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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 September 29, 1996, 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 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 jurisdiction (I.R.S. Employer
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 Sept 29, 1996)
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PHOENIX MEDICAL TECHNOLOGY, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 29, 1996 AND DECEMBER 31, 1995
Sept 29 December 31
1996 1995
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(unaudited) *
ASSETS
Current Assets
Cash $ 5,013 $ 89,411
Receivables 1,869,024 1,782,804
Inventories (Note 2) 1,143,294 1,112,459
Prepaid expenses 32,817 56,417
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Total current assets 3,050,148 3,041,091
Operating property, plant and equipment - at cost 11,555,645 11,689,725
Less accumulated depreciation (7,764,152) (7,748,033)
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Net operating property, plant and equipment 3,791,493 3,941,692
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Nonoperating equipment, net 751,008 751,008
Other assets, net 468,000 335,307
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Total assets $ 8,060,649 $ 8,069,098
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities
Accounts payable and accrued expenses $ 1,171,744 $ 1,334,980
current portion of long-term debt 100,056 346,497
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Total current liabilities 1,271,800 1,681,477
Long term debt 3,849,350 3,843,353
Other liabilities 932,775 1,177,614
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Total liabilities 6,053,925 6,702,444
Shareholders' investment
Shares issued and outstanding:
1,963,563 shares 9/29/96 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 (6,649,319) (7,289,389)
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Total shareholders' investment 2,006,724 1,366,654
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Total liabilities and shareholders' investment $ 8,060,649 $ 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 NINE MONTHS ENDED
Sept 29, 1996 Oct 1, 1995 Sept 29, 1996 Oct 1, 1995
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Net sales $ 3,240,016 $ 3,415,429 $10,601,153 $10,107,682
Operating expenses:
Cost of goods sold (2,894,163) (3,070,552) (9,327,124) (9,172,291)
Selling and administrative expense (400,002) (394,867) (1,253,123) (1,216,786)
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(Loss) Income from operations (54,149) (49,990) 20,906 (281,395)
Other expense and income:
Interest expense, net (104,978) (138,169) (346,729) (470,522)
Miscellaneous income, net 831 545 30,640 1,433
Gain on sale of asset -O- -O- 760,731 -O-
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(Loss) Income before extraordinary item (158,296) (187,614) 465,548 (750,484)
Extraordinary item:
Gain on debt discharge 174,522 -O- 174,522 4,618,842
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Net income (loss) $ 16,226 $ (187,614) $ 640,070 $ 3,868,358
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(Loss) Income per share:
(Loss) Income before extraordinary item $ (0.08) $ (0.10) $ 0.24 $ (0.38)
Extraordinary item 0.09 -O- 0.09 2.35
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Net income (loss) per share $0.01 $ (0.10) $ 0.33 $ 1.97
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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)
NINE MONTHS ENDED
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Sept 29, 1996 Oct 1, 1995
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Cash flows from operating activities:
Net income $ 640,070 $ 3,868,358
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 337,496 331,057
Extraordinary item - gain on debt discharge (174,522) (4,618,842)
Gain on sale of assets (760,731) -0-
Changes in assets and liabilities:
Increase in accounts receivable, net (86,220) (19,661)
Increase in inventories (364,445) (328,963)
Decrease in prepayments 23,600 35,219
Increase in other assets (132,693) (253,685)
(Decrease) Increase in accounts payable
and accrued liabilities (253,553) 706,739
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Net cash used in operating activities (770,998) (279,778)
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Cash flows from investing activities:
Additions to property plant and equipment (187,297) (33,737)
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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 (588,014) 413,309
Addition of notes payable 750,000 50,000
Reduction of long term debt (402,430) (98,531)
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Net cash provided by financing activities 873,897 364,778
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Net (decrease) increase in cash (84,398) 51,263
Cash at beginning of period 89,411 46,419
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Cash at end of period $ 5,013 $ 97,682
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Cash paid during the period for interest $ 350,178 $ 305,457
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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.
In the third quarter of 1996, the Company recognized a $174,522 gain
on debt discharge resulting from the release of certain bankruptcy claims
against the Company. In the first quarter of 1995, the Company completed a
refinancing of its outstanding debt and recognized a $4,618,842 gain on debt
discharge. This debt refinancing is further discussed in the Form 10-KSB for
the year ending December 31, 1995.
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 September 29, 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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Sept 29, 1996 December 31, 1995
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Raw materials $ 402,765 $ 544,581
Work-in-process -0- 8,869
Finished goods 644,691 644,691
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$1,047,456 $1,112,459
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3. Earnings
Earnings per share for the quarters ended September 29, 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
During the third quarter of 1996, the Company experienced two separate
business interruptions resulting from the July and September east coast
hurricanes. The Company's facility did not experience physical damage from
either storm but was forced to make preparations and cease operations for a
total of more than four days. The operating time lost due to the forced
shutdowns was exacerbated in that each followed a holiday shutdown, July Fourth
and Labor Day. Saturday premium pay overtime was scheduled throughout the
quarter to offset the lost operating days and maintain customer delivery
schedules.
Sales for the third quarter of 1996 were $3,240,000, 5.1% less than
for the similar quarter of 1995. On a continuing business basis, gloves only,
sales were off less than 1% from prior year results. Vinyl glove sales were
19% greater in the current year quarter than a year ago, $2,332,000 versus
$1,959,000. Latex glove sales were 31% less in the current year quarter than a
year ago, $899,000 versus $1,303,000. The expiration of the 1995 Department of
Defense ("DPSC") latex exam glove contract was the major contributor, $296,000
or 77%, in the latex glove sales decline.
Net sales for the nine months ended September 29, 1996 were
$10,601,000, 4.9% greater than sales in the similar period of 1995. On a
continuing business basis, Sales were $743,000 or 7.7% greater in the 1996
period than in the 1995 nine months period. Vinyl glove sales were $7,359,000,
27% greater than nine month sales one year ago. Latex sales were $2,995,000,
$817,000 or 21% less than in the nine months of 1995. The effect of the
expired DPSC contract over the nine month period was $914,000, exceeding the
total 1996 sales decline in latex gloves. Over the nine month period, latex
glove average selling prices have increased 17% and vinyl glove average selling
prices are up 3% from 1995 nine month results. The expired 1995 DPSC latex
glove contract's low price accounts for the 1996 latex glove average selling
price increase while the increase in vinyl glove average selling price is the
result of the 45% increase in cleanroom glove sales in 1996.
Cost of goods sold, as a percent of net sales was 89% in the quarter
ended September 29, 1996 as compared with 90% in the prior year similar
quarter. The decrease is the result of higher average selling prices and
improved product mix, offset somewhat by the greater labor costs associated
with the weekend operations discussed above. For the nine month period of
1996, the cost of goods sold was 88% versus 91% for the nine months of 1995.
The decrease resulted from higher average selling prices, improved product mix
and some moderation in material costs.
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Selling and administrative ("S&A") expenses increased 1.3% in the
third quarter of 1996 as compared with the similar quarter of 1995, $400,000
versus $395,000. Through nine months of 1996, S&A spending was $1,253,000 as
compared with $1,217,000, a 3% increase in spending over the 1995 period. As a
percent of net sales, S&A spending is 11.8% for nine months of the current year
versus 12.0% in the prior year nine months.
During the quarter ended September 29, 1996, the Company had a net
income of $16,000 including a gain of $175,000 from debt discharge. This
compares with a year prior net loss of $188,000 for the third quarter. For the
nine months, the Company had a net income of $640,000 including a $761,000 gain
on the sale of an asset and a gain of $175,000 from debt discharge. Prior year
nine month net income was $3,868,000 which included a gain of $4,619,000 from
debt discharge.
The Company is investing in facility upgrades to support its continued
growth in the manufacture and sale of cleanroom vinyl gloves. This effort has
been facilitated by the March 1996 sale of the Company's skin drape and scrub-
and-prep business (See the Company's Form 10-QSB for the period ended June 30,
1996) and the August 1996 Amendment to the Company's line of credit. The
Amendment increases the available funds by $750,000 and reduces the interest
rate from prime plus 5-3/4% to prime plus 3-1/4%. Management believes that the
capital investment in facility improvements combined with its quality and
service initiatives will enable Phoenix to sustain its growth within the
contamination control glove market.
LIQUIDITY AND CAPITAL RESOURCES
During the nine month period of 1996, operations used $771,000 of cash
as compared with $280,000 of cash used in the prior year similar period. The
major factor contributing to the increase in cash used was a $253,000 decrease
in accounts payable and accrued liabilities during the current year period
versus an increase of $707,000 in the prior year period. That use of cash was
offset to an extent by operating losses in 1996 which were $455,000 less than
in the nine month period of 1995.
The Company's bank debt at September 29, 1996 was $3,949,000, $241,000
less than at year end 1995. At September 29, 1996, the Company's line of
credit borrowing was $2,083,000, $144,000 less than at year end 1995.
Management believes that the line of credit limit, $3,000,000 and the unused
available amount is adequate to support the Company's operations.
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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 September 29, 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: November 4, 1996
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