UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended January 31, 1995
Commission file Number 0-5958
SURVIVAL TECHNOLOGY, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-0898764
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2275 Research Blvd., Rockville, MD 20850
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(301) 926-1800
- - --------------------------------------------------
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.
Class Outstanding as of February 28, 1995
- - --------------- -----------------------------------
Common Stock 3,086,538 Shares
$.10 par value
<PAGE> 2
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
January 31, 1995 and July 31, 1994 ...... 3
Consolidated Condensed Statements of Income
for the Three-Month Periods Ended
January 31, 1995 and 1994................ 5
Consolidated Condensed Statements of Income
for the Six-Month Periods Ended
January 31, 1995 and 1994................ 6
Consolidated Condensed Statements of Cash
Flows for the Six Months Ended
January 31, 1995 and 1994............... 7
Notes to Consolidated Condensed Financial
Statements ............................. 9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 10
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of
Security Holders.......................... 15
ITEM 6. Exhibits and Reports on Form 8-K .......... 16
SIGNATURES ......................................... 17
<PAGE> 3
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
(unaudited) (audited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 53,900 $ 65,000
Receivables 6,847,000 5,936,300
Inventories 4,120,700 2,795,300
Prepaid expenses and
other assets 634,000 582,000
Deferred income taxes 848,100 848,100
----------- -----------
Total current assets 12,503,700 10,226,700
----------- -----------
Fixed assets 22,675,600 20,919,700
Less accumulated
depreciation 9,507,900 9,027,000
---------- -----------
13,167,700 11,892,700
----------- -----------
Patents and licenses at cost
less amortization of
$485,300 and $572,800 2,062,700 1,986,500
Other noncurrent assets 43,000 95,300
----------- -----------
$27,777,100 $24,201,200
=========== ===========
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(continued)
January 31, July 31,
1995 1994
(unaudited) (audited)
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 4,692,500 $ 1,304,500
Note payable to Syntex 800,000 800,000
Current portion of long-term
debt 387,800 358,900
Accounts payable 1,933,400 1,145,100
Other liabilities and accrued
expenses 1,392,800 1,581,800
----------- -----------
Total current liabilities 9,206,500 5,190,300
Note payable to Syntex 988,400 1,388,400
Other long-term debt 142,100 231,800
Other noncurrent liabilities 461,700 461,300
Deferred income taxes 1,239,400 1,239,400
----------- -----------
Total liabilities 12,038,100 8,511,200
----------- -----------
Shareholders' equity:
Common stock, $.10 par value;
10,000,000 shares authorized;
3,085,400 and 3,085,400 shares
issued and outstanding 308,500 308,500
Paid-in capital in excess of
par value 5,072,700 5,072,700
Retained earnings 10,357,800 10,308,800
----------- -----------
Total shareholders' equity 15,739,000 15,690,000
----------- -----------
$27,777,100 $24,201,200
=========== ===========
See Accompanying Notes to Consolidated Condensed Financial
Statements.
</TABLE>
<PAGE> 5
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
----------------------------
1995 1994
------------- ------------
<S> <C> <C>
Net sales $ 6,444,800 $ 6,289,200
Cost of sales 4,670,800 3,640,000
------------ -----------
Gross profit 1,774,000 2,649,200
------------ -----------
Selling, general &
administrative expense 1,093,000 1,164,400
Research & development
expense 258,100 307,900
Depreciation and
amortization expense 344,700 386,700
------------ -----------
1,695,800 1,859,000
------------ -----------
Operating income 78,200 790,200
------------ -----------
Other (expense) income:
Interest expense (87,700) (38,000)
Other income 46,900 69,100
------------ -----------
(40,800) 31,100
------------ -----------
Income before income taxes 37,400 821,300
Provision for income taxes 13,400 320,300
------------ -----------
Net income $ 24,000 $ 501,000
============ ===========
Per common share:
Net income $ .01 $ .16
===== =====
Average number of common
shares outstanding 3,100,700 3,122,700
--------- ---------
See Accompanying Notes to Consolidated Condensed Financial
Statements.
</TABLE>
<PAGE> 6
SURVIVAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
Net sales $ 11,412,100 $12,973,800
Cost of sales 7,887,000 7,707,200
------------ -----------
Gross profit 3,525,100 5,266,600
------------ -----------
Selling, general &
administrative expense 2,087,400 2,278,600
Research & development
expense 558,300 576,700
Depreciation and
amortization expense 727,300 735,300
------------ -----------
3,373,000 3,590,600
------------ -----------
Operating income 152,100 1,676,000
------------ -----------
Other (expense) income:
Interest expense (153,000) (64,000)
Other income 78,600 77,400
------------ -----------
(74,400) 13,400
------------ -----------
Income before income taxes 77,700 1,689,400
Provision for income taxes 28,700 637,400
------------ -----------
Net income $ 49,000 $ 1,052,000
============ ===========
Per common share:
Net income $ .02 $ .34
===== =====
Average number of common
shares outstanding 3,100,100 3,116,100
--------- ---------
See Accompanying Notes to Consolidated Condensed Financial
Statements.
</TABLE>
<PAGE> 7
SURVIVAL TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 49,000 $1,052,000
Adjustments to reconcile net
income to net cash used for
operating activities
Depreciation and amortization 727,300 735,300
Gain on fixed asset disposals (49,000)
Deferred lease incentives (15,100) 8,400
Increase in receivables (910,700) (1,316,000)
Increase in inventories (1,325,400) (89,100)
Increase in prepaid
expenses and other
assets (69,700) (340,400)
Increase in accounts payable 788,300 124,800
Decrease in other liabilities
and accrued expenses (189,000) (131,300)
--------- ----------
Net cash used for
operating activities (945,300) (5,300)
--------- ----------
Cash flows from investing activities:
Purchases of fixed assets (1,880,400) (1,351,600)
Purchases of patents and
licenses (154,600) (100,100)
Decrease in other noncurrent
assets 41,600
(Increase) decrease in other
noncurrent liabilities 400 (14,700)
---------- ----------
Net cash used for
investing activities (1,993,000) (1,466,400)
---------- ----------
</TABLE>
<PAGE> 8
SURVIVAL TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds on notes payable
to bank $3,388,000 $1,130,600
Payment on note payable
to Syntex (400,000) -
Payment on long-term debt (60,800) (167,600)
Increase in other noncurrent
liabilities 250,000
Proceeds from issuance of
common stock 3,800
---------- ----------
Net cash provided by
financing activities 2,927,200 1,216,800
---------- ----------
Net decrease in cash $ (11,100) $ (254,900)
========== ==========
Cash at beginning of period $ 65,000 $ 274,700
Cash at end of period 53,900 19,800
---------- ----------
Net decrease in cash $ 11,100 $ 254,900
========== ==========
See Accompanying Notes to Consolidated Condensed Financial
Statements.
</TABLE>
<PAGE> 9
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. In the opinion of management, the accompanying
unaudited consolidated condensed financial statements
contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's
financial position as of January 31, 1995 and July 31,
1994, the results of its operations for the three-month
and six-month periods ended January 31, 1995 and 1994,
and its cash flows for the six-month periods ended
January 31, 1995 and 1994. The results of operations
for the three-month and six-month periods ended January
31, 1995 are not necessarily indicative of the results
that may be expected for the fiscal year ending
July 31, 1995.
B. The significant accounting principles and practices
followed by the Company are set forth in Note 1 of the
Notes to Consolidated Financial Statements in the
Survival Technology, Inc. Annual Report on Form 10-K
for the year ended July 31, 1994.
C. Inventories consisted of the following:
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- -----------
<S> <C> <C>
Components and subassemblies $ 2,620,100 $ 1,739,200
Material, labor and overhead
costs in process 809,400 438,700
Finished goods 933,600 895,200
----------- -----------
4,363,100 3,073,100
Inventory reserve (242,400) (277,800)
----------- -----------
Total $ 4,120,700 $ 2,795,300
=========== ===========
</TABLE>
<PAGE> 10
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Quarter and Six Months in Review
- - -------------------------------------
The Company reported net income of $24,000 ($.01 per
share) on sales of $6.4 million for the second quarter of
fiscal 1995 compared with net income of $501,000 ($.16
per share) on sales of $6.3 million in the same period of
fiscal 1994. Net income totalled $49,000 ($.02 per share)
on sales of $11.4 million for the six months ended January
31, 1995 compared with net income of $1,052,000 ($.34 per
share) on sales of $13 million during the six months ended
January 31, 1994.
While revenues generated during the current quarter were
comparable with the same prior year quarter, the anticipated
decline in revenues ($1.6 million or 12%) for the first six
months of fiscal 1995 resulted from first quarter factors,
including the previously reported shutdown of the company's
St. Louis manufacturing facility during the first month of
fiscal 1995. Operating income was adversely affected by
declining gross margins. Gross margins decreased to 27% and
31% for the quarter and six month periods ended January 31,
1995 from 42% and 41%, respectively, in the corresponding
prior year periods. This decline was attributable to sales
of lower margin foreign military auto-injectors delivered
during the current quarter coupled with lower revenues from
commercial products and funded R&D activities in the current
quarter and first six months of fiscal 1995. The Company's
competitive bid for this foreign military contract
anticipated a lower margin in pursuit of contract award to
better position itself for additional future business.
Sales from military products were $3.5 million in the
current quarter and $5 million for the first six months of
fiscal 1995 which represent increases over the same prior
year periods of $1.4 million (67%) and $1.3 million (35%),
respectively. These increases were primarily attributable
to the previously mentioned sales of foreign military auto-
injectors delivered during the current quarter.
Commercial product and funded R&D revenues were $2.9 million
and $6.4 million during the second quarter and first six
months of fiscal 1995 compared with $4.2 million and
<PAGE> 11
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
$9.3 million in the same prior year periods, which
represents a 31% decrease for both periods. These declines
in revenues were due mainly to lower CytoGuard sales coupled
with the absence of revenues from the Medical Device
Division which was sold in July 1994. As previously
reported, the company anticipated a decline in revenues
from its patented CytoGuard(R) Aerosol Protective Device
due to a change in the distribution method from a single
unit to multi-unit package by Bristol-Myers Squibb, STI's
exclusive distributor for the CytoGuard. This decline in
revenue was partially offset by EpiPen(R) auto-injector
sales which increased $1.2 million (126%) in the current
quarter and $768,400 (24%) in the first six months of
fiscal 1995 when compared with the same prior year periods.
Sales in second half of the year are expected to increase
over 30% when compared with the first half of fiscal 1995.
Operating margins are expected to return to historical
levels of 35% to 40% based on stronger sales of commercial
products and services. The company anticipates fiscal 1995
EpiPen sales to improve over prior year levels with expanded
international marketing activities and the introduction
of the new generation EpiPen, called the EpiE-ZPen(TM).
This new injector has additional safety features and user
convenience enhancements to better serve the consumer
market, and will be positioned to expand epinephrine
auto-injector use in U. S. and international markets.
The company also expects increases in higher margin
R&D revenues during the third and fourth quarters of
fiscal 1995.
Selling, general and administrative expenses ("SG&A")
decreased $71,400 (6%) and $191,200 (8%) during the second
quarter and first six months of the current fiscal year when
compared with the same periods last year. These decreases
were due to the absence of SG&A expenses related to the
Medical Device Division (sold in July 1994) coupled with a
lower fiscal 19985 profit sharing accrual in view of lower
earnings.
Research and development expenditures decreased $49,800
(16%) and $18,400 (3%) for the quarter and six months
ended January 31, 1995 in line with the decrease in funded
R&D activities mentioned above. The company remains
focused on the development efforts related to its new
<PAGE> 12
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
generation auto-injector products designed for outpatient/
in-home use. These products target infrequent injection
of medication in acute episodes of disease as well as
treatment of chronically ill patients. The company expects
R&D expenses in fiscal 1995 to be comparable to fiscal 1994.
Depreciation and amortization remained relatively constant
decreasing $42,000 (11%) and $8,000 (1%) in the second
quarter and first six months of fiscal 1995 compared with
the corresponding prior year periods. The company continues
to invest significantly in capital expenditures (see
"Balance Sheet Review") and expects depreciation expense for
the current fiscal year to increase over the prior fiscal
year as more equipment is placed in service over the second
half of fiscal 1995.
Other expenses, net of other income, increased $71,900 in
the current quarter and $87,800 in the first half of fiscal
1995 when compared with the same prior year periods. This
resulted from increases in interest expense of $49,700 and
$89,000 for the quarter and six months ended January 31,
1995 due to higher levels of bank borrowings as well as the
re-initiation of interest payments on the outstanding note
payable to Syntex Laboratories, Inc. ("see Liquidity and
Capital Resources" following). Also contributing to the
current quarter increase in other expenses was a gain on
fixed asset disposal ($54,800) recognized in the second
quarter last year. This gain was partially offset during
the current quarter and completely offset in the first six
months of fiscal 1995 by royalty income from sales of the
company's former medical device products by Brunswick
Biomedical Corporation, who acquired this business from
STI in July 1994. Royalty income for the quarter and six
month periods ended January 31, 1995 was $27,500 and
$56,600, respectively.
Liquidity and Capital Resources
- - -------------------------------
In October 1994, the company renewed its $5 million line of
credit agreement ("Agreement") with Merrill Lynch Business
Financial Services Inc. ("MLBFS") through September 1995.
Outstanding borrowings under the Agreement aggregated
$4.7 million at January 31, 1995. The interest rate
<PAGE> 13
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
is the 30-day commercial paper rate as published in the Wall
Street Journal plus 265 basis points. The Agreement places
a $5 million limit on capital expenditures in any one fiscal
year. Capital expenditures for the six months ended January
31, 1995 aggregated $1.9 million. The Company relies on its
line of credit facility to satisfy its working capital and
capital expenditure requirements.
In April 1991, the Company signed a Loan Agreement
pursuant to which Syntex Laboratories, Inc. agreed to
lend $5.4 million to the Company to finance working
capital requirements and capital expenditures designed
to increase the current production capacity of the Company's
Cartrix (TM) syringe system. Effective January 1, 1993, the
outstanding loan balance (approximately $2.2 million) had a
moratorium on principal repayments and was non-interest
bearing through June 30, 1994. Effective July 1, 1994, the
outstanding loan balance began to bear interest at the
same rate of interest the Company pays on its current
commercial line of credit facility. Principal repayments
resumed for the calendar quarter ended September 30, 1994
at the minimum of $200,000 per quarter reducing the
outstanding loan balance to $1.8 million at January 31,
1995. The loan is subject to acceleration upon the
occurrence of certain events.
The Company will have significant capital needs over the
next five years which cannot be funded by operations.
Its manufacturing facility currently consists of eight
separate buildings. The Company plans to consolidate
operations by constructing a new facility connecting its
sterile building with its component/finished goods
warehouse and consolidating assembly and packaging
operations. The construction of this new facility would
result in the elimination of four manufacturing buildings
and significantly reduce manufacturing costs.
Many of the Company's aseptic filling, assembly and final
packaging processes are labor intensive and in need of
automation. Over the next three to four years, the
Company plans to purchase high speed drug cartridge
preparation and filling equipment as well as automated
assembly and packaging equipment. This equipment will
not only increase efficiency and capacity, but it will
also result in less human contact with products during
<PAGE> 14
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
the manufacturing process. Finally, as part of STI's new
product development efforts, the Company must purchase
high cavitation molds for its new automatic injection
devices.
The Company is in discussions with several financial
institutions to identify intermediate to long-term
financing alternatives to underwrite the capital
expenditures needed to keep pace with its long-range
business plan. The availability and timing of such
financing cannot be reasonably predicted and could impact
the extent and timing of such expenditures.
Balance Sheet Review
- - --------------------
Working capital at January 31, 1995 was $3.3 million
which represents a $1.7 million (34%) decrease from the
working capital at July 31, 1994 of $5 million. This
decrease was the result of higher bank borrowings at the
end of the current quarter. Receivables increased
$910,700 (15%) due to January deliveries of foreign
military auto-injectors which were subsequently liquidated
in late February 1995. Inventories increased $1.3 million
(47%) primarily in support of orders for the U.S.
Department of Defense scheduled for delivery in the third
and fourth quarters of fiscal 1995. Also contributing to
this increased level of inventory was component purchases
in anticipation of the EpiE-ZPen launch which is pending
final approval by the Food and Drug Administration ("FDA").
Prepaid expenses and other current assets increased
$52,000 (9%) due to the prepayment of annual FDA licensing
fees which were partially offset by certain prepaid
insurance policies nearing the end of their annual
renewal periods.
Notes payable increased $3 million (86%) as increased
borrowings were needed to fund inventory purchases and
capital expenditures. Accounts payable increased
$788,300 (69%) in conjunction with increased levels of
inventory discussed above. While other liabilities and
accrued expenses decreased $189,000 (12%), other long-term
debt, including the current portion, decreased $60,800
(10%) as the company continued to make payments on its
non-interest bearing note payable to EM Industries, Inc.
<PAGE> 15
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
as well as payments on capital lease obligations incurred
to finance the company's fully integrated management
information system. Capital expenditures totalled
$1.9 million during the first six months of fiscal 1995
which consisted primarily of improvements designed to
automate and validate current production processes at the
company's St. Louis manufacturing facility.
PART II - OTHER INFORMATION
ITEM 4. Submission of matters to a vote of Security
Holders.
On January 5, 1995 at the Annual Meeting of
Shareholders of the Company, the shareholders
voted 2,825,463 shares (92%) electing a Board of
five directors named in the Company's proxy
statement dated December 9, 1994 who will serve
until the next annual meeting of shareholders
and ratified the selection by the Board of
Directors of Price Waterhouse LLP as independent
auditors of the Company for the current fiscal
year. The following is a breakdown of how the
shares were voted:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Votes For Withheld
Dresner 2,815,883 9,580
Herzstein 2,816,163 9,300
Miller 2,816,163 9,300
Spero 2,815,722 9,741
Way 2,816,163 9,300
Against Abstain
Price Waterhouse LLP 2,818,153 2,050 5,260
<PAGE 16>
ITEM 6. Exhibits and Reports on Form 8-K:
b. Reports on Form 8-K:
As previously reported, the Registrant filed a
Current Report on Form 8-K dated November 22,
1994.
<PAGE> 17
SURVIVAL TECHNOLOGY, INC.
FORM 10-Q
For the Quarter ended January 31, 1995
SIGNATURES
Pursuant to the requirement of the Securities
Exchange Act of 1934, the registrant has duly cause this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
SURVIVAL TECHNOLOGY, INC.
Registrant
March 14, 1995 By: /S/James H. Miller
- - -------------- -------------------------
Date James H. Miller
President and
Chief Executive Officer
(Principal Executive
Officer)
March 14, 1995 By: /S/Jeffrey W. Church
- - -------------- -------------------------
Date Jeffrey W. Church
Sr. Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
<TABLE>
<S> <C>
[FISCAL-YEAR-END] Jul-31-1994
[PERIOD-START] Nov-01-1994
[PERIOD-END] Jan-31-1995
[PERIOD-TYPE] 6-MOS
</TABLE>
