Leeds-based Surgical said the board had undertaken a review of forecasts for the financial year ending December 31 2015.
The statement added: “As announced in the final results on May 11 2015, the board has been focusing on cash flow generation, particularly through a process of substantially reducing inventory levels. This approach has shown some success and the cash position has improved since the year end.”
However, destocking in this way has a negative impact on profitability as recoveries through manufacturing are reduced, the statement said.
It added: “The company currently has a term loan of £3m from Yorkshire Bank which is repayable in April 2017. After taking account of cash balances, net indebtedness to Yorkshire Bank was £1.54m at close of business on June 29. The term loan carries a number of financial covenants, including a profitability covenant requiring EBITDA (earnings before interest, tax, depreciation and amortisation) of a minimum of £600,000 for the year ending December 31 2015. The board is now of the view that the company is unlikely to be able to meet the EBITDA covenant. and is commencing formal discussions with Yorkshire Bank in relation to this matter.”
Last year, Surgical abandoned plans to move to a new clinical training centre in Leeds, which would have been a key element of a new medical park.