<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
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 0-20532
LIFEQUEST MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2559866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12961 Park Central, Suite 1300
San Antonio, Texas 78216
(Address of principal executive offices)
(Zip Code)
(210) 495-8787
(Registrant's telephone number, including area code)
---------------
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
----- -----
---------------
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
On May 8, 1998, there were outstanding 6,842,742 shares of Common
Stock, $.001 par value, of the registrant.
Page 1
<PAGE> 2
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements - (Unaudited)
Consolidated Balance Sheets - December 31, 1997, and March 31, 1998 3
Consolidated Statements of Operations - For the Three Months Ended
March 31, 1997 and 1998 4
Consolidated Statements of Comprehensive Income (Loss) - For the Three
Months Ended March 31, 1997 and 1998 5
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1997 and 1998 6
Notes to Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1997 1998
------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,236,307 $ 1,220,068
Short-term investments 144,682 146,403
Accounts receivable (net of allowance for doubtful accounts of
$256,362 in 1997 and 216,573 in 1998) 2,292,235 2,189,439
Accounts receivable from related party 17,710 22,724
Interest receivable 5,318 --
Inventories, net 1,745,523 1,964,272
Prepaid and other assets 172,209 215,209
------------ ------------
Total current assets 7,613,984 5,758,115
------------ ------------
Property, Plant and Equipment 1,541,376 1,568,191
Less-accumulated depreciation (922,437) (961,531)
------------ ------------
Net property, plant and equipment 618,939 606,660
Investments, at cost -- 1,000,000
Intangible Assets:
Deferred finance charges 180,996 174,532
Licensed technology rights 441,358 441,358
Goodwill, net 1,882,839 1,830,063
------------ ------------
Total assets $ 10,738,116 $ 9,810,728
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,605,366 $ 2,315,800
Accrued expenses 826,695 555,280
Current portion of long-term debt and
capital lease obligations 6,838 5,578
------------ ------------
Total current liabilities 3,438,899 2,876,658
------------ ------------
Convertible Debentures 3,000,000 3,000,000
------------ ------------
Minority Interest 108,802 107,256
------------ ------------
Commitments and Contingencies (Note 7)
Stockholders' Equity:
Common stock, $.001 par value; 10,000,000 shares authorized;
shares issued and outstanding: 6,653,883 (1997)
and 6,842,742 (1998) 6,654 6,843
Additional paid-in capital 21,576,854 21,830,465
Deferred compensation (40,055) (32,639)
Accumulated deficit (17,353,038) (17,977,855)
------------ ------------
Total stockholders' equity 4,190,415 3,826,814
------------ ------------
Total liabilities and stockholders' equity $ 10,738,116 $ 9,810,728
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 4
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net Sales
Product sales $ 3,292,937 $ 4,082,858
Commissions earned 128,181 286,583
----------- -----------
3,421,118 4,369,441
----------- -----------
Cost And Expenses:
Cost of sales 1,971,296 2,476,749
Research and development 24,609 --
Selling, general and administrative 1,424,125 2,361,601
Interest 13,795 73,097
Depreciation and amortization 101,550 97,995
----------- -----------
3,535,375 5,009,442
----------- -----------
Loss From Operations (114,257) (640,001)
----------- -----------
Other Income (Expense):
Investment income 30,357 13,639
Other 99 --
----------- -----------
Net Loss Before Minority Interest (83,801) (626,362)
Minority Interest in Net Loss (Income) of
Consolidated Subsidiary (1,397) 1,545
----------- -----------
Net Loss $ (85,198) $ (624,817)
=========== ===========
Basic and Diluted Loss Per Share of Common Stock $ (.01) $ (.09)
=========== ===========
Weighted Average Shares Used In Computing Basic and
Diluted Loss Per Share of Common Stock 6,154,079 6,706,136
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 5
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------
1997 1998
---------- -----------
<S> <C> <C>
Net income (loss) $ (85,198) $(624,817)
Other comprehensive income (loss):
Deferred compensation -- (40,055)
Reclassification adjustment for compensation expense recognized -- 7,416
--------- ---------
Comprehensive income (loss) $ (85,198) $(657,456)
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 6
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------
1997 1998
----------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (85,198) $ (624,817)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Depreciation and amortization 101,550 97,995
Amortization of deferred finance charges -- 6,464
Deferred compensation -- 7,416
Loss on disposal of fixed assets -- 400
Minority interest in net income (loss) of consolidated subsidiary 1,397 (1,545)
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable, net (102,439) 102,796
Decrease (increase) in accounts receivable from related party 1,292 (5,014)
Decrease in interest receivable 28,269 5,318
Decrease (increase) in inventories 133,053 (218,749)
Decrease (increase) in prepaid and other assets 32,918 (43,000)
Increase (decrease) in accounts payable 176,826 (289,566)
Decrease in accrued expenses (136,790) (271,415)
----------- -----------
Net cash provided by (used in) operating activities 150,878 (1,233,717)
----------- -----------
Cash Flows From Investing Activities:
Additions to property and equipment (54,113) (33,341)
Investment in affiliate -- (1,000,000)
Purchases of investments (878,860) (146,403)
Investment maturities 1,346,525 144,682
Acquisitions, net of cash acquired 2,565 --
----------- -----------
Net cash provided by (used in) investing activities 416,117 (1,035,062)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options 113,443 253,800
Payments on long-term debt and capital lease obligations (16,448) (1,260)
Dividends paid by acquired entity (16,175) --
----------- -----------
Net cash provided by financing activities 80,820 252,540
----------- -----------
Net increase (decrease) in cash and cash equivalents 647,815 (2,016,239)
Cash and cash equivalents, beginning of period 294,143 3,236,307
----------- -----------
Cash and cash equivalents, end of period $ 941,958 $ 1,220,068
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 7
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for -
Interest $ 10,948 $ 66,633
Income taxes - -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 8
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of LifeQuest Medical,
Inc. (the "Company"), its four operating divisions, the Company's 82% ownership
interest in ValQuest Medical, Inc., and Canwell Surgical, Inc., a corporate
joint venture. All significant intercompany accounts and transactions have been
eliminated in consolidation. In January 1998, the Company paid $1,000,000 to
acquire 19.3 percent of the stock of TFX Holding Co. ("TFX"). TFX, an affiliate
of Teleflex, Inc., is a newly formed entity. In March 1998, the Company launched
distribution of certain patented devices owned by TFX. The Company accounts for
its investment in TFX under the cost method of accounting as it is unable to
exercise significant influence over the operating and financial policies of TFX.
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. However, all adjustments have been made which are, in
the opinion of the Company, necessary for a fair presentation of the results of
operations for the periods covered. In addition, all such adjustments are of a
normal recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is recommended that these
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto for the fiscal year ended December 31, 1997,
included in the Company's Form 10-KSB. Certain reclassifications have been made
in the prior period financial statements to conform with the current period
presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Product sales are recognized upon the shipment of products to customers.
Commissions earned are recognized when customer orders are placed with product
suppliers. The retail values of product and commission sales for the three
months ended March 31, 1997 and 1998 were approximately $4.0 million and $5.4
million, respectively. These include product sales as well as the gross sales
value of products for which the Company receives commissions.
Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and displaying comprehensive
income and its components in a full set of financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and, accordingly,
the Company has presented a Statement of Comprehensive Income (Loss) for the
three months ended March 31, 1998 reflecting deferred compensation associated
with the modification of outstanding option awards during the fourth quarter of
1997. The Company had no components of comprehensive income for the three months
ended March 31, 1997.
NOTE 3 - BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share ("EPS") is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. As the Company had a net loss for
the three months ended March 31, 1997 and 1998, Diluted EPS equals Basic EPS as
potentially dilutive common stock equivalents are antidilutive in loss periods.
-8-
<PAGE> 9
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------- --------------
<S> <C> <C>
Raw materials $ 328,375 $ 457,225
Work-in-process 18,557 16,934
Finished Goods 1,579,551 1,671,073
Allowances (180,960) (180,960)
------------ ------------
$ 1,745,523 $ 1,964,272
============ ============
</TABLE>
NOTE 5 - ACQUISITIONS
Effective June 1997, Trimedica, Inc. ("Trimedica") was acquired by the Company
for an aggregate of 57,143 shares of common stock. The transaction was accounted
for using the pooling-of-interests accounting method. The net sales and net
income of Trimedica prior to the date of acquisition that have been included in
the consolidated statement of operations for the three months ended March 31,
1997 were $80,905 and $29,906, respectively.
Effective September 1997, W. H. Bookwalter and Associates, Inc. ("Bookwalter")
was acquired by the Company for an aggregate of 466,473 shares of common stock.
The transaction was accounted for using the pooling-of-interests accounting
method. The net sales and net (loss) of Bookwalter prior to the date of
acquisition that have been included in the consolidated statement of operations
for the three months ended March 31, 1997 were $590,889 and $(45,209),
respectively.
NOTE 6 - EQUITY TRANSACTIONS
During the three months ended March 31, 1998, the Company granted 205,200
options to purchase common stock of the Company to various employees with
exercise prices ranging from $3.25 per share to $4.25 per share. The option
exercise prices were determined by the market value per share on date of grant.
These options vest over a four year period and expire ten years from date of
grant.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is a party to claims and legal proceedings arising in the ordinary
course of business. The Company believes it is unlikely that the final outcome
of any of the claims or proceedings to which the Company is a party would have a
material adverse effect on the Company's financial statements; however, due to
the inherent uncertainty of litigation, the range of possible loss, if any,
cannot be estimated with a reasonable degree of precision and there can be no
assurance that the resolution of any particular claim or proceeding would not
have an adverse effect on the Company's results of operations for the interim
period in which such resolution occurred.
-9-
<PAGE> 10
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Certain statements contained in this Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Specifically, all statements other than
statements of historical fact included in this Item 2 regarding LifeQuest
Medical, Inc. and subsidiaries' (Company) financial position, business strategy
and plans and objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect" and "intend" and
words or phrases of similar import, as they relate to the Company or Company's
management are intended to identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions related to certain
factors including, without limitation, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, product introductions and
acceptance, technological change, changes in industry practices, one-time events
and other factors described herein, in the Company's Registration Statement on
Form S-3 filed with the Security and Exchange Commission ("SEC") on April 16,
1998, and in the Company's annual, quarterly and other reports filed with the
SEC (collectively, "cautionary statements"). Although the Company believes that
its expectations are reasonable, it can give no assurance that such expectations
will prove to be correct. Based upon changing conditions, should any one or more
of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the applicable cautionary statements. The Company does not intend to
update these forward looking statements.
OVERVIEW
From inception through December 31, 1995, the Company was a development
stage enterprise whose efforts and resources were devoted primarily to research
and development activities related to its initial products. During this
development stage, the Company received minimal operating revenues. As of March
31, 1998, the Company had an accumulated deficit of approximately $18.0 million.
There can be no assurance that the Company will not continue to incur losses,
that the Company will be able to raise cash as necessary to fund operations or
that the Company will ever achieve profitability.
The Company's future operating results will depend on many factors,
including the Company's ability to manufacture, market and distribute safe and
effective products on a cost-effective basis, demand for and acceptance of the
Company's products, the level of competition in the marketplace, the ability of
the Company's customers to be reimbursed by third-party payors and other factors
described in this Quarterly Report on Form 10-QSB, in the Registration Statement
on Form S-3 filed with the SEC on April 16, 1998, and in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997.
Effective January 1, 1998, the Company merged all of its wholly owned
subsidiaries with and into the Company. In conjunction with the upward merger,
the Company created four new operating divisions: Endo-Surgery, Surgical
Systems, Med-Service, and Technologies.
In December 1997, the Company entered into an agreement to acquire
approximately 20 percent of the stock of TFX Holding Co. ("TFX") for $1,000,000
which was paid in January 1998. TFX owns the rights to the patented Dexterity(R)
Pneumo Sleeve and Dexterity(R) Protractor.
In December 1997, the Company and Canwell Medical, Inc. formed Canwell
Surgical, Inc. ("Canwell"). Canwell is 50 percent owned by the Company and
Canwell Medical, Inc. and was formed for the purpose of selling minimally
invasive surgical products in China and other Asian countries. In January the
Company loaned $100,000 to Canwell for initial working capital requirements. The
loan is unsecured and bears interest at 9 percent with the principal maturing in
January 2000.
Effective September 1997, Mishbucha, Inc. d/b/a Medex Surgical ("Medex
Surgical") was acquired by the Company and merged into Klein Medical, Inc., a
wholly owned subsidiary of the Company ("Klein"). Medex Surgical was purchased
for an aggregate of 98,246 shares of common stock, $.001 par value, of the
Company ("Common Stock"). Medex
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<PAGE> 11
Surgical was formed during 1997 and the transaction was accounted for using the
pooling-of-interests accounting method. Medex Surgical business activity has
allowed the Company to further expand its geographical area.
Effective September 1997, W. H. Bookwalter and Associates, Inc.
("Bookwalter") was acquired by the Company and merged into Val-U-Med, Inc. a
wholly owned subsidiary of the Company. Bookwalter was purchased for an
aggregate of 466,473 shares of Common Stock. The transaction was accounted for
using the pooling-of-interests accounting method, therefore, the assets,
liabilities, and operations of Bookwalter prior to the merger are included in
the consolidated financial statements for all periods reported herein.
Bookwalter business activity has provided the Company with distribution coverage
in the northeastern region of the United States.
Effective June 1997, Trimedica, Inc. ("Trimedica") was acquired by the
Company and merged into Klein. Trimedica was purchased for an aggregate of
57,143 shares of Common Stock. The transaction was accounted for using the
pooling-of-interests accounting method, therefore, the assets, liabilities, and
operations of Trimedica prior to the merger are included in the consolidated
financial statements for all periods reported herein. Trimedica business
activity constitutes the new orthopedic sales force of Klein.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had current assets of $5,758,000 and
current liabilities of $2,877,000 resulting in working capital of $2,881,000.
This compares to a working capital position of $4,175,000 at December 31, 1997.
The decline in working capital is primarily due to the Company's $1,000,000
investment in TFX.
Pursuant to the terms of a private placement in December 1997, the
Company issued to two affiliates of Renaissance Capital Group, Inc. an aggregate
of (i) 250,000 shares of Common Stock at a per share purchase price of $4.00,
and (ii) 9% convertible debentures in an aggregate amount of $3,000,000. The
debentures mature in December 2004 and are convertible at any time prior to
maturity into shares of Common Stock at a conversion price not to exceed $4.00.
Unless the debentures are earlier converted, the Company shall make interest
payments on the debentures for three years, and then payments of principal and
interest until maturity.
On February 2, 1996, the Company borrowed $750,000 from a commercial
bank pledging a like amount of short-term investments as collateral. The loan
proceeds were used to replace more expensive debt, mainly capital equipment
leases, acquired with the acquisition of GM Engineering, Inc. ("GME"). On
September 3, 1997, the loan was converted to a line of credit maturing September
1998 whereby all inventories, accounts receivable and intangibles of the Company
are pledged as collateral. The line of credit was paid in full in December 1997
with proceeds from the private placement described above. There was no
outstanding balance on the line of credit at March 31, 1998.
Capital expenditures were $33,000 during the first three months of
1998. The Company anticipates further capital expenditures as the Company's
geographical expansion continues.
Based upon the current level of operations, the Company believes that
projected cash flow from operations plus the Company's cash from the realization
of its current assets will be adequate to meet its anticipated requirements for
working capital and capital expenditures during 1998. However, additional
capital may be required in order for the Company to take advantage of any
potential acquisition opportunities or to participate in future alliances or
joint ventures. There can be no assurance that the Company will not require
additional funding or that such additional funding, if needed, will be available
on terms beneficial to the Company or at all.
YEAR 2000 COMPLIANCE
The efficient operation of the Company's business is dependent on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business, including information management services and financial
reporting, as well as in various administrative functions. The Company has been
evaluating its Programs and Systems to identify potential year 2000 compliance
problems, as well as manual processes, external interfaces with customers, and
services supplied by vendors to coordinate year 2000 compliance and conversion.
The year 2000 problem refers to the limitations of the programming code in
certain existing software programs to recognize date sensitive information for
the year 2000 and beyond. Unless modified prior to the year 2000, such systems
may not properly recognize such information and could generate erroneous data
or cause a system to fail to operate properly.
Based on current information, the Company expects to attain year 2000
compliance and institute appropriate testing of its modifications and
replacements in a timely fashion and in advance of the year 2000 date change.
It is anticipated that modification or replacement of the Company's Programs
and Systems will be performed in-house by company personnel. The Company
believes that, with modifications to existing software and conversions to new
software, the year 2000 problem will not pose a significant operational problem
for the Company. However, because most computer systems are, by their very
nature, interdependent, it is possible that non-compliant third party computers
may not interface properly with the Company's computer systems. The Company
could be adversely affected by the year 2000 problem if it or unrelated
parties fail to successfully address this issue. Management of the Company
currently anticipates that the expenses and capital expenditures associated
with its year 2000 compliance project will not have a material effect on its
financial position or results of operations.
RESULTS OF OPERATIONS
For the three months ended March 31, 1998, the Company reported a net
loss of $625,000 or $.09 per share. This compares with a net loss of $85,000 for
the three months ended March 31, 1997. The increase in the net loss for the
quarter was primarily caused by the Company's acceleration of the geographic
expansion of its business activity and sales force as well as the increase in
its distribution and sales support infrastructure to support such geographic
expansion.
Net sales increased 28% in the first quarter of 1998 as compared with
the same period in 1997. Product sales were $4,083,000 for the first quarter of
1998 and $3,293,000 for the first quarter of 1997. These increases were due to
continued sales growth throughout the Company and the launch of the new
Dexterity(R) products. The Dexterity(R) Pneumo Sleeve and the Dexterity(R)
Protractor were introduced at surgeon training sessions in February 1998, and
sales commenced in March
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<PAGE> 12
1998. This new patented surgical method, Hand Assisted Laparoscopic Surgery
(HALS), allows the surgeon to insert one hand into the abdominal cavity while
preserving pneumoperitoneum during laparoscopic surgery.
Gross profit from product sales was $1,606,000 in the first quarter of
1998 versus $1,322,000 in the same period of 1997. The corresponding gross
profit margins were 39 percent in 1998 and 40 percent in 1997.
For the first quarter, selling, general and administrative expenses,
which consist primarily of sales commissions, salaries and other costs necessary
to support the Company's infrastructure increased to $2,362,000 in 1998 from
$1,424,000 in 1997. This increase is primarily due to the Company's expanded
sales force which has grown by approximately 200% since March 31, 1997. The
Company's new sales personnel undergo an intensive training program that
initially increases expenses without a corresponding increase in revenues. The
Company believes these training costs position it for the anticipated increase
in product sales.
Investment income represents interest earned on the Company's
short-term investments. Therefore, investment income declined in the first
quarter of 1998 from the first quarter of 1997 as the level of short-term
investments declined from period to period.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - See Note 7 of Notes to Consolidated Financial
Statements
Item 2. Changes in Securities - Not applicable
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number 11: Computation of Earnings (Loss) Per Share
(filed herewith)
Exhibit Number 27: Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K: Not applicable
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<PAGE> 13
SIGNATURES
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.
LIFEQUEST MEDICAL, INC.
-----------------------
(Registrant)
Dated: May 13, 1998 By /s/RANDALL K. BOATRIGHT
---------------------------
Randall K. Boatright
Interim President and Chief Executive
Officer,
Chief Financial Officer and Director
(Principal Executive Officer and
Principal Financial Accounting Officer)
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<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Computation of Earnings
27 Finacial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1997 1998
---- ----
<S> <C> <C>
COMPUTATION OF BASIC LOSS PER SHARE
Net loss $ (85,198) $ (624,817)
=========== ===========
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING USED FOR COMPUTATION 6,154,079 6,706,136
=========== ===========
BASIC LOSS PER COMMON SHARE $ (0.01) $ (0.09)
=========== ===========
COMPUTATION OF DILUTED LOSS PER SHARE:
Net loss $ (85,198) $ (624,817)
Interest on Convertible Debentures $ -- $ 66,575
----------- -----------
Net loss used for computation $ (85,198) $ (558,242)
=========== ===========
Weighted average shares of common stock outstanding 6,154,079 6,706,136
Weighted average incremental shares outstanding upon assumed
conversion of options and other dilutive securities 402,769 280,044
Weighted average incremental shares outstanding upon assumed
conversion of Convertible Debentures -- 184,932
----------- -----------
WEIGHTED AVERAGE SHARES OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS OUTSTANDING USED
FOR COMPUTATION 6,556,848 7,171,112
=========== ===========
DILUTED LOSS PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS (a) $ (0.01) $ (0.08)
=========== ===========
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-B although it is not required by SFAS No. 128 because it
is antidilutive. As a result, it is not the amount reflected on the
income statement.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE YEAR TO DATE
CONSOLIDATED STATEMENT OF OPERATIONS FINANCIAL STATEMENTS FOR THE PERIOD THEN
ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,220,068
<SECURITIES> 146,403
<RECEIVABLES> 2,406,012
<ALLOWANCES> 216,573
<INVENTORY> 1,964,272
<CURRENT-ASSETS> 5,758,115
<PP&E> 1,568,191
<DEPRECIATION> 961,531
<TOTAL-ASSETS> 9,810,728
<CURRENT-LIABILITIES> 2,876,658
<BONDS> 3,000,000
0
0
<COMMON> 6,843
<OTHER-SE> 3,819,971
<TOTAL-LIABILITY-AND-EQUITY> 9,810,728
<SALES> 4,369,441
<TOTAL-REVENUES> 4,383,080
<CGS> 2,476,749
<TOTAL-COSTS> 5,009,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,097
<INCOME-PRETAX> (624,817)
<INCOME-TAX> 0
<INCOME-CONTINUING> (624,817)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (624,817)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
