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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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Commission File No. 0-13401
PHOENIX MEDICAL TECHNOLOGY, INC.
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(exact name of registrant as specified in its charter)
Delaware 31-092-9195
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(State or other jurisdic- (I.R.S. Employer
tion of incorporation Identification No.)
or organization)
U.S. Hwy. 521 West, Andrews, South Carolina 29510
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(Address of principal executive offices) (Zip Code)
(803)221-5100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal year, if changed since last
report)
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years.
Check whether the Registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 after the
distribution of securities under a plan confirmed by a court.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, without par value 1,963,563
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(Outstanding at June 30, 1996)
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PHOENIX MEDICAL TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
June 30, 1996 and December 31, 1995
June 30 December 31
1996 1995
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(unaudited) *
ASSETS
Current Assets
Cash $ 14,466 $ 89,411
Receivables 1,950,886 1,782,804
Inventories (Note 2) 1,047,456 1,112,459
Prepaid expenses 61,352 56,417
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Total current assets 3,074,160 3,041,091
Operating property, plant and equipment - at cost 11,478,530 11,689,725
Less accumulated depreciation (7,652,870) (7,748,033)
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Net operating property, plant and equipment 3,825,660 3,941,692
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Nonoperating equipment, net 751,008 751,008
Other assets, net 463,457 335,307
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Total assets $ 8,114,285 $ 8,069,098
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities
Accounts payable and accrued expenses $ 1,259,603 $ 1,334,980
Current portion of long-term debt 253,108 346,497
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Total current liabilities 1,512,711 1,681,477
Long term debt 3,455,183 3,843,353
Other liabilities 1,155,893 1,177,614
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Total liabilities 6,123,787 6,702,444
Shareholders' investment
Shares issued and outstanding:
1,963,563 shares 6/30/96 and 12/31/95 196,356 196,356
Paid-in capital 7,224,503 7,224,503
Warrant 1,235,184 1,235,184
Deficit (6,665,545) (7,289,389)
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Total shareholders' investment 1,990,498 1,366,654
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Total liabilities and shareholders' investment $ 8,114,285 $ 8,069,098
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*Condensed from audited financial statements.
See accompanying notes to Unaudited Condensed Financial Statements.
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PHOENIX MEDICAL TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
June 30, 1996 July 21 1995 June 30, 1996 July 2, 1995
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Net sales $ 3,701,804 $ 3,485,463 $ 7,361,137 $ 6,692,253
Operating expenses:
Cost of goods sold (3,214,965) (3,144,778) (6,432,961) (6,101,739)
Selling and administrative expense (429,535) (430,631) (853,121) (821,919)
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Income (Loss) from operations 57,304 (89,946) 75,055 (231,405)
Other expense and income:
Interest expense, net (110,126) (138,101) (241,751) (332,353)
Miscellaneous income, net 610 493 29,809 888
Gain on sale of asset -0- -0- 760,731 -0-
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(Loss) Income before extraordinary item (52,212) (227,554) 623,844 (562,870)
Extraordinary item:
Gain on debt discharge -0- -0- -0- 4,618,842
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Net (loss) income $ (52,212) $ (227,554) $ 623,844 $ 4,055,972
================================================================================================================
(Loss) Earnings per share:
(Loss) Income before extraordinary item $ (0.03) $ (0.12) $ 0.32 $ (0.29)
Extraordinary item -0- -0- -0- 2.35
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Net (loss) income per share $ (0.03) $ (0.12) $ 0.32 $ 2.06
=================================================================================================================
Weighted average shares outstanding used to
compute earnings per share 1,963,563 1,963,563 1,963,563 1,963,563
See accompanying Notes to unaudited Condensed Financial Statements
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PHOENIX MEDICAL TECHNOLOGY, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
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June 30, 1996 July 21, 1995
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Cash flows from operating activities:
Net income $ 623,844 $ 4,055,972
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 226,214 218,406
Extraordinary item - gain on debt discharge -0- (4,618,842)
Gain on sale of assets (760,731) -0-
Changes in assets and liabilities:
Increase in accounts receivable, net (168,082) (219,651)
Increase in inventories (268,607) (131,371)
(Increase) Decrease in prepayments (4,935) 73,387
Increase in other assets (128,150) (246,148)
(Decrease) Increase in accounts payable
and accrued liabilities (117,098) 442,726
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Net cash used in operating activities (597,545) (425,521)
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Cash flows from investing activities:
Additions to property plant and equipment (110,182) (23,848)
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Cash flows from financing activities:
Net proceeds from sale of assets (apply to debt) 1,114,341 -0-
(Reduction) Increase in line of credit (108,572) 441,294
Addition of notes payable -0- 50,000
Reduction of long term debt (372,987) (49,922)
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Net cash provided by financing activities 632,782 441,372
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Net decrease in cash (74,945) (7,997)
Cash at beginning of period 89,411 46,419
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Cash at end of period $ 14,466 $ 38,422
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Cash paid during the period for interest $ 244,795 $ 165,323
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Supplemental schedule of noncash investing
and financing activities:
Conversion of accrued expenses to long term debt $ -0- $ 531,769
Conversion of long term debt to warrant $ -0- $ 1,235,184
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See accompanying Notes to Unaudited Condensed Financial Statements.
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. General
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. 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. These unaudited condensed financial
statements should be read in conjunction with the annual financial statements
and related notes contained in the Company's Form 10-KSB for the year ended
December 31, 1995.
In the opinion of management, the accompanying unaudited condensed
financial statements include all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the information
therein. Results of operations for interim periods should not be regarded as
necessarily indicative of the results to be expected for the full year.
On March 29, 1995, the Company completed a refinancing of its
outstanding debt. This debt refinancing is further discussed in the Form
10-KSB for the year ending December 31, 1995. In the first quarter of 1995,
the Company recognized a $4,618,842 gain on debt discharge resulting from the
refinancing of its debt.
On March 22, 1996, the Company sold to Microtek Medical, Inc.
("Microtek") all of the Company's machinery, equipment and related tangible
property (including inventory and work-in-process) and all of its proprietary
information, and all other property and rights related to the Company's
manufacture and sale of adhesive skin drapes and scrub-and-prep products. The
purchase price consisted of $1,175,000 in cash and Microtek's undertaking to
make contingent payments for ten years of 11.5% of its sales of patented incise
drapes and 3% of its sales of other products in the Company's product line
incorporating the patented process, with a maximum of $1,825,000 on all
contingent payments and a maximum total purchase price of $3,000,000, The
Company's sales of items produced by the assets sold to Microtek accounted for
4% of its total sales in 1995.
2. Inventories
Inventories at June 30, 1996 and December 31, 1995 have been stated at
the lower of cost or market. Cost is determined for substantially all
inventories using the last-in, first-out (LIFO) method.
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June 30, 1996 December 31, 1995
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Raw materials $ 402,765 $ 544,581
Work-in-process -0- 8,869
Finished goods 644,691 559,009
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$1,047,456 $1,112,459
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4. Earnings
Earnings per share for the three months and the six months
ended June 30, 1996 and December 31, 1995 were based on the weighted average
number of common shares outstanding, 1,963,563 for each period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
Operations
Sales for the second quarter of 1996 were $3,702,000, up 6.2% over the sales in
the similar quarter of 1995. On a continuing business basis, gloves only, sales
for the second quarter of 1996 were up 11% over sales of gloves in the similar
quarter of 1995. (Phoenix sold its non-glove business to Microtek Medical on
March 22, 1996. See discussion below.) Vinyl glove sales were $2,582,000, 30%
greater than in the similar quarter a year ago. Latex glove sales were
$1,057,000, 19% less than in the 1995 second quarter. The current year's
quarter sales include a price improvement of 2% on vinyl gloves and 19% on latex
gloves. The price increase in latex glove price results mainly from the effect
the expired 1995 Department of Defense ("DPSC") contract had on 1995 latex glove
prices.
Net sales for the six months ended June 30, 1996 were $7,361,000, up
$669,000 or 10% over the similar six month period of 1995. Vinyl glove sales
were $5,027,000, up 31% over six month sales one year ago. Latex glove sales
were $2,096,000, 16% less than during the six month period of 1995. Excluding
1995 DPSC contract sales during the first six months of 1995, 1996 latex glove
sales were up 10% at mid-year. Vinyl glove average selling price was up 4% at
mid-year 1996 versus mid-year 1995 and latex glove average selling price was up
18% over mid-year 1995 prices. The vinyl glove selling price increase is due
to increased cleanroom glove sales in 1996 and the latex glove price increase
is due to the expiration in November 1995 of the low price DPSC contract.
Cost of goods sold, as a percent of net sales, was 86.8% in the quarter
ended June 30, 1996 as compared with 90.2% in the prior year similar quarter.
The decrease is the result of higher average selling prices, improved product
mix and moderating material costs. For the six month period ended June 30,
1996, the cost of goods sold was 87.4% as compared with 91.2% in the prior year
first half. The decrease resulted from the same factors responsible for the
second quarter improvement.
Selling and administrative ("S&A") expenses continue to be carefully
controlled. For both the second quarter and six months of 1996, S&A expense
was 11.6% of net sales versus 12.4% and 12.3% respectively for the second
quarter and six months of 1995. S&A spending was $430,000 for the second
quarter of 1996, unchanged from a year ago. For the half-year, S&A spending
was $853,000, up $31,000 from one year ago. The increase resulted from
increases in depreciation, group insurance and payroll.
During the quarter ended June 30, 1996, the Company had $57,000 of
income from operations and a net loss of $52,000. For
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the six months, the Company had $75,000 of income from operations and a net
income of $624,000. The 1996 six months result includes a $761,000 gain on the
sale of an asset in the first quarter of 1996. Excluding the 1996 first
quarter gain on the sale of an asset and the 1995 gain of $4,619,000 from debt
discharge, second quarter net income (loss) comparative results are ($52,000)
and ($228,000) in 1996 and 1995 respectively and six month comparative results
are ($137,000) and ($563,000) respectively.
On March 22, 1996, the Company sold to Microtek Medical, Inc.
("Microtek") all of the Company's machinery, equipment and related tangible
property (including inventory and work-in-process) and all of its proprietary
information, and all other property and rights related to the Company's
manufacture and sale of adhesive skin drapes and scrub-and-prep products. The
purchase price consisted of $1,175,000 in cash and Microtek's undertaking to
make contingent payments for ten years of 11.5% of its sales of patented incise
drapes and 3% of its sales of other products in the Company's product line
incorporating the patented process, with a maximum of $1,825,000 on all
contingent payments and a maximum total purchase price of $3,000,000. The
Company's sales of items produced by the assets sold to Microtek accounted for
4% of its total sales in 1995.
Liquidity and Capital Resources
During the second quarter of 1996, operations used $155,000 of cash
compared with $305,000 used in the similar quarter one year ago. Over the six
months of 1996, operations used $598,000 of cash as compared with $426,000 used
in the six month period one year ago. At June 30, 1996, accounts receivable
were $168,000 greater than at December 31, 1995 and inventories were $65,000
less than at year end 1995. Accounts payable decreased $75,000 while the sum
of inventories, accounts receivable and prepayments increased $108,000, June
30, 1996 as compared with year end 1995. At June 30, 1996, the Company's line
of credit borrowing was $1,812,000, $109,000 less than at year end 1995.
Management believes that the line of credit limit, $2,650,000, and the
available amount is adequate to support the Company's 1996 operations.
The Company's bank debt at June 30, 1996 was $3,708,000, $482,000 less
than at year end 1995.
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PART II - OTHER INFORMATION
PHOENIX MEDICAL TECHNOLOGY, INC.
Items 1, 2, 3, 4 and 5 are inapplicable and are omitted.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit 27, Financial Data Schedule filed in electronic format only.
b. Exhibits and Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended June 30, 1996.
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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.
PHOENIX MEDICAL TECHNOLOGY, INC.
BY:/s/ Edward W. Gallaher, Sr.
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Edward W. Gallaher, Sr.
President and Treasurer
BY:/s/ Delores P. Williams
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Delores P. Williams
Controller
DATE: August 2, 1996
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