SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1998
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
CROSS MEDICAL PRODUCTS, INC.
(formerly known as 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.)
5160 Blazer Memorial Parkway
Dublin, Ohio 43017-1339
(Address of principal executive offices)
(614) 718-0530
(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
----- -----
The number of shares outstanding of Registrant's Common Stock, par value $.01,
on May 1, 1998 was 5,285,752.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,693 $ 1,588
Investments 1,500
Accounts receivable, net 4,718 4,304
Inventories 9,299 8,459
Other current assets 269 207
Deferred income taxes 855 883
------------ ------------
Total current assets 16,834 16,941
------------ ------------
Property and equipment, net 910 970
Other assets:
Intangible assets, net 190 183
Other assets 647 668
------------ ------------
Total assets $18,581 $18,762
============ ============
</TABLE>
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion, term debt $ 95 $ 95
Accounts payable 1,152 992
Accrued liabilities 1,154 821
Accrued disposition costs 548 610
Accrued income taxes 113 1,067
------------ ------------
Total current liabilities 3,062 3,585
------------ ------------
Term debt, net of current maturities 4,983 5,080
Obligations under capital leases, net of current maturities 40 44
Deferred income taxes 55 55
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized, 10,000,000 shares; no shares issued and
outstanding
Common stock, $.01 par value:
Authorized, 40,000,000 shares; issued and outstanding
5,275,752 and 5,224,314 shares for 1998 and 1997,
respectively 54 53
Additional paid-in capital 7,287 6,948
Retained earnings 3,100 2,997
------------ ------------
Total shareholders' equity 10,441 9,998
------------ ------------
Total liabilities and shareholders' equity $18,581 $18,762
============ ============
</TABLE>
See notes to the consolidated financial statements
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDING MARCH 31, 1998 AND 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 3,663 $ 2,773
Cost of goods sold 1,288 1,039
------------ ------------
Gross margin 2,375 1,734
------------ ------------
Selling, general and administrative 1,752 1,628
Research and development 369 212
------------ ------------
2,121 1,840
------------ ------------
Operating income (loss) 254 (106)
Interest expense, net (93) (159)
------------ ------------
Income (loss) from continuing operations before income taxes 161 (265)
Income tax provision (benefit) 58 (88)
------------ ------------
Net income (loss) from continuing operations 103 (177)
------------ ------------
Net income from discontinued operations
(net of income taxes of $181) 301
Gain on sale of discontinued operations
(net of income taxes of $1,589) 2,390
------------ ------------
Net income from discontinued operations 2,691
------------ ------------
Net income $ 103 $ 2,514
============ ============
Basic earnings per share:
Net income (loss) from continuing operations $ .02 $ (.04)
============ ============
Net income from discontinued operations $ .55
============ ============
Net income $ .02 $ .51
============ ============
Diluted earnings per share:
Net income (loss) from continuing operations $ .02 $ (.04)
============ ============
Net income from discontinued operations $ .55
============ ============
Net income $ .02 $ .51
============ ============
Weighted average shares outstanding used in basic
and diluted earnings per share calculation 5,262,733 4,945,265
============ ============
</TABLE>
See notes to the consolidated financial statements
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDING MARCH 31, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net cash used in continuing operations $(1,602) $(1,981)
Net cash provided by discontinued operations 502
------------ ------------
Net cash used in operating activities (1,602) (1,479)
------------ ------------
Cash flows from investing activities:
Expenditures for patents rights and license (9) (47)
Redemption of investment 1,500
Purchases of property and equipment (23) (39)
------------ ------------
Net cash provided by (used in) continuing operations 1,468 (86)
Net cash used in discontinued operations (91)
Cash received from sale of Recovery Products segment 8,177
------------ ------------
Net cash provided by investing activities 1,468 8,000
------------ ------------
Cash flows from financing activities:
Repayment of term debt and capitalized lease obligations (4) (1,593)
Proceeds from exercise of stock options 243 88
Proceeds from the sale of common stock 242
------------ ------------
Net cash used in continuing operations 239 (1,279)
Net cash used in discontinued operations (197)
------------ ------------
Net cash provided by (used in) financing activities 239 (1,476)
------------ ------------
Net increase in cash 105 5,061
Cash and cash equivalents beginning of period 1,588 216
------------ ------------
Cash and cash equivalents end of period $ 1,693 $ 5,277
============ ============
Supplemental disclosures of non-cash investing and financing activities:
Debt assumed by buyer $ 3,363
============
</TABLE>
See notes to the consolidated financial statements
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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 Cross Medical Products,
Inc. and Subsidiary at March 3l, 1998, and the results of operations and cash
flows for the three month periods ending March 3l, 1998 and l997. The notes
to the Consolidated Financial Statements which are contained in the 1997
Annual Report to Shareholders should be read in conjunction with these
Consolidated Financial Statements.
2. Sale of Recovery Products Segment
On March 12, 1997, the Company entered into an agreement to sell its Recovery
Products segment for approximately $8,200,000 in cash and the assumption of
approximately $5,000,000 of debt and other liabilities. The buyer also
acquired 30,000 shares of the Company's common stock for $242,000. The buyer
entered into a "temporary services agreement" to pay the Company $30,000 a
month for use of the Company's facility and accounting services from the date
of the sale until July 1997. In connection with the sale, the Company agreed
to retain cash, leasehold improvements, other assets and certain related
liabilities and leases of the discontinued segment.
3. Inventories
Inventories are valued at the lower of first-in, first-out cost or market and
consisted of the following (in thousands):
<TABLE>
<CAPTION>
March December
1998 1997
-------- --------
<S> <C> <C>
Raw materials $ 208 $ 197
Finished goods 6,470 5,949
Consigned inventory 3,230 2,951
-------- --------
9,908 9,097
Less inventory reserve 609 638
-------- --------
$ 9,299 $ 8,459
======== ========
</TABLE>
4. Income Taxes
The Company provides for federal, state, and local income taxes in interim
periods using estimated temporary differences for the period.
5. Term Debt
Term debt included $4,983,000 of Convertible Subordinated Debentures
("Debentures") at 8.5% due June 1, 2003. The Debentures are currently
convertible at any time before maturity, unless previously redeemed, into
shares of the Company's Common Stock at a conversion price of $8.125 per share
(the "Conversion Price"), subject to adjustment in certain events, and, upon
completion of the proposed merger with Interpore International ("Interpore"),
will be convertible into Interpore Common Stock at an adjusted Conversion Price.
Upon the occurrence of certain changes in control of the Company, including
the merger with Interpore, the Company or the surviving company will be
obligated to purchase the Debentures, at the option of the Debenture holder,
at 101% of the principal amount thereof, plus accrued interest. Beginning
July 1, 1999, the combined company will be obligated to redeem the Debentures
tendered by June 1, 1999 or June 1 of any succeeding year at their fair amount
plus accrued interest, subject to an annual limitation of $25,000 per holder
and an aggregate of $262,500.
In connection with the merger with Interpore, Interpore has agreed to enter
into a Supplemental Indenture with Fifth Third Bank once the merger is
consummated. The Supplemental Indenture will provide that after the merger is
consummated, the holder of each Debenture will have the right to convert such
Debenture into the same number of shares of Interpore Common Stock that such
holder would have been entitled to receive in the merger if such Debenture had
been converted into the Company's Common Stock prior to the merger with
Interpore, subject to Section 5.04 of the existing Indenture with Fifth Third
Bank. Debenture holders will receive notice of the execution of the
Supplemental Indenture within 30 days after its execution.
Interest expense for the three months ended March 31, 1998 and 1997 was
$133,000 and $173,000, respectively. During 1998, $97,000 of Debentures were
converted to 11,938 shares of Company's Common Stock.
6. Earnings Per Share Calculations
The Company adopted Statement of Financial Accounting Standard No. 128
("FAS 128"), Earnings Per Share, for the year ended December 31, 1997. Basic
earnings per share is computed using the weighted average number of shares
outstanding. Diluted earnings per share is computed using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding options and warrants to purchase common stock and convertible
subordinated debentures. For purposes of computing diluted earnings per share
assuming conversion of the subordinated debentures, income from continuing
operations is adjusted for interest expense, net of tax. For the periods ended
March 31, 1998 and 1997, the common stock equivalents were not considered in
the diluted earnings per share calculation since the results were antidilutive.
7. Commitments and Contingency
The nature of the Company's business subjects the Company to product liability
and related claims from time to time. The Company maintains a claims made
product liability insurance policy with per occurrence ($100,000) and aggregate
insured claims made during each policy year up to $5,000,000. The Company
believes that it has adequate insurance for its business, however, there can
be no assurance that future operating results will not be materially adversely
affected by the formal resolution of pending cases or future claims.
The Company and other spinal implant manufacturers were named as defendants
in various purported 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, Chief Judge Emeritus Lewis C Bechtle denied class certification. The
federal court lawsuits before Judge Bechtle will remain coordinated for further
pretrial purposes, but are individual lawsuits. 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 to
market products without the proper regulatory approvals. The Company has been
named as a defendant, among others, in approximately 750 such lawsuits. None
of the 750 cases involve products manufactured by the Company. The Company
cannot estimate precisely at this time the number of such lawsuits that may
eventually be filed. Most 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.
In addition, the Company has been named as a defendant in 16 cases alleging
claims of product liability for allegedly defective products manufactured by
the Company. 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 policy year 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
judgments. 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. The Company has
denied liability in all such lawsuits and is vigorously defending the same.
The Company believes that is has adequate insurance for its business, however,
there can be no assurance that future operating results will not be materially
adversely affected by the final resolution of these matters.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto and the other
financial information included elsewhere in this Quarterly Report on Form
10-Q, as well as the factors set forth under the caption "Forward-Looking
Information" below.
FORWARD-LOOKING INFORMATION
Statements in the following discussion that indicate the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements. Additional information concerning factors that
could cause actual results to differ materially from those suggested in the
forward-looking statements is contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
filed with the Securities and Exchange Commission, as the same may be amended
from time to time.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder
values of the Company may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict.
Stockholders are cautioned not to put undue reliance on forward-looking
statements. In addition, the Company does not have an intention or obligation
to update forward-looking statements after the date hereof, even if new
information, future events, or other circumstances have made them incorrect or
misleading. For those statements, the Company claims the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows Cross Medical Product'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, 1998 March 31, 1997
------------ ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 35.2% 37.5%
Gross margin 64.8% 62.5%
Selling, general and administrative 47.8% 58.7%
Research and development 10.1% 7.6%
Operating income (loss) 6.9% (3.8)%
Interest expense, net 2.5% 5.7%
Income (loss) from continuing operations before income taxes 4.4% (9.6)%
Income tax provision (benefit) 1.6% (3.2)%
Net income (loss) from continuing operations 2.8% (6.4)%
</TABLE>
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
On March 12, 1997, the Company sold substantially all of the assets and the
buyer assumed substantially all of the liabilities of its Recovery Products
segment. The results of the Company have been reported so as to segregate the
discontinued operations from continuing operations. The management discussion
that follows pertains to the Company's continuing operations.
On February 12, 1998, the Company announced that it had entered into a
definitive merger agreement with Interpore International, a California-based
company ("Interpore". Under the terms of the merger agreement a wholly owned
subsidiary of Interpore to be merged with and into the Company, with the
Company becoming a wholly owned subsidiary of Interpore. The agreement, a
merger of equals, calls for each shareholder of the Company to receive 1.275
shares of Interpore common stock in exchange for each of their shares of the
Company's common stock. It is anticipated that the transaction will be
consummated after the customary conditions and approval by the shareholders of
each company are satisfied and will close prior to May 15, 1998.
The Company continues to develop its strategy of focusing on increasing market
penetration with its SYNERGY(tm) Spinal Implant System as it continues to
expand its distribution network in the United States and internationally.
The Company also continues to assess and develop new products to add to its
existing spinal implant product line. The merger with Interpore will create
a medical device product company with a unique combination of spinal and bone
graft technologies and with an expanded product portfolio and combined
distribution channels specifically addressing the spinal orthopedic market.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF MARCH 31,1998
Working capital increased to $13,772,000 at March 31, 1998 from $13,356,000 at
December 31, 1997. The current ratio (ratio of current assets to current
liabilities) increased to 5.5 to 1.0 at March 31, 1998 from 4.7 to 1.0 at
December 31, 1997. The increase in working capital is principally attributable
to the increases in accounts receivable, inventory, and accounts payable.
Accounts receivable increased by $414,000, inventories increased by $840,000
and accounts payable increased by $160,000. The increase in accounts
receivable is attributable to increased sales in the first quarter. The
increase in the inventory and accounts payable is primarily due to the need to
build inventory, including consigned inventory, to support the growing demand
for titanium and steel SYNERGY(tm) Spinal Implant Systems.
The nature of the Company's business subjects the Company to product liability
and related claims from time to time. The Company believes that it has
adequate insurance for its business, but there can be no assurance that the
Company's liquidity will not be materially adversely affected by the final
resolution of pending cases or future claims.
The Company believes that the funds generated by the divestiture of the
Recovery Products segment, working capital, and funds anticipated to be
generated by operations will be sufficient to fund the Company's growth plans
through the end of the current fiscal year. In addition, the Company believes
that its financial flexibility will be enhanced by the merger with Interpore
given the that the assets contributed by Interpore include approximately
$13,500,000 in cash and marketable securities.
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED
TO THE THREE MONTHS ENDED MARCH 31, 1997
Net sales increased 32.1% for the three months ended March 31, 1998 to
$3,663,000 from $2,773,000 for the three months ended March 31, 1997. The
increase was primarily a result of the Company's increased penetration into
the spinal implant market, as the Company continued to increase its
distribution network, the number of surgeons using the SYNERGY(tm) Spinal
Implant System and its offering of spinal implant products.
Cost of goods sold was $1,288,000 or 35.2% of net sales for the three months
ended March 31, 1998 compared to $1,039,000 or 37.5% for the three months ended
March 31, 1997. The decrease as a percentage of sales was primarily related
to an increase in domestic prices for the SYNERGY(tm) Spinal Implant System,
while the cost of the spinal implant products remained relatively stable from
1997 to 1998.
Selling, general and administrative expense decreased to 47.8% from 58.7% as
a percentage of net sales, and increased to $1,752,000 from $1,628,000 for the
three months ended March 31, 1998 and 1997, respectively. Most of the selling,
general and administrative expenses are relatively fixed expenses and as net
sales increase, these expenses as a percentage of net sales decrease. The
Company intends to continue to invest in the development of additional markets
domestically and internationally, therefore expenditures will tend to keep
selling, general and administrative expenses at a relatively high percentage
of sales until sales increase.
Research and development expenses increased to 10.1% from 7.6% as a percentage
of net sales, and increased to $369,000 from $212,000 for the three months
ended March 31, 1998 and 1997, respectively. In March 1997, the Company
entered into a license agreement to develop a spinal cage, the development of
which is ongoing. The cage is expected to open new market segments for the
Company. The Company is also developing a cervical spinal system. The Company
continues to explore ways to expand its product lines either through internal
development or acquisition.
Interest expense, net, decreased to $93,000 or 2.5% of net sales from $159,000
or 5.7% of net sales, for the three months ended March 31, 1998 and 1997,
respectively. The decrease was primarily attributable to the interest income
earned on the investment of the proceeds from the sale of the Company's
Recovery Products business in March, 1997.
The Company recorded a tax expense of $58,000 for the three months ended March
31, 1998 compared to a tax benefit of $(88,000) for the three months ended
March 31, 1997, as the Company had a loss from continued operations in the
first quarter of 1997.
These factors resulted in an overall increase in operating income from
continuing operations to $103,000 from a net loss from continuing operations
of $(177,000) for the three months ended March 31, 1998 and 1997, respectively,
and the basic and diluted earnings (loss) per share from continuing operations
increased to $0.02 from $(0.04) for the same periods.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company's business subjects the Company to product liability
and related claims from time to time. The Company maintains a claims made
product liability insurance policy with per occurrence ($100,000) and
aggregate insured claims made during each policy year up to $5,000,000. The
Company believes that it has adequate insurance for its business, however,
there can be no assurance that future operating results will not be materially
adversely affected by the formal resolution of pending cases or future claims.
The Company and other spinal implant manufacturers were named as defendants in
various purported 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, Chief Judge Emeritus Lewis C Bechtle denied class certification. The
federal court lawsuits before Judge Bechtle will remain coordinated for
further pretrial purposes, but are individual lawsuits. 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 to market products without the proper regulatory approvals. The
Company has been named as a defendant, among others, in approximately 750 such
lawsuits. None of the 750 cases involve products manufactured by the Company.
The Company cannot estimate precisely at this time the number of such lawsuits
that may eventually be filed. Most 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.
In addition, the Company has been named as a defendant in 16 cases alleging
claims of product liability for allegedly defective products manufactured by
the Company. 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 policy year 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
judgments. 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. The Company has
denied liability in all such lawsuits and is vigorously defending the same.
The Company believes that is has adequate insurance for its business, however,
there can be no assurance that future 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
Current report on Form 8-K, dated February 11, 1998 and filed
with the Securities and Exchange Commission on February 18, 1998.
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.
CROSS MEDICAL PRODUCTS, INC.
(Registrant)
Date: May 6, 1998 By: /S/ Joseph A. Mussey
--------------------
Joseph A. Mussey
Chief Executive Officer, President
and Treasurer
(Principal Executive Officer)
Date: May 6, 1998 By: /S/ Paul A. Miller
------------------
Paul A. Miller
Chief Financial Officer
(Principal Financial/Accounting Officer)
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
FORM 10-Q
EXHIBIT INDEX
Exhibit No. Exhibit
2.1 Agreement and Plan of Merger dated as of February 11, 1998,
by and among Cross Medical Products, Inc., Interpore
International, and Buckeye International (Exhibit 2.1 to Form
8-K dated February 11, 1998, and incorporated herein by
reference.)
10.1 Stock Option Agreement (Cross), dated as of February 11, 1998,
by and between Cross Medical Products, Inc. and Interpore
International (Exhibit 2.1 to Form 8-K dated February 11, 1998,
and incorporated herein by reference.)
10.2 Stock Option Agreement (Interpore), dated as of February 11,
1998, by and between Interpore International and Cross Medical
Products, Inc.(Exhibit 2.1 to Form 8-K dated February 11, 1998,
and incorporated herein by reference.)
10.3 Stockholder Agreement (Cross), dated as of February 11, 1998
by and among certain stockholders of Cross Medical Products,
Inc., to and for the benefit of Interpore International
(Exhibit 2.1 to Form 8-K dated February 11, 1998, and
incorporated herein by reference.)
10.4 Stockholder Agreement (Interpore), dated as of February 11,
1998 by and among certain stockholders of Interpore
International, to and for the benefit of Cross Medical Products,
Inc.(Exhibit 2.1 to Form 8-K dated February 11, 1998, and
incorporated herein by reference.)
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
CROSS MEDICAL PRODUCTS, INC. AND SUBSIDIARY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
FOR THE THREE MONTH PERIODS ENDING MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1998 1997
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding used
in basic earnings per share calculation 5,262,733 4,945,265
Shares issuable pursuant to stock option plans and stock
warrants 196,694 219,525
Shares issuable under the Convertible Subordinated Debentures 613,294 646,154
------------ ------------
Weighted average shares outstanding used in diluted earnings
per share calculation 6,072,721 5,810,944
============ ============
Net income (loss) from continuing operations $ 103,000 $ (177,000)
============ ============
Net income from discontinued operations $2,691,000
============
Net income used in calculation of basic earnings per share $ 103,000 $2,514,000
Interest on Convertible Subordinated Debentures $ 65,000 $ 67,000
------------ ------------
Net income used in calculation of diluted earnings per share $ 168,000 $2,581,000
============ ============
Basic earnings per share:
Net income (loss) per share from continuing operations $ .02 $(.04)
============ ============
Net income per share from discontinued operations $ .55
============
Net income per share $ .02 $ .51
============ ============
Diluted earnings per share:
Net income (loss) per share from continuing operations $ .03 $(.02)
============ ============
Net income per share from discontinued operations $ .46
============
Net income per share $ .03 $ .44
============ ============
</TABLE>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,693
<SECURITIES> 0
<RECEIVABLES> 4,896
<ALLOWANCES> 178
<INVENTORY> 9,299
<CURRENT-ASSETS> 16,834
<PP&E> 1,476
<DEPRECIATION> 566
<TOTAL-ASSETS> 18,581
<CURRENT-LIABILITIES> 3,062
<BONDS> 5,063
0
0
<COMMON> 54
<OTHER-SE> 10,387
<TOTAL-LIABILITY-AND-EQUITY> 18,581
<SALES> 3,663
<TOTAL-REVENUES> 3,663
<CGS> 1,288
<TOTAL-COSTS> 1,288
<OTHER-EXPENSES> 2,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 161
<INCOME-TAX> 58
<INCOME-CONTINUING> 103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103
<EPS-PRIMARY> .02<F1>
<EPS-DILUTED> .02<F1>
<FN>
<F1>WE HAVE CALCULATED PER SHARE AMOUNTS IN ACCORDANCE WITH TAS 128 "EARNINGS PER
SHARE". WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND
FULLY DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
***RESTATED FINANCIAL DATA SCHEDULE***
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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,277
<SECURITIES> 0
<RECEIVABLES> 4,605
<ALLOWANCES> 114
<INVENTORY> 6,540
<CURRENT-ASSETS> 17,012
<PP&E> 1,046
<DEPRECIATION> 250
<TOTAL-ASSETS> 18,648
<CURRENT-LIABILITIES> 4,704
<BONDS> 5,329
0
0
<COMMON> 50
<OTHER-SE> 8,442
<TOTAL-LIABILITY-AND-EQUITY> 18,648
<SALES> 2,773
<TOTAL-REVENUES> 2,773
<CGS> 1,039
<TOTAL-COSTS> 1,039
<OTHER-EXPENSES> 1,840
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> (265)
<INCOME-TAX> (88)
<INCOME-CONTINUING> (177)
<DISCONTINUED> 2,691
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,514
<EPS-PRIMARY> .51<F1>
<EPS-DILUTED> .44<F1>
<FN>
<F1>WE HAVE CALCULATED PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER
SHARE". WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND
FULLY DILUTED, RESPECTIVELY.
</FN>
</TABLE>
