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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For fiscal year ended MARCH 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For transition period from ___________ to ___________
Commission File Number 0-16594
MEDICAL TECHNOLOGY SYSTEMS, INC.
--------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 59-2740462 59-2740462
------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12920 Automobile Boulevard, Clearwater, Florida 33762
- ----------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(727) 576-6311
--------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
----------------------------
(Title of Class)
COMMON STOCK PURCHASE WARRANTS
------------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x] Yes [ ] No
Aggregate market value of voting Common Stock held by non-affiliates was
$3,250,000 as of June 29, 2000.
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [x] Yes [ ] No
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, was 6,542,621 as of June 29, 2000.
Documents Incorporated by Reference
- -----------------------------------
Parts of the Company's definitive proxy statement, which will be filed by the
Company within 120 days after the end of the Company's 1999 fiscal year end, are
incorporated by reference into Part III of this Form.
Total number of pages, including cover page - 43 (excluding exhibits)
1
MEDICAL TECHNOLOGY SYSTEMS, INC.
CLEARWATER, FLORIDA
INDEX
PART I PAGE
----
Item 1. Business.................................................... 2-6
2. Properties.................................................. 6
3. Legal Proceedings........................................... 6
4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 8
6. Selected Financial Data...................................... 9
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 10
7A. Quantitative and Qualitative Disclosure about Market Risk.... 13
8. Financial Statements and Supplementary Data.................. 13
9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure....................................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant........... 14
11. Executive Compensation....................................... 14
12. Security Ownership of Certain Beneficial Owners and Management 14
13. Certain Relationships and Related Transactions............... 14
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K................................................... 15
Index to Financial Statements............................................. 18
Signatures ............................................................... 42
2
PART I
This Annual Report on Form 10-K (the "10-K") contains certain statements
concerning the future that are subject to risks and uncertainties. Additional
written or oral forward-looking statements may be made by the Company from time
to time, in filings with the Securities and Exchange Commission or otherwise.
Such statements include, among other things, information concerning
possible-future results of operations, capital expenditures, the elimination of
losses under certain programs, financing needs or plans relating to products or
services of the Company, assessments of materiality, predictions of future
events, and the effects of pending and possible litigation, as well as
assumptions relating to the foregoing, and those accompanied by the words
"anticipates," "estimates," "expects," "intends," "plans," or similar
expressions. For those statements we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
You should specifically consider the various factors identified in this
10-K, including the matters set forth in "Item 1. Business", "Item 3. Legal
Proceedings", "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Notes to Consolidated Financial
Statements that could cause actual results to differ materially from those
indicated in any forward-looking statements. Other factors that could contribute
to or cause such differences include, but are not limited to, unanticipated
increases in operating costs, labor disputes, capital requirements, increases in
borrowing costs, product demand, pricing, market acceptance, intellectual
property rights and litigation, risks in product and technology development and
other risk factors detailed in the Company's Securities and Exchange Commission
filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained in this 10-K, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
ITEM 1. BUSINESS
Introduction
- ------------
Medical Technology Systems, Inc.(TM), a Delaware corporation (the
"Company"), was incorporated in March 1984. The Company is a holding company
that historically operated through a number of separate subsidiaries, including
MTS Packaging Systems, Inc.(TM)("MTS Packaging"), Medical Technology
Laboratories, Inc. ("MTL") and LifeServ Technologies, Inc.(TM) ("LifeServ").
MTS Packaging primarily manufactures and sells disposable medication punch
cards, packaging equipment and allied ancillary products throughout the United
States. Its customers are predominantly pharmacies that supply nursing homes and
assisted living facilities with prescription medications for their patients. MTS
Packaging manufactures its proprietary disposable punch cards and packaging
equipment in its own facilities. This manufacturing process uses integrated
machinery for manufacturing the disposable medication punch cards. The
disposable medication punch cards and packaging equipment are designed to
provide a cost effective method for pharmacies to dispense medications. The
Company's medication dispensing systems and products provide innovative methods
for dispensing medications in disposable packages.
MTL was formed as a result of the acquisition and combination of Clearwater
Medical Services and Clinical Diagnostic Centers during fiscal year 1992. MTL
conducted analytical services for testing of blood, tissue and other body fluids
for hospitals, physicians and other health care providers in Florida. In January
2000, MTL sold its principal assets to an unrelated third party and transitioned
the operations of the business to the buyer until the buyer received its state
license and Medicare provider number in April 2000. MTL received $1,000,000 for
the assets that were comprised of equipment, goodwill and certain accounts
receivable. In addition, the buyer assumed approximately $400,000 in liabilities
of MTL. The proceeds of the sale were used primarily to reduce bank debt of the
Company. Since April 2000, MTL has continued to collect amounts due from third
party payors, patients and clients. The Company has treated the operations of
MTL in fiscal 1999 and 2000 as discontinued operations.
3
On February 24, 1998, the Company formed LifeServ Technologies, Inc.
("LifeServ") for the purpose of holding and operating the Company's health care
information subsidiaries: Performance Pharmacy Systems, Inc. ("PPS"), Medication
Management Systems, Inc. ("MMS"), Medication Management Technologies, Inc.
("MMT"), Cart-Ware, Inc. ("Cart-Ware") and Systems Professionals, Inc. ("SPI").
In April 1998, the Company entered into a stock subscription agreement with
LifeServ whereby the Company made a capital contribution of all of the
outstanding capital stock of those subsidiaries to LifeServ. On May 27, 1999,
the assets of LifeServ were sold to AIMCare, Inc. ("AIMCare"). AIMCare assumed
the stated liabilities of LifeServ of approximately $5.0 million. The Company
has treated the operations of LifeServ as discontinued operations.
Segments
- --------
The continuing operations of the Company are composed of one operating
segment, Medication Packaging and Dispensing Systems. MTS Packaging is the only
subsidiary in this segment and is supported by corporate personnel and services.
Continuing Operations
- ---------------------
Products
--------
MTS Packaging manufactures proprietary medication dispensing systems and
related products for use by medication prescription service providers. These
systems utilize disposable medication punch cards and specialized machines that
automatically or semi-automatically assemble, fill and seal drugs into
medication punch cards representing a weekly or monthly supply of a patient's
medication.
MTS Packaging's machinery for dispensing medication in disposable packages
automatically places tablets or capsules (the amount of medication required by a
patient during one month) into a blistered punch card. The use of these cards
and machines provides a cost effective customized package at competitive prices.
The punch card medication dispensing system can provide tamper evident packaging
for products dispensed in the package.
The retail price of MTS Packaging's machinery ranges from $1,100 to
$120,000 depending upon the degree of automation and options requested by a
customer. The punch cards typically retail from approximately $155 to $225 per
1,000 cards and blisters, depending upon the size, design and volume of cards
ordered by a customer. To date, MTS Packaging has placed approximately 1,865
medication dispensing systems with pharmacy clientele. MTS Packaging also sells
prescription labels and ancillary supplies designed to complement sales of
disposable medication punch cards. MTS Packaging had approximately $595,400 in
unshipped orders as of June 25, 2000.
Research and Development
------------------------
The Company expended approximately $207,000 on research and development
activities during the fiscal year ended March 31, 2000. The Company's focus in
the prior two fiscal years was on the development of products that had been
determined to be technologically feasible, therefore, research and development
activities were minimal.
Product Development
-------------------
The Company had several projects underway to develop new products during
its most recent fiscal year.
MTS Packaging is presently developing:
o Medication dispensing systems that more fully automate its customers'
operations and increase the productivity of the pharmacy.
o A dispensing system for the packaging of unit dose medication for
hospitals.
o Multi-Dose punch card for the assisted living market.
o Proprietary automated dispensing system that will allow customers to
dispense medication in a variety of blister pack system formats.
4
o Special compliance packages for the retail pharmacy, nutritional and
international home care market.
Manufacturing Processes
-----------------------
MTS Packaging has developed integrated punch card manufacturing equipment
that will complete the various punch card manufacturing steps in a single-line,
automated process. The Company believes that its advanced automation gives it
certain speed, cost and flexibility advantages over conventional punch card
manufacturers. MTS Packaging's equipment produces finished cards on a single
in-line Flexographic press. This process takes the place of approximately five
different presses using conventional offset printing methods. MTS Packaging has
two machines capable of producing punch cards in this manner. In addition to the
manufacturing of punch cards, MTS Packaging manufactures machines that are used
by its customers to fill punch cards with medication. The majority of these
machines are sold to customers; however, from time to time, customers are
provided or rented machines in conjunction with an agreement to purchase certain
quantities of punch cards over a specified period.
MTS Packaging uses automated fabrication equipment to produce its
medication packaging machinery. All essential components of the machines are
designed and manufactured by the Company without reliance on outside vendors.
MTS Packaging is dependent on a number of suppliers for the raw materials
essential in the production of its products. The Company believes that relations
are adequate with its existing vendors. However, there can be no assurance that
such relations will be adequate in the future or that shortages of any of these
raw materials will not arise, causing production delays. MTS Packaging believes
it is necessary to maintain an inventory of materials and finished products that
allows for customer orders to be shipped within the industry standard of 2-3
days. The inability to obtain raw materials on a timely basis and on acceptable
terms may have a material adverse effect on the future financial performance of
the Company. The Company's ability to obtain raw materials and other goods and
services is substantially dependent upon the Company's cash flow from
operations.
Markets and Customers
---------------------
MTS Packaging's products are sold primarily throughout the United States
through its sales organization and independent sales representatives. MTS
Packaging also participates in trade shows and training seminars. Sales to
countries outside the U.S. represent less than ten percent (10%) of the total
revenue. Five customers comprise approximately thirty-two percent (32%) of MTS
Packaging's annual revenue.
The primary customers for MTS Packaging's proprietary packaging machinery
and the related disposable punch cards, labels and ancillary supplies are
pharmacies that supply prescription medication to nursing homes. Such pharmacies
serve from 250 to 34,000 nursing home beds per location and many serve the
sub-acute, assisted living and the home health care markets as well.
Competition
-----------
The pharmacy customers of MTS Packaging supply prescribed medications to
nursing homes, which are the primary market for MTS Packaging's products. This
market is highly competitive. There are several competitors that have developed
machines that automate the packaging and sealing of solid medications into punch
cards. The Company believes that products developed by the Company's competitors
are not as efficient as the Company's systems because they are not as automated.
The Company's method of dispensing medication replaces more traditional
dispensing methods, such as prescription vials. The principal methods of
competition in supplying medication dispensing systems to prescription service
providers are product innovation, price, customization and product performance.
Many of the Company's competitors have been in business longer and have
substantially greater resources than the Company. There is no assurance that the
Company will be able to compete effectively with competitive methods of
dispensing medication or other punch card systems.
The Company's primary competitors for punch card dispensing systems are
Drug Package, Inc., Artromic International, Inc. and RX Systems, Inc. The
Company believes that its automated proprietary packaging machinery
distinguishes MTS Packaging from its competitors' less automated systems. The
Company's new automated packaging machinery can fill and seal over 900
disposable medication cards per hour. The Company believes that its production
rates will meet the needs of its customers who are consolidating and require
higher productivity to meet their growing market share.
5
Proprietary Technology
----------------------
The Siegel Family QTIP Trust (the "Trust") is the holder of certain patents
and other proprietary rights for the equipment and processes that MTS Packaging
uses and sells. The Trust is the assignee of all such proprietary and patent
rights used in the Company's business that were invented or developed by Harold
B. Siegel, the founder of the Company. The Trust and the Company are parties to
a license agreement whereby the Company is granted an exclusive and perpetual
license from the Trust to use the know-how and patent rights in the manufacture
and sale of the Company's medication dispensing systems. MTS Packaging is
heavily dependent upon the continued use of the proprietary rights associated
with these patents. The patents begin expiring in 2004 continuing through 2006.
The license agreements are co-extensive with the patents.
There are numerous patent applications and patent license agreements for
products that have been sold and that have been in development within MTS
Packaging, however, its business is not materially dependent upon the issuing or
its ownership of any one patent applied for or patent license agreements.
There is no assurance that any additional patents will be granted with
respect to the Company's medication dispensing or information systems and
products or that any patent issued, now or in the future, will provide
meaningful protection from competition.
Government Regulation
---------------------
Certain subsidiaries of the Company are subject to various federal, state
and local regulations with respect to their particular businesses. The Company
believes that it currently complies with these regulations.
MTS Packaging's products are governed by federal regulations concerning
components of packaging materials that are in contact with food. The Company has
obtained assurances from its vendors that the packaging materials used by MTS
Packaging are in conformity with such regulations. However, there is no
assurance that significant changes in the regulations applicable to MTS
Packaging's products will not occur in the foreseeable future. Any such changes
could have a material adverse effect on the Company.
The Company cannot predict the extent to which its operations will be
effected under the laws and regulations described above or any new regulations
that may be adopted by regulatory agencies.
Discontinued Operations
- -----------------------
The Company sold two business segments in fiscal 2000, both of which were
treated as discontinued operations for financial statement purposes.
LifeServ was a health care information technology company that provided
solutions for medication management and point-of-care electronic documentation
for hospitals and other health care facilities. The assets of LifeServ were sold
in May 1999 in exchange for the assumption of certain liabilities of
approximately $5.0 million.
MTL provided clinical laboratory testing services including analytical
tests of blood tissues and other bodily fluids. The principal assets of MTL were
sold in January 2000 in exchange for $1.0 million and the assumptions of
approximately $400,000 in liabilities.
Employees
- ---------
As of June 24, 2000, the Company employed 100 persons full time. None of
the Company's employees are covered by a collective bargaining agreement. The
Company considers its relationship with employees to be good.
6
ITEM 2. PROPERTIES
The Company leases a 67,000 square foot plant consisting of office space
and air-conditioned manufacturing and warehousing space near the St.
Petersburg/Clearwater International Airport at 12920 Automobile Boulevard. The
Company's corporate administrative offices and the manufacturing facilities for
MTS Packaging Systems, Inc. ("MTS Packaging") are at this location. The lease
expires on April 15, 2002. The Company's current monthly lease payments are
approximately $22,000. The premises are generally suited for light manufacturing
and/or distribution.
MTS Packaging leases approximately 5,200 square feet at approximately
$2,591 per month for office and warehouse space at 21530 Drake Road, Cleveland,
Ohio. The lease expires on March 31, 2004.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain claims and legal actions arising in the
ordinary course of business. There can be no assurances that these matters will
be resolved on terms acceptable to the Company. In the opinion of management,
based upon advice of counsel and consideration of all facts available at this
time, the ultimate disposition of these matters will not have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
On November 19, 1998, Medical Technology Laboratories, Inc. ("MTL")
received a refund request in the amount of $1.8 million from Medicare Program
Safeguards ("MPS") and $104,000 from the State of Florida Agency for Health Care
Administration ("AHCA"). The requests followed an onsite review in May 1997, by
federal and state agencies, of MTL's Medicare and Medicaid billing practices in
1996. MTL has conducted an internal review of the billing procedures, records
and services in question and disputes MPS's findings and determination. On
December 17, 1998, MTL responded to the MPS determination and subsequently
received a response from MPS in which MPS informed MTL that recoupment of the
refund amount would be stayed while MPS reviewed MTL's response. On June 22,
1999, the Company was informed by MPS that the recoupment of the refund had been
suspended pending a decision from the Central Office of the Health Care
Financing Administration (HCFA), regarding certain matters related to the refund
request. Nevertheless, in order to preserve its rights, the Company requested a
hearing on the matter. The hearing is not expected to take place until a final
decision is reached by HCFA. Although MTL believes that MPS's determination and
the request for refunds are without merit, there can be no assurance that this
matter will be resolved over the near term or that the ultimate outcome of the
matter will not result in a recoupment effort by HCFA directed at the proceeds
of the collection of accounts receivable that MTL retained as part of the sale
of the business.
Certain creditors of LifeServ and MTL have commenced legal action against
the buyers of both LifeServ and MTL seeking payment of liabilities assumed by
the buyers pursuant to the respective asset purchase agreements. Several
creditors have named LifeServ and MTL as codefendants in the legal action. In
addition, several creditors have named the Company as a codefendant. The Company
intends to vigorously defend these actions and seek appropriate remedies from
the buyers.
Reorganizations Under Chapter 11
- --------------------------------
On January 3, 1996, three of the Company's subsidiaries, MTS Packaging
Systems, Inc. ("MTS Packaging"), Medical Technology Laboratories, Inc. ("MTL")
and MTS Sales and Marketing, Inc. ("MTS Sales"), filed voluntary petitions for
relief under Chapter 11 in the Bankruptcy Court. On February 22, 1996, Vangard
Labs, Inc. ("Vangard") filed a voluntary petition for relief under Chapter 11 in
the same jurisdiction. On July 10, 1997, Medication Management Technologies,
Inc. ("MMT") filed a voluntary petition for relief under Chapter 11 in the same
jurisdiction.
On September 4, 1996, the Plans of Reorganization for MTS Packaging, MTL
and Vangard were confirmed by the Bankruptcy Court. The case of MTS Sales was
dismissed. On June 12, 1998, the Plan of Reorganization for MMT was confirmed by
the bankruptcy court.
7
Certain liabilities were compromised by creditors as part of the Plans for
Reorganization as follows:
Secured Claims: (Bank) - Each of the companies that filed petitions under
Chapter 11 were co-borrowers on bank notes, lines of credit, accrued interest
and other charges and expenses, in the amount of approximately $28.0 million,
that were combined and restructured into two separate promissory notes.
Plan Note I, in the stated principal amount of approximately $27.0 million,
provided for a portion of the principal amount, $15.0 million, to be due and
payable as follows:
a. Interest at the rate of 7.5% for a period of two years ending
September 1, 1998.
b. Installments of principal and interest at the rate of 7.5% payable
monthly for a period of ten years ending September 1, 2006. At which
time, the then outstanding principal amount is due and payable in
full. The monthly installments of principal and interest are
calculated based on the principal amount amortized in equal monthly
payments over twenty years.
Plan Note II, in the stated principal amount of $1,000,000 provided for
payment of $750,000 on or about the date of confirmation of the Plans of
Reorganization. The Company made the payment of $750,000 on or about September
5, 1996 and in accordance with the terms of Plan Note II, the stated principal
amount was deemed fully satisfied.
Plan Note I further provided that the net proceeds from the sale of Vangard
would be paid to the Bank. In addition, certain other mandatory prepayments of
the stated principal amount were required upon the occurrence of a capital
transaction in which any of the Company's subsidiaries are sold, as well as upon
the receipt of any proceeds resulting from certain causes of action commenced by
the Company. Plan Note I also provided that the full stated principal amount of
approximately $28.0 million would be due and payable upon the occurrence of
specified major events of default.
Effective March 31, 1997, the stated principal amount of Plan Note I was
reduced to $15.0 million. Thereby, permanently removing any contingent amount
due including the additional $12.0 million principal amount, except for the
mandatory prepayments for any capital transactions.
Plan Note I contains certain financial covenants including prohibiting the
Company from exceeding a maximum consolidated intangible deficit, maintaining
various financial ratios and limits the amount of capital expenditures. In
addition, Plan Note I requires the bank's approval of the payment of dividends
and the borrowing of any additional amounts from other parties.
Unsecured Claims - The holders of trade and miscellaneous claims elected to
receive payment of their claims under several options provided for in the Plans
of Reorganization.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required by this item is incorporated by reference to the
Form 10-Q filed by the Company on November 12, 1999.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of the Company's Securities
- ---------------------------------------
The Company's Common Stock trades on the over-the-counter market. The table
below sets forth the range of high and low bid information for the Company's
common stock for the periods indicated, as reported by the NASD OTC Bulletin
Board. Over-the-counter market quotations reflect inter-dealer prices, without
retail markup, markdown or commission and may not necessarily represent actual
transactions.
High Low
---------------- -----------------
2000 Fiscal Year
-----------------------
First Quarter $ .25 $ .19
Second Quarter $ .20 $ .13
Third Quarter $ .16 $ .07
Fourth Quarter $ .53 $ .16
1999 Fiscal Year
-----------------------
First Quarter $ .44 $ .31
Second Quarter $ .40 $ .28
Third Quarter $ .36 $ .17
Fourth Quarter $ .29 $ .26
The Company's warrants to purchase the Company's common stock are traded
through the National Quotation Bureau, LLC. The table below sets forth the range
of high and low bid information for the Company's warrants for the periods
indicated. Over-the-counter market quotations reflect inter-dealer prices,
without retail markup, markdown or commission and may not necessarily represent
actual transactions.
High Low
---------------- -----------------
2000 Fiscal Year
-----------------------
First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
1999 Fiscal Year
-----------------------
First Quarter * *
Second Quarter * *
Third Quarter * *
Fourth Quarter * *
* Quotations not available. The last reported bid for the
Company's warrants occurred on January 4, 1996. At that
time the bid price was 1/32.
As of June 25, 2000, there were approximately 4,000 holders of record of
the Company's common stock.
Historically, the Company has not paid dividends on its common stock and
has no present intention of paying dividends in the foreseeable future. Payment
of dividends is subject to the prior approval by the Company's secured lender,
SouthTrust Bank.
9
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial and operating data
regarding the Company. This information should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and the Company's Financial Statements and Notes thereto. See
"FINANCIAL STATEMENTS."
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------
(In Thousands, Except Earnings Per Share Amounts)
2000 1999 1998 1997 1996
------------ ------------- ------------ ------------ -------------
Income Statement Data:
Net Sales $ 16,981 $ 15,073 $ 12,337 $ 11,169 $ 10,651
Cost of Sales and Other Expenses 15,767 14,740 12,707 10,818 24,691
------------ ------------- ------------ ------------ -------------
Income (Loss) from Continuing Operations
Before Income Taxes, Discontinued Operations and
Extraordinary Gain 1,214 333 (370) 351 (14,040)
Income Tax (Benefit) Expense 0 125 (270) 131 (1,900)
Income (Loss) from Discontinued Operations (2,185) (3,764) (754) (3,005) (17,211)
Gain on Forgiveness of Debt of Discontinued
Operations 1,249 569 0 3,500 0
Gain (Loss) on Disposal of Discontinued Operations 2,221 (2,500) 0 2,200 (5,229)
Extraordinary Gain on Debt Forgiveness 0 0 0 10,097 0
------------ ------------- ------------ ------------ -------------
Net Income (Loss) $ 2,499 $ (5,487) $ (854) $ 13,012 $ (34,580)
============ ============= ============ ============ =============
Net Earnings (Loss) Per Basic and Diluted Share:
From Continuing Operations $ 0.19 $ 0.03 $ (0.02) $ 0.04 $ (2.99)
Income (Loss) from Discontinued Operations 0.20 (0.91) (0.12) 0.47 (5.33)
Extraordinary Gain on Debt Forgiveness 0.00 0.00 0.00 1.76 0.00
------------ ------------- ------------ ------------ -------------
Net Earnings (Loss) Per Basic and Diluted Share $ 0.39 $ (0.88) $ (0.14) $ 2.27 $ (8.52)
============ ============= ============ ============ =============
Average Common Shares Outstanding - Basic and Diluted 6,447 6,233 6,062 5,737 4,059
============ ============= ============ ============ =============
AT MARCH 31,
--------------------------------------------------------------------------
(In Thousands)
Balance Sheet Data: 2000 1999 1998 1997 1996
------------ ------------- ------------ ------------ ----------
Net Working Capital $ 1,702 $ 1,458 $ 1,592 $ 2,916 $ 5,139
Assets 7,866 8,511 11,532 11,380 12,015
Short-Term Debt 1,052 874 294 205 99
Long-Term Debt 13,111 14,915 14,892 15,161 350
Stockholders' Equity (Deficit) (9,037) (11,600) (6,113) (5,416) (18,546)
Liabilities Subject To Compromise 0 0 0 0 29,586
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- --------
During fiscal 2000, the Company continued to implement its strategy of
expansion of its core business, MTS Packaging Systems, Inc. ("MTS Packaging").
In May 1999, the Company sold its Health Care Information business, LifeServ
Technologies, Inc. ("LifeServ"). A gain on disposal of approximately $1,800,000
was recognized on this transaction in the first quarter of fiscal 2000. In
addition, the Company sold its Clinical Laboratory Services business, Medical
Technology Laboratories, Inc. ("MTL"). A gain on disposal of approximately
$399,000 was recognized on this transaction during the fourth quarter of fiscal
2000. As a result, the operations of both business segments have been treated as
discontinued for financial statement purposes.
Fiscal Year 2000 Compared to Fiscal Year 1999
- ---------------------------------------------
Results of Continuing Operations
- --------------------------------
Net Sales
- ---------
Net sales for the fiscal year ended March 31, 2000 increased 12.7% to $17.0
million from $15.1 million the prior fiscal year. Net Sales increased in fiscal
2000 primarily as a result of an increase in the amount of disposable punch
cards sold to new and existing customers. In addition, prices for machines sold
increased approximately 10% and prices for disposables increased approximately
2.5%. The Company anticipates that pricing on disposables could experience
downward pressure as reimbursement amounts received by customers from the end
user of the products sold continue to be reduced. The volume of disposable cards
is anticipated to continue to grow as a result of reduced medication dispensing
cycles. The reduced cycles implemented by pharmacies has resulted from
reductions in reimbursements introduced with the Medicare prospective payment
system in July 1999. In addition, the development of new markets for the
Company's disposable products has contributed to the increase in net sales.
Cost of Sales
- -------------
Cost of sales for the year ended March 31, 2000 increased 9.4% to $9.2
million from $8.4 million in the prior year. Cost of sales as a percentage of
sales decreased to 54.0% from 55.6%. The increase in cost of sales resulted from
the costs associated with the increased net sales. The decrease in cost of sales
as a percentage of sales resulted primarily from increased net sales that did
not require increases in certain fixed costs of operations. The decrease was
partially offset by increases in the direct costs of raw material and labor.
Direct costs are expected to continue to increase. The Company attempts to make
corresponding adjustments to the prices of its products, however, there can be
no assurance that competitive factors will allow for adjustments in selling
prices in the future.
Selling, General and Administrative Expenses ("SG&A")
- -----------------------------------------------------
SG&A expenses for the year ended March 31, 2000 increased 1% to $4.4
million compared to $4.3 million the prior year. Although reductions in
corporate overhead costs resulting from the disposition of LifeServ and MTL were
realized in fiscal 2000, sales and marketing costs increased to accommodate
increases in net sales generated by MTS Packaging.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense decreased 1.5% to $861,000 in fiscal
2000 from $874,000 the prior year. The decrease resulted from older assets
becoming fully depreciated.
Interest Expense
- ----------------
Interest expense increased nominally in fiscal 2000.
11
Income Tax
- ----------
Income tax expense has not been recognized in fiscal 2000 due to the fact
that the Company has approximately $12.4 million of carryforward losses that are
available to offset taxable income. See Note 14 of the consolidated financial
statements for further discussion regarding income taxes.
Results of Discontinued Operations
- ----------------------------------
Loss from Operations of Discontinued Operations
- -----------------------------------------------
The Company operated two businesses during fiscal 2000 that were accounted
for as discontinued operations. The operations of LifeServ, the Health Care
Information Systems segment, resulted in a loss from discontinued operations of
$524,000 in fiscal 2000 compared to a loss of $3.7 million the prior year. The
operations of MTL, the Clinical Laboratory Services segment, resulted in a loss
from discontinued operations of $2,225,000 in fiscal 2000, $500,000 of which was
estimated and recorded in fiscal 1999, compared to a loss of $164,000 the prior
year. The actual loss incurred in fiscal 2000 exceeded the loss that was
estimated in fiscal 1999 due to the length of time that elapsed from the date
that a buyer for the business was identified and the date the sale of the
business ultimately concluded.
Gain on Forgiveness of Debt of Discontinued Operations
- ------------------------------------------------------
The Company negotiated several settlements with creditors of MTL during
fiscal 2000. The settlements resulted in a gain on forgiveness of debt of
discontinued operations of $1,249,000 in fiscal 2000.
A plan of reorganization in the Chapter 11 Bankruptcy of a subsidiary
included in the Company's Health Care Information Systems business segment was
approved in fiscal 1999. The plan of reorganization provided for reductions of
the amounts owed to both secured and unsecured creditors. The reduction, less
certain expenses related to the reorganization, of $569,000 has been recognized
as an extraordinary gain included within discontinued operations.
Gain on Disposal of Discontinued Operations
- -------------------------------------------
The Company sold the assets of LifeServ and MTL during fiscal 2000. The
sale of the LifeServ assets resulted in a gain of $1.8 million and the sale of
the MTL assets resulted in a gain of $399,000. In fiscal 1999, the Company
estimated that the disposal of MTL would result in a loss of $2.5 million and
recorded a charge in that amount. At that time, the Company was uncertain if a
buyer would be identified for the business or if the business would be
abandoned. During the second quarter of fiscal 2000, the Company commenced
negotiations with a buyer and ultimately sold the business in the fourth quarter
of fiscal 2000. The terms of the ultimate sale of the business were more
favorable than the Company had estimated in fiscal 1999 and resulted in a gain
on the disposal rather than a loss.
Results of Continued Operations
- -------------------------------
Fiscal Year 1999 Compared to Fiscal Year 1998
- ---------------------------------------------
Net Sales
- ---------
Net sales for the fiscal year ended March 31, 1999 increased 22.2% to $15.0
million from $12.3 million the prior fiscal year. Net sales increased in fiscal
1999 primarily as a result of an increase in the amount of disposable punch
cards and packaging machines sold to existing customers. In addition, prices for
machines sold increased approximately 2% and prices for disposables decreased
approximately 1%. The Company anticipates that pricing on disposables could
continue to experience downward pressure as reimbursement amounts received by
customers from the end user of the products sold continue to be reduced. The
volume of disposable punch cards and machines is anticipated to continue to grow
as a result of consolidation of the Company's customer base and new business
development.
12
Cost of Sales
- -------------
Cost of sales for the year ended March 31, 1999 increased 20.3% to $8.4
million from $6.9 million in the prior year. Cost of sales as a percentage of
sales decreased to 55.6% from 56.4%. The increase in cost of sales resulted from
increased the costs associated with the net sales. The decrease in cost of sales
as a percentage of sales resulted primarily from increased net sales that did
not require increases in certain fixed costs of operations. The decrease was
partially offset by increases in costs of raw material and labor.
Selling, General and Administrative Expenses ("SG&A")
- -----------------------------------------------------
SG&A expenses for the year ended March 31, 1999 increased 16.2% to $4.3
million compared to $3.7 million the prior year. The increase resulted primarily
from increases in personnel and selling costs associated with the increase in
net sales.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense decreased 8.9% to $874,000 in fiscal
1999 from $959,000 the prior year. The decrease resulted from the fact that
certain assets became fully depreciated during fiscal 1999.
Interest Expense
- ----------------
Interest expense increased 9.1% to $1.2 million in fiscal 1999 from $1.1
million in the prior year. The increase resulted primarily from additional
borrowing in fiscal 1999 to support working capital needs of discontinued
operations.
Income Taxes
- ------------
The Company realized an income tax benefit in fiscal 1998 as a result of an
income tax refund related to the amendment of its 1992 income tax return. The
Company recorded income tax expense of $125,000, which was offset by a benefit
of $125,000, included in discontinued operations.
Loss from Operations of Discontinued Operations
- -----------------------------------------------
The Company discontinued the operations of two business segments during
fiscal 1999. The operations of one discontinued business segment, the Health
Care Information Systems segment, resulted in a loss from discontinued
operations of $3.7 million in fiscal 1999 compared to a loss of $1.2 million the
prior year. The operations of the other discontinued business segment, the
Clinical Laboratory Services segment, resulted in a loss from discontinued
operations of $164,000 in fiscal 1999 compared to a profit of $460,000 the prior
year.
Gain on Forgiveness of Debt of Discontinued Operations
- ------------------------------------------------------
A plan of reorganization in the Chapter 11 Bankruptcy of a subsidiary
included in the Company's Health Care Information Systems business segment was
approved in fiscal 1999. The plan of reorganization provided for reductions of
the amounts owed to both secured and unsecured creditors. The reduction, less
certain expenses related to the reorganization, of $569,000 has been recognized
as an extraordinary gain included within discontinued operations.
Year 2000 Compliance
- --------------------
The Company did not experience any significant interruptions or
difficulties related to Y2K readiness, however, internal systems as well as
third party compliance continues to be monitored. Notwithstanding the foregoing,
there can be no assurances that difficulties will not arise that may have a
material adverse effect on the operations of the Company.
13
Liquidity and Capital Resources
- -------------------------------
The Company had net income of $2.5 million in fiscal 2000 compared to a net
loss of $5.5 million the prior year. Cash provided from continuing operations
was $1.8 million in fiscal 2000 compared to $1.1 million the prior year.
Investing activities of continuing operations used $623,000 in fiscal 2000
compared to $665,000 in fiscal 1999. The decrease resulted primarily from a
decrease in amounts expended for acquisitions, patents and other assets. The
decrease was partially offset by an increase in expenditures for equipment.
Financing activities of continuing operations used $1,215,000 in fiscal
2000 compared to $713,000 the prior year. The increase resulted primarily from
principal payments made on the Company's long-term debt. The Company's loan
agreement required interest only payments until September 1998 and principal
payments commencing in October 1998. In addition, in fiscal 2000, approximately
$900,000 of the proceeds of the sale of the MTL assets were used to reduce the
Company's bank indebtedness.
The Company had working capital of approximately $1,702,000 at March 31,
2000 and has no source of additional working capital other than that which is
generated from operations.
The Company's short-term and long-term liquidity is primarily dependent on
its ability to generate cash flow from operations. Inventory levels are not
expected to change significantly based upon the Company's current level of
operation. Increases in net sales have generally resulted in corresponding
increases in accounts receivable. Cash flow from operations is anticipated to
support an increase in accounts receivable.
The Company has several new product development projects underway that are
expected to be funded by cash flow from operations. These projects are monitored
on a regular basis to attempt to ensure that the anticipated costs associated
with them do not exceed the Company's ability to fund them from cash flow from
operations.
On July 6, 2000, the Company and its secured lenders agreed to modify their
loan agreement. The modifications included increases in the monthly principal
payments, an increase in the maximum amount payable pursuant to the excess cash
flow payment provisions, a change in the excess cash flow payment formula and
changes to certain financial covenants contained in the agreement. Upon the
execution of the modification agreement, the Company made a one-time principal
payment of $200,000 to the bank that represented the excess cash flow payments
that were due and payable as of March 31, 2000.
The Company believes that cash generated from operations during the next
fiscal year will be sufficient to meet its capital expenditures, product
development, working capital needs and the principal payments required by its
modified loan agreement.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not have any material market risk sensitive financial
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are contained at the end of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
14
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement, which
will be filed by the Company within 120 days after the end of the Company's 2000
fiscal year.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement, which
will be filed by the Company within 120 days after the end of the Company's 2000
fiscal year.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement, which
will be filed by the Company within 120 days after the end of the Company's 2000
fiscal year.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the information included in the Company's definitive proxy statement, which
will be filed by the Company within 120 days after the end of the Company's 2000
fiscal year.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. and 2. The Financial Statements and schedule filed as part of this report are listed separately in the
Index to Financial Statements beginning on page 24 of this report
3. For Exhibits, see Item 14(c) below. Each management contract or compensatory plan or arrangement
required to be filed as an Exhibit hereto is listed in Exhibit Nos. 10.20, 10.21, 10.22, 10.23,
10.24 and 10.25 of Item 14(c) below.
(b) No reports on Form 8-K have been filed by the Company during the last quarter of the
year ended March 31, 1998
(c) List of Exhibits
2.1(10) Agreement and Plan of Merger between Medication Management Technologies, Inc. and Cygnet
Technologies, Inc. dated April 24, 1997
2.2(11) Sale Agreement Vangard Labs, Inc. and NCS Healthcare, Inc. dated April 17, 1997
2.3(13) Asset Acquisition Agreement effective April 30, 1998 among the Company, LifeServ Technologies,
Peritronics Medical, Ltd. and 562577 B.C., Ltd.
2.4(12) Medication Management Technologies, Inc. Plan of Reorganization
2.5(9) MTS Packaging Systems, Inc. Plan of Reorganization
2.6(9) Medical Technology Laboratories, Inc. Plan of Reorganization
2.7(9) MTS Sales and Marketing, Inc. Plan of Reorganization
2.8(9) Vangard Labs, Inc. Plan of Reorganization
**3.1 Articles of Incorporation and Amendments thereto
*3.1(a) Amendment to Articles of Incorporation increasing authorized Common Stock to 25,000,000 from
15,000,000 shares
**3.2 Bylaws of the Company
*4.1 Form of Warrant from July 1992 Offering
**4.1(a) Form of Initial Offering Warrant from January 1988 Offering
**4.2 Designation of Rights, Preferences and Limitations of Voting Preferred Stock
**10.1 Business Lease between Leslie A. Rubin, Limited, as Lessor and the Company as Lessee dated March
1987
**10.2 Siegel Family Revocable Trust Agreement
10.2(a) (8) Amendment and Restated Siegel Family Revocable Trust Agreement
10.2(b) (8) Siegel Family Limited Partnership Agreement
**10.3(a) Agreements and Assignments of Patent Rights between Harold B. Siegel and the Siegel Family
Revocable Trust
**10.3(b) License Agreement between the Company and the Siegel Family Revocable Trust
**10.3(c) Assignment of Trade Names, Licenses, and Accounts Receivable from DRG Consultants, Inc. to the Company
**10.4 Agreement for Sale of Stock between Lawrence E. Steinberg and the Company dated April 27, 1987
**10.5 Warrant Agreement between Lawrence E. Steinberg and the Company dated April 27, 1987
**10.6 Warrant Agreement between Overseas Group and the Company dated May 8, 1987
**10.7 Option Agreement between the Siegel Family Revocable Trust and Lawrence E. Steinberg dated
December 18, 1987
***10.8 Pilot Project and Option Agreement between Sandoz and the Company
****10.9 Documents relating to the acquisition of the business of Ohio Label & Packaging Inc. dated
November 3, 1989
*10.10 Agreement among Company, Trust and Harold B. Siegel regarding modification to royalty arrangements
and issuance of Common Stock and retirement of preferred stock dated September 2, 1990
10.11(1) Acquisition and financing documents relating to Clearwater Medical Services, Inc.
10.12(2) Acquisition and financial documents relating to Clearwater Diagnostic Center, Inc.
10.13(3) Stock Purchase Agreement for Vangard Labs, Inc.
10.14(4) Warrant Agreement between Ladenburg Thalman & Co. and the Company
10.15(5) Loan and Security Agreement dated December 1, 1992 with Daiwa Bank, Limited
16
10.16(6) Amended and Restated Loan and Security Agreement dated September 28, 1993 with SouthTrust Bank of Alabama
10.17(7) First Amendment to Amended and Restated Loan and Security Agreement dated April 25, 1994 with
SouthTrust Bank of Alabama
10.18(7) Addendum to Lease dated September 30, 1993 with Leslie A. Rubin for facilities located at 12920
and 12910 Automobile Boulevard, Clearwater, Florida
10.19(7) Lease effective August 2, 1993 by and between C & C Park Building and Medical Technology Systems,
Inc. for property located at 21540 Drake Road, Strongsville, Ohio
10.20(7) Form of 1994 Stock Option Plan
10.21(7) Form of Employment Agreement for Todd Siegel and Gerald Couture
10.22(7) Form of Executive Stock Appreciation Rights and Non-Qualified Stock Option Agreement
10.23(7) Form of Director's Stock Option Agreement
10.24(7) Form of Directors' Consulting Agreement
10.25(7) Form of Director/Officer Indemnification Agreement
10.26(7) Joint Venture Agreement between MedVantage, Inc. and the Company dated January 5, 1995
10.27(7) Third Amendment to Amended and Restated Loan and Security Agreement effective March 28, 1995
10.28(10) Form of Executive Director's Agreement for Gerald Couture
10.29(10) Stock Option Plan dated March 4, 1997
10.30(10) Stock Option Agreement with David Kazarian
10.31(13) Stock Subscription Agreement, dated April 28, 1998, between the Company and LifeServ Technologies, Inc.
10.32(13) Loan Agreement dated May 13, 1998, between Ella Kedan and LifeServ Technologies, Inc., Performance
Pharmacy Systems, Inc., Cart-Ware Inc., Medication Management Systems, Inc. and Systems
Professional, Inc. and related Promissory Note and Security Agreement.
10.33(13) Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
10.34(13) Form of Warrant dated May 13, 1998 between the Company and Ella Kedan
10.35(13) Form of Warrant dated May 13, 1998 between LifeServ and Ella Kedan
10.36(13) LINC Capital, Inc. - Sale and Leaseback Agreement dated February 23, 1998
10.37(13) Employment Agreement between LifeServ Technologies, Inc. and Michael T. Felix dated April 1, 1998
10.38(13) Employment Agreement between Medical Technology Systems, Inc. and Michael P. Conroy dated March 1, 1998
10.39(13) Amendment to Second Amended and Restated Loan and Security Agreement between the Company and
SouthTrust Bank dated April 16, 1998
10.40(14) Asset Acquisition Agreement dated August 4, 1998 between Medical Technology Laboratories, Inc. and
Community Clinical Laboratories, Inc.
10.41(14) Loan Agreement dated May 13, 1998, between Stanley D. Estrin Irrevocable Trust dtd March 16, 1993,
Judith C. Estrin, Trustee and Medical Technology Systems, Inc.
10.42(14) Form of Warrant dated May 13, 1998, between Stanley D. Estrin Irrevocable Trust dtd March 16,
1993, Judith C. Estrin, Trustee and Medical Technology Systems, Inc.
10.43(14) Form of Warrant dated May 13, 1998, between Stanley D. Estrin Irrevocable Trust dtd March 16,
1993, Judith C. Estrin, Trustee and Medical Technology Systems, Inc.
10.44(14) Loan Agreement dated August 7, 1998, between Sally Siegel and Medical Technology Systems, Inc.
10.45(14) Form of Warrant dated August 7, 1998, between Sally Siegel and Medical Technology Systems, Inc.
10.46(14) Form of Warrant dated August 7, 1998, between Sally Siegel and Medical Technology Systems, Inc.
10.47(14) Loan Agreement dated August 18, 1998, between Todd and Shelia Siegel and Medical Technology
Systems, Inc.
10.48(14) Form of Warrant dated August 18, 1998, between Todd and Shelia Siegel and Medical Technology
Systems, Inc.
10.49(14) Form of Warrant dated August 18, 1998, between Todd and Shelia Siegel and Medical Technology
Systems, Inc.
10.50(15) Asset Acquisition Agreement dated May 25, 1999 between LifeServ Technologies, Inc., Medical
Technology Systems, Inc. and AIMCare, Inc.
10.51(16) Loan Agreement dated October 16, 1998, between Joan L. Fitterling, as Trustee, or her successor in
Trust of the Joan L. Fitterling Revocable Trust dated August 15, 1995 and Medical Technology
Systems, Inc.
10.52(16) Form of Warrant dated October 16, 1998, between Joan L. Fitterling, as Trustee, or her successor
in Trust of the Joan L. Fitterling Revocable Trust dated August 15, 1995 and Medical Technology
Systems, Inc.
17
10.53(16) Form of Warrant dated October 16, 1998, between Joan L. Fitterling, as Trustee, or her successor
in Trust of the Joan L. Fitterling Revocable Trust dated August 15, 1995 and Medical Technology
Systems, Inc.
10.53(16) Form of Warrant dated October 16, 1998, between Joan L. Fitterling, as Trustee, or her successor
in Trust of the Joan L. Fitterling Revocable Trust dated August 15, 1995 and Medical Technology
Systems, Inc.
10.54(17) Fourth Amendment to Warrant Agreement dated July 16, 1999
10.55(18) Management Agreement between Medical Technology Systems, Inc., Medical Technology Laboratories,
Inc. and Brittany Leigh, Inc. dated September 8, 1999
10.56(19) Asset Purchase Agreement dated January 1, 2000 between Medical Technology Systems, Inc., Medical
Technology Laboratories, Inc. and Brittany Leigh, Inc.
10.57(20) Second Amendment to Second Amended and Restated Loan and Security Agreement between the Company and
SouthTrust Bank dated July 6, 2000 and the Consent and Re-Affirmation of Guaranty and Loan Documents
dated July 6, 2000.
27(20) Financial Data Schedule
* Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement No.
33-40678 filed with the Commission on May 17, 1991
** Incorporated herein by reference to same Exhibit(s), respectively, Registration Statement
(SEC File No. 33-17852)
*** Incorporated herein by reference to Form 8-K filed on November 18, 1988
**** Incorporated herein by reference to Form 8-K filed on November 16, 1989
(1) Incorporated herein by reference to Form 8-K for event dated November 8, 1991
(2) Incorporated herein by reference to Form 8-K for event dated November 14, 1991
(3) Incorporated herein by reference to Form 8-K for event dated May 27, 1991
(4) Incorporated herein by reference to Form S-3 filed April 16, 1993
(5) Incorporated herein by reference to Form 10-K for year ended March 31, 1993
(6) Incorporated herein by reference to Post Effective Amendment No. 1 to Form S-1 (File No. 33-40678)
dated October 14, 1993
(7) Incorporated herein by reference to Form 10-K for year ended March 31, 1995
(8) Incorporated herein by reference to Form 10-K for year ended March 31, 1996
(9) Incorporated herein by reference to Form 10-Q dated November 11, 1996 for the quarter ended
September 30, 1996
(10) Incorporated herein by reference to Form 10-K for the year ended March 31, 1997
(11) Incorporated herein by reference to Form 8-K dated May 2, 1997
(12) Incorporated herein by reference to Form 10-Q dated February 13, 1998 for the quarter ended
December 31, 1997
(13) Incorporated herein by reference to Form 10-K for the year ended March 31, 1998
(14) Incorporated herein by reference to Form 10Q filed November 12, 1998 for quarter ending September
30, 1998
(15) Incorporated herein by reference to Form 8K filed on June 9, 1999 for event dated May 25, 1999
(16) Incorporated herein by reference to Form 10-K for year ended March 31, 1999
(17) Incorporated herein by reference to Form 8-K filed July 16, 1999
(18) Incorporated herein by reference to Form 10-Q dated November 12, 1999 for the quarter ending
September 30, 1999
(19) Incorporated herein by reference to Form 8-K filed January 18, 2999
(20) Filed herewith
18
MEDICAL TECHNOLOGY SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........................ 19
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000 and 1999........... 20
Consolidated Statements of Operations for the years ended
March 31, 2000, 1999 and 1998..................................... 21
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
for the years ended March 31, 2000, 1999 and 1998................. 22
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999 and 1998.................................... 23
Notes to Consolidated Financial Statements.......................... 24-41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE............................................... 43
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts..................... S-1
All other schedules are omitted since the required information is not
present in amount sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
19
Report of Independent Certified Public Accountants
Board of Directors
Medical Technology Systems, Inc. and Subsidiaries
Clearwater, Florida
We have audited the accompanying consolidated balance sheets of Medical
Technology Systems, Inc. and Subsidiaries as of March 31, 2000 and 1999 and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the three years in the period ended March
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Medical
Technology Systems, Inc. and Subsidiaries as of March 31, 2000 and 1999, and the
consolidated results of operations and cash flows for each of the three years in
the period ended March 31, 2000 in conformity with accounting principles
generally accepted in the United States.
GRANT THORNTON LLP
Tampa, Florida
June 29, 2000, except for paragraph 2 of Note 9 on Page 31 of the Notes to the
Consolidated Financial Statements, as to which the date is July 6, 2000.
20
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
(In Thousands)
ASSETS
2000 1999
--------------- ---------------
Current Assets:
Cash $ 172 $ 205
Accounts Receivable, Net 2,601 2,473
Inventories 2,030 1,990
Prepaids and Other 86 69
------------- -------------
Total Current Assets 4,889 4,737
Property and Equipment, Net 1,904 2,013
Other Assets, Net 1,073 1,761
--------------- ---------------
Total Assets $ 7,866 $ 8,511
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current Maturities of Long-Term Debt $ 1,052 $ 874
Accounts Payable and Accrued Liabilities 2,135 2,405
--------------- ---------------
Total Current Liabilities 3,187 3,279
Net Liabilities of Discontinued Operations 605 1,917
Long-Term Debt, Less Current Maturities 13,111 14,915
--------------- ---------------
Total Liabilities 16,903 20,111
--------------- ---------------
Stockholders' Equity (Deficit):
Voting Preferred Stock 1 1
Common Stock 65 64
Capital In Excess of Par Value 8,646 8,583
Accumulated Deficit (17,421) (19,920)
Less: Treasury Stock (328) (328)
--------------- ---------------
Total Stockholders' Equity (Deficit) (9,037) (11,600)
--------------- ---------------
Total Liabilities and Stockholders' Equity (Deficit) $ 7,866 $ 8,511
=============== ===============
The accompanying notes are an integral part of these financial statements.
21
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
(In Thousands; except Earnings Per Share Amounts)
2000 1999 1998
-------------- -------------- --------------
Net Sales $ 16,981 $ 15,073 $ 12,337
Costs and Expenses:
Cost of Sales 9,170 8,381 6,964
Selling, General and Administrative 4,370 4,327 3,723
Research and Development 207 0 0
Depreciation and Amortization 861 874 959
Interest 1,159 1,158 1,061
-------------- -------------- --------------
Total Costs and Expenses 15,767 14,740 12,707
-------------- -------------- --------------
Income (Loss) from Continuing Operations Before
Income Taxes, Discontinued Operations and
Extraordinary Gain 1,214 333 (370)
Income Tax Expense (Benefit) 0 125 (270)
-------------- -------------- --------------
Income (Loss) from Continuing Operations Before
Discontinued Operations and Extraordinary Gain 1,214 208 (100)
Loss from Operations of Discontinued Operations (2,185) (3,764) (754)
Gain on Forgiveness of Debt of Discontinued Operations 1,249 569 0
Gain (Loss) on Disposal of Discontinued Operations 2,221 (2,500) 0
-------------- -------------- --------------
Net Income (Loss) $ 2,499 $ (5,487) $ (854)
============== ============== ==============
Net Income (Loss) per Basic and Diluted Common Share:
Income (Loss) from Continuing Operations $ 0.19 $ 0.03 $ (0.02)
Income (Loss) from Discontinued Operations 0.20 (0.91) (0.12)
-------------- -------------- --------------
Net Income (Loss) per Basic and Diluted Common Share $ 0.39 $ (0.88) $ (0.14)
============== ============== ==============
Weighted average Common Shares Outstanding - Basic and Diluted 6,447 6,233 6,062
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
22
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
(In Thousands Except Share Data)
COMMON STOCK
--------------------------------------------------------------------------------------
Number Par Capital in Retained Treasury
of Value Excess of Earnings Stock Total
Shares Par Value (Deficit)
----------- ----------- ----------- ------------ ------------ -----------
Balance, March 31, 1997 5,957,173 $ 60 $ 8,433 $ (13,579) $ (331) $ (5,417)
Stock Issued 172,500 2 155 157
Net Loss for Year Ended
March 31, 1998 (854) (854)
--------------------------------------------------------------------------------------
Balance, March 31, 1998 6,129,673 $ 62 $ 8,588 $ (14,433) $ (331) $ (6,114)
Stock Cancellation (10,800) (3) 3
Stock Issued 287,318 2 (2)
Net Loss for Year Ended
March 31, 1999 (5,487) (5,487)
--------------------------------------------------------------------------------------
Balance, March 31, 1999 6,406,191 $ 64 $ 8,583 $ (19,920) $ (328) $ (11,601)
Stock Issued 136,430 1 38 39
Debt Conversion 25 25
Net Income for Year Ended
March 31, 2000 2,499 2,499
--------------------------------------------------------------------------------------
Balance, March 31, 2000 6,542,621 $ 65 $ 8,646 $ (17,421) $ (328) $ (9,038)
=========== =========== =========== ============ ============ ===========
VOTING PREFERRED STOCK
--------------------------------------------------------------------------------------
Number $0001.
of Par
Shares Value
----------- -----------
Balance, March 31, 1998 6,500,000 $ 1 $ 1
----------- ----------- -----------
Balance, March 31, 1999 6,500,000 $ 1 $ 1
----------- ----------- -----------
Balance, March 31, 2000 6,500,000 $ 1 $ 1
----------- ----------- -----------
Total Stockholders' (Deficit)
March 31, 2000 $ (9,037)
===========
The accompanying notes are an integral part of these financial statements.
23
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
(In Thousands)
2000 1999 1998
------------- ------------- -------------
Operating Activities
Net Income (Loss) from Continuing Operations $ 1,214 $ 208 $ (100)
------------- ------------- --------------
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Issuance of Stock for Services 24 0 0
Depreciation and Amortization 861 874 959
Legal Settlements 0 226 0
Loss on Early Retirement of Fixed Assets 0 21 7
Deferred Income Taxes 0 125 0
(Increase) Decrease in:
Accounts Receivable (128) (541) (584)
Inventories (40) (110) (114)
Prepaids and Other (17) 29 59
Other Receivables 0 0 350
Other Assets 0 0 (230)
Increase (Decrease) in:
Accounts Payable and Other Accrued Liabilities (108) 285 1,244
------------- ------------- --------------
Total Adjustments 592 909 1,691
------------- ------------- --------------
Net Cash Provided by Continuing Operations 1,806 1,117 1,591
------------- -------------- --------------
Investing Activities
Expended for Property and Equipment (494) (297) (198)
Expended for Product Development (112) (159) (196)
Expended for Patents and Other Assets (18) (114) (48)
Expended for Acquisition, Net of Cash Acquired 0 (95) 0
------------- -------------- --------------
Net Cash (Used) by Investing Activities of Continuing Operations (624) (665) (442)
------------- -------------- --------------
Financing Activities
Payments on Notes Payable and Long-Term Debt (1,601) (309) (44)
Advances from (to) Affiliates - Discontinued Operations 386 (754) (1,406)
Issuance of Common Stock 0 0 7
Proceeds from Borrowing on Notes Payable and Long-Term Debt 0 350 0
------------- -------------- --------------
Net Cash (Used) by Financing Activities of Continuing Operations (1,215) (713) (1,443)
------------- -------------- --------------
Net Decrease in Cash - Continuing Operations (33) (261) (294)
Cash at Beginning of Period - Continuing Operations 205 466 760
------------- -------------- --------------
Cash at End of Period - Continuing Operations $ 172 $ 205 $ 466
============= ============== ==============
See Note 19 for supplemental disclosures of other cash flow information.
The accompanying notes are an integral part of these financial statements.
24
MEDICAL TECHNOLOGY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
NOTE 1 - BACKGROUND INFORMATION
Medical Technology Systems, Inc. (the "Company") is a Delaware corporation,
incorporated in March of 1984. The Company is a holding company that
historically operated through a number of separate subsidiaries providing a
diverse line of proprietary medication dispensing systems, clinical information
systems and laboratory services to the health care industry. The Company's
principal businesses previously consisted of the following reportable segments:
(i) the core business of manufacturing and selling proprietary medication
dispensing systems, which include punch cards for use by pharmacies in
dispensing prescription medicines; (ii) the Health Care Information Systems
business consisting of the Performance(TM) pharmacy software, the MedServ and
E-mar computerized medication management systems for hospitals and other health
care facilities, and Cygnet, the fetal monitoring and archiving information
systems for obstetrical clinics of hospitals and doctors' offices; and (iii) the
Clinical Laboratory Services business of supplying anatomical diagnostic testing
services to the medical profession.
During fiscal year ended March 31, 2000, the Company sold the principal
assets of LifeServ Technologies, Inc. ("LifeServ"), its Health Care Information
Systems business and Medical Technology Laboratories, Inc. ("MTL"), its Clinical
Laboratory Services business. The operations of both businesses have been
treated as discontinued in the accompanying financial statements. The Company
realized a gain on the disposal of both businesses and a gain on the forgiveness
of certain indebtedness of MTL (See Note 3).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
- -------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries, MTS Packaging Systems, Inc. ("MTS Packaging"), MTL and
LifeServ. MTL and LifeServ represent discontinued operations, and accordingly,
these discontinued segments' net assets or net liabilities are shown as one
amount under the captions "Net Liabilities of Discontinued Operations". The
results of operations of these discontinued segments for 2000, 1999 and 1998
have been excluded from the components of "Income (Loss) from Continuing
Operations" and shown under the caption "Loss from Operations of Discontinued
Operations" in the Statements of Operations. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Discontinued Operations
- -----------------------
The Company`s Health Care Information Systems business (LifeServ) and its
Clinical Laboratory Services business (MTL) were classified as discontinued
operations. The assets of LifeServ were sold in May 1999 and the assets of MTL
were sold in January 2000. Certain accounts receivable of MTL were retained by
MTL. The ongoing operations of MTL is limited to the collection of these
accounts receivable.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. The Company has estimated the net realizable value of the
accounts receivable that were retained by MTL. Actual collections of the
accounts receivable could differ materially from the estimate.
Cash
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. There were no cash equivalents for all periods
presented.
25
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out ("FIFO") method. As of March 31, 2000 and 1999, the
Company has established an inventory valuation allowance of $40,000 and $140,000
respectively, to account for the estimated loss in value of inventory due to
obsolescence. The Company will continue to evaluate the inventory and review the
valuation allowance if deemed necessary.
Revenue Recognition
- -------------------
The Company recognizes revenue when products are shipped by MTS Packaging.
MTL (discontinued operations) recognizes revenue from the clinical laboratory
services net of estimated contractual adjustments resulting from the unpaid
portion of the assigned insurance billings and other third party payers, as
services are performed. LifeServ (discontinued operations) recognizes revenue
when systems are placed in service.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Additions to and major
improvements of property and equipment are capitalized. Maintenance and repair
expenditures are charged to expense as incurred. As property and equipment is
sold or retired, the applicable cost and accumulated depreciation is eliminated
from the accounts and any gain or loss recorded. Depreciation and amortization
are calculated using the straight-line method based upon the assets' estimated
useful lives as follows:
Years
Property and Equipment........................................ 3-7
Leasehold Improvements........................................ 5
The Company uses accelerated methods of depreciation for tax purposes.
Software and Product Development Cost
- -------------------------------------
Effective April 1, 1998, the Company implemented the AICPA's SOP No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The SOP segments an internal use software project into stages and
the accounting is based on the stage in which a cost is incurred. Costs related
to the preliminary project stage are expensed as incurred. Specified costs
related to the application development stage are capitalized if the preliminary
project is complete, management has authorized the project, and completion of
the project is probable. Costs incurred in the post-implementation/operation
stage for training and maintenance are expensed as incurred. The implementation
of SOP 98-1 did not have a material effect on the Company's financial
statements.
Goodwill
- --------
Goodwill represents amounts paid in excess of fair market value of assets
acquired by the Company in the purchase of other companies. These amounts are
amortized over a ten-year period. See the Accounting for Impairment Note below
and Note 8.
Other Assets
- ------------
Other assets are carried at cost less accumulated amortization, which is
being provided on a straight-line basis over a five to seventeen year period.
26
Earnings (Loss) Per Share
- -------------------------
Earnings per share are computed using the basic and diluted calculations on
the face of the statement of operations. Basic earnings per share is calculated
by dividing net income (loss) by the weighted average number of shares of common
stock outstanding for the period. Diluted earnings per share is calculated by
dividing net income by the weighted average number of shares of common stock
outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, using the treasury stock method (see Note 17).
Research and Development
- ------------------------
The Company expenses research and development costs as incurred. During
fiscal 2000, the Company incurred approximately $207,000 in research and
development costs. During fiscal 1999 and 1998, the Company dedicated its
resources to the completion of product development projects and therefore did
not incur any material research and development costs.
Income Taxes
- ------------
Income taxes are provided for under the liability method in accordance with
FASB No. 109, "Accounting for Income Taxes", whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Treasury Stock
- --------------
The Company records its treasury stock at cost.
Stock Based Employee Compensation
- ---------------------------------
The Company accounts for its stock options granted to employees in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of granting the
stock options only if the current market price of the underlying stock exceeded
the exercise price. As permitted by SFAS No. 123, Accounting for Stock-Based
Compensation, the Company also provides certain pro forma disclosure provisions
of Statement 123 (See Note 15).
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
- ---------------------------------------------------------------------
Long-lived assets and certain identifiable intangibles, including goodwill,
to be held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the assets
and their eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the assets, an impairment loss is recognized. Long-lived assets and certain
identifiable intangibles to be disposed of are to be reported at the lower of
the carrying amount or the fair value less cost to sell, except for assets that
are related to discontinued operations, which are reported at the lower of
carrying value or net realizable value. There were no impairment losses
recognized in 2000, 1999 and 1998. In conjunction with discontinued operations
(see Note 3), there were valuation adjustments made in 1999.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of cash receivables, accounts payable and accrued
liabilities approximate fair value because of the short-term nature of the
items.
27
The carrying amount of current and long-term portions of long-term debt
pproximates fair value since the interest rates approximate current prevailing
market rates.
Segment Information
- -------------------
The Company has adopted SFAS No. 131 "Disclosures about Segments of a
Business Enterprise". As continuing operations of the Company are conducted
through one business segment as of March 31, 1999 (see Note 3), segment
disclosures, as previously reported, are not provided for in these financial
statements.
NOTE 3 - DISCONTINUED OPERATIONS
During fiscal 2000, the Company implemented a strategy of focusing its
resources in its core business, MTS Packaging, and divesting of the other two
business segments it historically operated.
In May 1999, the Company sold LifeServ, its Health Care Information Systems
business segment. The Asset Acquisition Agreement provided, among other things,
for the buyer to receive substantially all the assets of LifeServ in
consideration of the assumption of certain stated liabilities of approximately
$5 million. Revenue from the operations of LifeServ during fiscal 2000, 1999 and
1998 were $454,000, $5.2 million and $4.3 million respectively. The operations
of LifeServ during fiscal 2000 resulted in a loss of approximately $524,000 and
a gain on disposal of $1.8 million.
In January 2000, the Company sold the principal assets of MTL. MTL received
$1,000,000 for the assets that were comprised of equipment, goodwill and certain
accounts receivable. In addition, the buyer assumed approximately $400,000 in
liabilities of MTL. Revenue from the operations of MTL during fiscal 2000, 1999
and 1998 were $7.9 million, $14.0 million and $7.4 million respectively. The
operations of MTL during fiscal 2000 resulted in a loss of $2,225,000 of which
$500,000 was estimated and recorded in fiscal 1999. In addition, a gain on
disposal of $399,000 was realized in fiscal 2000 and a gain on debt forgiveness
of $1,249,000 was realized as a result of settlements that were reached with
several creditors of MTL. In fiscal 1999, the Company estimated that the
disposal of MTL would result in a loss of $2,500,000 and recorded a charge in
that amount. During the second quarter of fiscal 2000, a buyer for MTL was
identified and the business was sold during the fourth quarter of fiscal 2000.
The length of time that elapsed between the date that the buyer was identified
and the date the sale concluded resulted in a loss from operations of the
business in fiscal 2000 that was greater than the loss from operations that was
estimated in fiscal 1999. However, the terms of the sale of the business were
more favorable than the Company estimated in fiscal 1999.
The carrying value of the net assets of discontinued operations at March
31, 2000 and 1999 are comprised of the following.
LifeServ MTL Total Discontinued
Operations
------------------------ ------------------------ ------------------------
2000 1999 2000 1999 2000 1999
---------- ---------- ----------- ---------- ---------- ---------
Current Assets $ 0 $ 1,047 $ 1,078 $ 3,945 $ 1,078 $ 4,992
Other Assets 0 2,088 0 71 0 2,159
--------- --------- ---------- --------- --------- ---------
Total Assets $ 0 $ 3,135 $ 1,078 $ 4,016 $ 1,078 $ 7,151
--------- --------- ---------- --------- --------- ---------
Current Liabilities $ 0 $ 4,532 $ 1,509 $ 2,876 $ 1,509 $ 7,408
Long-Term Liabilities 0 346 174 1,314 174 1,660
--------- --------- ---------- --------- --------- ---------
Total Liabilities $ 0 $ 4,878 $ 1,683 $ 4,190 $ 1,683 $ 9,068
--------- --------- ---------- --------- --------- ---------
Net Assets (Liabilities)
of Discontinued Operations $ 0 $ (1,743) $ (605) $ (174) $ (605) $ (1,917)
========= ========= ========== ========= ========= =========
28
The current assets of MTL at March 31, 2000 are comprised of accounts
receivable. The Company has estimated the net realizable value of these accounts
receivable based upon its historical experience with regard to collections.
The current liabilities of MTL at March 31, 2000 are comprised primarily of
trade accounts payable and accrued state taxes.
The long-term liabilities of MTL at March 31, 2000 are comprised of amounts
payable over eighteen months to creditors for obligations that have been
guaranteed by the Company.
NOTE 4 - ACCOUNTS RECEIVABLE
The Company maintains an allowance for potential losses on individual and
commercial accounts receivable. Management considers the allowances provided to
be reasonable.
Accounts Receivable consist of the following:
March 31, March 31,
2000 1999
------------- -------------
(In Thousands)
Accounts Receivable $ 2,875 $ 2,684
Less: Allowance for Doubtful Accounts (274) (211)
------------- -------------
$ 2,601 $ 2,473
============= ==============
All of the Company's accounts receivable are pledged as collateral on bank
notes.
The geographic sales of the Company are in the United States and
internationally. There were 1, 2 and 1 customer(s) whose sales exceeded 10% of
revenue for 2000, 1999 and 1998, respectively.
NOTE 5 - INVENTORIES
Inventories consist of the following:
March 31, March 31,
2000 1999
-------------- ---------------
(In Thousands)
Raw Material $ 967 $ 767
Finished Goods and Work in Process 1,103 1,363
Less: Inventory Valuation Allowance (40) (140)
------------- --------------
$ 2,030 $ 1,990
============= ==============
All of the Company's inventories are pledged as collateral on bank
notes.
29
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, March 31,
2000 1999
------------- --------------
(In Thousands)
Property and Equipment $ 6,374 $ 6,298
Leasehold Improvements 344 695
------------- --------------
6,718 6,993
Less: Accumulated Depreciation and Amortization (4,814) (4,980)
------------- --------------
$ 1,904 $ 2,013
============= ==============
Substantially all of the Company's property and equipment are pledged as
collateral on bank notes.
Depreciation expense and amortization of leasehold improvements total
approximately $684,000, $723,000 and $880,000 for fiscal years ending March 31,
2000, 1999 and 1998 respectively.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are comprised of the following:
March 31, March 31,
2000 1999
-------------- ---------------
(In Thousands)
Accounts Payable/Trade $ 1,178 $ 1,198
Accrued Liabilities:
Salaries & Commissions 418 518
Medical Claims 71 100
Interest 91 27
State Taxes 70 25
Royalties 307 200
Deferred Revenue 0 85
Other 0 252
-------------- --------------
$ 2,135 $ 2,405
============== ==============
30
NOTE 8 - OTHER ASSETS
Other assets consists of the following:
March 31, March 31,
2000 1999
-------------- ---------------
(In Thousands)
Goodwill $ 0 $ 588
Less: Accumulated Amortization 0 (27)
-------------- --------------
$ 0 $ 561
-------------- --------------
Product Development $ 551 $ 530
Less: Accumulated Amortization (152) (89)
-------------- --------------
$ 399 $ 441
-------------- --------------
Patents $ 1,109 $ 1,109
Less: Accumulated Amortization (561) (473)
-------------- --------------
$ 548 $ 636
-------------- --------------
Other 143 125
Less: Accumulated Amortization (17) (2)
-------------- --------------
$ 126 $ 123
-------------- --------------
Total Other Assets, Net $ 1,073 $ 1,761
============== ==============
Substantially all of the Company's intangible assets are pledged as
collateral on bank notes.
NOTE 9 - LONG-TERM DEBT
Long-term debt related to continuing operations consists of the following:
March 31, March 31,
2000 1999
------------- --------------
(In Thousands)
Bank Term Loan; payable in installments of interest at 7.5% and principal
monthly for ten years ending September 1, 2006, with a lump sum payment of
approximately $7.7 million on that date secured by all tangible and
intangible assets of the Company. $ 13,376 $ 14,806
Unsecured Notes Payable plus interest at 18% through December 2000. 150 150
Unsecured Notes Payable due March 2001 plus interest at 13%. 142 200
Unsecured Note Payable plus interest at 3%, payable in monthly installments
of $2,394 through September 2006. 169 193
Unsecured Note Payable under settlement agreement with State of Florida
Department of Revenue, payable in monthly installments of $2,500-$3,500
over a period of four to eight years. 260 284
Other Notes and Agreements; interest and principal payable monthly and
annually at various amounts through March 2001. 66 156
------------ -------------
Total Long -Term Debt 14,163 15,789
Less Current Portion (1,052) (874)
------------ -------------
LONG-TERM DEBT DUE AFTER 1 YEAR $ 13,111 $ 14,915
============ =============
The bank notes payable are collateralized by the Company's accounts
receivables, inventory, equipment and intangibles.
31
At March 31, 1999, the Company was in violation of certain covenants of the
bank term loan agreement. The Company requested a waiver of certain defaults,
which may have occurred under the loan agreement as a result of these
violations. On July 16, 1999, the bank provided the Company with a waiver of the
defaults through June 30, 1999. In addition, the bank and the Company agreed to
modify these financial covenants of the loan agreement for results of operations
subsequent to July 1, 1999. Throughout fiscal 2000, the bank and the Company
have been engaged in discussions regarding the financial covenant modifications
along with the payment of amounts due pursuant to provisions of the loan
agreement that provide for principal payments based upon an excess cash flow
formula. On July 6, 2000 the bank and the Company agreed to the financial
covenant modifications, the excess cash flow payment and a modification to the
excess cash flow payment formula. As a result of the agreement, the bank
provided the Company with waivers of default through June 30, 2000. In addition,
upon the execution of the modification agreement, the Company made a one-time
principal payment of $200,000 to the bank that represented the excess cash flow
payments that were due and payable as of March 31, 2000. The financial covenants
prohibit the Company from exceeding a maximum deficit net worth and provide for
limits on annual capital expenditures and officers compensation as well as the
maintenance of certain financial ratios.
In August 1998, the Company borrowed $150,000 from three individuals,
including $100,000 from the Chairman and C.E.O. to support the operations of
Medical Technology Laboratories, Inc. ("MTL"). The terms and conditions of these
obligations provided for repayment within six months from the borrowing date
including interest payable at 12% per annum. In addition, the notes provide the
lenders with warrants to purchase 88,500 shares of common stock of the Company
at $.75 per share for a period of ten (10) years. The fair value assigned to the
warrants is insignificant. The obligations matured without repayment, and the
Company and its lenders agreed to a repayment schedule with monthly installments
commencing in March 2000 and ending in December 2000 including interest at the
default rate of 18%.
In October 1998, the Company borrowed $200,000 from an individual to
support the operations of MTL. The terms and conditions of this obligation
included repayment on September 1, 1999 including interest at 12% per annum. The
notes provide the lenders with warrants to purchase 118,000 shares of common
stock of the Company at $.75 per share for a period of ten (10) years. The fair
value assigned to the warrants is insignificant. The obligation matured without
repayment, and the Company and the lender agreed to a repayment schedule with
monthly installments commencing in October 1999 and ending in September 2001
including interest at 13%. In the event that the Company defaults on its
obligations under the promissory note, the lender is entitled to receive
warrants to purchase up to 800,000 and 18,000 shares of common stock at $.05 and
$.75 per share, respectively, for a period of ten (10) years. In addition, the
note is secured by 290,313 shares of the Company's common stock owned by the
Chairman and C.E.O.
The following is a schedule by year of the principal payments required on
these notes payable and long-term debts as of March 31, 2000:
(In Thousands)
2001. . . . . . . . . . . . . . . . $ 1,052
2002. . . . . . . . . . . . . . . . $ 900
2003. . . . . . . . . . . . . . . . $ 907
2004. . . . . . . . . . . . . . . . $ 952
2005. . . . . . . . . . . . . . . . $ 1,023
Thereafter. . . . . . . . . . . . $ 9,329
32
Interest expense from continuing operations for the years 2000, 1999 and
1998 amounted to $1,158,000, $1,145,000 and $652,000 respectively.
Long-term debt included in net assets of discontinued operations consists
of the following:
LifeServ March 31, March 31,
--------
2000 1999
------------- --------------
(In Thousands)
Demand note past due at March 31, 1999 plus interest at default rate of 18%. $ 0 $ 395
Note payable; interest at 12% payable $20,026 per month including interest
maturing September 1, 2002. Secured by equipment at a customer site and
the payments from a lease contract receivable. 0 536
Capital lease obligations payable monthly at various amounts through March
2000. 0 72
------------ -------------
Long-Term Debt related to discontinued operations 0 1,003
Less Current Portion 0 (657)
------------ -------------
LONG-TERM DEBT RELATED TO DISCONTINUED OPERATIONS DUE AFTER 1 YEAR
$ 0 $ 346
============ =============
MTL March 31, March 31,
----
2000 1999
------------- --------------
(In Thousands)
Seller financing under Tampa Pathology Acquisition Agreement face value of
$487,628 discounted at 10% with variable monthly payments until satisfied,
subject to compromise at March 31, 1996. $ 0 $ 234
Seller Financing under Community Clinical Laboratories, Inc. (CCL) Acquisition
Agreement, maximum face amount of $2.5 million discounted at 10% with
variable quarterly payments based upon 9% of cash collections from tests
performed for customers acquired pursuant to the acquisition
agreement until satisfied or for 5 years, whichever comes first. 0 1,058
Capital Lease obligation for equipment acquired from CCL; interest and
principal payable monthly at various amounts through May 2001. 0 130
Other Notes and Agreements; interest and principal payable monthly and
annually at various amounts through March 2000. 290 79
------------ -------------
Long-term debt related to discontinued operations. 290 1,501
Less Current Portion (174) (187)
------------ -------------
LONG-TERM DEBT RELATED TO DISCONTINUED OPERATIONS DUE AFTER 1 YEAR
$ 116 $ 1,314
============ =============
33
NOTE 10 - LEASE COMMITMENTS
The following is a schedule by year of future minimum rental payments
required under operating leases that have an initial or remaining non-cancelable
lease term in excess of one year as of March 31, 2000.
(In Thousands)
2001............................$ 365,000
2002............................$ 347,000
2003............................$ 63,000
2004............................$ 59,000
Thereafter......................$ 0
Rent expense amounted to $312,000, $311,000 and $266,000, for the years
ended March 31, 2000, 1999 and 1998, respectively.
NOTE 11 - 401(K) PROFIT SHARING PLAN
The Company has a 401(K) Profit Sharing Plan. The Plan covers substantially
all of its employees. Contributions are at the employees' discretion and may be
matched by the Company up to certain limits. For the years ended March 31, 2000,
1999 and 1998, the Company contributed $18,740, $22,000 and $0, respectively, to
the plan.
NOTE 12 - SELF INSURANCE PLAN
The Company has a Medical Health Benefit Self-insurance Plan, which covers
substantially all of its employees. The Company is reinsured for claims that
exceed $30,000 per participant and has an annual maximum aggregate limit of
approximately $650,000.
NOTE 13 - RELATED PARTY TRANSACTIONS
Todd E. Siegel ("Siegel") is the Trustee of the Siegel Family QTIP Trust
(the "Trust"), which is the general partner in JADE Partners, a significant
shareholder of the Company. The Trust has entered into an exclusive Technology
and Patent Licensing Agreement with the Company for certain technologies and
patents on machine and product designs.
Under the terms of the amended agreement, the Company is required to pay to
the Trust royalties of one percent of sales on licensed products. In addition,
the agreement states that there are no minimum royalty payments due and the
agreement would expire if the Company abandons or ceases to use the
technologies. Royalty payments were $50,000, $51,000 and $50,000 in the years
ended March 31, 2000, 1999 and 1998, respectively. Accrued royalty payments due
as of March 31, 2000, 1999 and 1998 total approximately $266,000, $175,000 and
$104,000, respectively.
Siegel, through his beneficial interest in the Trust, owns approximately 10
percent of the outstanding Common Stock of the Company. In addition, Siegel
beneficially owns 6,500,000 shares of voting preferred stock, which have two
votes per share for all matters submitted to the holders of the Common Stock of
the Company.
Siegel had outstanding indebtedness to the Company at March 31, 2000 and
March 31, 1999 of approximately $1,100 and $0.
34
NOTE 14 - TAXES
The components of related income taxes provided on continuing operations
were as follows:
Years Ended March 31,
---------------------------------------------------
2000 1999 1998
------------- ------------- --------------
(In Thousands)
Current Tax (Benefit):
Federal $ 0 $ 0 $ (270)
State 0 0 0
------------ ------------ -------------
0 0 (270)
------------ ------------ -------------
Deferred Tax:
Federal $ 0 $ 117 $ 0
State 0 8 0
------------ ------------ ------------
$ 0 $ 125 $ (270)
============ ============ =============
In 1999, income tax expense and benefit of equal and offsetting amounts of
$125,000 were allocated to continuing and discontinued operations, respectively.
Total income tax (benefit) expense for 2000, 1999 and 1998 from continuing
operations resulted in effective tax rates of 0%, 37.5% and 73.0%, respectively.
The reasons for the differences between these effective tax rates and the U.S.
statutory rate of 34.0%-35.0% on the continuing operations are as follows:
Years Ended March 31,
------------------------------------------------
2000 1999 1998
------------- ------------- -------------
(In Thousands)
Tax (Benefit) Expense at U.S. statutory rate $ 413 $ 117 $ (382)
State Income Tax, Net 42 8 (41)
Net operating loss carryforward (455) 0 0
Current tax benefit not recognized 0 0 423
Effect of prior year carryback, not previously recognized 0 0 (270)
------------ ------------ ------------
$ 0 $ 125 $ (270)
============ ============ ============
Deferred taxes for continuing operations consist of the following:
March 31, 2000 March 31, 1999
----------------- -----------------
(In Thousands)
Deferred Tax Assets:
Depreciation/Amortization Temporary Difference $ (140) $ 222
Allowance for Doubtful Accounts 103 79
Inventory Valuation Allowance 15 52
Tax Loss Carry Forward 4,638 5,240
Reserves and Provisions 218 212
---------------- ----------------
Gross Deferred Tax Asset 4,834 5,805
---------------- ----------------
Less Valuation Allowance (4,834) (5,805)
---------------- ----------------
Deferred Income Taxes $ 0 $ 0
================ ================
35
At March 31, 2000, the Company had deferred tax assets available from
continuing operations of approximately $4.8 million as shown above. Deferred
taxes for discontinued operations as of March 31, 2000 total approximately $1.4
million consisting principally of allowance for doubtful accounts. A tax benefit
has not been recorded for these assets, as it is not yet more likely than not
that these benefits will be realized by reducing future taxable income. At March
31, 2000, the Company had approximately $12.4 million of carryforward losses
that will expire by 2020 that are available to offset future taxable income.
NOTE 15 - STOCKHOLDERS' EQUITY (DEFICIT)
Stockholders' Equity (Deficit) consists of the following:
March 31, March 31, March 31,
2000 1999 1998
---------------- ---------------- -----------------
Voting Preferred Stock:
Par Value $.0001 Per Share
Authorized Shares 7,500,000 7,500,000 7,500,000
Issued Shares 6,500,000 6,500,000 6,500,000
Outstanding Shares 6,500,000 6,500,000 6,500,000
March 31, March 31, March 31,
2000 1999 1998
---------------- ---------------- -----------------
Common Stock:
Par Value $.01 Per Share
Authorized Shares 25,000,000 25,000,000 25,000,000
Outstanding Shares 6,495,421 6,358,991 6,071,673
Issued Shares 6,542,621 6,406,191 6,129,673
Common Stock
During fiscal 2000, the Company issued 50,000 shares of common stock to an
officer and director in lieu of cash compensation of $4,750 and 46,430 shares of
common stock to outside directors in lieu of cash compensation of $18,500 earned
for attendance at meetings of the Board of Directors. In addition, the Company
issued 40,000 shares of common stock to two individuals pursuant to an agreement
to redeem the minority interest held by these individuals in a subsidiary of
LifeServ.
During fiscal 1998, the Company issued 150,000 shares of common stock in
lieu of a debt payment to a former employee of the Company. These shares were
valued based upon the value of the debt payment reduction, and the agreement
required additional shares to be issued one year later such that the total value
of all shares issued be equal to $150,000. During fiscal 1999, the Company
issued 287,318 shares of common stock to complete this agreement. In addition,
during fiscal 1998, 22,500 shares were issued to employees for services and were
valued at $0.32 per share, which was the approximate market value at the time
they were issued
36
Preferred Stock
The JADE Family Partnership ("Partnership") is currently the holder of
6,500,000 shares of Voting Preferred Stock. The Siegel Family QTIP Trust,
established pursuant to the terms of the Siegel Family Revocable Trust (the
"Trust"), which originally acquired the shares of Voting Preferred Stock in 1986
for the aggregate par value of the shares ($650.00), transferred the shares to
the Siegel Family Limited Partnership in 1993. The Siegel Family Limited
Partnership transferred the shares to the Partnership in 1994. The Company's CEO
is the trustee of the Trust, which is the managing general partner of the
Partnership, and accordingly, controls the shares held by the Partnership.
The Voting Preferred Stock has two votes per share on all matters submitted
to a vote of other holders of Common Stock. In addition to preferential voting
rights, the Voting Preferred Stock is entitled to receive upon dissolution or
liquidation of the Company, the first $10,000 of proceeds distributed to
stockholders of the Company upon such events. Thereafter, the Voting Preferred
Stock is entitled to no additional amounts upon dissolution or liquidation of
the Company. The Voting Preferred Stock has no dividend rights, redemption
provisions, sinking fund provisions or conversion, or preemptive or exchange
rights. The Voting Preferred Stock is not subject to further calls or
assessments by the Company.
Stock Options
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation," as it
relates to employment awards. It applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans and does not recognize compensation expense based upon the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed by SFAS 123, the Company's net income (loss) and earnings (loss) per
share would be reduced to the proforma amounts indicated below:
2000 1999 1998
------------- ------------- --------------
Net Income (Loss) As Reported $ 2,499 $ (5,487) $ (854)
ProForma $ 2,470 $ (5,589) $ (1,066)
Earnings (Loss) Per Common Share As Reported $ 0.39 $ (0.88) $ (0.14)
ProForma $ 0.38 $ (0.90) $ (0.18)
The fair value of each option grant is estimated on the date of grant using
the Binominal options-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999, and 1998 respectively, no dividend
yield for all years, expected volatility of 130, 148, and 131 percent; risk-free
interest rates of 6.3, 5.10 and 5.81 percent, and expected lives of 3.0, 4.0 and
3.7 years.
37
Activity related to options is as follows:
Weighted Average
Number of Shares Exercise
Price per Share
-------------------- --------------------
Outstanding at March 31, 1997 1,016,289 $1.51
Granted in Fiscal 1997:
Officers & Directors 152,000 $1.00
Employees 412,000 $1.00
Options Expired (22,170) $2.62
-------------------- --------------------
Outstanding at March 31, 1998 1,558,119 $1.31
Granted in Fiscal 1998:
Officers and Directors 22,000 $0.75
Employees 115,000 $1.00
Options Expired (117,688) $1.77
-------------------- --------------------
Outstanding at March 31, 1999 1,577,431 $1.25
Granted in Fiscal 2000:
Officers and Directors 12,000 $1.00
Employees 0 $0
Options Expired (498,166) $1.05
-------------------- --------------------
Outstanding at March 31, 2000 1,091,265 $1.34
==================== ====================
Outstanding Shares
- ------------------
Weighted Average
Range of Number Remaining Contractual Weighted Average
Exercise Prices Outstanding Life Exercise Price
(Years)
----------------------- ------------------ --------------------- -------------------
$0.75 - $1.63 1,051,395 5.9 $1.15
$4.00 - $6.00 27,250 2.8 $5.03
$6.38 - $10.00 12,620 4.0 $9.32
Exercisable Shares
- ------------------
$0.75 - $1.63 879,544 5.7 $1.18
$4.00 - $6.00 27,250 2.8 $5.03
$6.38 - $10.00 12,620 4.0 $9.32
The options outstanding at March 31, 2000 expire on various dates
commencing in March 2001 and ending in March 2010.
The weighted average grant date fair value of options during fiscal year
2000, 1999 and 1998 was $.33, $.28, and $.29 respectively.
38
At March 31, 1999 and 1998, exercisable options totaled 1,167,098 and
673,984 at weighted average exercise prices of $1.33 and $1.68, respectively.
Warrants
- --------
Activity related to warrants is as follows:
Number of Shares Weighted Average
Price Per Share
-------------------- ------------------
Outstanding at March 31, 1997 through March 31, 1999 1,529,000 $6.15
Granted in Fiscal 2000 42,500 $0.46
-------------------- ------------------
Outstanding at March 31, 2000 1,571,500 $6.00
==================== ==================
Of the warrants outstanding at March 31, 2000, 1,320,000 expire in July
2000 with the remaining warrants expiring in March 2010.
The weighted average grant date fair value of warrants during fiscal year
2000 and 1999 was $.10 and $.25 respectively.
During fiscal year 1995, the Company entered into a stock appreciation
rights agreement with its Chief Executive Officer. The agreement, which is for a
term of 10 years, calls for additional compensation payable annually equal to
3.25% of the total of the incremental increase in the value of the Company's
outstanding stock. Additional compensation payable for the years ended March 31,
2000, 1999 and 1998 totaled $27,000, $0 and $0 respectively.
NOTE 16 - BUSINESS ACQUISITION
During the second quarter of fiscal year 1999, the Company, through its
subsidiary MTL, entered into an agreement to purchase certain assets of
Community Clinical Laboratories, Inc. ("CCL"), principally equipment and
goodwill/customer base, in exchange for a $2,500,000 contingent note payable for
a period of five years. The primary operations of CCL were previously suspended
in July 1998 when certain agencies of both the State of Florida and the Federal
Government revoked CCL's ability to seek reimbursement for its laboratory
testing services from both the Medicare and Medicaid programs and seized CCL's
accounting records.
During the third quarter of fiscal year 1999, the Company recorded the
acquisition of the assets of CCL as a purchase. Accordingly, the Company
estimated the amount ultimately payable pursuant to the contingent note payable
and allocated the total estimated cost of the acquisition to equipment based
upon an independent appraisal, and the remainder to goodwill/customer base.
During the fourth quarter of fiscal year 1999, the Company changed its
preliminary estimate of the present value of the amount that may be ultimately
payable on the contingent note payable from approximately $2,000,000 to
approximately $1,058,000 based on a more thorough analysis of historical and
expected cash collections and correspondingly reduced the amount of
goodwill/customer base recorded to approximately $250,000. The goodwill/customer
base has a ten-year amortization period.
As a result of the uncertainty related to the operations of CCL prior to
the acquisition of certain assets by MTL and the lack of reliable financial
information related to the historical operation of CCL, as well as due to
management's decision in fiscal 1999 to sell or abandon MTL, pro-forma results
as if the business combination occurred April 1, 1997 and 1998 are not deemed
meaningful and have not been presented. The principal assets of MTL were sold in
January 2000 (see Note 3).
39
NOTE 17 - EARNINGS PER SHARE
Net income (loss) per common share is computed by dividing net income
(loss) by the basic and diluted weighted average number of shares of common
stock outstanding. For diluted weighted average shares outstanding, the Company
used the treasury stock method to calculate the Common Stock equivalents that
the stock options would represent.
Year Ended Year Ended Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
-------------- -------------- ---------------
Basic and Diluted
Actual weighted average shares outstanding;
weighted average shares used in income per
calculation - basic and diluted 6,447,000 6,223,000 6,062,000
============== ============== ===============
The following table set forth the computation of historical basic and
diluted earnings (loss) per share:
2000 1999 1998
--------------- -------------- ---------------
Numerator:
Net Income (Loss) $ 2,499,000 $ (5,487,000) $ (854,000)
=============== ============== ===============
Denominator:
Denominator for basic and diluted earnings per
share- weighted average shares outstanding 6,447,000 6,233,000 6,062,000
=============== ============== ===============
Net Income (Loss) Per Common Share - Basic $ 0.39 $(0.88) $ (0.14)
=============== ============== ===============
Net Income (Loss) per Common Share - Diluted $ 0.39 $ (0.88) $ (0.14)
=============== ============== ===============
The effect of all options and warrants (see Note 15) for all years were not
included in the calculation of net income (loss) per diluted common share as the
effect would have been anti-dilutive.
40
NOTE 18 - CONTINGENCIES
The Company sold the assets of subsidiaries LifeServ and MTL during fiscal
2000 (See Note 3). The buyers assumed certain liabilities of these subsidiaries
including a certain long-term obligation of approximately $536,000 payable to a
financial institution and secured by equipment at a customer site and a contract
receivable. The Company was a guarantor of the obligation at the time the
obligation originated and continues as a guarantor.
In November 1998, the Company's subsidiary, MTL, received a refund request
in the amount of $1.8 million from Medicare Program Safeguards ("MPS") and
$104,000 from the State of Florida Agency for Health Care Administration
("AHCA"). The requests followed an onsite review of MTL's billing procedures by
agencies of both the State of Florida and the federal government. The Company
has requested a hearing in the matter, and MPS and AHCA have suspended the
recoupment of the refund until the hearing takes place. Although MTL believes
that MPS's determination and the request for refunds are without merit, there
can be no assurance that this matter will be resolved over the near term or that
the ultimate outcome of the matter will not result in a recoupment effort by
HCFA directed at the proceeds of the collection of accounts receivable that MTL
retained as part of the sale of the business.
Certain creditors of LifeServ and MTL have commenced legal actions against
the Company seeking payment of liabilities assumed by the buyers of LifeServ and
MTL. The Company intends to vigorously defend these actions and seek appropriate
remedies from the buyers.
The Company is involved in certain claims and legal actions arising in the
ordinary course of business including the matters referred to above. There can
be no assurances that these matters will be resolved on terms acceptable to the
Company. In the opinion of management, based upon advice of counsel and
consideration of all facts available at this time, the ultimate disposition of
these matters will not have a material adverse effect on the financial position,
results of operations or liquidity of the Company.
The Company did not experience any significant interruptions or
difficulties related to Y2K readiness, however, internal systems as well as
third party compliance continues to be monitored. Notwithstanding the foregoing,
there can be no assurances that difficulties will not arise that may have a
material adverse effect on the operations of the Company.
NOTE 19 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
2000 1999 1998
---------- --------- ----------
Supplemental Disclosure of Cash flow Information
Cash Paid for Interest $ 1,159 $ 1,153 $ 1,048
Cash Received from Income Tax Refund $ 0 $ 0 $ 270
Supplemental Cash Flow Information for Discontinued Operations
Operating Activities:
Net Cash Provided (Used) by Discontinued Operations $ 400 $ (477) $(1,286)
Investing Activities
Net Cash Provided (Used) by Investing Activities of Discontinued
Operations 90 (1,527) (679)
Financing Activities:
Net Cash Provided (Used) by Financing Activities of Discontinued
Operations (475) 2,207 1,967
Net Increase (Decrease) in Cash - Discontinued Operations 15 203 2
Cash at Beginning of Period - Discontinued Operations 61 (142) (144)
--------- --------- ---------
Cash at End of Period - Discontinued Operations $ 76 $ 61 (142)
========= ========= =========
Other non-cash investing and financing activities are as follows:
Continuing Operations
- ---------------------
During fiscal year 2000, the Company recorded a prior year equity
transaction that was deemed insignificant pertaining to the forgiveness of
$25,000 of debt to a former officer of the Company in exchange for a reduction
in the exercise price of options previously granted to him from $4.00 and $1.63
per option to $1.00 per option. The new exercise price was greater than the
market price of the Company's common stock at that time. In addition, the
Company issued common stock in exchange for an accrued liability reduction of
$15,000 and transferred approximately $90,000 of other assets to fixed assets.
41
During fiscal 1998, the Company reduced a debt obligation $150,000 through
the issuance of common stock.
During fiscal 1998, the Company acquired a patent as satisfaction of a
receivable in the amount of $201,000.
Discontinued Operations
During fiscal year 1999, the Company acquired certain assets of CCL (See
Note 16) in exchange for a contingent note valued at $1,058,000 and assumption
of a capital lease obligations valued at $151,000. The assets acquired had a
fair value of $1,209,000.
During fiscal 1998, the Company purchased Cygnet for a cash payment of
$357,000 (net of cash acquired) and assumption of liabilities of $1,247,000. The
assets acquired had a fair value of $517,000 (net of cash acquired).
During fiscal 1998, the Company redeemed a minority interest share of a
subsidiary's common stock resulting in a $160,000 addition to goodwill and
accrued expenses.
See Notes 1 and 3 for fiscal 2000 and 1999 forgiveness of debt
(extraordinary gain) and gain on disposal of discontinued operations.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
MEDICAL TECHNOLOGY SYSTEMS, INC.
Dated: July 6, 2000 By: /s Todd E. Siegel
---------------------------------------
Todd E. Siegel, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------ ---------------------- --------------
/s Todd E. Siegel Chairman of the Board of Directors, July 6, 2000
----------------------- President and Chief Executive Officer
Todd E. Siegel
/s David W. Kazarian Director July 6, 2000
-----------------------
David W. Kazarian
/s Michael P.Conroy Director, Chief Financial Officer July 6, 2000
----------------------- and Vice President
Michael P. Conroy
/s John Stanton Director and Vice Chairman of the July 6, 2000
- ------------------------ Board of Directors
John Stanton
/s Mark J. Connolly Principal Accounting Officer July 6, 2000
- ----------------------- and Controller
Mark J. Connolly
43
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
Board of Directors
Medical Technology Systems, Inc.
In connection with our audit of the consolidated financial statements
of Medical Technology Systems, Inc. and Subsidiaries referred to in our report
dated June 29, 2000, which is included in the Company's Annual Report on SEC
Form 10-K as of and for the year ended March 31, 2000, we have also audited
Schedule II for the years ended March 31, 2000, 1999 and 1998. In our opinion,
this schedule presents fairly in all material respects, the information required
to be set forth herein.
GRANT THORNTON LLP
Tampa, Florida
June 29, 2000
SCHEDULE II
MEDICAL TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1998, 1999 AND 2000
Column A Column B Column C Column D Column E
- ----------------------------------------- -------------- -------------- -------------- --------------
Balance at Charged to Accounts Balance at
Begining of Costs and Writtren Off, End of
Year Expenses Net Year
-------------- -------------- -------------- --------------
(1) Deferred Tax Valuation Allowance:
Year Ended March 31, 1998 $ 4,909 $ 980 $ 0 $ 5,889
Year Ended March 31, 1999 $ 5,889 $ 84 $ 0 $ 5,805
Year Ended March 31, 2000 $ 5,805 $ 1,167 $ 0 $ 4,638
(1) Inventory Valuation Allowance:
Year Ended March 31, 1998 $ 80 $ 189 $ 0 $ 269
Year Ended March 31, 1999 $ 0 $ 140 $ 0 $ 140
Year Ended March 31, 2000 $ 140 $ 100 $ 0 $ 40
(1) Self Insured Medical Claims
Valuation Allowance:
Year Ended March 31, 1998 $ 212 $ 583 $ 611 $ 184
Year Ended March 31, 1999 $ 122 $ 566 $ 588 $ 100
Year Ended March 31, 2000 $ 100 $ 297 $ 325 $ 72
(1) Allowance for Doubtful Accounts
and Contractual Allowances:
Year Ended March 31, 1998 $ 1,040 $ 1,463 $ 499 $ 2,004
Year Ended March 31, 1999 $ 178 $ 58 $ 25 $ 211
Year Ended March 31, 2000 $ 211 $ 67 $ 4 $ 274
(1) For years ended March 31, 2000 and 1999, amounts reflect continuing
operations only. The year ended March 31, 1998 amounts have not been restated to
reflect continuing operations only as to do so is not practical.