<PAGE>
THIS PAPER DOCUMENT IS BEING
SUBMITTED PURSUANT TO RULE
901(d) OF REGULATION S-T
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 March 31, 1996
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
--- ---
4,718,990
Shares of Common Stock Outstanding
As Of
March 31, 1996
<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 Omitted)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 75
Accounts receivable trade (net of allowance for
doubtful accounts of $249 and $204 for
1996 and 1995, respectively) 4,279 $ 3,497
Inventories 4,274 4,227
Prepaid expenses and other current assets 467 409
Deferred income taxes 193 174
------------ ------------
Total current assets 9,288 8,307
------------ ------------
Property and equipment, net 660 724
------------ ------------
OTHER ASSETS:
Other assets 298 304
Deferred income taxes 126 182
------------ ------------
Total assets $ 10,372 $ 9,517
------------ ------------
------------ ------------
</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>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 167
Current portion, term debt $ 3,429 3,380
Current portion, capital lease obligations 21 26
Accounts payable, trade 1,830 1,146
Accrued expenses and other liabilities 462 402
------------ ------------
Total current liabilities 5,742 5,121
------------ ------------
Term debt, net of current maturies 913 839
------------ ------------
Obligations under capital leases, net of current
maturities 30 35
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized, 10,000,000 shares; issued and
outstanding 4,718,990 and 4,707,490 shares
for 1996 and 1995, respectively 47 47
Paid-in capital 3,395 3,367
Retained earnings 245 108
------------ ------------
Total shareholders' equity 3,687 3,522
------------ ------------
Total liabilities and shareholders' equity $ 10,372 $ 9,517
------------ ------------
------------ ------------
</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 periods ending March 31, 1996 and 1995
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Net sales $ 3,757 $ 3,218
Lease and rental revenue 292 80
------------ ------------
4,049 3,298
Cost of goods sold 1,910 1,534
------------ ------------
Gross margin 2,139 1,764
------------ ------------
Operating expenses:
Sales and marketing 981 717
General and administrative 645 511
Research and development 217 266
------------ ------------
1,843 1,494
------------ ------------
Operating income 296 270
------------ ------------
Other income (expense):
Interest expense (114) (59)
Other income, net 2
------------ ------------
(114) (57)
------------ ------------
Income before income taxes 182 213
Income tax expense 45 59
------------ ------------
Net income $ 137 $ 154
------------ ------------
------------ ------------
Earnings per share:
Net income per share $ .03 $ .03
----- -----
----- -----
Weighted average shares outstanding
including common stock equivalents 4,986,755 4,756,652
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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 three month periods ending March 31, 1996 and 1995
(000 Omitted)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Net cash provided by/(used in) operating activities $ 138 $ (657)
-------- ---------
Cash flows from investing activities:
Purchases of property and equipment (37) (127)
-------- ---------
Net cash used in investing activities (37) (127)
-------- ---------
Cash flows from financing activities:
Proceeds from term debt 207 636
Repayment of term debt and capitalized
lease obligations (93) 23
Cash overdraft (167)
Proceeds from exercise of stock options 27 172
-------- ---------
Net cash provided by/(used by) financing activities (26) 831
-------- ---------
Net increase/(decrease) in cash 75 47
Cash balance at the beginning of the period 0 3
-------- ---------
Cash balance at the end of the period $ 75 $ 50
-------- ---------
-------- ---------
</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 March 31, 1996, and the results of
operations and cash flows for the three month periods ending March 31, 1996 and
1995. The notes to the Consolidated Financial Statements which are contained
in the 1995 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>
MARCH DECEMBER
1996 1995
<S> <C> <C>
Raw Materials $ 774 $ 671
Work-in-process 166 108
Finished goods 2,113 2,686
Consigned inventory 1,221 762
------------ ------------
$ 4,274 $ 4,227
------------ ------------
------------ ------------
</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 $600,000 established at December
31, 1995 against net deferred tax assets.
4. Contingency
The Company maintains a claims made product liability insurance policy
with per occurrence ($50,000) and aggregate ($250,000) retention limits. Beyond
these retention limits, the policy covers aggregate insured claims made during
each policy year up to $5,000,000.
The Company and other spinal implant manufacturers have been named as
defendants in various class action product liability lawsuits alleging that the
plaintiffs were injured by spinal implants supplied by the Company and others.
All such lawsuits were consolidated for pretrial proceedings in the Federal
District Court for the Eastern District of Pennsylvania and on February 22,
1995, the plaintiffs were denied class certification. In response to the denial
of class certification, a large number of additional individual lawsuits have
been filed alleging, in addition to damages from spinal implants, a conspiracy
among manufacturers, physicians and other spinal implant industry members. At
March 1, 1996, approximately 500 such lawsuits have been filed in which the
Company is a party. Approximately fifteen of such cases involve individual
plaintiffs utilizing implants supplied by the Company. The Company cannot
estimate precisely at this time the number of such lawsuits that may eventually
be filed. The vast majority of such lawsuits are pending in federal courts and
are in preliminary stages. Discovery proceedings, including the taking of
depositions, have commenced in certain of the lawsuits. Plaintiffs in these
cases typically seek relief in the form of monetary damages, often in
unspecified amounts. While the aggregate monetary damages eventually sought in
all of such individual actions is substantial and exceeds the limits of the
Company's product liability insurance policies, the Company believes that it has
affirmative defenses, including, without limitation, preemption, and that these
individual lawsuits are otherwise without merit. An estimate of the amount of
loss cannot be made as the
5
<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
(000 Omitted)
(Unaudited)
Company does not have sufficient information on which to base an estimate. All
pending cases are being defended by the Company's insurance carrier, in some
cases under a reservation of rights. There can be no assurance, however, that
the 5,000,000 per annum limit of the Company's coverage will be sufficient to
cover the cost of defending all lawsuits or the payment of any amounts that may
be paid in satisfaction of any settlements or judgements. Further, there can be
no assurance that the Company will continue to be able to obtain sufficient
amounts of product liability insurance coverage at commercially reasonable
premiums.
In addition to the above, in the ordinary course of business the Company
has been named as a defendant in various other legal proceedings. These
actions, when finally concluded, will not, in the opinion of the Company, have a
material adverse affect upon the financial position or results of operations of
the Company. However, there can be no assurance that future quarterly or
annually operating results will not be materially adversely affected by the
final resolution of these matters.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable
(domestic and international). The Company follows certain guidelines in
determining the credit-worthiness of domestic and foreign customers. The credit
risk associated with each customer and each country is reviewed before a credit
decision is made. All international sales are denominated in U.S. dollars.
Certain of the Company's accounts receivable result from third party
reimbursements that may be dependent on limitations imposed by the payor on the
amount of reimbursement. The Company records the receivable and related revenue
net of such limitations.
6
<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 THREE MONTHS
ENDING ENDING
MARCH 31, MARCH 31,
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Sales revenue 92.8% 97.6%
Lease/rental revenue 7.2% 2.4%
------------ ------------
100.0% 100.0%
Cost of goods sold 47.2% 46.5%
Gross margin 52.8% 53.5%
Operating expenses:
Sales and marketing 24.2% 21.7%
General and administrative 15.9% 15.5%
Research and development 5.4% 8.1%
Interest 2.8% 1.8%
Other income .0% .0%
Income before taxes 4.5% 6.5%
Income Taxes (benefit) 1.1% 1.8%
Net income 3.4% 4.7%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF MARCH 31, 1996
As of March 31, 1996, the Company's working capital position increased by
$360,000 during the first three months of 1996 resulting in a working capital
ratio of 1.62 to 1. The increase in working capital is principally attributable
to the operating results experienced by the Company during the first quarter of
1996.
Accounts receivables increased by $782,000, inventories increased by
$47,000 and trade payables increased by $684,000. The increase in accounts
receivables is attributable to increased sales in the first quarter.
Inventories have begun to level off after experiencing significant growth to
support the Synergy-TM- System.
During the first quarter of 1996, the Company had an additional borrowing
of $207,000 which contributed to an overall increase in liabilities.
Property, plant, and equipment increased due to an increase in the amount
of equipment held for rental.
Shareholder's equity increased principally due to the Company's first
quarter earnings and the exercise of outstanding stock options in the first
quarter.
On April 4, 1996, the Company filed a $5,000,000 convertible subordinated
debenture offering with the Security and Exchange Commission. The Company
believes that the proceeds from the offering, its bank loan facility, working
capital, and funds anticipated to be generated by operations will be sufficient
to fund the Company's growth plans for the foreseeable future.
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 THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1995
Total revenue increased 23% for the three months ended March 31, 1996 to
$4,049,000 from $3,298,000 for the three months ended March 31, 1995. The
increase is primarilly attributable to increased sales of the Company's
Synergy-TM- Spinal implant system. In addition, the Company benefited from
continued penetration into the orthopedic home care rental market.
Cost of goods sold as a percentage of total revenue increased to 47.2%
for the three months ended March 31, 1996 from 46.5% for the three months ended
March 31, 1995. Sales and marketing expense increased to 24.2% of total
revenue compared to 21.7% for the first quarter of 1996 principally as a result
of the addition of sales and marketing employees and advisors in the continued
expansion of the Company's spinal implant distribution network.
General and administrative expenses increased to 15.9% from 15.5% as a
percentage of total revenue for the three months ended March 31, 1996 and 1995,
respectively.
Research and development expenses decreased to 5.4% from 8.1% of total
revenue for the three months ended March 31, 1996 and 1995, respectively,
principally as a result of a higher level of expenditures in 1995 in connection
with obtaining Section 510(k) approval of the SYNERGY-TM- Spinal Implant System.
These factors resulted in an overall increase in operating income to
$296,000 or 7.3% of total revenue for the three months ended March 31, 1996 from
$270,000 or 8.2% for the three months ended March 31, 1995.
Interest expense increased as a result of increased borrowings to provide
additional working capital.
Net income decreased to $137,000 from $154,000 for the three months ended
March 31, 1996 and 1995, respectively, and earnings per share remained the same
at $.03.
Except for the historical information in this report, it includes
forward-looking statements that involve risks and uncertainties, including, but
not limited to, quarterly fluctuations in results, the management of growth,
and other risks detailed from time to time in the Company's Securities and
Exchange Commission filings, including the Company's Form 10-K for the fiscal
year ended December 31, 1995. Actual results may differ materially from
management expectations.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company maintains a claims made product liability insurance policy
with per occurrence ($50,000) and aggregate ($250,000) retention limits. Beyond
these retention limits, the policy covers aggregate insured claims made during
each policy year up to $5,000,000.
The Company and other spinal implant manufacturers have been named as
defendants in various class action product liability lawsuits alleging that the
plaintiffs were injured by spinal implants supplied by the Company and others.
All such lawsuits were consolidated for pretrial proceedings in the Federal
District Court for the Eastern District of Pennsylvania and on February 22,
1995, the plaintiffs were denied class certification. In response to the denial
of class certification, a large number of additional individual lawsuits have
been filed alleging, in addition to damages from spinal implants, a conspiracy
among manufacturers, physicians and other spinal implant industry members. At
March 1, 1996, approximately 500 such lawsuits have been filed in which the
Company is a party. Approximately fifteen of such cases involve individual
plaintiffs utilizing implants supplied by the Company. The Company cannot
estimate precisely at this time the number of such lawsuits that may eventually
be filed. The vast majority of such lawsuits are pending in federal courts and
are in preliminary stages. Discovery proceedings, including the taking of
depositions, have commenced in certain of the lawsuits. Plaintiffs in these
cases typically seek relief in the form of monetary damages, often in
unspecified amounts. While the aggregate monetary damages eventually sought in
all of such individual actions is substantial and exceeds the limits of the
Company's product liability insurance policies, the Company believes that it has
affirmative defenses, including, without limitation, preemption, and that these
individual lawsuits are otherwise without merit. An estimate of the amount of
loss cannot be made as the Company does not have sufficient information on which
to base an estimate. All pending cases are being defended by the Company's
insurance carrier, in some cases under a reservation of rights. There can be no
assurance, however, that the $5,000,000 per annum limit of the Company's
coverage will be sufficient to cover the cost of defending all lawsuits or the
payment of any amounts that may be paid in satisfaction of any settlements or
judgements. Further, there can be no assurance that the Company will continue
to be able to obtain sufficient amounts of product liability insurance coverage
at commercially reasonable premiums.
In addition to the above, in the ordinary course of business the Company
has been named as a defendant in various other legal proceedings. These
actions, when finally concluded, will not, in the opinion of the Company, have a
material adverse affect upon the financial position or results of operations of
the Company. However, there can be no assurance that future quarterly or
annually operating results will not be materially adversely affected by the
final resolution of these matters.
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>
PART II - OTHER INFORMATION, Continued
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.
DANNINGER MEDICAL TECHNOLOGY, INC.
(Registrant)
Dated: May 10, 1996
/S/ Joseph A. Mussey
Joseph A. Mussey
Chief Executive Officer, President,
and Treasurer
Dated: May 10, 1996
/S/ Paul A. Miller
Paul A. Miller
Chief Financial Officer
(Principal Financial/Accounting Officer)
11
<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
11 Statement re: Computation of Per Share Earnings 13
27 Financial Data Schedules 14
12
<PAGE>
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
For the three month periods ending March 31, 1996 and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Three months Ended Three months Ended
March 31, March 31,
1996 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted average number of common
shares outstanding 4,708,426 4,559,878
Shares issuable pursuant to
stock option plans and stock warrants,
less shares assumed repurchased at
the average market prices 278,329 196,774
------------- -------------
Weighted average shares outstanding,
including common stock equivalents 4,986,755 4,756,652
------------- -------------
------------- -------------
Net income $ 137,000 $ 154,000
------------- -------------
------------- -------------
Net income per share: $.03 $.03
---- ----
---- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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.
13
<TABLE> <S> <C>
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 75
<SECURITIES> 0
<RECEIVABLES> 4,528
<ALLOWANCES> 249
<INVENTORY> 4,274
<CURRENT-ASSETS> 9,288
<PP&E> 2,288
<DEPRECIATION> 1,628
<TOTAL-ASSETS> 10,372
<CURRENT-LIABILITIES> 5,742
<BONDS> 1,393
0
0
<COMMON> 47
<OTHER-SE> 3,640
<TOTAL-LIABILITY-AND-EQUITY> 10,372
<SALES> 4,049
<TOTAL-REVENUES> 4,049
<CGS> 1,910
<TOTAL-COSTS> 1,910
<OTHER-EXPENSES> 1,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 182
<INCOME-TAX> 45
<INCOME-CONTINUING> 137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
