SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberMarch 28, 20032004
or
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 2-85008-NY
SSI Surgical Services, Inc.
(Exact name of registrant as specified in its charter)
New York | 11-2621408 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer | |
Identification No.) |
5776 Hoffner Avenue, Suite 200, Orlando Florida | 32822 | |
(Address of principal executive offices) | (Zip Code) |
(407) 249-1946
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
xYes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)
¨Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at | |
Common Stock, $.01 Par Value | 19,491,216 |
SSI Surgical Services, Inc.
Three Months and Nine Months Ended SeptemberMarch 28, 20032004
Page | ||
Part I Financial Information: | ||
3 | ||
4 | ||
5 | ||
6 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
Part II Other Information: | ||
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
September 28, 2003 (Unaudited) | December 29, 2002 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 21 | $ | 29 | ||||
Accounts receivable less allowance for doubtful accounts of $406 and $415 | 6,942 | 6,912 | ||||||
Prepaid expenses and other assets | 981 | 1,919 | ||||||
Total current assets | 7,944 | 8,860 | ||||||
Property and equipment, net | 22,439 | 24,203 | ||||||
Intangibles, net | 4,637 | 4,637 | ||||||
Other assets | 110 | 130 | ||||||
Total assets | $ | 35,130 | $ | 37,830 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 2,306 | $ | 2,365 | ||||
Obligations under capital leases | — | 30 | ||||||
Total current liabilities | 2,306 | 2,395 | ||||||
Payable to affiliates | 25,148 | 26,544 | ||||||
Total liabilities | 27,454 | 28,939 | ||||||
Shareholders’ equity: | ||||||||
Common Stock | $ | 195 | $ | 195 | ||||
Additional paid-in capital | 23,019 | 23,019 | ||||||
Accumulated deficit | (15,538 | ) | (14,323 | ) | ||||
Total shareholders’ equity | 7,676 | 8,891 | ||||||
Total liabilities and shareholders’ equity | $ | 35,130 | $ | 37,830 | ||||
March 28, 2004 | December 28, 2003 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 946 | $ | 6 | ||||
Accounts receivable less allowance for doubtful accounts of $222 and $206 | 7,077 | 7,270 | ||||||
Prepaid expenses and other assets | 767 | 1,092 | ||||||
Total current assets | 8,790 | 8,368 | ||||||
Property and equipment, net | 20,530 | 21,329 | ||||||
Goodwill, net | 3,179 | 3,179 | ||||||
Intangibles, net | 1,458 | 1,458 | ||||||
Other assets | 110 | 110 | ||||||
Total assets | $ | 34,067 | $ | 34,444 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 2,187 | $ | 2,411 | ||||
Total current liabilities | 2,187 | 2,411 | ||||||
Payable to affiliates | 24,898 | 25,010 | ||||||
Total liabilities | 27,085 | 27,421 | ||||||
Shareholders’ equity: | ||||||||
Common Stock | $ | 195 | $ | 195 | ||||
Additional paid-in capital | 23,019 | 23,019 | ||||||
Accumulated deficit | (16,232 | ) | (16,191 | ) | ||||
Total shareholders’ equity | 6,982 | 7,023 | ||||||
Total liabilities and shareholders’ equity | $ | 34,067 | $ | 34,444 | ||||
See Notes to Condensed Consolidated Statements.
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Condensed Consolidated Statements of Operations
(Dollars in Thousands, except per share)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2003 | September 29, 2002 | September 28, 2003 | September 29, 2002 | |||||||||||||
Net revenues | $ | 8,156 | $ | 8,710 | $ | 25,219 | $ | 26,322 | ||||||||
Cost of revenues | 6,632 | 7,378 | 21,241 | 22,479 | ||||||||||||
Gross profit | 1,524 | 1,332 | 3,978 | 3,843 | ||||||||||||
Distribution Expenses | 266 | 347 | 894 | 1,104 | ||||||||||||
Selling, general and administrative | 1,293 | 944 | 3,699 | 3,159 | ||||||||||||
Income (loss) from operations | (35 | ) | 41 | (615 | ) | (420 | ) | |||||||||
Interest | 321 | 396 | 1,046 | 1,152 | ||||||||||||
Write-down of assets | — | — | 330 | — | ||||||||||||
Loss before income taxes | (356 | ) | (355 | ) | (1,991 | ) | (1,572 | ) | ||||||||
Income tax benefit | (139 | ) | (139 | ) | (776 | ) | (613 | ) | ||||||||
Net loss | $ | (217 | ) | $ | (216 | ) | $ | (1,215 | ) | (959 | ) | |||||
Loss per common share – basic | $ | (.01 | ) | $ | (.01 | ) | $ | (.06 | ) | (.05 | ) | |||||
Loss per common share – diluted | $ | (.01 | ) | $ | (.01 | ) | $ | (.06 | ) | (.05 | ) | |||||
Weighted average common shares | 19,491 | 19,491 | 19,491 | 19,491 | ||||||||||||
Weighted average dilutive common shares | 19,491 | 19,491 | 19,491 | 19,491 | ||||||||||||
Three Months Ended | ||||||||
March 28, 2004 | March 30, 2003 | |||||||
Net revenues | $ | 8,025 | $ | 8,246 | ||||
Cost of revenues | 6,327 | 7,294 | ||||||
Gross profit | 1,698 | 952 | ||||||
Distribution Expenses | 264 | 323 | ||||||
Selling, general and administrative | 1,173 | 1,055 | ||||||
Income (loss) from operations | 261 | (426 | ) | |||||
Interest | 324 | 364 | ||||||
Loss before income taxes | (63 | ) | (790 | ) | ||||
Income tax benefit | (22 | ) | (308 | ) | ||||
Net loss | $ | (41 | ) | $ | (482 | ) | ||
Loss per common share—basic | $ | — | $ | (.02 | ) | |||
Loss per common share—diluted | $ | — | $ | (.02 | ) | |||
Weighted average common shares | 19,491 | 19,491 | ||||||
Weighted average dilutive common shares | 19,921 | 19,491 | ||||||
See Notes to Condensed Consolidated Statements.
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Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine Months Ended | ||||||||
September 28, 2003 | September 29, 2002 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,215 | ) | $ | (959 | ) | ||
Adjustments to reconcile net income to net cash | ||||||||
Provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 4,237 | 4,019 | ||||||
Write-down of assets | 330 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (30 | ) | (154 | ) | ||||
Prepaid expenses and other assets | 958 | (262 | ) | |||||
Accounts payable and accrued liabilities | (59 | ) | 116 | |||||
Net cash provided by operating activities | 4,221 | 2,760 | ||||||
Cash flows for investing activities: | ||||||||
Net purchase of property and equipment | (2,803 | ) | (5,422 | ) | ||||
Net cash used by investing activities | (2,803 | ) | (5,422 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayments under capital lease obligations | (30 | ) | (316 | ) | ||||
Borrowings from affiliates | 13,079 | 16,949 | ||||||
Repayments to affiliates | (14,475 | ) | (14,016 | ) | ||||
Net cash (used) provided by financing activities | (1,426 | ) | 2,617 | |||||
Increase (decrease) in cash and cash equivalents | (8 | ) | (45 | ) | ||||
Cash and cash equivalents at beginning of period | 29 | 72 | ||||||
Cash and cash equivalents at end of period | $ | 21 | $ | 27 | ||||
Three Months Ended | ||||||||
March 28, 2004 | March 30, 2003 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (41 | ) | $ | (482 | ) | ||
Adjustments to reconcile net income to net cash | ||||||||
Provided by (used in) operating activities: | ||||||||
Depreciation | 1,239 | 1,448 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 193 | (218 | ) | |||||
Prepaid expenses and other assets | 325 | 128 | ||||||
Accounts payable and accrued liabilities | (224 | ) | 11 | |||||
Net cash provided by operating activities | 1,492 | 865 | ||||||
Cash flows for investing activities: | ||||||||
Net purchase of property and equipment | (440 | ) | (959 | ) | ||||
Net cash used by investing activities | (440 | ) | (959 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayments under capital lease obligations | — | (20 | ) | |||||
Borrowings from affiliates | 4,423 | 4,256 | ||||||
Repayments to affiliates | (4,535 | ) | (4,144 | ) | ||||
Net cash (used in) provided by financing activities | (112 | ) | 92 | |||||
Increase (decrease) in cash and cash equivalents | 940 | (2 | ) | |||||
Cash and cash equivalents at beginning of period | 6 | 29 | ||||||
Cash and cash equivalents at end of period | $ | 946 | $ | 27 | ||||
See Notes to Condensed Consolidated Statements.
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Notes to the Condensed Consolidated Financial Statements
NOTE 1
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by generally accepted accounting principles for complete financial statements are not included herein. The condensed statements should be read in conjunction with the financial statements and notes thereto included in the latest Form 10K of SSI Surgical Services, Inc. (the “Company”). In the Company’s opinion, all adjustments necessary for a fair presentation of these condensed statements have been included and are of a normal and recurring nature.
NOTE 2
Basic earnings per share areis computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed in a similarthe same manner except that the weighted average number of common shares is increased for dilutive securities. The difference between basic and diluted weighted average common shares results from the assumption that dilutive stock options were exercised. Potentially dilutive securities have been excluded from the computation of diluted earnings per share for the three and nine months ended September 28,March 30, 2003, and September 29, 2002, since the results would be antidilutive. The securities excluded at September 28, 2003 consistA reconciliation of aggregate warrantsbasic to purchase 1,500,000diluted weighted average common shares of common stock and exercisable incentive and non-qualified options to purchase 1,034,170 shares of common stock.outstanding is as follows:
Three Months Ended | ||||
March 28, 2004 | March 30, 2003 | |||
Basic | 19,491 | 19,491 | ||
Dilutive shares assumed issued | 430 | — | ||
Diluted | 19,921 | 19,491 |
NOTE 3
In May 2003, the FASB issued Statement No. 150 (FAS 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. FAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of FAS 150 did not have a material impact on the results of operations or financial condition of the Company.
NOTE 4
The Company has stock-based compensation plans that provide for the granting of incentive and non-qualified options to directors, officers and key employees to purchase shares of common stock at the market price of the stock on the dates options are granted. No stock-based employee compensation cost is reflected in net loss. No stock options were granted during the three months ended September 28, 2003 and September 29, 2002. Stock options to purchase 40,000 shares were granted during the nine months ended September 28, 2003. No stock options were granted during the nine months ended September 29, 2002. The Company applies the disclosure-only provisions of SFAS No. 123 and SFAS No. 148, “AccountingAccounting for Stock-Based Compensation – Compensation—Transition and Disclosure – Disclosure—an Amendment to FASB Statement No. 123”, continuing to measure compensation cost in accordance with APB 25, “AccountingAccounting for Stock Issued to Employees”Employees. There would have been no difference between net loss and pro forma
net loss hadHad compensation cost been determined based on the fair value at the grant date consistent with the provisions of SFAS 123.No. 123, the Company’s pro forma net income (loss) and earnings (loss) per share for the three months ended March 28, 2004 and March 30, 2003 would have been:
Three Months Ended | ||||||||
March 28, 2004 | March 30, 2003 | |||||||
Net loss, as reported | $ | (41 | ) | $ | (482 | ) | ||
Pro forma net income (loss) | $ | (45 | ) | $ | (482 | ) | ||
Loss per common share as reported—diluted | — | $ | (.02 | ) | ||||
Pro forma loss per common share—diluted | — | $ | (.02 | ) |
NOTE 54
On October 3, 2003,During the first quarter, the Company notified employeesreduced sales and increased net loss by $65,000 and $42,000 respectively, in connection with sales invoices that the Baltimore facility would be closed. The decision to close the Baltimore facility was based on the low sales volume and the expiration of the building lease. The shutdown will be completed and related charges expensedwere inadvertently overstated in the fourth quarter of 2003.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Revenues decreased $554,000$221,000 or 6.4%2.7%, to $8,156,000$8,025,000 for the three months ended SeptemberMarch 28, 20032004 compared to $8,710,000$8,246,000 for the three months ended September 29, 2002. Revenues decreased $1,103,000 or 4.2%, to $25,219,000 for the nine months ended September 28, 2003 compared to $26,322,000 for the nine months ended September 29, 2002.March 30, 2003. This decrease is attributed to the closure of the Detroit facility in the second quarter of 2003Baltimore and the Tampa facility in 2002, and a decline in revenue at the offsiteDetroit reprocessing facilities in 2003, partially offset by additional revenues from new endoscopic services customers.
The grossGross profit margin increased to 18.7%$1,698,000 or 21.2% of revenues for the three months ended SeptemberMarch 28, 20032004 compared with 15.3%$952,000 or 11.5% of revenues for the three months ended September 29, 2002. Gross profit increased to 15.8%March 30, 2003. Approximately $546,000 of revenues for the nine months ended September 28, 2003 compared with 14.6% of revenues for the nine months ended September 29, 2002. Thisthis increase is primarlyprimarily the result of continued cost control initiativesefficiencies in the utilization of disposable products and realignment of labor resources, along withand the remaining $200,000 is attributed to the closure of offsitethe reprocessing facilities.
Distribution costs decreased to $266,000$264,000 or 3.3% of revenues for the three months ended SeptemberMarch 28, 20032004 compared with $347,000$323,000 or 4.0%3.9% of revenues for the three months ended September 29, 2002. Distribution costs decreased to $894,000 or 3.5% of revenues for the nine months ended September 28, 2003 compared with $1,104,000 or 4.2% of revenues for the nine months ended September 29, 2002.TheMarch 30, 2003. The decrease in distribution costs resulted from the closure of the Detroit and Tampareprocessing facilities and volume decline at the reprocessing facilities.in 2003.
Selling, general and administrative expenses increased by $349,000$118,000 to $1,293,000$1,173,000 for the three months ended SeptemberMarch 28, 20032004 compared to $944,000$1,055,000 for the three months ended September 29, 2002. Selling, general and administrative expenses increased by $540,000 to $3,699,000 for the nine months ended September 28, 2003 compared to $3,159,000 for the nine months ended September 29, 2002.March 30, 2003. The increase was primarily the result of increased selling commissionstravel and one time severance and closing costs associated with the closure of the Detroit reprocessing facility, offset by continued cost control initiatives.
Interest expense decreased by $75,000$40,000 to $321,000$324,000 for the three months ended SeptemberMarch 28, 20032004 compared to $396,000$364,000 for the three months ended September 29, 2002. Interest expense decreased by $106,000 to $1,046,000 for the nine months ended September 28, 2003 compared to $1,152,000 for the nine months ended September 29, 2002.March 30, 2003. This decrease was the result of a reduction inlower average borrowings from affiliates and lower interest rates associated with these borrowings.affiliates.
Net loss for the three months ended SeptemberMarch 28, 20032004 was $217,000$41,000 compared to a net loss of $216,000$482,000 for the three months ended September 29, 2002. Net loss for the nine months ended September 28, 2003 was $1,215,000 compared to net loss of $959,000 for the nine months ended September 29, 2002.March 30, 2003. Basic and diluted earnings per share in the three months ended SeptemberMarch 28, 2003 and September 29, 2002 represented a net loss per share of $.01. Basic and diluted earnings per share in the nine months ended September 28, 2003 represented a net loss per share of $.06,2004 were nil, compared to a net loss per share of $.05$.02 in the ninethree months ended September 29, 2002.March 30, 2003.
Liquidity and Capital Resources
The Company generated cashCash flows from operations of $4,221,000operating activities were $1,492,000 in the ninethree months ended SeptemberMarch 28, 20032004 compared to $2,760,000$865,000 in the ninethree months ended September 29, 2002. ThisMarch 30, 2003. The increase resulted primarily from the generation of net income in cash flows compared to prior year was primarily the result ofcurrent period and a reduction in prepaid expenses and other assets.accounts receivable.
Capital expenditures totaled $2,803,000decreased to $440,000 in the ninethree months ended SeptemberMarch 28, 20032004 compared with $5,422,000$959,000 in the ninethree months ended September 29, 2002. TheseMarch 30, 2003, primarily due to a reduction in purchases were principally of
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surgical instruments and linens. Expenditures were made to support the Company’s new and existing sales contracts.
The Company plans to purchase additional surgical instruments and linens, as and if required to support the Company’s growth objectives. The Company believes that additional borrowing capacity under the existing loan agreement with Teleflex Incorporated (Teleflex), its majority shareholder, and cash flows from operating activities will provide support for these expenditures.
The Company had borrowings of $24,833,000$24,813,000 outstanding at SeptemberMarch 28, 20032004, a decrease of $49,000, under a $27,500,000 unsecured revolving loan agreement with Teleflex. The outstanding principal on this credit facility is due and payable on DecemberJuly 31, 2004.2005. Interest under this agreement is payable at the prevailing Prime rate of PNC Bank, plus 1.25 percent.
The Company believes that the anticipated future cash flow from operations, along with its cash on hand and available funding from its major shareholder will be sufficient to meet working capital requirements during 2003.2004.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities Exchange Commission (including this Form 10-Q) may contain statements which are not historical facts, so-called “forward-looking statements,” which
involve risks and uncertainties. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995; in particular, statements made relating to the suitability of the Company’s facilities and equipment for future operations and the availability of additional facilities and equipment in the future, and the sufficiency of funds for the Company’s working capital requirements during the next twelve months may be forward looking statements. The Company’s actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in the Company’s filings with the Securities and Exchange Commission.
The Company’s future results are subject to risks and uncertainties. The Company has operated at a loss or small profit for its entire history. The failure of the Company to continue to compete effectively with existing or new competitors could result in price erosion, decreased margins and decreased revenues, any or all of which could have a material adverse effect on the Company’s business, results of operations and financial condition. Approximately 61%69% of the Company’s healthcare provider customers are currently concentrated in the Northeast Corridor. Any factors affecting this market generally could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company is subject to government regulation in certain aspects of its operations. Changes in such regulations could have a material adverse effect on the Company’s business, results of operations and financial condition.
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The Company’s quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including: competitive pressures on selling prices and margins; the timing and cancellation of customer orders; the lengthy sales cycle of the Company’s services to healthcare organizations; the Company’s ability to maintain state-of-the-art sterilization facilities and the corresponding timing and amount of capital expenditures, particularly if the Company executes its plan for growth; and the introduction of new services by the Company’s competitors.
Item 4. Controls and Procedures
Item 4. | Controls and Procedures |
As of the end of the quarter year ended SeptemberMarch 28, 2003,2004, our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, which included inquiries made to certain other of our employees. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have each concluded that our disclosure controls and procedures provide reasonable assuranceare effective and sufficient to ensure that we record, process, summarize, and report information required to be disclosed by us in our periodic reports filed under the Securities Exchange Act within the time periods specified by the SecuritySecurities and Exchange Commission’s rules and forms. Subsequent toDuring the date of their evaluation,quarter ended March 28, 2004, there have not been any significantwere no changes in ourthe Company’s internal controlscontrol over financial reporting that materially affected, or in other factors that could significantlyare reasonably likely to materially affect, these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Item 6. | Exhibits and Reports on Form 8-K |
Exhibit | ||||
| ||||
Certification by the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
| ||||
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
| ||||
Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||
| ||||
Certification of Chief Financial Officer relating to Section 906 of the Sarbanes-Oxley Act of 2002 |
Form 8-K Filings
1. During the quarter ended SeptemberMarch 28, 2003,2004, the Company filed the following report on Form 8-K:
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On August 12, 2003March 22, 2004 SSI Surgical Services, Inc. filed a report on Form 8-K dated August 9, 2003,March 19, 2004, to file as an exhibit a press release announcing the certificationsresignation of its chairman of the Company’s Chief Executive OfficerBoard of Directors, and Chief Financial Officer required pursuant to 18 U.S.C. Section 1350,election of two new Directors, including the successor as adopted pursuant to Section 906chairman of the Sarbanes-Oxley ActBoard of 2002.
Directors.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SSI SURGICAL SERVICES, INC. | |||||||
By: | /s/ Christopher E. Tihansky | |||||||
Christopher E. Tihansky President and Chief Executive Officer | ||||||||
By: | /s/ Paul A. D’Alesio | |||||||
Paul A. D’Alesio Treasurer and Chief Financial Officer |
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