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
COMMISSION FILE NUMBER: 000-16893
DANNINGER MEDICAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-0992628
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
4140 Fisher Road
Columbus, Ohio
43228-1607
(Address of principal executive offices)
(614) 276-8267
(Registrant's telephone number)
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
----------- -----------
4,683,490
Shares of Common Stock Outstanding
As Of
June 30, 1995<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 Omitted)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(Unaudited) (Audited)
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash............................................. $ 67 $ 3
Accounts receivable trade (net of allowance
for doubtful accounts of $159,000 and
$131,000 for 1995 and 1994, respectively)....... 2,800 2,647
Net investment in sales-type leases, current..... 20 30
Note receivable.................................. 24 28
Inventories...................................... 4,678 3,316
Prepaid expenses................................. 439 498
Deferred income taxes............................ 128 127
----------- ------------
Total current assets........................... 8,156 6,649
----------- ------------
Property and equipment, net........................ 670 487
----------- ------------
Other assets:
Notes receivable................................. 76 85
Other assets..................................... 101 171
Deferred income taxes............................ 91 41
----------- ------------
Total assets................................... $ 9,094 $ 7,433
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part
of the financial statements
1<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 Omitted)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(Unaudited) (Audited)
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion, term debt....................... $ 2,200 $ 2,140
Current portion, capital lease obligations....... 52 37
Accounts payable, trade.......................... 1,673 1,532
Accrued expenses................................. 395 326
----------- ------------
Total current liabilities...................... 4,320 4,035
----------- ------------
Other liabilities:
Non-current portion, term debt................... 800
Obligations under capital leases, net of
current maturities.............................. 21 8
----------- ------------
Shareholders' equity:
Common stock, $.01 par value:
Authorized, 10,000,000 shares; issued and
outstanding 4,683,490 and 4,551,390 shares
for 1995 and 1994, respectively................. 47 45
Paid-in capital.................................. 3,282 2,878
Retained earnings................................ 624 467
----------- ------------
Total shareholders' equity..................... 3,953 3,390
----------- ------------
Total liabilities and shareholders'
equity..................................... $ 9,094 $ 7,433
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part
of the financial statements
2<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three month and six month periods ending June 30, 1995 and 1994
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net sales......................... $ 2,474 $ 1,933 $ 5,693 $ 4,491
Lease and rental revenue.......... 176 256
--------- --------- --------- ---------
2,650 1,933 5,949 4,491
Cost of goods sold................ 1,104 1,003 2,638 2,234
--------- --------- --------- ---------
Gross margin.................... 1,546 930 3,311 2,257
--------- --------- --------- ---------
Operating expenses:
Sales and marketing............... 695 383 1,412 889
General and administrative........ 460 370 971 716
Research and development.......... 306 359 572 751
--------- --------- --------- ---------
1,461 1,112 2,955 2,356
--------- --------- --------- ---------
Operating income (loss).......... 85 (182) 356 ( 99)
--------- --------- --------- ---------
Other (expense) income:
Interest expense.................. ( 65) ( 35) (123) ( 67)
Other income, net................. 2 4
--------- --------- --------- ---------
( 65) ( 33) (123) ( 63)
--------- --------- --------- ---------
Income (loss) before
income taxes................... 20 (215) 233 (162)
Income tax expense (benefit)....... 17 ( 24) 76 ( 2)
--------- --------- --------- ---------
Net income (loss)................ $ 3 $ (191)$ 157 $ (160)
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share:
Net income (loss) per share....... $ .00 $ (.04)$ .03 $ (.04)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares
outstanding including
common stock equivalents.......... 4,914,665 4,438,412 4,875,962 4,434,878
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part
of the financial statements
3<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six month periods ending June 30, 1995 and 1994
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Net cash (used in)/provided by operating activities.. $ (933) $ 160
------- -------
Cash flows used in investing activities:
Purchases of property and equipment................ (297) (175)
------- -------
Net cash used in investing activities.............. (297) (175)
------- -------
Cash flows from financing activities:
Proceeds from term debt............................ 860 5
Repayment of term debt and capitalized
lease obligations................................ 29 ( 27)
Proceeds from issuance of common stock
and exercise of stock options.................... 405 33
------- -------
Net cash provided by financing activities...... 1,294 10
------- -------
Net increase/(decrease) in cash................ 64 ( 5)
Cash balance at the beginning of the period.......... 3 46
------- -------
Cash balance at the end of the period................ $ 67 $ 41
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest........... $ 123 $ 67
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part
of the financial statements
4<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(000 Omitted)
(Unaudited)
1. Management's Statement
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring in
nature) necessary to present fairly the financial position of Danninger Medical
Technology, Inc. and Subsidiaries at June 30, 1995, and the results of
operations and cash flows for the three month and six month periods ending June
30, 1995 and 1994. The notes to the Consolidated Financial Statements which
are contained in the 1994 Annual Report to Shareholders should be read in
conjunction with these Consolidated Financial Statements.
2. Inventories
Inventories are valued at the lower of first-in, first-out cost or market
and consisted of the following:
<TABLE>
<CAPTION>
June December
1995 1994
-------- --------
<S> <C> <C>
Raw Materials................... $ 1,124 $ 1,086
Work-in-process................. 16 99
Finished goods.................. 3,091 1,790
Consigned inventory............. 447 341
-------- --------
$ 4,678 $ 3,316
-------- --------
-------- --------
</TABLE>
3. Income Taxes
The Company provides for federal, state, and local income taxes in interim
periods using an estimated effective tax rate for the year. The Company
continues to maintain valuation allowances of $412,000 established at December
31, 1994 against net deferred tax assets.
4. Contingency
The Company is involved in litigation that has arisen in the ordinary
course of its business. These actions, when finally concluded, will not, in the
opinion of the Company, have a material adverse effect upon the financial
position or results of operations of the Company, however, there can be no
assurance that the future quarterly or annual operating results will not be
materially affected by final resolution of these matters.
5<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows Danninger Medical Technology's operating results
as a percent of revenues for the periods indicated for certain items reflected
in the statement of operations.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Percent Percent
of Sales of Sales
for for
three months six months
ending ending
June 30, June 30,
--------------------------------------------------------------------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales revenue.................... 93.4% 100.0% 95.7% 100.0%
Lease/rental revenue............. 6.6% 4.3%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 41.7% 51.9% 44.3% 49.7%
Gross margin..................... 58.3% 48.1% 55.7% 50.3%
Operating expenses:
Sales and marketing............ 26.2% 19.8% 23.7% 19.8%
General and administrative..... 17.4% 19.2% 16.3% 15.9%
Research and development....... 11.5% 18.6% 9.6% 16.7%
Interest....................... 2.5% 1.8% 2.1% 1.5%
Other income..................... .0% .1% .0% .1%
Income before taxes.............. .8% (11.1)% 3.9% (3.6)%
Net income....................... .1% (9.9)% 2.6% (3.6)%
--------------------------------------------------------------------------------
</TABLE>
6<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF JUNE 30, 1995
---------------------------------------
As of June 30, 1995, the Company's working capital position increased by
approximately $952,000 resulting in a working capital ratio of 1.89 to 1. The
increase in working capital is principally attributable to the restructuring of
the Company's short-term debt. On June 26, 1995, the Company entered into a
five (5) year term loan agreement for $1,000,000 with its bank at a rate of
prime plus 50 basis points. In addition, the Company's line of credit facility
was increased to $3,000,000 and extended to June 30, 1996 at a rate of prime
plus 75 basis points.
Accounts receivables decreased by $742,000 and inventories increased by
$577,000. The decrease in accounts receivables relates to collection of
accounts receivables from the first quarter. Inventories continue to increase
to support the anticipated 510(K) marketing clearance for the posterior portion
of the Synergy(TM) Spinal System developed by the Company's subsidiary Cross
Medical Products. Marketing clearance was received for this portion in July
1995. Property, plant, and equipment increased due to capital charges incurred
in developing new vendors. A decrease in trade payables, and conversion of a
portion of short term debt to long term contributed to an overall decrease in
current liabilities.
Shareholder's equity increased principally due to the Company's second
quarter earnings and the exercise of outstanding stock options in the second
quarter.
The Company believes that the working capital, bank commitments, and funds
anticipated to be generated by operations will be sufficient to fund the
Company's growth plans through 1995. The Company continues to review capital
needs in future years and identify possible sources of capital to meet those
needs.
7<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995 AS COMPARED TO
-----------------------------------------------------------------------------
THE THREE MONTHS ENDED JUNE 30, 1994
------------------------------------
Net sales increased 37% for the three months ended June 30, 1995 to
$2,650,000 from $1,933,000 for the three months ended June 30, 1994. The
increase is attributed to continued demand for the Company's continuous passive
motion (CPM) devices as well as an increase in sales of the Company's spinal
implant system.
Cost of sales as a percentage of net sales decreased to 41.7% for the
three months ended June 30, 1995 from 51.9% for the three months ended June 30,
1994. The decrease is primarily attributable to a recovery of reserves
established for slow moving inventory which can now be used in several of the
Company's core products. The recovery was $218,000 or 8.2% of sales. Without
the recovery cost of sales would have decreased to 49.9% from 51.9% for the
three months ended June 30, 1995 and 1994, respectively. Manufacturing
efficiencies as well as material costs contributed to the overall decrease in
the cost of sales percentage. Sales and marketing expense increased to 26.2% of
sales compared to 19.8% for the first quarter of 1994 principally as a result of
the addition of sales and marketing employees and advisors in the continued
expansion of the Company's distribution network. The decrease in general and
administrative expenses to 17.4% from 19.2% as a percentage of sales for the
three months ended June 30, 1995 and 1994 respectively is attributed to expenses
that were incurred in the first quarter of 1995 but were incurred in the three
months ended June 30, 1994.
While research and development expenses decreased to 11.5% from 18.6% of
net sales for the three months ended June 30, 1995 and 1994, respectively, the
Company continues to invest in research and development and in July received
marketing clearance on the posterior portion of it's Synergy(TM) Spinal System.
The Company anticipates additional product submissions to the FDA for marketing
clearance in subsequent quarters.
These factors resulted in an overall increase in operating income to
$85,000 or 3.2% of net sales for the three months ended June 30, 1995 from an
operating loss of ($182,000) or (9.4%) for the three months ended June 30, 1994.
Interest expense increased as a result of increased borrowings to provide
additional working capital.
Net income increased to $3,000 from a net loss of ($191,000) for the three
months ended June 30, 1995 and, 1994, respectively, and earnings per share
increased to $.00 from $(.04) for the same periods.
8<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AS COMPARED TO THE
-------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1994
------------------------------
For the six months ended June 30, 1995 net sales increased 24.5% to
$5,949,000 from $4,491,000 for the six months ended June 30, 1994. Cost of
goods sold decreased to 44.3% from 49.7% for the six months ended June 30, 1995
and 1994, respectively. Before recovery of the inventory reserves, cost of
goods sold decreased to 48.0% from 49.7%. As a percentage of net sales, sales
and marketing expense increased to 23.7% from 19.8%, general and administrative
expenses increased to 16.3% from 15.9% and research and development expense
decreased to 9.6% from 16.7% for the six months ended June 30, 1995 and 1994.
Interest expense increased to 2.1% from 1.5% for the same periods.
Net income for the six months ended June 30, 1995 increased to $157,000
from a net loss of ($160,000) for the six months ended June 30, 1994. Earnings
per share increased to $.03 from $(.04) for the same periods.
9<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is involved in litigation that has arisen in the ordinary
course of its business. These actions, when finally concluded, will not, in the
opinion of the Company, have a material adverse effect upon the financial
position or results of operations of the Company, however, there can be no
assurance that the future quarterly or annual operating results will not be
materially affected by final resolution of these matters.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) Danninger Medical Technology, Inc. held its annual meeting of
stockholders on May 18, 1995, for the purpose of electing three Class II
directors and ratifying the appointment of independent certified public
accountants for the fiscal year 1995.
(b) At the annual meeting of stockholders, all directors nominated were
elected.
(c) The table shows the voting tabulation for each matter voted upon at the
annual meeting of shareholders.
<TABLE>
<CAPTION>
ACTION FOR WITHHELD
------------- --------- --------
Election of Class II Directors:
<S> <C> <C>
Edward R. Funk 3,893,111 20,100
Herbert J. Kahn 3,896,331 17,100
Curtis A. Loveland 3,895,331 18,100
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
--------- ------- -----------
<S> <C> <C> <C>
Ratification of appointment 3,896,656 1,800 14,975
of Coopers & Lybrand as
independent certified public
accountants for the fiscal
year 1995
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying index to exhibits are filed
as a part of this Report.
(b) Reports on Form 8-K
None
10<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
DANNINGER MEDICAL TECHNOLOGY, INC.
(Registrant)
Dated: August 14, 1995 /S/ Joseph A. Mussey
--------------------
Joseph A. Mussey
Chief Executive Officer, President,
and Treasurer,
Dated: August 14, 1995 /S/ Paul A. Miller
--------------------
Paul A. Miller
Chief Financial Officer
(Principal Financial Officer)
</TABLE>
11<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of Filing
<S> <C>
4 Reference is made to Articles Fourth,
Eighth, Ninth and Tenth of the Company
and Articles II, III, IV, VI, VII and
VIII of the Company's Bylaws, filed as
Exhibits 3(a) and 3(b) to the Form 10
filed May 3, 1988 and incorporated by
reference herein.
Instruments defining the rights of
holders of long-term debt will be
furnished to The Securities and Exchange
Commission upon request.
10 Loan Agreement between Danninger Medical Filed herewith
Technology, Inc., Cross Medical Products, electronically
Inc., Recovery Services, Inc., and Bank
One, Columbus, NA
11 Statement re: Computation of Per Share Filed herewith
Earnings electronically
27 Financial Data Schedules Filed herewith
electronically<PAGE>
</TABLE>
BUSINESS LOAN AGREEMENT
Agreement by and between Bank One, Columbus, NA ("Bank One") located at 100 East
Broad Street, Columbus, Ohio 43271-0170 and Danninger Medical Technology Inc.,
Cross Medical Products, Inc., and Recovery Services, Inc. ("Borrower"), located
at 4140 Fisher Road, Columbus, Ohio. Borrower has requested that certain
extension(s) of credit be provided by Bank One, same evidenced by the following:
(a) Revolving Promissory Note $3,000,000.00 June 26, 1995
------------------------- ------------- -------------
Instrument Amount Date
Danninger Medical Technology, Inc.
----------------------------------
Obligor
Cross Medical Products, Inc. Recovery Services, Inc.
---------------------------- -----------------------
Obligor Obligor
(b) Promissory Note $1,000,000.00 June 26, 1995
--------------- ------------- -------------
Instrument Amount Date
Danninger Medical Technology, Inc.
----------------------------------
Obligor
Cross Medical Products, Inc. Recovery Services, Inc.
---------------------------- -----------------------
Obligor Obligor
and any and all renewals, modifications, extensions or substitutions therefor
("Obligations").
In consideration of the mutual promises set forth below and the extension(s) of
credit as described above and subject to Borrower's satisfactory fulfillment of
all conditions incident to the borrowing(s), Bank One and Borrower agree as
follows:
ARTICLE 1 - DEFINITIONS
The following terms shall have the following meanings in this Agreement or in
any document made or delivered pursuant to or in conjunction with this
Agreement:
1.1 All computations and determinations as to accounting or financial matters
shall be made in accordance with generally accepted accounting principals
consistently applied ("GAAP"), and all accounting or financial terms shall have
the meanings ascribed to such terms by GAAP.
1.2 "Indebtedness" shall mean:
(a) All indebtedness and liabilities of whatsoever kind, nature and
description owed to Bank One by Borrower, whether direct or indirect,
absolute or contingent, due or to become due or whether now existing or
hereafter arising, and howsoever evidenced or acquired, and whether joint and
several;
1<PAGE>
(b) All future advances which Bank One at any time may, but shall not be
required to, make for the protection or preservation of Bank One's rights and
interests arising hereunder, including, without limitation, advances for
taxes, levies, assessments, insurance, and reasonable attorneys' fees, if
allowable by law; and
(c) All costs and expenses incurred by Bank One in the protection and
preparation for sale of any of its collateral including, without limitation,
attorneys' fees, if allowable by law, and court costs.
1.3 "Obligation" shall mean the above referenced extension(s) of credit
including any Promissory Note, Guaranty, Letter of Credit or other instrument of
Borrower evidencing any loan, advance, credit or extension or renewal thereof
made or committed by Bank One to Borrower under this Agreement.
1.4 "Person" shall mean and include an individual, partnership, corporation,
trust, unincorporated association or organization, government or any department
or agency thereof.
1.5 "Related Person" shall include, but shall not be confined to, any Person
related to Borrower by common control or ownership.
1.6 "Subordinated Debt" shall mean indebtedness of Borrower which is
subordinated to all Indebtedness of Borrower to Bank One under the terms and
conditions approved in writing by Bank One.
1.7 The aforestated definitions, and all other definitions which may be set
forth herein, shall be applicable to the singular and plurals of said defined
term.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
2.1 If applicable, it is a duly organized, legally existing Corporation in good
standing under the laws of the State of Delaware, is qualified to do business in
and is in good standing under the laws of any other state in which it conducts
its business.
2.2 It has the power and is duly authorized to enter into this Agreement and to
execute and deliver to Bank One, now and from time to time hereafter, additional
instruments, resolutions, agreements and other instruments or documents relating
to the Obligation owed to Bank One. It has, by proper action, authorized and
empowered those persons whose signatures appear in this Agreement, and any
instruments, documents and exhibits that have been delivered in connection
herewith, to execute the same for and on its behalf.
2.3 The execution by it of this Agreement or any other agreements, instruments,
or documents which may, from time to time hereafter, be executed in respect
hereto and delivered to Bank One, shall not constitute a breach of any
provisions contained in its articles of incorporation or bylaws, or if
applicable, partnership agreement, or any agreements to which it is now a party,
does not violate any law, statute, or ordinance or rule or regulation
promulgated pursuant thereto, and that the performance by it of its obligations
hereunder or any agreements executed by it and delivered hereunder shall not
constitute an event of default under any other agreement to which it is now a
party.
2.4 All financial statements and information relating to it which have been or
may hereafter be delivered by it, its agents or accountants to Bank One are true
and correct and have been prepared in accordance with GAAP and that there have
been no material adverse changes in its financial or business condition or
2<PAGE>
operations since the submission of any financial information to Bank One, and no
material adverse changes in its financial or business condition or operations
are imminent or threatened.
2.5 All of its Federal, State and other tax returns and reports, including
reports to any governmental authority, for the property maintenance and
operation of its properties, assets and business, as may be required by law to
be filed or paid, have been filed, and all Federal, State and other taxes,
assessments, fees and other governmental changes (other than those presently
payable, without penalty) imposed upon it or its properties or assets, which are
due and payable, have been fully paid unless being contested by it in the
ordinary course of business and for which it has provided adequate reserves.
2.6 There is no litigation or, legal or administrative proceedings,
investigations or other action of any nature, pending or, to its knowledge,
threatened against or affecting it, which have not been disclosed to Bank One
and involve the possibility of any judgment or liability not covered by
insurance which may materially or adversely affect any of it properties or
assets or its right to carry on its business as now conducted.
2.7 It has good, valid and marketable title to all of its property and assets
free of any adverse lien, security interest or encumbrance, except liens,
security interests, pledges and encumbrances disclosed to Bank One by Borrower
in writing prior to the date hereof.
2.8 All of the funds loaned to it pursuant to this Agreement have been or will
be used exclusively in its normal business operation, will not be diverted to or
used in any other manner, and will not be used for the purchasing or carrying of
any "Margin Stock" as defined in regulations promulgated by the Federal Reserve
Board or the Securities and Exchange Commission.
2.9 It possesses and will continue to possess all permits, licenses,
trademarks, patents and rights thereto to conduct its business and that its
business does not conflict or violate any valid rights of others with respect to
the foregoing.
2.10 If applicable, it is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof ("ERISA"). Neither a Reportable Event nor a Prohibited Transaction, as
defined per ERISA, has occurred and is continuing with respect to any Plan, nor
has there been a notice of intent to terminate a Plan or appoint a trustee to
administrate a Plan.
2.11 It is in material compliance with all Federal, State and local laws,
statutes, ordinances, regulations, ruling and interpretations relating to
industrial hygiene, public health or safety, environmental conditions, the
protection of the environment, the release, discharge, emission or disposal to
air, water, land or ground water, the withdrawal or use of ground water or the
use, handling, disposal, treatment, storage or management of or exposure to
Hazardous Materials ("Hazardous Materials Laws"), the violation of which would
have a material effect on its business, its financial condition or its assets.
The term "Hazardous Materials" means any flammable materials, explosives,
radioactive materials, pollutants, toxic substances, hazardous water, hazardous
materials, hazardous substances, polychlorinated biphenyls, asbestos, urea
formaldehyde, petroleum (including its derivatives, by-products or other
hydrocarbons) or related materials or other controlled, prohibited or regulated
substances or materials, including, without limitation, any substances defined
or listed as or included in the definition of "hazardous substances", "hazardous
wastes", hazardous materials", "pollutants" or "toxic substances" under any
Hazardous Materials Laws. It has not received any written or oral communication
or notice from any judicial or governmental entity nor is it aware of any
investigation by any agency for any violation of any Hazardous Materials Law.
3<PAGE>
2.12 Details of all litigation, legal or administrative proceedings,
investigation or other action of similar nature, pending or threatened against
it, at any time during the term of this Agreement, which in part or in whole may
or will render any of these Representations and Warranties no longer true,
accurate and correct in each and every respect, will be brought to the attention
of Bank One, in writing, within thirty (30) days from the date Borrower acquires
knowledge of same.
ARTICLE III - SECURITY
3.1 As security for the Indebtedness, regardless of whether the principal sum
evidenced by an Obligation is reduced to zero and thereafter increased/decreased
an unlimited number of times, Borrower hereby grants to Bank One or has
previously caused to be granted to Bank One a security interest in the following
property under separate instrument(s):
(a) Accounts, general intangibles, chattel paper, instruments, and other
forms of obligations and receivables
(b) Inventory, merchandise, raw materials, work in process and supplies
(c) Goods, equipment, machinery, furnishings and other personal property
3.2 It is further agreed that the security described above shall secure
repayment of all Indebtedness and that a default in the terms of any note,
security agreement, mortgage, or other agreement from Borrower to Bank One shall
constitute a default of all notes, security agreements, mortgages, and other
agreements, and that Bank One may proceed in exercising its rights thereunder in
any order or manner it may choose. The purpose of this section being to cross-
collateralize and cross-default all Indebtedness. Additionally, the security
interest described above, if any, may be modified, added to or deleted from time
to time without modification to this Agreement.
ARTICLE IV - AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any Indebtedness is outstanding or
so long as this Agreement is in effect, Borrower shall:
4.1 Maintain insurance against fire, business interruption, public liability,
theft and other casualty on its insurable real and personal property to their
full replacement costs with companies acceptable to Bank One and against
liability on account of damage to persons or property and as required under all
applicable Workers' Compensation Laws. Furthermore, Borrower shall maintain any
other insurance as may from time to time be reasonably requested by Bank One,
shall insert a joint loss payee clause naming Bank One in all fire and extended
coverage policies and shall delivery certified copies of all such insurance
policies to Bank One upon demand.
4.2 Maintain, keep and preserve its buildings and properties and every part
thereof in good repair, working order, and condition and from time to time make
all needful and proper repairs, renewals, replacements, additions, betterments,
and improvements thereto, so that at all times the efficiency thereof shall be
fully preserved and maintained.
4.3 Duly pay and discharge or cause to be paid and discharged all taxes,
assessments, and other governmental charges imposed upon it and its properties
or any part thereof or upon the income or profits therefrom, as well as all
claims for labor, materials, or supplies, which if unpaid might by law become a
lien or charge upon its property, except such items as are being in good faith
appropriately contested and for which it has provided adequate reserves.
4.4 Carry on and conduct its business in substantially the same manner and in
substantially the same fields as such business is now and has heretofore been
4<PAGE>
carried on, maintain management with the same expertise and experience, and if
management is to be changed, immediately notify Bank One of said change, and
maintain its legal existence, and comply with all valid and applicable statutes,
rules and regulations.
4.5 Maintain, keep, and preserve a system of accounting in accordance with
GAAP, deliver to Bank One financial reports in a form satisfactory to Bank One
as Bank One may request from time to time, permit the duly authorized
representative(s) of Bank One at all reasonable times to examine and inspect the
books and records of it or any related business entity of it, to make abstracts
and copies thereof, and to visit and inspect any of its property wherever same
may be located.
4.6 Comply with all laws and regulations which it is required to comply with
including all Hazardous Materials Laws and regulations, and permit Bank One to
make environmental audits from time to time if requested by Bank One with costs
of same to be borne by Borrower.
ARTICLE V - NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any Indebtedness is outstanding or
so long as this Agreement is in effect, except for that previously disclosed in
writing to and consented to by Bank One, Borrower shall not without prior
written consent of Bank One:
5.1 Create, incur or assume any indebtedness for borrowed money, other than to
Bank One, or act as guarantor for any indebtedness of others in an aggregate
amount greater than $500,000.00 at any time. For the purpose hereof, sale of
accounts receivable and (or) entering into capital leases of personal property
shall be deemed the incurring of indebtedness for borrowed money.
5.2 Mortgage, pledge, assign, hypothecate, encumber, create or grant a security
interest in any of its assets except to Bank One, nor sell, lease, transfer,
assign or otherwise dispose of any of its assets, properties or business outside
of the ordinary course of business, except secured purchase money or lease
indebtedness up to the amount permitted by Section 5.1, if any.
5.3 Invest in, loan or advance money to, organize or participate in the
organization or in the creation of any other business entity.
5.4 Merge, transfer, acquire or consolidate with or into any other entity,
change ownership, dissolve and/or transfer or sell any assets outside of the
ordinary course of business without the prior written consent of Bank One.
5.5 If Borrower is a corporation, release, redeem, retire, purchase, or
otherwise acquire directly or indirectly any of its capital stock, or make any
changes in its capital structure, or pay, set aside, allocate or declare any
dividends, in cash or other property, upon its capital stock.
5.6 Make any loans or advances to any employee, officer or shareholder in
excess of $75,000.00.
ARTICLE VI - ADDITIONAL COVENANTS
Borrower agrees that each additional covenant listed below is fully applicable
if marked by an "X" or a check on the applicable space or spaces, or if the
information necessary to complete same is typed or written in the appropriate
space provided.
6.1 FINANCIAL REPORTS. Borrower covenants in accordance with paragraph
4.5 that it will deliver to Bank One:
(a) Within ninety (90) days after the end of each fiscal year of
5<PAGE>
Borrower, audited financial statement of Borrower prepared in accordance
with GAAP which shall include a Balance Sheet, Statement of Income,
Statement of Reconciliation of Net Worth, Statement of Changes in
Financial Position and Notes to financial statements and within thirty
(30) days from the applicable filing deadline, Borrower's 10-K report.
(b) Within forty-five (45)days after the end of each fiscal quarter
of Borrower, internally prepared financial statements of Borrower
prepared in accordance with GAAP which shall include a Balance Sheet at
the end of each such period and an Income Statement for the period from
the beginning of the current fiscal year to the end of such period and
within thirty (30) days from the applicable filing deadline, Borrower's
10-Q report . These statements shall be prepared on substantially the
same accounting basis as the statements required in Section 6.1(a)
above, if applicable, and the accuracy of the statements (subject to
audit and year-end adjustments) shall be certified by the chief
financial officer or president of Borrower.
6.2 DEBT TO TANGIBLE NET WORTH. Borrower agrees to maintain a ratio of Debt
to Tangible Net Worth of not more than 1.75 to 1.0.
"Tangible Net Worth" shall be determined in accordance with GAAP and shall
be deemed to include the amount of total assets of Borrower excluding the
amount of Intangible Assets of Borrower minus the amount of total
liabilities of Borrower, exclusive of Subordinated Debt, if any.
"Intangible Assets" shall be determined in accordance with GAAP and be
deemed to include at book value, without limitation, leasehold
improvements, goodwill, patents, copyrights, secret processes, deferred
expenses relating to sales, general administrative, research and
development expense, and all amounts due from any officer, employee,
director, shareholder or Related Person.
"Debt" shall be determined in accordance with GAAP and shall be deemed to
include all liabilities of Borrower including but not limited to accruals,
deferrals, and capitalized leases, less Subordinated Debt, if any.
6.3 CURRENT RATIO. Borrower agrees to maintain a Current Ratio (Current
Assets divided by current liabilities) of not less than 1.50 to 1.0.
"Current Assets" shall be determined in accordance with GAAP and shall be
deemed to include inventory at lower of cost or current market value less
any amounts due from any officer, employee, director, shareholder or
Related Person.
6.4 CASH FLOW RATIO. Borrower agrees to maintain a Cash Flow Ratio (net
income before taxes plus depreciation plus amortization to current
maturities of long term debt) of not less than 2.0 to 1.0, calculated on
a rolling four quarter basis.
6.5 DEPOSIT ACCOUNTS. Borrower shall establish and maintain its principal
deposit accounts at Bank One as long as any Indebtedness remains
outstanding or so long as this Agreement remains in effect.
6.6 BORROWING BASE. Borrowers shall furnish to Bank One as soon as
available, but in no event more than thirty (30) days after the end of
each month a "statement of Loan and Borrowing Base" similar in form to
Exhibit "A" attached hereto.
6<PAGE>
ARTICLE VII - DEFAULT AND REMEDIES
7.1 Borrower shall be in default hereunder upon the happening of any of the
following ("Event of Default"):
(a) The occurrence of an event of default under the terms of any Obligation,
security agreement, mortgage and other agreement executed in connection
therewith or herewith, including any renewal, extension or modification
thereof or hereof or in any other obligation or agreement with Bank One,
whether now or hereafter existing:
(b) Non-performance of any covenant, warranty or liability contained or
referred to herein; or
(c) If any warranty, representation or statement made or furnished to Bank
One by or on behalf of Borrower or any Obligor, in connection with this
Agreement, or to induce Bank One to make a loan to Borrower, proves to have
been false in any material respect when made or furnished.
7.2 Upon the occurrence of an Event of Default, Bank One may, at its option,
declare principal and accrued interest of all Indebtedness to be immediately due
and payable forthwith, without presentation, demand, protest or notice of any
kind, all of which are hereby expressly waived. Bank One shall have all the
rights and remedies of a Secured Party under the Uniform Commercial Code, as
enacted in the state where Bank One's principal office is located, said rights
and remedies being cumulative in nature. Bank One may set off any of the
Borrower's deposits or accounts, and any other Indebtedness of Bank One to
Borrower against the Indebtedness before or after an Event of Default, without
first looking to any property securing payment thereof.
7.3 Acceptance of payment, in full or part, or waiver of any Event of Default
shall not operate as a waiver of any current or later Event of Default, nor of
any other right of Bank One.
7.4 The provisions of this Agreement concerning any Event of Default are not
intended in any way to affect any rights of Bank One with respect to any
Indebtedness of Borrower to Bank One which may or hereafter be payable on
demand.
7.5 No delay or failure of Bank One in exercising any right, power, remedy or
privilege hereunder shall affect such right, power or privilege or be construed
as a waiver against Bank One.
7.6 Any waiver, permit, consent or approval by Bank One of any breach or
default hereunder must be in writing and shall be effective only to the extent
set forth in such writing.
ARTICLE VIII - MISCELLANEOUS
8.1 All notices required to be given under any term of this Agreement shall be
sufficient if mailed, via registered or certified mail, return receipt
requested, or set via overnight or hand courier, to the parties at their
respective addresses as previously set forth.
8.2 All documents referred to in this Agreement shall for all purposes be
considered a part of this Agreement, and all terms used in this Agreement shall
have the meaning set forth in said documents, and this Agreement shall include
all of the provisions stated in said documents.
8.3 This Agreement is a continuing agreement and shall continue in effect
notwithstanding that from time to time, no Indebtedness may exist. This
Agreement shall continue as to any Indebtedness and as to any and all renewals,
extensions or modifications thereof.
7<PAGE>
8.4 This Agreement may be executed in several counter-parts, each of which
shall be an original and all of which shall constitute the same instrument.
8.5 This Agreement, together with all other documents executed concurrently
herewith or attached hereto, constitute the full and complete Agreement of the
parties and may not be modified except by written instrument signed by all
parties hereto.
8.6 This Agreement shall be binding upon and inure to the benefit of Borrower
and Bank One and their respective successors and assigns.
8.7 Borrower agrees to pay on demand all costs and expenses in connection with
the negotiation, preparation, execution, delivery, filing, recording,
administration, enforcement, litigation, collection, or filing of any legal
action on or for any Obligation, including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for Bank One, with respect thereto.
Time is of the essence of all requirements of Borrower hereunder. The
obligations of Borrower under this paragraph shall survive payment of any
Obligation.
8.8 This Agreement shall be governed and construed in accordance with the laws
of the state where Bank One's principal office is located.
8.9 Any provision contained in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition of unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
8.10 Borrower shall fully and promptly pay, perform, discharge, defend,
indemnify and hold harmless Bank One from any and all claims, orders, demands,
causes of action, proceedings, judgments, or suits and all liabilities, losses,
costs or expenses (including, without limitation, technical consultant fees,
court costs, expenses paid to third parties and reasonable legal fees) and
damages arising out of, or as a result of (i) any release, discharge, deposit,
dump, spill, leak or placement of any Hazardous Material into or on any
Collateral or property owned, leased, rented or used by Borrower (the
"Property") at any time; (ii) any contamination of the soil or ground water of
the Property or damage to the environment and natural resources of the Property
or the result of actions whether arising under any Hazardous Material Law, or
common law; or (iii) any toxic, explosive or otherwise dangerous Material which
have been buried beneath or concealed within the Property. This indemnity shall
survive termination of this Agreement.
8.11 This Agreement contains the entire agreement of the parties and supersedes
all prior agreements and understandings, oral or written, with respect to the
subject matter hereof.
Executed this 26 day of June,1995.
Bank One:
<TABLE>
<S> <C>
By: /s/ Jeffrey D. Johns Danninger Medical Technology, Inc
-------------------------------
Jeffrey D. Johns
Its: Assistant Vice President By: /s/ Joseph A. Mussey
------------------------------
Joseph A. Mussey, President
8<PAGE>
Cross Medical Products, Inc.
By: /s/ Joseph A. Mussey
------------------------------
Joseph A. Mussey, President
Recovery Services, Inc.
By: /s/ Joseph A. Mussey
------------------------------
Joseph A. Mussey, President
</TABLE>
9<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
For the three month and six month periods ending June 30, 1995 and 1994
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding.... 4,623,143 4,438,412 4,584,440 4,434,878
Shares issuable pursuant to
stock option plans and stock
warrants, less shares assumed
repurchased at the average
market prices................ 291,522 0 291,522 0
--------- --------- --------- ---------
Weighted average shares
outstanding, including common
stock equivalents............ 4,914,665 4,438,412 4,875,962 4,434,878
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income.................... $ 3,000 $(191,000) $ 157,000 $(160,000)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share:......... $ .00 $ (.04) $ .03 $ (.04)
--------- --------- --------- ---------
--------- --------- --------- ---------
--------------------------------------------------------------------------------
</TABLE>
Note: The application of the higher of quarter-end or year end market prices
in calculating fully-diluted earnings per share does not result in a
change to the calculation of primary earnings per share.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES 1, 2, AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, 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-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 2,959
<ALLOWANCES> 159
<INVENTORY> 4,678
<CURRENT-ASSETS> 8,156
<PP&E> 1,969
<DEPRECIATION> 1,299
<TOTAL-ASSETS> 9,094
<CURRENT-LIABILITIES> 4,320
<BONDS> 1,073
<COMMON> 47
0
0
<OTHER-SE> 3,953
<TOTAL-LIABILITY-AND-EQUITY> 9,094
<SALES> 5,949
<TOTAL-REVENUES> 5,949
<CGS> 2,638
<TOTAL-COSTS> 2,638
<OTHER-EXPENSES> 2,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 233
<INCOME-TAX> 76
<INCOME-CONTINUING> 157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
