UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10Q
_________________
(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, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-19370
Curative Technologies, Inc.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1503914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14 Research Way, Box 9052
East Setauket, NY 11733-9052
(Address of principal executive offices)
Telephone Number (516)689-7000
_____________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes X No
----- -----
As of May 1, 1996 there were 10,608,925 shares of the Registrant's
Common Stock, $.01 par value, outstanding.
<PAGE>
Curative Technologies, Inc.
INDEX
Part I Financial Information Page No.
- ------ --------------------- --------
Item 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations 3
Three Months ended March 31, 1996 and 1995
Condensed Consolidated Balance Sheets 4
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash Flows 5
Three Months ended March 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Results of 7
Operations and Financial Condition
Part II Other Information Page No.
- ------- ----------------- --------
Item 6 Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
Part I. Financial Information
- ------------------------------
Item 1. Condensed Consolidated Financial Statements
Curative Technologies, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Revenues $ 14,917 $ 12,007
Costs and expenses:
Cost of product sales and services 8,335 6,111
Selling, general and administrative 4,752 4,247
Research and development - 1,198
----- -----
Total costs and operating expenses 13,087 11,556
====== ======
Income from operations 1,830 451
Interest income 183 97
------ ------
Income before income taxes 2,013 548
Income taxes 140 34
------ ------
Net income $ 1,873 $ 514
===== =====
Net income per common share and
equivalent shares $ .17 $ .05
=== ===
Weighted average common shares outstanding 11,315 10,182
====== ======
</TABLE>
See accompanying notes
<PAGE>
Curative Technologies, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
<S> (unaudited)
ASSETS -------------- -----------------
<C> <C>
Cash and cash equivalents $ 3,908 $ 2,835
Marketable securities held-to-maturity 9,346 9,365
Accounts receivable, net 7,979 7,776
Prepaids and other current assets 827 820
----- -----
Total current assets 22,060 20,796
Property and equipment, net 3,414 3,383
Other assets 839 851
------ ------
Total assets $ 26,313 $ 25,030
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts payable $ 5,776 $ 5,066
Accrued liabilities 1,374 2,992
Current lease obligations 167 163
----- -----
Total current liabilities 7,317 8,221
Long term debt 1,000 1,000
Capital lease obligations 155 198
Stockholders' equity
Common stock 105 104
Additional paid in capital 45,829 45,474
Deficit (28,051) (29,925)
-------- --------
17,883 15,653
Subscription receivable (42) (42)
----- -----
Total stockholders' equity 17,841 15,611
------ ------
Total liabilities and stockholders' equity $ 26,313 $ 25,030
====== ======
</TABLE>
See accompanying notes
<PAGE>
Curative Technologies, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
<S> 1996 1995
---- ----
OPERATING ACTIVITIES:
<C> <C>
Net income $ 1,873 $ 514
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & amortization 242 265
Changes in operating assets and liabilities (1,118) (176)
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 997 603
INVESTING ACTIVITIES:
Purchases of property and equipment (261) (334)
(Purchases) sales of marketable securities - net 19 (37)
----- -----
NET CASH USED IN INVESTING ACTIVITIES (242) (371)
FINANCING ACTIVITIES:
Proceeds from loans and revolving line of credit - 140
Proceeds from exercise of stock options 357 2
Principal payments on loans, revolving line of
credit and capital lease obligations (39) (168)
----- -----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 318 (26)
Effect of exchange rate changes on cash
and cash equivalents - (30)
----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,073 176
Cash and cash equivalents at beginning of period 2,835 4,459
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,908 $ 4,635
===== =====
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 17 $ 19
== ==
</TABLE>
See accompanying notes
<PAGE>
Curative Technologies, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed consolidated financial statements are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of
the financial position and operating results for the interim periods.
The condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements for the year
ended December 31, 1995 and notes thereto contained in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. The
results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 1996.
Note 2. Net Income per Common Share
Net Income per common share is computed by dividing the net income by the
weighted average number of common shares outstanding plus dilutive
common share equivalents.
Note 3. Reclassifications
The Company has reclassified the presentation of certain prior year
information to conform with the current year presentation format. This
included the reclassification of $208,000 to cost of product sales and
services, those costs associated with the Company's laboratory operations
in the 1995 period previously presented as selling, general and
administrative expenses. Additionally, the Company has classified costs
of $559,000 related to technical services dedicated to the support of its
platelet releasate technology in cost of product sales and services in the
1996 fiscal period. These costs were classified as research and
development in previous years since such costs were related to new product
development and drug discovery. In the Company's continuing effort to
focus on its wound care service business, during the second half of 1995
the Company instituted a realignment of its business activities which
included the discontinuance of further product research and development.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Revenues. The Company's revenues increased from $12,007,000 to $14,917,000,
a 24% increase. The increased revenue in 1996 over 1995 is primarily
attributable to the operation of 89 wound care facilities in 1996 compared
with 67 in 1995 and a 13% increase at existing wound care facilities related
to higher patient volume. Total new patients to the wound care facilities
increased 26% to 8,683 in 1996 compared to 6,895 in 1995. The total number
of patients receiving Procuren therapy increased 10% to 1,745 in 1996
compared to 1,571 in 1995.
Cost of products sales and services. Cost of products sales and services
increased from $6,111,000 in 1995 to $8,335,000 in 1996. The first quarter
1996 total includes $559,000 of technical service costs which were reported
as research and development expenses for the first quarter 1995. Excluding
technical services costs, the increase from 1995 to 1996 was 27%. The
increase is attributable to additional staffing and operating expenses of
approximately $1,271,000 associated with the operation of 22 additional
wound care facilities in 1996 as compared to 1995, as well as increased volume
at existing wound care facilities. Additionally, these 22 facilities include
four freestanding wound care clinics and three additional under arrangement
wound care centers at which the services component of costs is higher than the
Company's other facilities due to the additional clinical staffing and
expenses that these models require. The higher services component at these
facilities accounted for an additional $351,000 of the increase in product
costs and services for 1996 as compared to 1995. As a percentage of
revenues, cost of product sales and service (excluding technical services)
was 52% in 1996 compared with 51% in 1995. The increase is attributable to
new wound care center programs which include a higher service component.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $4,247,000 in 1995 to $4,752,000 in
1996, a 12% increase. The increase is attributable to additional staffing
and operating expenses of approximately $1,000,000 associated with the growth
in the wound care business particularly related to field support departments,
offset by a $495,000 decrease in expenses related to European operations which
were discontinued in second quarter of 1995. As a percentage of revenues,
selling, general and administrative expenses were 32% in 1996 compared with
35% in 1995. The decrease is attributable to the discontinuation of the
European operations as well as the ability of the Company to obtain leverage
by spreading the costs of its overhead structure over a broader revenue base.
Research and development. Research and development expense was $1,198,000
for 1995. The Company did not incur any research and development expenses in
1996 since it discontinued all new product research and development. Technical
service costs associated with the support of Procuren autologous platelet
releasate technology is classified as a cost of product sales.
Net Income. Net income improved from $514,000 or $.05 per share in 1995 to
$1,873,000 or $.17 per share in 1996. The increase in earnings of $1,359,000
is primarily attributable to savings of approximately $600,000 related to the
discontinuance of new product research and development, discontinuance of
European operations and an improvement in operating margins associated with
the revenue growth and economies of scale achieved from market growth.
Liquidity and Capital Resources
Working Capital was $14.7 million at March 31, 1996 compared to $12.6 million
at December 31, 1995. Total cash, cash equivalents and marketable securities
held-to-maturity as of March 31, 1996 was $13.3 million and was invested
primarily in highly liquid money market funds, commercial paper and
government securities. The ratio of current assets to current liabilities
increased from 2.5:1 at December 31, 1995 to 3.0:1 at March 31, 1996. The
Company's increase in working capital and improvement in the ratio of current
assets to current liabilities was primarily attributable to the net income
for the quarter.
<PAGE>
Cash flows provided by operations for the first three months of 1996 totalled
$997,000 primarily attributable to the net income for the period. Cash flows
used in investing activities totalled $242,000 primarily attributable to
capital equipment expenditures. Cash flows provided by financing activities
totalled $318,000 primarily attributable to proceeds from the exercise of
stock options.
During the quarter, the Company experienced a $203,000 increase in accounts
receivable primarily due to the increase in revenues, although the average
number of days receivables were outstanding declined to 52 days as of
March 31, 1996 compared to 53 as of December 31, 1995. Further, the Company's
accounts payable and accrued expenses decreased $908,000 as of March 31, 1996
compared to December 31, 1995 primarily attributable to the payment of accrued
incentive compensation.
The Company's longer term cash requirements include working capital for the
further expansion of its wound care business. Other cash requirements are
anticipated for capital expenditures in the normal course of business. The
Company expects that, based on its current business plan, its existing cash,
cash equivalents and marketable securities will be sufficient to satisfy
its currently anticipated working capital needs. The Company is currently
assessing cash requirements related to accelerating the growth of the wound
care business and other strategic initiatives.
<PAGE>
Curative Technologies, Inc. and Subsidiaries
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.25.1 Form of Ammendment to Stock Subscription Warrant
filed herewith.
(b) No reports on Form 8-K filed during the quarter ended March 31, 1996.
<PAGE>
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.
Dated: May 14, 1996
Curative Technologies, Inc.
(Registrant)
/s/ John Vakoutis
--------------------------------------------
John Vakoutis
President and Chief Executive Officer
/s/ John C. Prior
--------------------------------------------
John C. Prior
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
Exhibit 10.25.1
FORM OF AMENDMENT
AMENDMENT
TO
STOCK SUBSCRIPTION WARRANT
FOR
SHARES OF COMMON STOCK
OF
CURATIVE TECHNOLOGIES, INC.
This Amendment made as of the 27th day of March 1996, by and among
Curative Technologies, Inc., a Minnesota corporation (the "Company") and
(the "Investor") or its successors or assigns.
WHEREAS, the Company agreed to the terms of a stock subscription warrant
(the "Warrant") issued to the Investor dated as of April 30, 1991; and
WHEREAS, the Company is willing to execute this Amendment to avoid the
expense and time involved in registering under the Securities Act of 1933 the
shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") issuable pursuant to the Warrant; and
WHEREAS, the Investor would like to have the flexibility provided by the
addition of the cashless exercise provisions.
NOW, THEREFORE, in consideration of the premises set forth herein, the
Company hereby amends the Warrant as follows:
1. Section 1 of the Warrant is amended by inserting the following
language between the first and second sentences of that Section:
Alternatively, the holder may, at its option, exercise all, but not less
than all, the rights represented by this warrant without cash payment or
other consideration (a "cashless exercise") by surrendering the warrant with
the form of subscription attached hereto, duly executed by such holder, to
the Company at its principal office. Pursuant to a cashless exercise, the
holder shall receive the aggregate number of shares of stock issuable upon
exercise of the warrant, less a number of shares of stock then having a fair
market value equal to the aggregate exercise price of the warrant. For the
purposes of the foregoing sentence, the fair market value of a share of stock
shall be equal to the closing sale price of the stock as reported by the
Nasdaq National Market on the day prior to the date of receipt by the
Company of the executed form of subscription.
2. (a) This Amendment and the Warrant as amended hereby shall be
governed by and construed in accordance with the laws of the State of
Minnesota without regard to conflicts of law principles thereunder.
<PAGE>
(b) The Amendment shall be effective upon due execution and
delivery of the Amendment by the Company, and the Warrant shall be deemed
to be amended as provided herein, as of the date first written above.
(c) Except as specifically amended hereby, all other provisions of
the Warrant shall remain unchanged and in full force and effect in accordance
with its terms.
IN WITNESS WHEREOF, the Company has executed this Amendment as of the date
first written above.
CURATIVE TECHNOLOGIES, INC.
By------------------------------
John Vakoutis, President and
Chief Executive Officer
CASHLESS EXERCISE FORM
(To be signed only upon exercise of warrant)
TO CURATIVE TECHNOLOGIES, INC.,
The undersigned, the holder of the enclosed warrant, hereby irrevocably
elects to exercise the entire purchase right represented by such warrant, in
accordance with the cashless exercise provisions contained in the amendment
to such warrant dated as of March 27, 1996, and requests that a certificate
for the appropriate number of shares (after giving effect to the cashless
exercise) be issued in the name of and delivered to at the address
shown below the signature of the undersigned.
Dated:
-------------------------- ---------------------------------
(Signature)
---------------------------------
(Printed Name)
---------------------------------
---------------------------------
---------------------------------
(Address)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,908
<SECURITIES> 9,346
<RECEIVABLES> 7,979
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,060
<PP&E> 7,395
<DEPRECIATION> 3,981
<TOTAL-ASSETS> 26,313
<CURRENT-LIABILITIES> 7,317
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 17,736
<TOTAL-LIABILITY-AND-EQUITY> 26,313
<SALES> 14,917
<TOTAL-REVENUES> 14,917
<CGS> 8,335
<TOTAL-COSTS> 13,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,013
<INCOME-TAX> 140
<INCOME-CONTINUING> 1,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,873
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
