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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended (Commission File Number):
March 31, 1996 0-20434
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 13-3531824
--------------- -------------------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
151 Hempstead Turnpike, West Hempstead, New York 11552
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(Address of registrant's principal executive offices)
(516) 481-9670
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 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
----- -----
Number of shares of Common Stock outstanding
At March 31, 1996 4,749,605
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Page 1 of 16 pages
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ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 3
a. Consolidated Balance Sheets as of March
31, 1996 (unaudited) and December 31,
1995 (audited)............................................ 3
b. Consolidated Statements of Income
(Unaudited) for the Three Months Ended
March 31, 1996 and March 31, 1995......................... 4
c. Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended
March 31, 1996 and March 31, 1995 ........................ 5
d. Summarized Financial Information.......................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 13
Item 2. Changes in Securities........................................ 13
Item 3. Defaults upon Senior Securities.............................. 13
Item 4. Submission of Matters to a Vote of Security
Holders..................................................... 13
Item 5. Other Information............................................ 13
Item 6. Exhibits and Reports on Form 8-K............................. 13
SIGNATURES................................................................... 16
Page 2 of 16 pages
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ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
(Unaudited) (Audited)
----------- -----------
Current assets
Cash and cash equivalents $ 92,000 $ 216,000
Accounts receivable - net of allowance for
doubtful accounts of $255,000 and $204,000,
respectively 4,144,000 3,470,000
Inventory 1,195,000 1,038,000
Prepaid expenses 162,000 193,000
Recoverable income taxes 10,000 26,000
Deferred income taxes 230,000 192,000
----------- -----------
Total current assets 5,833,000 5,135,000
----------- -----------
Property and equipment - at cost 1,469,000 1,374,000
Less accumulated depreciation 854,000 819,000
615,000 555,000
----------- -----------
Other assets
Intangibles - net of accumulated amortization
of $466,000 and $421,000, respectively 5,697,000 5,209,000
Deferred income taxes 24,000 28,000
Miscellaneous 102,000 104,000
----------- -----------
Total other assets 5,823,000 5,341,000
----------- -----------
Total $12,271,000 $11,031,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable $ 275,000 $ 247,000
Current maturities of long-term debt 1,166,000 1,065 000
Accounts payable 701,000 387,000
Accrued expenses 1,113,000 930,000
Deferred compensation 76,000 86,000
Income taxes payable 138,000 77,000
----------- -----------
Total current liabilities 3,469,000 2,792,000
----------- -----------
Deferred compensation 9,000 9,000
----------- -----------
Long-term debt 2,901,000 2,817,000
----------- -----------
Stockholders' equity
Common stock 4,000 4,000
Common stock warrants 18,000 18,000
Additional paid-in capital 3,382,000 3,082,000
Retained earnings 2,488,000 2,309,000
----------- -----------
Total stockholders' equity 5,892,000 5,413,000
----------- -----------
Total $12,271,000 $11,031,000
=========== ===========
Page 3 of 16 pages
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ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
March 31,
-------------------------
1996 1995
---------- ----------
Sales $3,930,000 $3,337,000
Cost of sales 2,012,000 1,624,000
---------- ----------
Gross profit 1,918,000 1,713,000
Selling, general and administrative
expenses 1,515,000 1,445,000
---------- ----------
Operating income 403,000 268,000
---------- ----------
Other income (deductions)
Interest expense (88,000) (99,000)
Other income 3,000 2,000
---------- ----------
(85,000) (97,000)
---------- ----------
Income before provision for
income taxes 318,000 171,000
---------- ----------
Provision for income taxes
Current 158,000 88,000
Deferred (19,000) (8,000)
---------- ----------
139,000 80,000
---------- ----------
Net income $ 179,000 $ 91,000
========== ==========
Earnings per common share $.04 $.02
==== ====
Shares used in earnings per
common share computation 4,918,061 4,452,567
========= =========
Page 4 of 16 pages
<PAGE>
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months ended
March 31,
----------------------
1996 1995
--------- ---------
Cash flows from operating activities
Net income $ 179,000 $ 91,000
Items not requiring the current use of cash
Depreciation and amortization 83,000 83,000
Provision for doubtful accounts 51,000 43,000
Deferred compensation provision 5,000 7,000
Deferred income taxes (19,000) (8,000)
Changes in items affecting operations
Accounts receivable (725,000) 13,000
Inventory (104,000) (39,000)
Prepaid expenses 11,000 44,000
Recoverable income taxes 16,000 96,000
Miscellaneous (1,000) (1,000)
Accounts payable 314,000 100,000
Accrued expenses 43,000 --
Deferred compensation paid (15,000) (15,000)
Income taxes payable 61,000 --
--------- ---------
Net cash provided (used) by operating
activities (101,000) 414,000
--------- ---------
Cash flows from investing activities
Payment for acquired business (25,000) --
Purchase of property and equipment (21,000) (77,000)
Contingent purchase price of acquisition (5,000) (5,000)
--------- ---------
Net cash used by investing activities (51,000) (82,000)
--------- ---------
Cash flows from financing activities
Proceeds from long-term debt 269,000 --
Principal payments of long-term debt (269,000) (189,000)
Proceeds from note payable 28,000 --
--------- ---------
Net cash provided (used) by financing
activities 28,000 (189,000)
--------- ---------
Increase (decrease) in cash and cash
equivalents (124,000) 143,000
Cash and cash equivalents - beginning 216,000 166,000
--------- ---------
Cash and cash equivalents - end $ 92,000 $ 309,000
========= =========
Page 5 of 16 pages
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ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Supplemental Schedule of Noncash Financing Activities
In 1996, the Company issued 450,000 shares of common stock in connection
with the acquisition of Med-Tech O & P Services, Inc. Of the shares issued,
250,000 are held in escrow. The value of the shares is $675,000 and $375,000,
respectively.
The Company's acquisition in 1996 was paid for as follows:
Cash paid for assets $ 25,000
Common stock issued 300,000
Liabilities assumed 220,000
--------
Fair value of assets acquired $545,000
========
In 1995, the Company issued 4,934 shares of common stock to employees as
compensation. The value of the shares was $5,000.
Supplemental Disclosure of Cash Flow Information
Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows:
Three months ended
March 31,
--------------------
1996 1995
------- --------
Interest paid $89,000 $102,000
Income taxes paid (refunded) 81,000 (8,000)
Page 6 of 16 pages
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ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION
MARCH 31, 1996
(NOTE 1) -- The accompanying consolidated financial statements are prepared on
the basis of generally accepted accounting principles. In the opinion of the
management of Advanced Orthopedic Technologies, Inc., all adjustments are of a
normal recurring nature and have been reflected for a fair presentation of the
unaudited balance sheet as of March 31, 1996 and results of operations for the
three months ended March 31, 1996 and 1995, respectively. The operating results
for the periods are not necessarily indicative of the results to be expected for
the entire year.
(NOTE 2) -- Effective January 5, 1996, the Company acquired certain assets of
Med-Tech O & P Services, Inc. for a cash payment of $25,000, additional payments
of approximately $220,000 payable through July 1997, 450,000 shares of the
Company's common stock (valued at $675,000) and additional amounts which may be
contingently payable. Of the shares issued, 250,000 shares (valued at $375,000)
are held in escrow. The acquisition has been accounted for by the purchase
method of accounting. The operating results of the acquisition are included in
the Company's consolidated results of operations from the effective date of
acquisition. The following unaudited proforma results of operations for the
three months ended March 31, 1995 assumes the acquisition occurred on January 1,
1995 and gives effect to certain adjustments, including amortization of
goodwill, increased interest expense on acquisition indebtedness, officer
salaries as a result of new employment agreements and common shares issued.
Three months
ended
March 31, 1995
--------------
Sales $3,944,000
==========
Net income $ 137,000
==========
Earnings per common share $.03
====
Shares used in earnings per
common share computation 4,902,567
=========
The proforma financial information presented above does not purport to
represent what the Company's results of operations would have been had this
acquisition occurred on January 1, 1995 or to project the Company's results of
operations for any future period.
Page 7 of 16 pages
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ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION
MARCH 31, 1996
(NOTE 3) -- Inventory at March 31, 1996 is based on historical gross profit
percentages. An analysis of inventory is as follows:
March 31, December 31,
1996 1995
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(Unaudited) (Audited)
Finished goods $ 668,000 $ 572,000
Work-in-process 168,000 138,000
Raw materials 359,000 328,000
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$1,195,000 $1,038,000
========== ==========
(NOTE 4) -- CAPITAL STOCK
Capital stock is summarized as follows:
Preferred stock, nonvoting, $.001 par value, 14,965,000 shares
authorized, none outstanding
Common stock, voting, $.001 par value, 75,000,000 shares authorized,
outstanding 4,472,938 shares in 1996 and 4,272,938 in 1995
Class C redeemable selling warrantholder warrants, $.001 par value,
outstanding 1,000,000 warrants
Common stock purchase warrants, $.001 par value, outstanding 66,666
warrants
Page 8 of 16 pages
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ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
AOT has grown internally and by acquisitions. During 1988 it acquired the
assets of JDM Orthotics, Inc. (New York); Prosthetic and Orthotic Laboratories,
Inc. (New Jersey) and Para-Med Corp. (West Virginia). The assets of Westfield
Brace Company, Inc. (New Jersey) were acquired during 1991. The Company acquired
the stock of Lett Orthopedic Industries, Inc. (West Virginia) as of January 1,
1992, the stock of Prosthetic and Orthotic Associates, Inc. (Virginia) as of
January 1, 1993 and the stock of Orthopedic Technologies, Inc. (based in
Syracuse, New York) as of July 1, 1993. During August, 1993, the Company
acquired the assets of SFV Rehabilitation Specialists, Inc. (Sherman Oaks,
California), Exe, Inc. (Albuquerque, New Mexico) and Parmeco, Inc. (Huntington,
West Virginia). During April, 1994, the Company acquired the assets of Clayton
Prosthetics & Orthotics, Inc. located in Manasquan, Manahawkin and Middletown,
New Jersey. On January 5, 1996, the Company acquired the operating assets of
Med-Tech O&P Services, Inc., which operated several patient care centers in the
New York metropolitan area. AOT implemented such acquisitions by combinations of
cash down payments and deferred payments. In certain of the acquisitions, AOT
agreed to pay additional amounts of cash and/or stock to the sellers if certain
financial criteria were achieved by the acquired businesses.
Results of Operations:
The following table sets forth for the periods indicated certain items of
the Company's financial statements and their respective percentage of the
Company's net sales. The discussion which follows should be read in conjunction
with the Company's consolidated financial statements.
Page 9 of 16 pages
<PAGE>
Three Months Ended
March 31
---------------------
(Unaudited)
1996 1995
---- ----
Net sales 100% 100%
Cost of sales (51.2) (48.7)
Gross profit 48.8 51.3
Selling, general and
administrative expenses (38.6) (43.3)
Income from operations 10.2 8.0
Interest expense (2.2) (3.0)
Other income 0.1 0.1
Income before taxes 8.1 5.1
Income taxes (3.5) (2.4)
Net income 4.6 2.7
Net Sales:
Net sales for the three months ended March 31, 1996 were $3,930,000 as compared
to $3,337,000 for the same period in 1995, an increase of 18%. The sales
increase was primarily due to sales added by the acquisition of Med-Tech O&P
Services completed in January, 1996 and sales generated from additional managed
care contracts entered into over the past year. Sales generated by the
facilities in the New York metropolitan area were impacted by the severe climate
experienced in the region during the quarter.
Gross Profit:
Gross profit for the three months ended March 31, 1996 was $1,918,000 as
compared to $1,713,000 for the same period in 1995, an increase of 12%. The
increase in gross profit was primarily due to the increase in sales volume.
Gross profit as a percentage of sales was 48.8% for the three months ended March
31, 1996 as compared to 51.3% for the same period in 1995. The decrease in this
percentage is attributable primarily to the sales volume in the New York
metropolitan area which was impacted by climate conditions experienced during
the quarter and during which the Company continued to incur practitioner
salaries.
Page 10 of 16 pages
<PAGE>
Selling, General and Administrative Expenses:
Selling, General and Administrative Expenses increased to $1,515,000 for the
three months ended March 31, 1996 from $1,445,000 for the same period in 1995.
The increase is attributable primarily to the acquisition of Med-Tech O&P
Services. Selling, General and Administrative Expenses as a percentage of sales
was 38.6% for the three months ended March 31, 1996 as compared to 43.3% for the
same period in 1995. The decrease in this percentage is attributable primarily
to the integration of the Med-Tech acquisition into the Company's existing New
York metropolitan area operation and the economies achieved by this integration.
Income from Operations:
Income from operations increased to $403,000 for the three months ended March
31, 1996 from $268,000 for the same period in 1995. Income from operations as a
percentage of sales was 10.2% for the three months ended March 31, 1996 as
compared to 8.0% for the same period in 1995. The increase in this percentage is
attributable primarily to the acquisition of Med-Tech O&P Services and the
economies achieved by its integration into the Company's existing operations.
Other Income (Deductions):
Interest expense for the three months ended March 31, 1996 was $88,000 as
compared to $99,000 for the same period in 1995. Interest expense consists
primarily of interest on debt incurred to finance the Company's acquisitions.
Net Income:
The Company earned $179,000 or $.04 per share for the three months ended March
31, 1996 as compared to $91,000 or $.02 per share generated in the prior year's
first quarter. The increase in net income was due primarily to the Company's
increased sales volume discussed above and the economies achieved through the
integration of the acquisition of Med-Tech O&P Services.
Liquidity and Capital Resources:
As of March 31, 1996, the Company had $92,000 in cash and cash equivalents. The
Company's consolidated working capital at March 31, 1996 was $2,364,000. As of
March 31, 1996, there were no additional commitments which will affect liquidity
in a material way.
Page 11 of 16 pages
<PAGE>
Although the Company is actively seeking acquisition targets and discussing
proposals with potential sellers, at the date of this report, the Company does
not have any contracts or unexpired letters of intent for additional
acquisitions. If additional acquisitions do take place, additional financing may
be required.
The Company expects that cash generated from operations and from its credit
lines will be adequate to provide for future operations.
No material changes in inventory levels or machinery and equipment are presently
planned.
Other:
Statement No. 123 of the Financial Accounting Standards Board "Accounting for
Stock Based Compensation" is effective for fiscal years beginning after December
15, 1995. The Company believes the implementation of SFAS No. 123 will not have
a material effect.
Inflation has not had a significant impact on the Company's operating expenses.
There is no assurance inflation will not be a significant factor in the future.
Substantial changes in the methods of delivery of health care services, in the
nature and scope of health care insurance, the methods of payment of the costs
of health care services and insurance, the pricing of health care services and
governmental and insurance reimbursement of health care costs, as well as
proposals for an overall restructuring of the health care system as well as the
Medicare and Medicaid programs, continue to be the subject of major legislative
and budgetary initiatives at the federal and state levels. It is not possible to
predict whether such legislation will ultimately be enacted. If such legislation
is enacted, it is impossible to predict the form which such legislation will
take or the impact such legislation will have on the Company's operations or on
the health care industry in general.
Page 12 of 16 pages
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Form 10-KSB for the fiscal
year ended December 31, 1995.
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 Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement re Computation of Earnings Per Common Share for the
Three Months Ended March 31, 1996 and March 31, 1995 (unaudited)
Sequential Page Number 14
(b) Reports on Form 8-K
NONE
Page 13 of 16 pages
<PAGE>
EXHIBIT 11
Page 14 of 16 pages
<PAGE>
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
Three months ended
March 31,
-------------------------
1996 1995
---------- ----------
Net income per statement of income $ 179,000 $ 91,000
========== ==========
Reconciliation of weighted average number
of shares outstanding to amount used
in earnings per share computation:
Weighted average number of shares
outstanding 4,472,938 4,207,466
Add-shares reserved for employee
stock plan 37,084 75,234
Add-shares assuming exercise of
warrants and stock options 34,615 --
Add-shares contingently issuable
in connection with acquisitions 373,424 169,867
---------- ----------
Weighted average number of shares
outstanding, as adjusted 4,918,061 4,452,567
========== ==========
Primary earnings per common share $.04 $.02
==== ====
Page 15 of 16 pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
By: /s/ ANDREW H. MEYERS
Dated: --------------------------------------
May 10, 1996 Andrew H. Meyers, President
By: /s/ JESSE Z. FINK
Dated: --------------------------------------
May 10, 1996 Jesse Z. Fink, Chief Financial Officer
Page 16 of 16 pages
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 92
<SECURITIES> 0
<RECEIVABLES> 4,144
<ALLOWANCES> 255
<INVENTORY> 1,195
<CURRENT-ASSETS> 5,833
<PP&E> 1,469
<DEPRECIATION> 854
<TOTAL-ASSETS> 12,271
<CURRENT-LIABILITIES> 3,469
<BONDS> 2,901
0
0
<COMMON> 4
<OTHER-SE> 3,400
<TOTAL-LIABILITY-AND-EQUITY> 12,271
<SALES> 3,930
<TOTAL-REVENUES> 3,930
<CGS> 2,012
<TOTAL-COSTS> 2,012
<OTHER-EXPENSES> 1,515
<LOSS-PROVISION> 51
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 318
<INCOME-TAX> 139
<INCOME-CONTINUING> 179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
