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 30, 2003 |
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 2-85008-NY
SSI Surgical Services, Inc.
(Exact name of registrant as specified in its charter)
| New York |
11-2621408 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 5776 Hoffner Avenue, Suite 200, Orlando Florida |
32822 | |
| (Address of principal executive offices) |
(Zip Code) |
(407) 249-1946
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) ¨ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding at March 30, 2003 | |
| Common Stock, $.01 Par Value |
19,491,216 |
Index to Form 10-Q
Three Months Ended March 30, 2003
| Page | ||||
| Part I |
Financial Information: |
|||
| Condensed Consolidated Balance Sheets as of March 30, 2003 and December 29, 2002 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
6-8 | |||
| Part II |
Other Information: |
|||
| 8 | ||||
| 9 | ||||
SSI Surgical Services, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
| March 30, 2003 |
December 29, 2002 |
|||||||
| Assets |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ |
27 |
|
$ |
29 |
| ||
| Accounts receivable less allowance for doubtful accounts of $415 and $415 |
|
7,130 |
|
|
6,912 |
| ||
| Prepaid expenses and other assets |
|
1,805 |
|
|
1,919 |
| ||
| Total current assets |
|
8,962 |
|
|
8,860 |
| ||
| Property and equipment, net |
|
23,714 |
|
|
24,203 |
| ||
| Intangibles, net |
|
4,637 |
|
|
4,637 |
| ||
| Other assets |
|
116 |
|
|
130 |
| ||
| Total assets |
$ |
37,429 |
|
$ |
37,830 |
| ||
| Liabilities and Shareholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ |
2,354 |
|
$ |
2,365 |
| ||
| Obligations under capital leases |
|
10 |
|
|
30 |
| ||
| Total current liabilities |
|
2,364 |
|
|
2,395 |
| ||
| Payable to affiliates |
|
26,656 |
|
|
26,544 |
| ||
| Total liabilities |
|
29,020 |
|
|
28,939 |
| ||
| Shareholders’ equity: |
||||||||
| Common Stock |
$ |
195 |
|
$ |
195 |
| ||
| Additional paid-in capital |
|
23,019 |
|
|
23,019 |
| ||
| Accumulated deficit |
|
(14,805 |
) |
|
(14,323 |
) | ||
| Total shareholders’ equity |
|
8,409 |
|
|
8,891 |
| ||
| Total liabilities and shareholders’ equity |
$ |
37,429 |
|
$ |
37,830 |
| ||
See Notes to Condensed Consolidated Statements.
3
SSI Surgical Services, Inc.
Condensed Consolidated Statements of Operations
(Dollars in Thousands, except per share)
| Three Months Ended |
||||||||
| March 30, 2003 |
March 31, 2002 |
|||||||
| Net revenues |
$ |
8,246 |
|
$ |
8,685 |
| ||
| Cost of revenues |
|
7,294 |
|
|
7,551 |
| ||
| Gross profit |
|
952 |
|
|
1,134 |
| ||
| Distribution Expenses |
|
323 |
|
|
386 |
| ||
| Selling, general and administrative |
|
1,055 |
|
|
1,078 |
| ||
| Loss from operations |
|
(426 |
) |
|
(330 |
) | ||
| Interest |
|
364 |
|
|
368 |
| ||
| Loss before income taxes |
|
(790 |
) |
|
(698 |
) | ||
| Income tax benefit |
|
(308 |
) |
|
(272 |
) | ||
| Net loss |
$ |
(482 |
) |
$ |
(426 |
) | ||
| Loss per common share – basic |
$ |
(.02 |
) |
$ |
(.02 |
) | ||
| Loss per common share – diluted |
$ |
(.02 |
) |
$ |
(.02 |
) | ||
| Weighted average common shares |
|
19,491 |
|
|
19,491 |
| ||
| Weighted average dilutive common shares |
|
19,491 |
|
|
19,491 |
| ||
See Notes to Condensed Consolidated Statements.
4
SSI Surgical Services, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
| Three Months Ended |
||||||||
| March 30, 2003 |
March 31, 2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(482 |
) |
$ |
(426 |
) | ||
| Adjustments to reconcile net income to net cash |
||||||||
| Provided by (used in) operating activities: |
||||||||
| Depreciation |
|
1,448 |
|
|
1,283 |
| ||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
|
(218 |
) |
|
(293 |
) | ||
| Prepaid expenses and other assets |
|
128 |
|
|
(127 |
) | ||
| Accounts payable and accrued liabilities |
|
(11 |
) |
|
50 |
| ||
| Net cash provided by operating activities |
|
865 |
|
|
487 |
| ||
| Cash flows for investing activities: |
||||||||
| Net purchase of property and equipment |
|
(959 |
) |
|
(2,351 |
) | ||
| Net cash used by investing activities |
|
(959 |
) |
|
(2,351 |
) | ||
| Cash flows from financing activities: |
||||||||
| Repayments under capital lease obligations |
|
(20 |
) |
|
(140 |
) | ||
| Net borrowings from affiliates |
|
112 |
|
|
2,021 |
| ||
| Net cash provided by financing activities |
|
92 |
|
|
1,881 |
| ||
| Increase (decrease) in cash and cash equivalents |
|
(2 |
) |
|
17 |
| ||
| Cash and cash equivalents at beginning of period |
|
29 |
|
|
72 |
| ||
| Cash and cash equivalents at end of period |
$ |
27 |
|
$ |
89 |
| ||
See Notes to Condensed Consolidated Statements.
5
SSI Surgical Services, Inc.
Notes to the Condensed Consolidated Financial Statements
NOTE 1
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by generally accepted accounting principles for complete financial statements are not included herein. The condensed statements should be read in conjunction with the financial statements and notes thereto included in the latest Form 10K of SSI Surgical Services, Inc. (the “Company”). In the Company’s opinion, all adjustments necessary for a fair presentation of these condensed statements have been included and are of a normal and recurring nature.
NOTE 2
Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed in a similar manner except that the weighted average number of common shares is increased for dilutive securities. Potentially dilutive securities have been excluded from the computation of diluted earnings per share for the three months ended March 30, 2003 and March 31, 2002, since the results would be antidilutive. The securities excluded at March 30, 2003 consist of aggregate warrants to purchase 1,500,000 shares of common stock and exercisable incentive and non-qualified options to purchase 1,034,170 shares of common stock.
NOTE 3
The Company has stock-based compensation plans that provide for the granting of incentive and non-qualified options to directors, officers and key employees to purchase shares of common stock at the market price of the stock on the dates options are granted. No stock-based employee compensation cost is reflected in net loss. No stock options were granted during the three months ended March 30, 2003 and March 31, 2002
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Revenues decreased $439,000 or 5.1%, to $8,246,000 for the three months ended March 30, 2003 compared to $8,685,000 for the three months ended March 31, 2002. This decrease is attributed to the closure of the Tampa facility in 2002 and a decline in revenue at the offsite reprocessing facilities, partially offset by additional revenues from new endoscopic services customers.
Gross profit decreased to $952,000 or 11.5% of revenues for the three months ended March 30, 2003 compared with $1,134,000 or 13.1% of revenues for the three months ended March 31, 2002. This decrease is attributed to a volume decline at the offsite reprocessing facilities.
6
Distribution costs decreased to $323,000 or 3.9% of revenues for the three months ended March 30, 2003 compared with $386,000 or 4.4% of revenues for the three months ended March 31, 2002. The decrease in distribution costs resulted from the closure of the Tampa facility in 2002 and volume decline at the reprocessing facilities.
Selling, general and administrative expenses decreased by $23,000 to $1,055,000 for the three months ended March 30, 2003 compared to $1,078,000 for the three months ended March 31, 2002. The decrease was primarily the result of continued cost control initiatives offset by increased selling commissions.
Interest expense decreased by $4,000 to $364,000 for the three months ended March 30, 2003 compared to $368,000 for the three months ended March 31, 2002. This decrease was the result of lower interest rates associated with borrowings from affiliates.
Net loss for the three months ended March 30, 2003 was $482,000 compared to net loss of $426,000 for the three months ended March 31, 2002. Basic and diluted earnings per share in the three months ended March 30, 2003 represented a net loss per share of $.02, compared to a net loss per share of $.02 in the three months ended March 31, 2002.
Liquidity and Capital Resources
The Company generated cash flows from operations of $865,000 in the three months ended March 30, 2003 compared to $487,000 in the three months ended March 31, 2002. This increase in cash flows compared to prior year was primarily the result of a reduction in prepaid and other assets.
Capital expenditures totaled $959,000 in the three months ended March 30, 2003 compared with $2,351,000 in the three months ended March 31, 2002. These purchases were principally surgical instruments made to support the Company’s new and existing sales contracts.
The Company plans to purchase additional surgical instruments and linens, as and if required to support the Company’s growth objectives. The Company believes that additional borrowing capacity under the existing loan agreement with Teleflex Incorporated (Teleflex), its majority shareholder, and cash flows from operating activities will provide support for these expenditures.
The Company had $10,000 in obligations under capital leases for equipment and surgical instruments at March 30, 2003. In addition, the Company had borrowings of $26,575,000 outstanding at March 30, 2003 under a $27,500,000 unsecured revolving loan agreement with Teleflex. The outstanding principal on this credit facility is due and payable on July 31, 2004. Interest under this agreement is payable at the prevailing Prime rate of PNC Bank, plus 1.25 percent.
The Company believes that the anticipated future cash flow from operations, along with its cash on hand and available funding from its major shareholder will be sufficient to meet working capital requirements during 2003.
7
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities Exchange Commission (including this Form 10-Q) may contain statements which are not historical facts, so-called “forward-looking statements,” which involve risks and uncertainties. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995; in particular, statements made relating to the suitability of the Company’s facilities and equipment for future operations and the availability of additional facilities and equipment in the future, and the sufficiency of funds for the Company’s working capital requirements during the next twelve months may be forward looking statements. The Company’s actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in the Company’s filings with the Securities and Exchange Commission.
The Company’s future results are subject to risks and uncertainties. The Company has operated at a loss or small profit for its entire history. The failure of the Company to continue to compete effectively with existing or new competitors could result in price erosion, decreased margins and decreased revenues, any or all of which could have a material adverse effect on the Company’s business, results of operations and financial condition. Approximately 61% of the Company’s healthcare provider customers are currently concentrated in the Northeast Corridor. Any factors affecting this market generally could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company is subject to government regulation in certain aspects of its operations. Changes in such regulations could have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company’s quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including: competitive pressures on selling prices and margins; the timing and cancellation of customer orders; the lengthy sales cycle of the Company’s services to healthcare organizations; the Company’s ability to maintain state-of-the-art sterilization facilities and the corresponding timing and amount of capital expenditures, particularly if the Company executes its plan for growth; and the introduction of new services by the Company’s competitors.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter.
8
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.
| May 21, 2003 |
SSI SURGICAL SERVICES, INC. | |||||
| By: |
/s/ TODD RIDDELL | |||||
| Todd Riddell President and Chief Executive Officer | ||||||
| By: |
/s/ PAUL A. D’ALESIO | |||||
| Paul A. D’Alesio Treasurer and Chief Financial Officer | ||||||
9
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Todd Riddell, Chief Executive Officer and President of SSI Surgical Services, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of SSI Surgical Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
10
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 21, 2003
| /s/ TODD RIDDELL |
| Chief Executive Officer and President |
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Paul A. D’Alesio, Chief Financial Officer and Treasurer of SSI Surgical Services, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of SSI Surgical Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
11
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 21, 2003
| /s/ PAUL A. D’ALESIO |
| Chief Financial Officer and Treasurer |
12