $2,400,286 2,767,214
Work-in-Process 1,712,463 1,419,685
Finished Goods 1,414,124 1,378,311
---------- ----------
$5,526,873 $5,565,210
========== ==========
</TABLE>
(3) Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes.
6
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Components of the net deferred income tax asset at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred income tax assets:
Resulting from net operating
loss carryforwards $ 3,845,000
Carryforward of capital loss $ 105,000
Carryforward credit from
increasing research
activities $ 105,000
Other $ 264,000
-----------
$ 4,319,000
Deferred income tax liabilities:
Depreciation and other
basis differences $ (75,000)
-----------
Net deferred tax asset before
valuation allowance $ 4,244,000
Valuation allowance $(4,244,000)
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 1996, 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, 1996 or at March 31, 1997 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>
1999 2,537,000 --- 122,000 3,800
2000 --- 2,056,000 699,000 37,200
2001 --- 1,835,000 624,000 37,500
2002 --- 1,132,000 385,000 1,400
2003 1,480,000 2,086,000 780,000 25,100
2004 315,000 390,000 148,000 ---
2005 161,000 278,000 102,000 ---
2006 --- 50,000 17,000 ---
2008 --- 88,000 30,000 ---
2009 --- 2,760,000 938,000 ---
---------- ----------- ---------- --------
$4,493,000 $10,675,000 $3,845,000 $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 March 31, 1997
- - ---------------------------------
Sales increased approximately $860,000 or 56% for the quarter ended March 31,
1997 compared to the quarter ended March 31, 1996 due to revenue generated from
the product lines acquired from Ulster Scientific, Inc. in March 1996 (the
"Acquisition"), and due to increases in dental suture sales.
The gross margin percentage increased due to shifts in product mix, with the
first quarter generating 32% margins compared to 30% last year. Selling
expenses increased $128,000 to $228,000 for the 1997 quarter, versus $101,000
for the 1996 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 were approximately the same for the 1997 and
1996 quarters, and R&D expenses decreased $25,000 to $12,000 for the 1997
quarter, versus $37,000 for the 1996 quarter. The decrease in R&D expenses
reflects the completion of the PGA synthetic absorbable suture development
project in the first quarter of 1997.
As a result of the foregoing, Income from Operations increased 180%, or
$197,000, to $306,500 for the 1997 quarter versus Income from Operations of
$109,500 for the same quarter in 1996.
Interest expense increased $32,000 from $21,500 in 1996 to $53,500 in 1997 due
to an increase in net borrowings to finance the Acquisition in March 1996, and
the investment in the India joint venture in January 1997.
As a result of the foregoing, the Company achieved a net profit for the quarter
of $253,500, or $.08 per share, for 1997, compared to a net profit of $104,000,
or $.04 per share, in 1996.
Liquidity and Capital Resources
-------------------------------
At March 31, 1997, the Company had cash and cash equivalents of $174,110 and
working capital of $5,032,962.
In August 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 March 31, 1997, the Company had drawn advances on
the working capital line of $925,000, and there were approximately $772,000 in
letters-of-credit outstanding relating to raw material purchases, and other
general purposes, under the letter of credit line.
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 March 31, 1997, the balance due on this
8
<PAGE>
line was approximately $16,000, secured by proceeds from contracts in the same
amount that 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 Company and delivered to the lender. At March 31, 1997,
there was $15,000 outstanding under this line-of-credit agreement.
In March 1997, two outside directors committed to loan the Company $1,000,000.
Terms of the loans include an interest rate of 10%, and issuance of up to
100,000 warrants to purchase common stock of the Company at an exercise price
equal to the market price of common stock at the time of issuance. The funds
will be used for continued expansion of Luken's recently acquired India
facility, expansion of capacity for its new synthetic absorbable suture product,
and for other acquisition-related activities. As of March 31, 1997, the
aforementioned directors loaned the Company $150,000 each, for a total of
$300,000 under such commitment and were issued 15,000 warrants each. As of May
13, 1997, an aggregate of $800,000 has been funded to the Company under such
commitment.
On May 13, 1997 the Company acquired PRO-TEC Containers, Inc. of Sanford,
Florida. PRO-TEC manufactures and markets a broad line of specialized
containers for the disposal of used "sharps", such as needles and scalpel
blades, and have been a pioneer in the industry for over 10 years. PRO-TEC was
acquired for 200,000 shares of newly-issued Common Stock and approximately
$380,000 in cash. The acquisition was effected by a merger with the result that
PRO-TEC is now a wholly owned subsidiary of the Company. The acquisition will
be accounted for under the "purchase" method and the combination will be
reflected in the Quarter ended June 30, 1997.
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
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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: May 15, 1997 By: /s/ Robert S. Huffstodt
---------------------------------
Robert S. Huffstodt
President and Chief Executive Officer
Date: May 15, 1997 By: /s/ Robert S. Huffstodt
---------------------------------
Robert S. Huffstodt
Chief Financial Officer
11
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EXHIBIT INDEX
-------------
Exhibit Page #
- - ------- ------
27.00 Financial Data Schedule 13
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 174,110
<SECURITIES> 0
<RECEIVABLES> 2,120,064
<ALLOWANCES> 5,790
<INVENTORY> 5,526,873
<CURRENT-ASSETS> 7,930,186
<PP&E> 2,012,081
<DEPRECIATION> 1,440,389
<TOTAL-ASSETS> 11,949,101
<CURRENT-LIABILITIES> 3,676,131
<BONDS> 0
0
0
<COMMON> 27,425
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,545,081
<SALES> 2,403,939
<TOTAL-REVENUES> 2,403,939
<CGS> 1,638,284
<TOTAL-COSTS> 2,097,436
<OTHER-EXPENSES> 53,106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,466
<INCOME-PRETAX> 253,397
<INCOME-TAX> 0
<INCOME-CONTINUING> 253,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253,397
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
