FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to
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Commission file number 0-10881 NY
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GRAHAM-FIELD HEALTH PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-2578230
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Rabro Drive East, Hauppauge, New York 11788
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(Address of principal executive offices)
(516) 582-5900
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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.
Yes X No
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Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by the court. Yes No
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Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.025 Par Value--- 13,010,000 shares as of August 10, 1995
<PAGE>
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
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I N D E X
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Part I. Financial Information: Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1995 (Unaudited) and December 31, 1994
(Audited) 3
Condensed Consolidated Statements of Operations for
the three and six months ended June 30, 1995 and 1994
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1995 and 1994 (Unaudited) 5/6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7/8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9/10/11
Part II. Other Information:
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
<TABLE><CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
June 30, December 31,
ASSETS 1995 1994
------ ------------ ------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 988,000 $ 121,000
Accounts receivable - net 19,280,000 19,173,000
Inventories 24,970,000 30,410,000
Other current assets 1,462,000 1,135,000
Recoverable and prepaid income taxes 237,000 239,000
----------- ------------
TOTAL CURRENT ASSETS 46,937,000 51,078,000
PROPERTY, PLANT AND EQUIPMENT - net 8,669,000 9,245,000
EXCESS OF COST OVER NET ASSETS ACQUIRED - net 29,075,000 29,531,000
INVESTMENT IN LEVERAGED LEASE 487,000 488,000
OTHER ASSETS 5,354,000 5,659,000
DEFERRED TAX ASSET 3,424,000 3,493,000
----------- ------------
TOTAL ASSETS $93,946,000 $99,494,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable to bank $ - $ 673,000
Current maturities of long-term debt and
guaranteed senior notes 1,630,000 615,000
Accounts payable 5,490,000 7,901,000
Acceptances payable 8,350,000 10,350,000
Accrued expenses 2,706,000 3,257,000
----------- -----------
TOTAL CURRENT LIABILITIES 18,176,000 22,796,000
LONG-TERM DEBT 1,301,000 1,596,000
GUARANTEED SENIOR NOTES 19,000,000 20,000,000
----------- -----------
TOTAL LIABILITIES 38,477,000 44,392,000
STOCKHOLDERS' EQUITY:
Preferred Stock -- --
Common Stock 325,000 323,000
Additional paid-in capital 63,405,000 63,145,000
(Deficit) (8,261,000) (8,366,000)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 55,469,000 55,102,000
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS'
------------ -----------
EQUITY $ 93,946,000 $99,494,000
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
<PAGE>
<TABLE><CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
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1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Operations $24,327,000 $24,100,000 $48,818,000 $46,537,000
Interest and other income 8,000 25,000 16,000 44,000
----------- ----------- ----------- ----------
24,335,000 24,125,000 48,834,000 46,581,000
COST AND EXPENSES:
Cost of revenues 16,763,000 16,504,000 33,535,000 31,948,000
Selling, general and administrative 6,818,000 6,951,000 13,690,000 13,887,000
Interest expense 690,000 648,000 1,435,000 1,272,000
----------- ----------- ----------- -----------
24,271,000 24,103,000 48,660,000 47,107,000
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) 64,000 22,000 174,000 (526,000)
INCOME TAXES (BENEFIT) 25,000 11,000 69,000 (165,000)
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ 39,000 $ 11,000 $ 105,000 $ (361,000)
============ =========== =========== ============
PER SHARE DATA:
NET INCOME (LOSS) PER SHARE $ .00 $ .00 $ .01 $ (.03)
============ =========== =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 13,021,000 12,877,000 13,007,000 12,833,000
============ =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
<PAGE>
<TABLE><CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
Six Months Ended
June 30
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1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 105,000 $ (361,000)
Adjustments to reconcile net
income (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,681,000 1,614,000
Provision for losses on accounts
receivable 195,000 227,000
Deferred income taxes 69,000 (165,000)
Deferred Compensation -- 4,000
Changes in operating assets and
liabilities:
Accounts receivable (302,000) (1,571,000)
Inventories, other current assets and
recoverable and prepaid income taxes 5,115,000 1,187,000
Accounts and acceptances payable
and accrued expenses (4,962,000) (37,000)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,901,000 898,000
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INVESTING ACTIVITIES
Purchases of property, plant and equipment (295,000) (515,000)
Decrease of other assets 42,000 (207,000)
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NET CASH (USED IN) INVESTING
ACTIVITIES $ (253,000) $ (722,000)
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</TABLE>
Page 5
<PAGE>
<TABLE><CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
Six Months Ended
June 30
--------------------
1995 1994
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<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from note payable to bank $ 1,000,000 $ --
Payments on note payable to bank (1,673,000) --
Principal payments on long term debt (280,000) (227,000)
Proceeds on exercise of stock options 172,000 65,000
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NET CASH (USED IN) FINANCING ACTIVITIES (781,000) (162,000)
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INCREASE IN CASH AND CASH EQUIVALENTS 867,000 14,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 121,000 565,000
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 988,000 $ 579,000
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</TABLE>
See notes to condensed consolidated financial statements.
Page 6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
1. GENERAL
-------
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position as of June 30, 1995 (unaudited) and December 31, 1994 (audited), the
results of operations for the three and six months ended June 30, 1995 and 1994
(unaudited) and the statements of cash flows for the six months ended June 30,
1995 and 1994 (unaudited).
Additionally, it should be noted that the accompanying financial
statements and notes thereto do not purport to be complete disclosures in
conformity with generally accepted accounting principles.
While the Company believes that the disclosures presented are adequate to
make the information contained herein not misleading, it is suggested that
these financial statements be read in conjunction with the financial statements
and the notes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
Inventories at June 30, 1995 have been valued at average cost based on
perpetual records or gross profit method.
The results of operations for the three and six months ended June 30, 1995
and 1994 are not necessarily indicative of results for the full year.
Certain 1994 amounts have been reclassified to conform with 1995
classifications.
2. NET INCOME (LOSS) PER SHARE
---------------------------
Net income per common share for the three and six months ended June 30,
1995 and the three months ended June 30, 1994 was computed using the weighted
average number of common shares and dilutive common equivalent shares
outstanding during the period. Net loss per common share for the six months
ended June 30, 1994 was computed using the weighted average number of common
shares outstanding during the period.
3. INVENTORIES
-----------
Inventories consist of the following:
June 30 December 31
1995 1994
----------- --------------
Raw materials $ 2,673,000 $ 3,112,000
Work-in-process 1,301,000 1,183,000
Finished goods 20,996,000 26,115,000
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$24,970,000 $30,410,000
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Page 7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
---------------------------------------------------
(Unaudited)
4. INCOME TAXES
------------
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement No.
109"). Under Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
As of June 30, 1995, the Company has recorded net deferred tax assets of
$3,424,000. These tax assets are primarily comprised of net operating loss
carryforwards and investment, research and development, jobs tax and alternate
minimum tax credits. Based upon the Company's expectation that future taxable
income will exceed $9,254,000 prior to December 31, 2009, the Company has not
recorded a valuation allowance of these tax assets, except for an allowance of
$55,000 related to tax assets recorded for acquired carryforwards. Future
taxable income is expected to be derived from the Company's existing operations
and a tax planning strategy which anticipates the recognition of a taxable gain
on the sale of appreciated assets.
5. OTHER MATTERS
-------------
On June 5, 1995, the Company entered into an amended letter of intent to
sell the Consumer Business of its HealthTeam subsidiary to the Lumiscope
Company, in exchange for the acquisition of the Medical Products Division of
Lumiscope, a privately owned company. The Medical Products Division of
Lumiscope currently markets and distributes Tens Units, sphygmomanometers,
stethoscopes, patient aids and other medical products to the home healthcare
and medical/surgical markets. The consumer business of the Company's
HealthTeam subsidiary markets and distributes diagnostic products, breast pumps
and related accessories, infrared heat lamps, massagers, and a variety of
consumer health products to the consumer/retail market. The Company is still
in the process of conducting its due diligence and there can be no assurance
that the transaction will be completed.
6. LEGAL PROCEEDINGS
-----------------
SEE PART II, ITEM 1 ON PAGE 11
Page 8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Operating Revenues
------------------
Operating revenues for the three months ended June 30, 1995 increased
approximately $227,000 or 1% as compared to the same period last year.
Operating revenues for the six months ended June 30, 1995, increased
approximately $2,281,000 or 5% as compared to the same period last year. The
increase in operating revenues for the three and six month periods of 1995
compared to 1994 was primarily due to the Company's improved customer service
and efficiency levels, which reflects the continued recovery of certain
revenues affected by past service and efficiency problems. The revenue
increase was achieved despite the troubled economic conditions in Mexico during
1995. The Company's sales to customers in Mexico declined by approximately
$600,000 for the first half of 1995 as compared to the first half of 1994. In
addition, the increase is also attributable to the Company's continued
expansion of its product line resulting from new and expanded distribution
agreements with vendors.
Interest and Other Income
-------------------------
Interest and other income for the three and six month periods ended June 30,
1995 decreased $17,000 and $28,000, respectively, as compared to the same
periods last year. The decrease in interest and other income reflects lower
cash balances on hand during these periods.
Cost of Revenues
----------------
Cost of revenues as a percentage of operating revenues for the three months
ended June 30, 1995 increased to 68.9% from 68.5% in the same period last year.
The increase in cost of revenues is primarily related to unfavorable exchange
rates experienced in the period with foreign suppliers and increased sales in
the home healthcare market place, which traditionally has had lower margins.
Cost of revenues as a percentage of operating revenues was 68.7% for both the
six month periods ended June 30, 1995 and 1994.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses as a percentage of operating
revenues for the three months ended June 30, 1995 were 28% as compared to 29%
in the same period last year. Selling, general and administrative expenses as
a percentage of operating revenues for the six months ended June 30, 1995 were
28% as compared to 30% in the same period last year. The decrease in both
fiscal periods is primarily due to cost reduction programs and the efficiencies
generated by the Company's distribution network and investment in new business
systems.
Page 9
<PAGE>
Interest Expense
----------------
Interest expense for the three months ended June 30, 1995 increased $42,000 or
6% as compared to the same period last year. For the six months ended June 30,
1995, interest expense increased $163,000 or 13% as compared to the same period
last year. The increase in interest expense in both periods is primarily due
to an increase in interest rates from the prior periods.
Net Income
----------
Income before income taxes for the three months ended June 30, 1995 was $64,000
as compared to $22,000 in the same period last year. Income before income
taxes for the six months ended June 30, 1995 was $174,000 as compared to a loss
before income taxes of $526,000 in the same period last year. The increase in
income before income taxes is primarily due to the increase in revenues as a
result of improved customer service and efficiency levels, which reflects the
continued recovery of certain revenue affected by past service efficiency
problems, and the decrease in selling, general and administrative expenses.
Net income for the three months ended June 30, 1995 was $39,000 as compared to
$11,000 for the same period last year. Net income for the six months ended
June 30, 1995 was $105,000 as compared to a net loss of $361,000 for the same
period last year. The Company recorded income tax expense of $69,000 for the
six month period ended June 30, 1995, as compared to an income tax benefit of
$165,000 recorded during the 1994 period. As of June 30, 1995, the Company has
recorded net deferred tax assets of $3,424,000, primarily comprised of net
operating loss carryforwards and investment, research and development, jobs tax
and alternative minimum tax credits. Based upon the Company's expectation that
future taxable income will exceed $9,254,000 prior to December 31, 2009, the
Company has not recorded a valuation allowance on these deferred tax assets,
except for an allowance of $55,000 related to tax assets recorded for acquired
carryforwards. Future taxable income is expected to be derived from the
Company's existing operations and a tax planning strategy which anticipates the
recognition of a taxable gain on the sale of appreciated assets. The total
deferred tax asset will continue to be evaluated by management as to its
realizability on a quarterly basis. Uncertainties which could impact the
future realizability, but are not expected to occur include the inability to
implement the Company's tax planning strategy, and declines in sales and
margins resulting from a possible loss of market share and increased
competition.
The Company's business has not been materially affected by inflation.
Liquidity and Capital Resources
-------------------------------
The Company had working capital of $28,761,000 at June 30, 1995, as compared to
$28,282,000 at December 31, 1994. The increase in working capital is primarily
attributable to the cash provided by the Company's net income of $105,000,
which reflects $1,681,000 of amortization and depreciation expense.
Page 10
<PAGE>
Cash provided by operations for the six months ended June 30, 1995 was
$1,901,000 as compared to $898,000 in the same period last year. The
principal reason for the increase in cash provided by operations was the
reduction in inventory as a result of the Company's improved purchasing
activities and the Company's operating profit.
The Company anticipates that its current cash balance together with expected
cash flow from operations, and its bank line of credit will be sufficient to
meet its working capital requirements.
Financing
---------
As of June 30, 1995, the Company renewed its unsecured line-of-credit with its
bank for a period of one year. Due to the Company's increase in net income and
cash provided from operations, the Company reduced its line of credit from
$20,000,000 to $15,000,000 in connection with the June 1995 renewal of the
line. The line is available for direct borrowings in the amount of up to
$5,000,000, and provides for commercial letters of credit and bankers'
acceptances. Credit availability under this line is subject to the bank's
continuing satisfaction with current financial information. The line is
guaranteed by the Company's wholly-owned subsidiaries. Interest on direct
borrowings is payable at 1% above the bank's prime rate, acceptances are
created for a fee of 2-1/2% above the bank's acceptance rate and commercial
letters of credit have a commission rate of 3/8% per drawing.
At June 30, 1995, there were no direct borrowings under the line. At June 30,
1995, $8,350,000 had been utilized under acceptances payable, which amount was
reduced to $7,100,000 in July 1995. Open letters of credit relating to
supplier purchases approximated $1,471,000 at June 30, 1995.
Part II. Other Information
-----------------
Item 1. Legal Proceedings
There is no action, proceeding or investigation pending or threatened which has
or may materially affect the condition (financial or otherwise), business,
operations or properties of the Company.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K on July 14, 1995.
Page 11
<PAGE>
S I G N A T U R E S
-------------------
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.
GRAHAM-FIELD HEALTH PRODUCTS, INC.
(Registrant)
Date: August 10, 1995 /s/ Irwin Selinger
----------------------------------------------
Irwin Selinger
Chairman of the Board and
Chief Executive Officer
Date: August 10, 1995 /s/ Gary M. Jacobs
----------------------------------------------
Gary M. Jacobs
Vice President - Finance
Chief Financial and Accounting Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1995 AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AS INCLUDED IN THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 988
<SECURITIES> 0
<RECEIVABLES> 19,280
<ALLOWANCES> 0
<INVENTORY> 24,970
<CURRENT-ASSETS> 46,937
<PP&E> 8,669
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,946
<CURRENT-LIABILITIES> 18,176
<BONDS> 0
<COMMON> 325
0
0
<OTHER-SE> 55,144
<TOTAL-LIABILITY-AND-EQUITY> 93,946
<SALES> 48,818
<TOTAL-REVENUES> 48,834
<CGS> 33,535
<TOTAL-COSTS> 33,535
<OTHER-EXPENSES> 13,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,435
<INCOME-PRETAX> 174
<INCOME-TAX> 69
<INCOME-CONTINUING> 105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
