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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ____.
Commission File No. 333-29291
ACTIVE ANKLE SYSTEMS, INC.
(Name of small business issuer as specified in its charter)
KENTUCKY 61-1163669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
509 BARRET AVENUE
LOUISVILLE, KENTUCKY 40204
(Address of principal executive offices)
(502) 582-2655
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No .
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ____ No ____.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 68,267 outstanding shares of
no par value common stock at 9/30/97.
Transitional Small Business Disclosure Format (check one): Yes No X
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INDEX
ACTIVE ANKLE SYSTEMS, INC.
509 BARRET AVE.
LOUISVILLE, KY 40204
PART 1. INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets-September 30, 1997 and June 30, 1997
Condensed statements of operations - Three months ending
September 30, 1997 and 1996
Condensed statements of cash flows - Three months ending
September 30, 1997 and 1996
Notes to condensed financial statements
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
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ACTIVE ANKLE SYSTEMS, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1997 JUNE 30, 1997
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 270,168 $ 336,099
Trade accounts receivable 198,680 199,006
Inventories, principally new materials 182,661 204,586
Prepaid expenses 174,278 137,017
Total current assets 825,787 876,708
Machinery and equipment, net 126,545 122,689
Patent, net 50,011 51,219
Other intangible assets 14,546 15,324
Total assets 1,016,889 1,065,940
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expense $ 313,028 $ 342,684
Current portion of long term debt 21,652 21,652
Total current liabilities 334,680 364,337
Long term debt 47,697 52,829
Stockholders' equity:
Preferred stock $40 par and liquidation 165,000 165,000
value per share:
Authorized shares - 100,000
Issued and outstanding shares - 4,125
Common stock, no par value: 1,049,565 1,049,565
Authorized shares - 2,000,000
Issued and outstanding shares - 68,267
Accumulated deficit (580,053) (565,791)
Total stockholders' equity 634,512 648,774
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,016,889 $1,065,940
See notes to unaudited condensed financial statements
3
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ACTIVE ANKLE SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
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Net sales $637,275 $710,181
Cost of sales 251,451 284,852
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Gross profit 385,824 425,329
Selling, general and administrative expenses 400,124 384,688
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Operating (loss) income (14,300) 40,641
Interest expense (income) 1,175 (3,647)
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Income (loss) before income tax expense (13,125) 36,994
Income Tax Expense 1,137 700
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Net (loss) income ($14,262) $36,294
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Earnings (loss) per common share ($0.19) $0.49
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Weighted average number
of common shares outstanding 74,004 73,916
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See notes to unaudited condensed financial statements
4
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ACTIVE ANKLE SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
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OPERATING ACTIVITIES
Net income (loss) ($14,262) $36,294
Adjustments to reconcile net income(loss)
to net cash used in operating activities:
Depreciation 13,354 11,377
Amortization 1,985 2,023
Changes in operating assets and liabilities:
Trade accounts receivable 326 (180,127)
Inventories 21,925 (25,671)
Prepaid expenses (37,259) 9,417
Accounts payable and accrued liabilities (29,657) 102,628
Net cash used in operating activities (43,588) (44,059)
INVESTING ACTIVITIES
Payments for machinery and equipment (17,211) (11,608)
Net cash used in investing activities (17,211) (11,608)
FINANCING ACTIVITIES
Payments on bank notes and other notes payable (5,132) (14,502)
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Net cash used in financing activities (5,132) (14,502)
(Decrease) in cash & cash equivalents (65,931) (70,169)
Cash and cash equivalents at beginning 336,099 90,263
of period
Cash and cash equivalents at end of period $270,168 $ 20,094
See notes to unaudited condensed financial statements.
5
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NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) The accompanied unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with instructions to form 10-QSB.
Accordingly, they do not included all the information and foot notes required
by generally accepted accounting principles for completing financial
statements. In the opinion of management, all adjustments (consistent
of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1998. For further information, refer to
the financial statements and foot notes there to included in the Company's
form SB-1A filed on October 24th, 1997 with the Securities and Exchange
Commission for year ended June 30, 1997.
(2.) Earnings per common share are based on the weighted average number of
common and common equivalent shares outstanding during each year. Shares of
common stock issuable under the company's stock option plans, warrants and
convertible preferred stock issues are treated as common stock equivalents
when dilutive. A summary of the components of the weighted average shares of
common and common equivalents shares outstanding during the period ended
September 30, 1997 and 1996, computed in accordance with the Securities and
Exchange Commission's Staff Accounting Bulletin No. 83. "Earnings Per Share
in an Initial Public Offering," is as follows:
1997 1996
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Weighted average number of common shares
outstanding throughout the period 88,267 68,127
Common shares issuable upon assumed conversion of
convertible preferred stock 8,250 8,250
Common shares issued at $25 per share 140
Common Shares issuable upon exercise of outstanding
stock options issued at an exercise price of $25
per share 4,300 4,300
Less assumed repurchase of common shares at an estimated
IPO price of $40 per share related to:
Convertible preferred stock -4,125 -4,125
Common shares issued -88
Stock options -2,688 -2,688
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-6,813 -6,901
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Total weighted average shares and equivalents outstanding 74,004 73,916
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(3.) The Company received correspondence in October 1991 which implies that
the Company may have infringed on a patent held by a competitor. In view of
the facts that the competitor has known about the Company and its products
since 1984, and the competitor has been wholly non-responsive to the
Company's positions of non-infringement since December of 1992, management is
of the view that the probability that the competitor will actually assert a
claim against the Company is low. However, the cost of defending any claim is
not estimable and, if asserted, could have a material adverse impact on the
Company's financial statements. Based on these facts, and further based on
the advice of outside legal counsel that the Company's products do not
infringe on the competitor's patent, it is management's opinion that the
ultimate resolution to this matter will not have a material adverse effect on
the Company's financial statements.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Sales for the first fiscal quarter ending September 30, 1997 were $637,275,
10% under last year's first quarter. Sales to the medical market increased
28% over last year's first quarter. Sales to the retail and team markets were
down 15% from last year's first quarter, partly as a result of the UPS strike
and general weakness at retail. International sales were down 68% compared
with last year as high initial orders from Taiwan were not repeated.
Gross margin held at approximately 60% for the first quarter of both physical
1998 and 1997. Price levels and product costs have remained stable with minor
changes resulting from mix, labor volume variances, and shipping supply purchase
timing.
Selling, general and administrative expenses for the quarter increased 4% over
last year's first quarter. Compared with last year's first quarter, increased
investment in R & D and additional payroll and administrative costs associated
with the Company's expansion into the retail and catalog segments were partly
offset by lower marketing expenses which included Olympic and Paralympics
related costs last year. Approximately $50,000 of marketing and administrative
resources were allocated to starting the catalog business and consumer resource
centers during the quarter, and significant management time was devoted to
preparing the public offering and planning for expanding the business.
Net loss for the first quarter of 1998 of ($14,262), ($0.19) per share, compares
with last year's first quarter income of $36,294, $0.49 per share. The
provision for income tax reflects local based income taxes. No income tax
benefits are being recognized currently for operating losses.
The cash position remains strong, at $270,168 with the cash reduction due
primarily to offering and start-up related costs. Stock offering related costs
for the first quarter are $135,870, of which $76,643 has been paid. The total
amount will be offset against the total funds raised. No borrowing is
anticipated through the end of December, 1997. The number of common stock
shares increased over last years first quarter as payment to outside directors
for board meeting attendance.
7
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The SEC gave final approval for the initial public offering on October 31, 1997.
The Company has begun the process of contacting and meeting with prospective
investors as the Blue Sky process is completed in each state.
The first consumer resource center, named Active Athlete, opened November 26,
1997 in the Jefferson Mall in Louisville. The grand opening and major marketing
effort is planned for mid January, 1998.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security - Holders
None
Item 5. Other Events
None
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
B) The Company did not file any reports on Form 8-K during the three
months ending September 30, 1997.
Signatures:
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Registrant has caused this quarterly report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Gary G. Herzberg
_______________________________________
Gary G. Herzberg
Chief Executive Officer
/s/ Ronald W. Schultz
_______________________________________
Ronald W. Schultz
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACTIVE ANKLE
SYSTEMS, INC.'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 270,169
<SECURITIES> 0
<RECEIVABLES> 198,680
<ALLOWANCES> 0
<INVENTORY> 182,661
<CURRENT-ASSETS> 825,786
<PP&E> 265,623
<DEPRECIATION> 139,078
<TOTAL-ASSETS> 1,016,889
<CURRENT-LIABILITIES> 334,680
<BONDS> 47,697
0
165,000
<COMMON> 1,049,565
<OTHER-SE> (580,053)
<TOTAL-LIABILITY-AND-EQUITY> 1,016,889
<SALES> 637,275
<TOTAL-REVENUES> 637,275
<CGS> 251,451
<TOTAL-COSTS> 251,451
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,175
<INCOME-PRETAX> (13,125)
<INCOME-TAX> 1,137
<INCOME-CONTINUING> (14,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,262)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
