SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994 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: 0-3585 ________________________ EVEREST & JENNINGS INTERNATIONAL LTD. (Exact name of registrant as specified in its charter) DELAWARE 95-2536185 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1100 CORPORATE SQUARE DRIVE, ST. LOUIS, MISSOURI 63132 (Address of principal executive offices) Registrant's telephone number, including area code: 314-995-7000 NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) ________________________ Securities registered pursuant to Section 12(b) of the Act: Number of shares issued and outstanding Name of exchange Title of each class as of May 12, 1994 on which registered ___________________ __________________ ___________________ Common Stock; par value: $.01 72,199,612 American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 the filing requirements for the past 90 days: Yes X No QUARTERLY REPORT ON FORM 10-Q MARCH 31, 1994 TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 24 Item 2. Changes in Securities 26 Item 3. Defaults upon Senior Securities 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURE 28 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidated financial statements included herein have been prepared by the management of Everest & Jennings International Ltd. (the "Company") without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to state fairly the data included herein in accordance with generally accepted accounting principles for interim financial information have been made. 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. Management believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K for the fiscal year ended December 31, 1993. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except per-share data) Three Months Ended March 31 --------------------------- 1994 1993 -------- -------- (Unaudited) Revenues $20,213 $24,752 Cost of sales 14,606 17,449 _______ _______ Gross profit 5,607 7,303 Selling expenses 5,222 5,512 General and administrative expenses 1,534 3,159 _______ _______ Total operating expenses 6,756 8,671 _______ _______ Loss from operations (1,149) (1,368) Interest expense, BIL (Note 5) 113 660 Interest expense 350 858 _______ _______ Loss before income taxes (1,612) (2,886) Income tax provisions 61 91 _______ _______ Net loss $(1,673) $(2,977) Loss per share (Note 7) $(.02) $(.33) Weighted average number of Common Shares outstanding 72,199,612 9,146,000 The accompanying Notes are an integral part of these Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS March 31 December 31 1994 1993 -------- ----------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 44 $ 1,872 Accounts receivable, less allowance for doubtful accounts of $1,280 in 1994 and $1,506 in 1993 18,876 15,677 Inventories (Note 9) 13,236 15,289 Assets held for sale (Notes 1 and 6) 13,984 14,609 Other current assets 2,280 1,494 ______ ______ Total current assets 48,420 48,941 ______ ______ PROPERTY, PLANT AND EQUIPMENT: Land 145 150 Buildings and improvements 3,570 3,597 Machinery and equipment 12,716 12,410 ______ ______ 16,431 16,157 Less accumulated depreciation and amortization (9,331) (9,105) ______ ______ Property, plant and equipment, net 7,100 7,052 INTANGIBLE ASSETS, NET 932 1,007 OTHER ASSETS 507 515 ______ ______ TOTAL ASSETS $56,959 $57,515 The accompanying Notes are an integral part of these Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' DEFICIT March 31 December 31 1994 1993 -------- ----------- (Unaudited) CURRENT LIABILITIES: Short-term borrowings and current installments of long-term debt of $1,579 in 1994 and $1,562 in 1993 (Note 5) $19,685 $20,897 Accounts payable 7,592 8,099 Accrued payroll costs 8,137 9,360 Accrued interest, BIL (Note 5) 298 185 Accrued expenses 10,673 10,863 Accrued restructuring expenses (Note 1) 6,705 6,292 ______ ______ Total current liabilities 53,090 55,696 ______ ______ LONG-TERM DEBT, NET OF CURRENT PORTION (Note 5) 3,490 3,622 LONG-TERM BORROWINGS FROM BIL (Note 5) 9,052 4,802 OTHER LONG-TERM LIABILITIES 385 403 COMMITMENTS AND CONTINGENCIES (Note 11) STOCKHOLDERS' DEFICIT: (Notes 4 and 10) Series A Convertible Preferred Stock 11,089 11,089 Series B Convertible Preferred Stock 1,317 1,317 Series C Convertible Preferred Stock 20,000 20,000 Common Stock, par value: $.01; authorized 120,000,000 shares 722 722 Additional paid-in capital 105,578 105,578 Accumulated deficit (144,368) (142,449) Minimum pension liability adjustment (2,606) (2,606) Cumulative translation adjustments (790) (659) ______ ______ Total stockholders' deficit (9,058) (7,008) ______ ______ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $56,959 $57,515 The accompanying Notes are an integral part of these Consolidated Financial Statements EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE THREE MONTHS ENDED MARCH 31, 1994 (Dollars in thousands) (unaudited) Series A Series B Series C Convertible Convertible Convertible Preferred Stock Preferred Stock Preferred Stock Common Stock --------------- --------------- --------------- ------------ Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ Balance at December 31, 1993 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 72,199,612 $722 Accrued Dividends on Series A Convertible Preferred Stock -- -- -- -- -- -- -- -- Net loss -- -- -- -- -- -- -- -- Translation adjustments of consolidated subsidiaries -- -- -- -- -- -- -- -- _________ _______ _______ ______ __________ _______ __________ ____ Balance at March 31, 1994 6,622,206 $11,089 786,357 $1,317 20,000,000 $20,000 72,199,612 $722 EVEREST & JENNINGS INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE THREE MONTHS ENDED MARCH 31, 1994 (Dollars in thousands) (unaudited) (continued) 6 Minimum Additional Accumu- Pension Cumulative Paid-in lated Liability Translation Capital Deficit Adjustment Adjustments Total ---------- ------- ---------- ----------- ----- Balance at December 31, 1993 $105,578 $(142,449) $(2,606) $(659) $(7,008) Accrued Dividends on Series A Convertible Preferred Stock -- (246) -- -- (246) Net loss -- (1,673) -- -- (1,673) Translation adjustments -- -- -- (131) (131) ______ ________ ______ ____ ______ Balance at March 31, 1994 $105,578 $(144,368) $(2,606) $(790) $(9,058) The accompanying Notes are an integral part of this Consolidated Financial Statement CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Three Months Ended March 31 ------------------------- 1994 1993 -------- -------- (Unaudited) Cash flows from operating activities: Net loss $(1,673) $(2,977) Adjustment to reconcile net loss to cash used in operating activities: Depreciation and amortization 301 733 Changes in operating assets and liabilities: Accounts receivable (3,199) (1,322) Inventories 2,053 (2,652) Accounts payable (507) (3,229) Accrued interest, BIL 113 660 Accrued payroll costs, expenses and income taxes (1,659) (1,135) Accrued restructuring expenses 413 (2,414) Other, net (778) 133 ______ ______ Cash used in operating activities (4,936) (12,203) ______ ______ Cash flows from investing activities: Capital expenditures (274) (2,497) Changes in Assets held for sale 625 --- ______ ______ Cash provided by (used in) investing activities 351 (2,497) ______ ______ Cash flows from financing activities: Advances from BIL 4,250 14,000 Increase (decrease) in short-term and long-term borrowings, net (1,344) 714 Changes in other long-term liabilities (18) (17) ______ ______ Cash provided by financing activities 2,888 14,697 ______ ______ Effect of exchange rate changes on cash flow (131) (9) ______ ______ Decrease in cash balance (1,828) (12) Cash and cash equivalents balance at beginning of year 1,872 145 ______ ______ Cash and cash equivalents balance at end of the three-month period $ 44 $ 133 Supplemental disclosures of cash flow information: Cash paid for interest $ 195 $ 481 Cash paid for income taxes $ 106 $ 179 The accompanying Notes are an integral part of these Consolidated Financial Statements NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per-share data) NOTE 1 -- CORPORATE RESTRUCTURING The Company has incurred substantial financial losses in a continuing effort to restructure its operations with the objective of becoming a stronger long-term competitor in the durable medical equipment industry. Restructuring activities have included asset sales, significant reductions in headcount, salaries and fringe benefits, plant closures and consolidations, product line rationalization, debt to equity conversion and outsourcing of manufacturing operations. In addition to the foregoing, the Company is pursuing the sale or other disposition of the Smith & Davis institutional business and Everest & Jennings de Mexico. The accompanying consolidated financial statements have been prepared under the going concern concept. The going concern concept anticipates an entity will continue in its present form and, accordingly, uses the historical cost basis to prepare financial statements. The Company has incurred substantial restructuring expenses and recurring operating losses and has a net capital deficiency at March 31, 1994. No assurance can be made that the Company will successfully emerge from or complete its restructuring activities. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies followed for the three month period ended March 31, 1994 are the same as those disclosed in the Notes to the Company's December 31, 1993 Consolidated Financial Statements, which were included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. All dollar amounts in these Notes to Unaudited Consolidated Financial Statements are in thousands except per-share data or as otherwise specified. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of (a) the consolidated results of operations for the three month periods ended March 31, 1994 and 1993; (b) the consolidated financial position at March 31, 1994 and December 31, 1993; and (c) the consolidated cash flows for the three month periods ended March 31, 1994 and 1993 have been made. Certain reclassifications have been made to prior period financial statements to conform with current period presentation. NOTE 3 -- ACQUISITION In January, 1994, the Company completed the acquisition (the "Acquisition") of Medical Composite Technology, Inc. ("MCT"). The $10.6 million purchase price consisted of the issuance of 8,000,000 shares of Common Stock, $2 million in the form of pre-closing cash advances, and the assumption of $0.6 million of net liabilities. Additionally, the Company assumed the equivalent of 107,614 unvested stock options for the purchase of the Company's Common Stock. The Acquisition was accounted for as a purchase. Of the $10.6 million purchase price, $9.7 million was attributable to in-process research and development, and was expensed in 1993. The balance of the purchase price over the fair value of assets acquired, $0.9 million, was allocated to goodwilland is being amortized over a period of three years. For purposes of consolidated financial statement presentation, the Acquisition was accounted for as if it was completed on December 31, 1993. Accordingly, the Company's consolidated financial statements as of March 31, 1994 and December 31, 1993 include the assets and liabilities of MCT. Pro forma combined results of operations (unaudited) of the Company and MCT for the three month period ended March 31, 1993 are shown below. Pro forma results of operations are not necessarily indicative of the results of operations if the companies had constituted a single entity during the period combined. March 31, 1993 -------------- (Dollars in millions, except per-share data) Net sales $25.1 Net loss from continuing operations (13.3) Net loss per share (.78) NOTE 4 -- DEBT RESTRUCTURING AND CONVERSION As of September 30, 1993, the Company, Everest & Jennings, Inc. ("E&J Inc."), Jennings Investment Co. and BIL entered into a Debt Conversion Agreement to provide for the conversion (the "Debt Conversion Transaction") of approximately $75 million in principal and accrued, unpaid interest (the "Converted BIL Debt"), owed by the Company and E&J Inc. Pursuant to the Debt Conversion Agreement, (a) the Company and E&J Inc. issued to BIL a Convertible Promissory Note -- Common Stock (the "Common Stock Note") in the initial principal amount of $45 million and a Convertible Promissory Note -- Preferred Stock (the "Preferred Stock Note") in the original principal amount of $20 million; (b) BIL agreed to lend to E&J Inc. $5.7 million to allow E&J Inc. to repay the outstanding balance of cash advances owed by E&J Inc. to the Hongkong & Shanghai Banking Corporation ("HSBC") under the terms of a Revolving Credit Agreement dated as of September 30, 1992, as amended (the "Revolving Credit Agreement"), between E&J Inc. and HSBC; (c) Brierley Investments Limited, an affiliate of BIL, agreed to guarantee a letter of credit facility ("Letter of Credit Facility") between E&J Inc. and HSBC (or an alternative commercial lending institution) in an amount not exceeding $6 million through and including June 30, 1995; (d) BIL, as guarantor of the obligations of E&J Inc. under the Revolving Credit Agreement, agreed to an amendment of the Revolving Credit Agreement whereby cash advances of up to $10 million were made available for E&J Inc.'s working capital needs; (e) the Company and E&J Inc. agreed to indemnify (the "Indemnification Obligation") BIL from and against any and all losses arising out of BIL's guarantee of the Letter of Credit Facility and the Revolving Credit Agreement; (f) BIL agreed to lend to the Company and E&J Inc. up to $12.5 million pursuant to the terms of the Revolving Promissory Note; (g) BIL and the Company and E&J Inc. entered into a Security Agreement (the "Security Agreement") pursuant to which the Company and E&J Inc. granted a security interest in all of their assets to BIL to secure on a pari passu basis the obligations of the Company and E&J Inc. to BIL under the Common Stock Note, the Preferred Stock Note, the Revolving Promissory Note and the Indemnification Obligation; and (h) the Company and BIL entered into a Registration Rights Agreement pursuant to which the Company granted to BIL registration rights with respect to shares of Common Stock held as of the date of the Registration Rights Agreement and shares of Common Stock obtained by BIL as a result of the conversion of the Common Stock Note and Series C Preferred Stock issuable upon conversion of the Promissory Stock Note. The Company held a Special Meeting of Stockholders on December 31, 1993, to ratify and approve the Debt Conversion Transaction. Concurrent with ratification and approval of the Debt Conversion Transaction, the Company's stockholders approved and adopted amendments to the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock from 25,000,000 to 120,000,000 and to increase the number of authorized shares of Preferred Stock from 11,000,000 to 31,000,000 (the "Recapitalization Proposals"). BIL had agreed, upon stockholder approval of the Debt Conversion Transaction and the Recapitalization Proposals, to advance E&J Inc. $10 million to pay HSBC the cash advance it made to E&J Inc. under the Revolving Credit Agreement. Such advance by BIL to E&J Inc. which has resulted in an increase in the principal amount of the Common Stock Note from $45 million to $55 million. However, subsequent to the Special Meeting of Stockholders, BIL and E&J Inc. agreed to transfer $10 million from the Revolving Promissory Note to the Common Stock Note, thus increasing the balance of the Common Stock Note to $55 million. The Common Stock Note was convertible into that number of shares of Common Stock equal to the outstanding principal balance of that Note at conversion divided by a stated conversion price ($1.00 per share, subject to antidilution adjustment). The Common Stock Note automatically converted in full upon satisfaction of all of the following conditions: (a) ratification of the Debt Conversion Transaction by the stockholders of the Company; (b) approval and adoption of the Common Stock Amendment and the Preferred Stock Amendment by the stockholders of the Company; (c) the filing and effectiveness of an amendment to the Company's Certificate of Incorporation to effect the Common Stock Amendment and the Preferred Stock Amendment; (d) adoption by the Board of Directors of resolutions to designate the Series C Preferred Stock and the filing and effectiveness of a Certificate of Designations of the Series C Preferred Stock (the "Series C Certificate of Designations"); (e) reservation of a sufficient number of shares of Series C Preferred Stock for issuance on conversion of the Preferred Stock Note; (f) reservation of a sufficient number of Common shares for issuance on conversion of the Common Stock Note and the Series C Preferred Stock issued on conversion of the Preferred Stock Note; and (g) approval for listing on the American Stock Exchange of the Common shares issuable on conversion of the Common Stock Note and the Series C Preferred Stock issued on conversion of the Preferred Stock Note. BIL waived condition (g), and the Common Stock Note converted into 55 million shares of Common stock on January 12, 1994. The Preferred Stock Note was convertible into that number of shares of Series C Preferred Stock equal to the outstanding principal balance of that Note at conversion divided by a stated conversion price ($1.00 per share, subject to antidilution adjustment). The Series C Preferred Stock is convertible into shares of Common Stock on a one-for-one basis. The Preferred Stock Note automatically converted in full upon satisfaction of all of the following conditions: (a) ratification of the Debt Conversion Transaction by the stockholders of the Company; (b) approval and adoption of the Common Stock Amendment and the Preferred Stock Amendment by the stockholders of the Company; (c) the filing and effectiveness of an amendment to the Company's Certificate of Incorporation to effect the Common Stock Amendment and the Preferred Stock Amendment; (d) adoption by the Board of Directors of resolutions to designate the Series C Preferred Stock and the filing and effectiveness of the Series C Certificate of Designations; (e) reservation of a sufficient number of shares of Series C Preferred Stock for issuance on conversion of the Preferred Stock Note; (f) reservation of a sufficient number of Common shares for issuance on conversion of the Common Stock Note and the Series C Preferred Stock issued on conversion of the Preferred Stock Note; and (g) approval for listing on the American Stock Exchange of the Common shares issuable on conversion of the Common Stock Note and the Series C Preferred Stock issued on conversion of the Preferred Stock Note. BIL waived condition (g), and the Preferred Stock Note converted into 20 million shares of Series C Convertible Preferred Stock on January 12, 1994. The conversions of both the Common Stock Note and the Preferred Stock Note were reflected in the consolidated financial statements as of December 31, 1993. No gain or loss was recognized as a result of the Debt Conversion Transaction. NOTE 5 -- DEBT The Company's debt as of March 31, 1994 and December 31, 1993 is as follows: March 31 December 31 1994 1993 -------- ----------- Revolving Promissory Note to BIL $ 9,052 $ 4,802 Loans payable to HSBC 10,000 10,000 Other domestic debt 9,871 10,844 Foreign debt 3,304 3,675 ______ ______ Total debt 32,227 29,321 Less short-term debt and current installments of long-term debt 19,685 20,897 ______ ______ Long-term debt, net of current installments, including Revolving Promissory Note to BIL $12,542 $ 8,424 On September 30, 1992, E&J Inc. entered into a $20 million unsecured Revolving Credit Agreement with HSBC. Advances under the Revolving Credit Agreement bear interest at the prime rate announced by Marine Midland Bank, N.A. from time to time. Repayment of existing debt with BIL is subordinated to the HSBC debt, and Brierley Investments Limited, an affiliate of BIL, has guaranteed its repayment. In September, 1993, the outstanding HSBC loan balance of $5.7 million was repaid utilizing a cash advance provided by BIL under the Revolving Promissory Note. Furthermore, as of September 30, 1993, HSBC and E&J Inc. agreed to amend the Revolving Credit Agreement and extend its term for approximately one year. The HSBC facility, as amended, provides up to $6 million for letter of credit availability and, additionally, cash advances of up to $10 million to E&J Inc. On October 8, 1993, E&J Inc. fully utilized the $10 million in cash advances under the Revolving Credit Agreement to repay a $10 million loan from Mercantile Bank, resulting in no further cash availability under the Revolving Credit Agreement. In connection with the MCT acquisition, a total of $2.0 million was advanced by the Company to MCT prior to the closing of the transaction in January, 1994. These advances have been treated as part of the purchase price for the MCT acquisition. The advances were funded to the Company by BIL and constituted borrowings under the Revolving Promissory Note. As of September 30, 1993, the Company entered into the Debt Conversion Agreement with BIL whereby $75 million of indebtedness was restructured by the issuance of the Common Stock Note and the Preferred Stock Note (see Note 4). The balance of the indebtedness owed BIL ($6.8 million) which was not converted into the Common Stock Note and the Preferred Stock Note was treated as advances under the Revolving Promissory Note. As part of the Debt Conversion Transaction, BIL agreed to provide to the Company and E&J Inc. a revolving credit facility of up to $12.5 million, as evidenced by the Revolving Promissory Note. At March 31, 1994, $9.1 million had been advanced to the Company and E&J Inc. by BIL under the Revolving Promissory Note. The Revolving Promissory Note matures on June 30, 1995, bears interest at the rate of 8% per annum, and is secured by a lien on and security interest in all assets of the Company and E&J Inc. The Revolving Promissory Note is subordinated to all debt borrowed by the Company or E&J Inc. from, or the payment of which has been guaranteed by the Company or E&J Inc. to, principal lenders to the Company and/or E&J Inc. As of March 31, 1994, $0.3 million of accrued, unpaid interest was due BIL under the Revolving Promissory Note. In July, 1991, the Company obtained a three-year $13 million secured credit facility at an interest rate of prime plus 3% for its Smith & Davis subsidiary. The facility is secured by substantially all of the assets of Smith & Davis. In February, 1993 this credit line was amended to increase the availability of funding to the Company and reduce the borrowing cost to prime plus 2%. At March 31, 1994, the Company had borrowed $4.2 million under this line. Additionally, Smith & Davis had other borrowings primarily consisting of amounts owed under certain industrial revenue bonds totaling $1.2 million at March 31, 1994, with interest rates ranging from 8% to prime plus 3%. These amounts are due at various semi-annual intervals through 1996. The Company's Canadian operation has credit facilities in the aggregate of $4.7 million, of which $3.3 million was borrowed as of March 31, 1994 at interest rates ranging from prime plus 1/2% to prime plus 3/4%. The loans are secured by the net assets of the Canadian subsidiary. At March 31, 1994, the Company was contingently liable under existing letters of credit in the aggregate amount of approximately $3.5 million. Pursuant to an agreement with its joint venture partner in Indonesia, the Company has agreed to guarantee up to $1 million of indebtedness incurred by the joint venture to fund its operations. NOTE 6 -- ASSETS HELD FOR SALE Net assets held for sale for the disposition of the Company's Smith & Davis institutional business and Mexican subsidiary consist of the following as of March 31, 1994 and December 31, 1993, and are stated at net realizable values: March 31 December 31 1994 1993 -------- ----------- Smith & Davis: Accounts receivable $ 4,275 $ 7,699 Inventories 6,214 6,146 Land and buildings 1,490 1,490 Machinery & equipment 1,100 1,100 Other assets 135 196 ______ ______ 13,214 16,631 Everest & Jennings de Mexico: Net assets 770 678 ______ ______ Total assets held for sale $13,984 $17,309 Results of operations for the Smith & Davis institutional business for the three month period ended March 31, 1994 were as follows: Three Months Ended March 31, 1994 -------------------- Revenues $5,082 Cost of sales 3,601 ______ Gross profit 1,481 Operating expenses 1,629 Interest expense 113 ______ Net loss $ (261) During the phase out period through the disposal date, the results of the Smith & Davis institutional business are being included as a component of Accrued restructuring expenses on the consolidated balance sheet. The operating results of the Company's Mexican subsidiary for the three month period ended March 31, 1994 were not material. NOTE 7 -- LOSS PER SHARE Loss per share for the three month periods ended March 31, 1994 and 1993 is calculated based on the weighted average number of shares of Common Stock during the periods. NOTE 8 -- INCOME TAXES In January 1993, the Company adopted SFAS 109, "Accounting for Income Taxes". SFAS 109 utilizes an asset and liability approach in accounting for income taxes and requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. Since it is unlikely that the Company will realize the future tax benefits of the deferred tax asset related to its substantial net operating losses, a valuation allowance has been established for the full amount and thus the adoption of SFAS 109 has no impact on the consolidated financial statements of the Company. The Company's foreign source income is not material. NOTE 9 -- INVENTORIES Inventories at March 31, 1994 and December 31, 1993 consist of the following: March 31 December 31 1994 1993 -------- ----------- Raw materials $ 6,587 $ 8,219 Work-in-process 3,942 4,131 Finished goods 2,707 2,939 ______ ______ $13,236 $15,289 NOTE 10 -- COMMON STOCK On March 17, 1992, the stockholders of the Company approved a Plan of Reclassification. Under the Plan of Reclassification, the Certificate of Incorporation of the Company was amended to replace the Company's authorized Class A Common Stock and Class B Common Stock with a new single class of Common Stock having 25,000,000 authorized shares, and reclassified each outstanding Class A Common share and each outstanding Class B Common share into one share of such new single class of Common Stock. The Plan of Reclassification became effective as of the close of business on November 18, 1993. On December 31, 1993, the Company's stockholders approved the Debt Conversion Transaction (see Note 4), which resulted in the issuance of 55 million shares of Common Stock and 20 million shares of 7% Series C Convertible Preferred Stock for conversion of the Common Stock Note and the Preferred Stock Note, respectively. On December 31, 1993, the Company issued 8 million shares of Common Stock to the stockholders of MCT (see Note 3). NOTE 11 -- CONTINGENT LIABILITIES In July, 1990, a class action suit was filed by a stockholder of the Company in the United States District Court for the Central District of California. The suit is against the Company and certain of its present and former directors and officers and seeks unspecified damages for alleged non-disclosure and misrepresentation concerning the Company in violation of federal securities laws. The Company twice moved to dismiss the complaint on various grounds. After the first such motion was granted, plaintiff filed a first amended complaint, which subsequently was dismissed by order filed on September 20, 1991. Plaintiff then notified the court that it did not intend to further amend the complaint, and an order dismissing the complaint was entered in November 1991. Plaintiff filed a notice of appeal to the Court of Appeals for the Ninth Circuit on December 23, 1991. The case was briefed and oral argument heard in June, 1993. On January 18, 1994, the Ninth Circuit ordered that the plaintiff's submission be vacated pending the outcome of a petition for rehearing in another case that addresses a similar procedural issue that was argued on appeal in that case. The Company continues to believe the case is without merit and intends to contest the asserted complaints vigorously. The ultimate liability, if any, cannot be determined at this time. In December, 1992 ICF Kaiser Engineers, Inc. ("ICF Kaiser") filed a Demand for Arbitration (the "Demand") against the Company before the American Arbitration Association in Los Angeles, California. ICF Kaiser in its demand claims breach of contract between the parties for consulting and clean up work by ICF Kaiser at E&J's former facilities located at 3233 East Mission Oaks Boulevard, Camarillo, California. The Arbitration Demand is in the sum of $1.1 million. In January, 1993 an answer and counter-claim were filed on behalf of the Company. The answer denies breach of the contract and disputes the monetary claim asserted in the Demand. In the counterclaim, the Company asserts that ICF Kaiser breached the contract, above referenced, by inter alia failing to perform the services required under the Agreement in a reasonably cost effective manner and in accordance with the terms and conditions of the Agreement. In February, 1993 E&J made a payment without prejudice to ICF Kaiser in the sum of approximately $0.6 million. This payment, together with prior payments, brings the total paid to date by the Company to ICF Kaiser to approximately $0.7 million. The entirety of the charges by ICF Kaiser are disputed as unreasonable under the circumstances and the Company intends to vigorously defend its position. The Company has recorded an appropriate reserve to reflect this matter and does not consider the amount to be material to the Company's consolidated financial statements. The arbitration hearings commenced in July, 1993 and concluded at the end of the first quarter of 1994. A decision is anticipated in the second half of 1994. Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of the Company, has been named as a defendant in a lawsuit filed by the State of California pursuant to the Comprehensive Environmental Response, Compensation and Liability Act 42 U.S.C. par.9601 et sec ("CERCLA"). The Company was originally notified of this action on December 10, 1992. The lawsuit seeks to recover response and remediation costs in connection with the release or threatened release of hazardous substances at 5619-21 Randolph Street, in the City of Commerce, California ("Randolph Street Site"). It is alleged that the Randolph Street Site was used for the treatment, storage and disposal of hazardous substances. The Company anticipates being named as a defendant as a result of its former ownership of Die Cast Products, which allegedly disposed of hazardous waste materials at the Randolph Street Site. Investigation with respect to potential liability of the Company is in the early stages. Issues to be addressed include whether the Company will be responsible for the disposals made by Die Cast Products; whether Die Cast Products actually sent hazardous waste materials to the Randolph Street Site; the nature, extent and costs of the ultimate cleanup required by the State of California; the share of that cleanup which may ultimately be allocated to Die Cast Products and/or the Company; and the extent to which insurance coverage may be available for any costs which may eventually be assigned to the Company. Remedial investigations performed on behalf of the State of California at the Randolph Street Site have disclosed soil and groundwater contamination. The Company has recorded a reserve of $1.0 million for this matter, which was included in the Consolidated Statements of Operations for 1993. In March, 1993, Everest & Jennings, Inc. ("EJI") received a notice from the United States Environmental Protection Agency ("EPA") regarding an organizational meeting of generators with respect to the Casmalia Resources Hazardous Waste Management Facility ("Casmalia Site") in Santa Barbara County, California. The EPA alleges that the Casmalia Site is an inactive hazardous waste treatment, storage and disposal facility which accepted large volumes of commercial and industrial wastes from 1973 until 1989. In late 1991, the Casmalia Site owner/operator abandoned efforts to actively pursue site permitting and closure and is currently conducting only minimal maintenance activities. The EPA estimates that the Casmalia Site's closure trust fund, approximately $10 million, is substantially insufficient to cover cleanup and closure of the site. Since August, 1992, the EPA has undertaken certain interim stabilization actions to control actual or threatened releases of hazardous substances at the Casmalia Site. The EPA is seeking cooperation from generators to assist in the cleaning up, and closing of, the Casmalia Site. EJI and 64 other entities were invited to the organizational meeting. The EPA has identified EJI as one of the larger generators of hazardous wastes transported to the Casmalia Site. EJI is a member of a manufacturers' group of potentially responsible parties which has investigated the site and proposed a remediation plan to the EPA. To reflect EJI's estimated allocation of costs thereunder, a reserve of $1.0 million has been recorded, which was included in the Consolidated Statements of Operations for 1993. In 1989, a patent infringement case was initiated against EJI and other defendants in the U.S. District Court, Central District of California. EJI prevailed at trial with a directed verdict of patent invalidity and non- infringement. The plaintiff filed an appeal with the U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the Court of Appeals vacated the District Court's decision and remanded the case for trial. Impacting the retrial of this litigation was a re-examination proceeding before the Board of Patent Appeals with respect to the subject patent. A ruling was rendered November 23, 1993 sustaining the claim of the patent which EJI has been charged with infringing. Upon the issuance of a patent re-examination certificate by the U.S. Patent Office, it is anticipated that the plaintiff will present a motion to the District Court for an early retrial of the case. EJI believes that this case is without merit and intends to contest it vigorously. The ultimate liability of EJI, if any, cannot be determined at this time. The Company and its subsidiaries are parties to other lawsuits and other proceedings arising out of the conduct of its ordinary course of business, including those relating to product liability and the sale and distribution of its products. While the results of such lawsuits and other proceedings cannot be predicted with certainty, management does not expect that the ultimate liabilities, if any, will have a material adverse effect on the consolidated financial position or results of operations of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1994 The following table summarizes operating results of the Company for the three months ended March 31, 1994 and 1993 (dollars in millions): Three Months Ended March 31 --------------------------- 1994 1993 ------------ ------------ Amount % Amount % ------ --- ------ --- Revenue $20.2 100 $24.7 100 Cost of sales 14.6 72 17.4 71 ______ ____ ______ ____ Gross profit 5.6 28 7.3 29 Operating expenses 6.7 33 8.7 35 ______ ____ ______ ____ Operating loss (1.1) (5) (1.4) (6) Interest expense 0.5 2 1.5 6 ______ ____ ______ ____ Loss before income taxes (1.6) (7) (2.9) (12) Income tax provisions 0.1 1 0.1 1 ______ ____ ______ ____ Net loss $(1.7) (8) $(3.0) (13) First quarter 1994 revenues of $20.2 million decreased $4.5 million, or 18%, from 1993, due primarily to discontinuing the Smith & Davis institutional business. Sales of this business and related costs were included in the consolidated results of operations of the Company for 1993 but not 1994. If the 1994 first quarter revenues of the Smith & Davis institutional business ($5.1 million) had been included in the consolidated results, revenues would have increased by $0.6 million or 2% from 1993 levels. First quarter 1993 wheelchair sales and operations were negatively impacted by the relocation of the Company's primary domestic manufacturing facility from Camarillo, California to St. Louis, Missouri which occurred during 1992. Delivery delays caused by the 1992 move have decreased and lead times have been brought into line with historic levels. To improve the Company's operating efficiencies and cost structure, certain production relocation and facility rationalizations are planned during 1994. First quarter 1994 revenues in the Everest & Jennings' Canadian and Mexican subsidiaries were down $0.1 million or 3%, due primarily to an unfavorable Canadian exchange rate change. Total Company first quarter gross profit decreased $1.7 million from $7.3 million in 1993 to $5.6 million in 1994, due primarily to exclusion of the Smith & Davis institutional business gross profit ($1.5 million) from the Company's 1994 operating results. Additionally, during the first quarter, margins were negatively affected by increases in private label wheelchair sales to distributors. Total Company first quarter operating expenses decreased $2.0 million from $8.7 million in 1993 to $6.7 million in 1994 due primarily to exclusion of the Smith & Davis institutional business operating expenses ($1.6 million) from the Company's 1994 operating results and reduced general and administrative spending levels during the first quarter. These reductions were partially offset by increases in research and development spending of $0.4 million from $0.1 million during 1993 to $0.5 million during 1994. Interest expense of $0.5 million in the first quarter of 1994 decreased from the comparable period in the prior year due to the conversion of $75 million of debt to equity which occurred during the fourth quarter of 1993. In January 1993 the Company adopted the provisions of SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). The adoption of SFAS 109 did not have an impact on the consolidated financial statements. Liquidity and Capital Resources The Company's primary sources of liquidity are cash provided from operations, borrowings and cash on hand. At March 31, 1994, the Company had $0.04 million in cash or $1.83 million less than the $1.87 million in cash at December 31, 1993. At March 31, 1994, total debt of $32.2 million was $2.9 million higher than the $29.3 million in debt at December 31, 1993. The increase was due to advances from BIL in the amount of $4.3 million during the first quarter of 1994 offset by a $1.0 million decrease in other domestic debt and a $0.4 million decrease in other foreign debt. On September 30, 1992 the Company entered into a $20 million Revolving Credit Agreement with HSBC. The repayment of this facility was guaranteed by Brierley Investments Limited, an affiliate of BIL. The facility would not have been made available to the Company without such guaranty. As of September 30, 1993, HSBC and E&J Inc. agreed to amend the Revolving Credit Agreement and extend its term for approximately one year. The HSBC facility, as amended, provides to E&J Inc. up to $6 million letter of credit availability and up to $10 million of cash advances. The $10 million of cash advances has been fully utilized. At March 31, 1994 and December 31, 1993, under the debt agreements with BIL and HSBC, the Company was obligated to repay the following amounts at the various dates listed below. 3/31/94 12/31/93 Balance Balance Debt Agreement $ millions $ millions Repayment Date -------------- ---------- ---------- -------------- Revolving Promissory Note 9.1 4.8 June 30, 1995 HSBC Revolving Credit Agreement (1) 10.0 10.0 September 30, 1994 Accrued, unpaid interest due BIL 0.3 0.2 ----- _____ _____ TOTAL $19.4 $15.0 [FN] (1) Excludes approximately $3.5 million and $3.7 million, respectively, committed with respect to outstanding letters of credit as of both March 31, 1994 and December 31, 1993. As of September 30, 1993, the Company entered into the Debt Conversion Agreement with BIL whereby $75 million of indebtedness was restructured by the issuance of the Common Stock Note and the Preferred Stock Note. The balance of the BIL indebtedness ($6.8 million) which was not converted into the Common Stock Note and the Preferred Stock Note was treated as advances under the Revolving Promissory Note. See Note 4 -- Debt Restructuring and Conversion of the Notes to the unaudited Consolidated Financial Statements for a discussion of the Debt Conversion Transaction. As part of the Debt Conversion Transaction, BIL agreed to provide to the Company and E&J Inc. a revolving credit facility of up to $12.5 million, as evidenced by the Revolving Promissory Note. As of March 31, 1994, $9.1 million had been advanced to the Company and E&J Inc. by BIL under such Note, leaving an availability balance of $3.4 million. In July, 1991, the Company obtained a three-year $13 million secured credit line for its Smith & Davis subsidiary which is secured by substantially all of the subsidiary's assets. In February, 1993 this credit line was amended to increase the availability of funding to the Company and reduce the borrowing costs thereunder. At March 31, 1994 Smith & Davis had borrowed $4.2 million under this line. The Company expects to either extend this credit line in 1994 or terminate it upon the sale or other disposition of the Smith & Davis institutional business. The Company's Canadian operation has existing credit facilities in the aggregate of $4.7 million, on which $3.3 million was borrowed as of March 31, 1994. Accordingly, at March 31, 1994 the Company owed $20.1 million to banks and other commercial lenders, $3.0 million under capitalized lease obligations, and $9.1 million to BIL. During April 1994, the Company has required $1.3 million of additional financing to fund its operating requirements and accrued restructuring expenses. This additional funding has been provided to the Company by BIL, bringing the total advances under the Revolving Promissory Note to $10.4 million as of May 12, 1994, out of an available line of credit of $12.5 million. The Company expects to need additional financing at least through the end of the third quarter of 1994, and will seek to amend the Revolving Promissory Note with BIL to provide for such requirement. The Company's 1994 year to date revenues and operating results have been negatively impacted by ongoing price competition, liquidity constraints and loss of market share due to the relocation of the Company's primary domestic wheelchair manufacturing facility from California to Missouri. The loss of customer confidence stemming from long lead times and shipping delays due to start-up inefficiencies, computer system problems and inventory imbalances in St. Louis manufacturing operations is expected to adversely impact revenues, operating income and cash flow at least through the end of the third quarter of 1994. Management is implementing a plan which is intended to address the Company's problems with manufacturing and shipment delays. The plan also addresses the rationalization of the Company's production facilities and the increased outsourcing of products and product components, the effects of which will be to lower the Company's production costs. Order rates, margins and market share must increase, production and operating costs must be reduced and customer confidence must be restored in the very near term if the Company is to generate the cash flow necessary to fund its operations on a continuing basis and to achieve profitability. With respect to its bed and institutional products, the Company anticipates, for the remainder of the year, severe price and product competition; however, the market demand for these products may improve once a national health care reform plan is enacted. The Company is exploring the sale or other disposition of (i) the Smith & Davis hospital bed and nursing home bed and furniture business, and has retained an investment banker to advise it on the various methods and means of implementing any such sale or disposition; and (ii) Everest & Jennings de Mexico. Management believes that the Company's domestic and international manufacturing capacity is sufficient to meet anticipated demand for the foreseeable future. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In July, 1990, a class action suit was filed by a stockholder of the Company in the United States District Court for the Central District of California. The suit is against the Company and certain of its present and former directors and officers and seeks unspecified damages for alleged non-disclosure and misrepresentation concerning the Company in violation of federal securities laws. The Company twice moved to dismiss the complaint on various grounds. After the first such motion was granted, plaintiff filed a first amended complaint, which subsequently was dismissed by order filed on September 20, 1991. Plaintiff then notified the court that it did not intend to further amend the complaint, and an order dismissing the complaint was entered in November 1991. Plaintiff filed a notice of appeal to the Court of Appeals for the Ninth Circuit on December 23, 1991. The case was briefed and oral argument heard in June, 1993. On January 18, 1994, the Ninth Circuit ordered that the plaintiff's submission be vacated pending the outcome of a petition for rehearing in another case that addresses a similar procedural issue that was argued on appeal in that case. The Company continues to believe the case is without merit and intends to contest the asserted complaints vigorously. The ultimate liability, if any, cannot be determined at this time. In December, 1992 ICF Kaiser Engineers, Inc. ("ICF Kaiser") filed a Demand for Arbitration (the "Demand") against the Company before the American Arbitration Association in Los Angeles, California. ICF Kaiser in its demand claims breach of contract between the parties for consulting and clean up work by ICF Kaiser at E&J's former facilities located at 3233 East Mission Oaks Boulevard, Camarillo, California. The Arbitration Demand is in the sum of $1.1 million. In January, 1993 an answer and counter-claim were filed on behalf of the Company. The answer denies breach of the contract and disputes the monetary claim asserted in the Demand. In the counterclaim, the Company asserts that ICF Kaiser breached the contract, above referenced, by inter alia failing to perform the services required under the Agreement in a reasonably cost effective manner and in accordance with the terms and conditions of the Agreement. In February, 1993 E&J made a payment without prejudice to ICF Kaiser in the sum of approximately $0.6 million. This payment, together with prior payments, brings the total paid to date by the Company to ICF Kaiser to approximately $0.7 million. The entirety of the charges by ICF Kaiser are disputed as unreasonable under the circumstances and the Company intends to vigorously defend its position. The Company has recorded an appropriate reserve to reflect this matter and does not consider the amount to be material to the Company's consolidated financial statements. The arbitration hearings commenced in July, 1993 and concluded at the end of the first quarter of 1994. A decision is anticipated in the second half of 1994. Die Cast Products, Inc. ("Die Cast Products"), a former subsidiary of the Company, has been named as a defendant in a lawsuit filed by the State of California pursuant to the Comprehensive Environmental Response, Compensation and Liability Act 42 U.S.C. par.9601 et sec ("CERCLA"). The Company was originally notified of this action on December 10, 1992. The lawsuit seeks to recover response and remediation costs in connection with the release or threatened release of hazardous substances at 5619-21 Randolph Street, in the City of Commerce, California ("Randolph Street Site"). It is alleged that the Randolph Street Site was used for the treatment, storage and disposal of hazardous substances. The Company anticipates being named as a defendant as a result of its former ownership of Die Cast Products, which allegedly disposed of hazardous waste materials at the Randolph Street Site. Investigation with respect to potential liability of the Company is in the early stages. Issues to be addressed include whether the Company will be responsible for the disposals made by Die Cast Products; whether Die Cast Products actually sent hazardous waste materials to the Randolph Street Site; the nature, extent and costs of the ultimate cleanup required by the State of California; the share of that cleanup which may ultimately be allocated to Die Cast Products and/or the Company; and the extent to which insurance coverage may be available for any costs which may eventually be assigned to the Company. Remedial investigations performed on behalf of the State of California at the Randolph Street Site have disclosed soil and groundwater contamination. The Company has recorded a reserve of $1.0 million for this matter, which was included in the Consolidated Statements of Operations for 1993. In March, 1993, Everest & Jennings, Inc. ("EJI") received a notice from the United States Environmental Protection Agency ("EPA") regarding an organizational meeting of generators with respect to the Casmalia Resources Hazardous Waste Management Facility ("Casmalia Site") in Santa Barbara County, California. The EPA alleges that the Casmalia Site is an inactive hazardous waste treatment, storage and disposal facility which accepted large volumes of commercial and industrial wastes from 1973 until 1989. In late 1991, the Casmalia Site owner/operator abandoned efforts to actively pursue site permitting and closure and is currently conducting only minimal maintenance activities. The EPA estimates that the Casmalia Site's closure trust fund, approximately $10 million, is substantially insufficient to cover cleanup and closure of the site. Since August, 1992, the EPA has undertaken certain interim stabilization actions to control actual or threatened releases of hazardous substances at the Casmalia Site. The EPA is seeking cooperation from generators to assist in the cleaning up, and closing of, the Casmalia Site. EJI and 64 other entities were invited to the organizational meeting. The EPA has identified EJI as one of the larger generators of hazardous wastes transported to the Casmalia Site. EJI is a member of a manufacturers' group of potentially responsible parties which has investigated the site and proposed a remediation plan to the EPA. To reflect EJI's estimated allocation of costs thereunder, a reserve of $1.0 million has been recorded, which was included in the Consolidated Statements of Operations for 1993. In 1989, a patent infringement case was initiated against EJI and other defendants in the U.S. District Court, Central District of California. EJI prevailed at trial with a directed verdict of patent invalidity and non- infringement. The plaintiff filed an appeal with the U.S. Court of Appeals for the Federal Circuit. On March 31, 1993, the Court of Appeals vacated the District Court's decision and remanded the case for trial. Impacting the retrial of this litigation was a re-examination proceeding before the Board of Patent Appeals with respect to the subject patent. A ruling was rendered November 23, 1993 sustaining the claim of the patent which EJI has been charged with infringing. Upon the issuance of a patent re-examination certificate by the U.S. Patent Office, it is anticipated that the plaintiff will present a motion to the District Court for an early retrial of the case. EJI believes that this case is without merit and intends to contest it vigorously. The ultimate liability of EJI, if any, cannot be determined at this time. The Company and its subsidiaries are parties to other lawsuits and other proceedings arising out of the conduct of its ordinary course of business, including those relating to product liability and the sale and distribution of its products. While the results of such lawsuits and other proceedings cannot be predicted with certainty, management does not expect that the ultimate liabilities, if any, will have a material adverse effect on the consolidated financial position or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION During the first quarter of 1994, the Company borrowed a total of $4.25 million from BIL as advances under the Revolving Promissory Note to provide cash necessary for operations of the Company's headquarters and manufacturing facility in St. Louis, Missouri and for accrued restructuring expenses, as follows: $1,500,000 January 31, 1994 1,100,000 March 14, 1994 400,000 March 28, 1994 1,250,000 March 31, 1994 _________ $4,250,000 Since the end of the first quarter of 1994, the Company has borrowed an additional $1.3 million from BIL for the same purposes, as follows: $1,300,000 April 25, 1994 Each of the foregoing borrowings was treated as an advance under the Revolving Promissory Note, which bears interest at 8.0% per annum and requires that all principal and unpaid interest is due on June 30, 1995. Interest has been accrued accordingly, with a balance of $0.3 million as of March 31, 1994. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS: None REPORTS ON FORM 8-K: Financial Date of Report Item(s) Reported Statements Filed -------------- ---------------- ---------------- 1. January 5, 1994 5 (relating to debt None conversion transaction and recapitalization proposals) 2. January 14, 1994 2, 7 (relating to acquisition See following or disposition of assets) Financial Statements filed in Form 8-K dated January 14, 1994: Relating to Medical Composite Technology, Inc.: Report of Certified Public Accountants Audited Balance Sheets for Fiscal Years ended December 31, 1991 and December 31, 1992 Audited Statements of Operations for the Fiscal Years ended December 31, 1991 and December 31, 1992 and the Cumulative Period from April 7, 1989 (date of inception) to December 31, 1992 Audited Statements of Shareholders' Equity for the Cumulative Period from April 7, 1989 (date of inception) to December 31, 1992 Audited Statements of Cash Flows for the Fiscal Years ended December 31, 1991 and December 31, 1992 and the Cumulative Period from April 7, 1989 (date of inception) to December 31, 1992 Notes to Financial Statements Unaudited Statement of Operations for the Nine-Month Period ended September 30, 1993 Unaudited Balance Sheet as of September 30, 1993 Unaudited Statement of Cash Flows for the Nine-Month Period ended September 30, 1993 Notes to Financial Statements Everest & Jennings International Ltd./Medical Composite Technology, Inc. Pro Forma Financial Information: Notes to Condensed Pro Forma Financial Statements Pro Forma Unaudited Consolidated Statement of Operations for the Fiscal Year Ended December 31, 1992 Pro Forma Unaudited Consolidated Statement of Operations for the Nine Month Period Ended September 30, 1993 Pro Forma Unaudited Consolidated Balance Sheet as of September 30, 1993 Management's Discussion and Analysis of Financial Condition and Results of Operations at December 31, 1992 Management's Discussion and Analysis of Financial Condition and Results of Operations at September 30, 1993 SIGNATURE 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. Date: May 16, 1994 EVEREST & JENNINGS INTERNATIONAL LTD. (Registrant) By (JOSEPH A. NEWCOMB) Joseph A. Newcomb Executive Vice President and Chief Financial Officer By (BEVIL J. HOGG) Bevil J. Hogg President and Chief Executive Officer