UNITED STATES
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 ended September 30, 1996
____ 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 0-28240
EXACTECH, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2603930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4613 NW 6TH STREET
GAINESVILLE, FL
32609
(Address of principal executive offices)
(352) 377-1140
(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____
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at October 22, 1996
Common Stock, $.01 par value 4,829,058
<PAGE>
EXACTECH, INC.
INDEX
Page
Number
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 2
CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTH AND NINE MONTH 4
PERIODS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
CONDENSED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS EQUITY 5
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED 6
SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTH 7
PERIODS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
1
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EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements, which are
for interim periods, have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission relating to interim
financial statements. These unaudited condensed financial statements do not
include all disclosures provided in the annual financial statements. The
condensed financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1995, included in
the Prospectus of Exactech, Inc. (the "Company") dated May 30, 1996. The balance
sheet at December 31, 1995 has been derived from the audited financial
statements at that date and is condensed.
All adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present a fair statement of results for the interim
periods have been made. Results of operations for the nine month period ending
September 30, 1996 are not necessarily indicative of the results to be expected
for the full year.
2. INVESTMENT SECURITIES
The Company invests its excess funds in various high-quality and
low-risk investment securities. Debt securities for which the Company has the
positive intent and ability to hold to maturity are classified as held to
maturity and reported at amortized cost. Securities are classified as trading
securities if bought and held principally for the purpose of selling them in the
near future. Securities not classified as held to maturity or trading are
classified as available for sale, and reported at fair value with unrealized
gains and losses excluded from earnings and reported net of tax as a separate
component of shareholders equity until realized.
No investments are held for trading purposes or are available for sale.
Short-term investments consist of U.S. Treasury Notes with maturities ranging
from June 30, 1997 to July 15, 1997 and yielding from 5.57% to 5.75%. The fair
value of such investments approximated the carrying value at September 30, 1996.
7
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EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
3. DEBT
<TABLE>
<CAPTION>
Long-term debt and capital lease obligations: December 31, September 30,
1995 1996
---- ----
<S> <C> <C> <C>
$1,250,000 term loan payable in monthly installments $1,145,833 $ -
of $20,833 plus interest at a variable rate (8.8% as of
December 31, 1995) through August, 1999
$98,000 term loan payable in monthly installments 91,521 -
of $1,208 including monthly interest at prime plus
1% (9.50% at December 31, 1995) through September 1999
Capitalized lease obligation payable in monthly installments 26,473 23,658
of $611 through July, 2000, collateralized by equipment with a
carrying value of approximately $27,000 as of December 31, 1995
Capitalized lease obligation payable in monthly 4,871 -
installments of $643 through August, 1996,
collateralized by equipment with a carrying
value of approximately $7,000 as of December 31, 1995
Notes payable to finance company bearing interest 108,841
at 7.43% payable in monthly installments through
February 1997; proceeds used to finance insurance policies
--------- ---------
Total long-term debt and capital lease obligations 1,268,698 132,499
Less current portion (266,389) (113,369)
---------- ---------
$1,002,309 $ 19,130
========== =========
</TABLE>
The following is a schedule of debt maturities and future minimum lease
payments under the capital leases, together with the present value of minimum
lease payments as of September 30, 1996:
<TABLE>
<CAPTION>
Total Capital Lease
Debt Obligations
----- -------------
<S> <C> <C>
1996......................................................... $ 108,841 $ 1,833
1997......................................................... - 7,333
1998......................................................... - 7,333
1999......................................................... - 7,333
2000......................................................... - 4,278
---------- -------
Total .............................................$ 108,841 28,110
==========
Less interest on capital lease obligations ............................ (4,452)
-------
$23,658
=======
</TABLE>
8
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EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
3. DEBT-(CONTINUED)
LINE OF CREDIT
The Company repaid its line of credit with Merrill Lynch Business
Financial Services, Inc. during June 1996, with the proceeds of its initial
public offering described in Note 5 below. William Petty and Betty Petty,
executive officers and principal shareholders of the Company, had personally
guaranteed the repayment of the Companys obligations under such line of credit.
The Company has negotiated a new loan agreement with Merrill Lynch Business
Financial Services which provides for a $3,000,000 line of credit and removed
William Petty and Betty Petty as personal guarantors.
SUBORDINATED DEBENTURES
The Company redeemed $450,000 in principal amount of its 8%
Subordinated Debentures held by Michael M. Kearney, a shareholder of the
Company, and R. Wynn Kearney, a director and shareholder of the Company, during
June 1996. In addition, during June 1996; the Company converted to common stock
$50,000 in principal amount of its 10% Subordinated Convertible Debentures (10%
Debentures). During July 1996 the Company redeemed $15,000 of its 10%
Debentures. The remaining $245,000 in principal amount of the 10% Debentures is
payable in full three years from the date of issuance thereof. Interest on the
10% Debentures accrues at the rate of 10% per annum and is payable quarterly. As
a result of the consummation by the Company of its initial public offering in
June 1996, the 10% Debentures are redeemable, at the option of the holders
thereof until November 30, 1996, at a redemption price equal to the outstanding
principal amount thereof. The 10% Debentures are also convertible, at the option
of the holders thereof, until November 30, 1996, into shares of common stock at
a conversion rate per share equal to $7.33.
4. RELATED PARTY TRANSACTIONS
Effective as of the consummation of the Companys initial public offering
in June 1996, the Company issued options to purchase 20,000 shares of common
stock at $8.00 per share to R. Wynn Kearney, Jr. MD, a director of the Company.
The options vest over a period of four years and are valid for a period of ten
years.
9
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EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(UNAUDITED)
5. COMMON SHAREHOLDERS EQUITY
COMMON STOCK
In June 1996, the Company completed an underwritten initial public
offering ("IPO") of 1,840,000 shares of its common stock at an initial offering
price of $8.00 per share, yielding gross proceeds of $14,720,000. Net proceeds
to the Company as a result of the IPO were $12,657,907 after deduction of
underwriting, legal, accounting and other offering related expenses in the
aggregate of $2,062,093. Upon consummation of the IPO, $50,000 of 10% Debentures
was converted to 6,250 shares of common stock. Preferred stock totaling $215,200
was converted into 26,900 shares of common stock.
OPTIONS AND STOCK AWARDS:
The Company sponsors an Employee Stock Option and Incentive Plan which
provides for the issuance of stock options and restricted stock awards to key
employees and a Directors Stock Option Plan which provides for the issuance of
stock options to non-employee directors (collectively the "Plans"). The Company
also issues stock options to sales agents and other individuals. The maximum
number of common shares issuable under the Plans is 600,000 shares. A summary of
stock option activity follows:
Number of Option Number of
Shares Price Shares
Under Option Per Share Exercisable
Outstanding at December 31, 1995 225,386 2.30-6.67 104,167
------- ----------
Granted 316,200 7.00-8.80
Exercised (750) 6.67
Expired (3,387) 3.28-6.67
------- ----------
Outstanding at September 30, 1996 537,449 $2.30-8.80 141,234
======= ==========
The remaining nonexercisable options as of September 30, 1996 become exercisable
as follows:
1996 22,123
1997 96,016
1998 85,777
1999 83,267
2000 82,592
2001 26,440
-------
396,215
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
condensed financial statements and related notes appearing elsewhere herein, and
the Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Companys Prospectus dated May 30, 1996.
The Company develops, manufactures, markets and sells orthopaedic
implant devices and related surgical instrumentation to hospitals and
physicians. Sales of hip implant products historically accounted for most of the
Company's revenues and profits; however, since 1995, sales of knee implant
products have accounted for an increasing portion of its revenues and profits.
The Company anticipates that sales of knee implant products will continue to
account for an increasing portion of its revenues and profits.
The following table sets forth for the periods indicated information
with respect to the number of units of the Company's products sold and the
dollar amount and percentages of revenues derived from such sales (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------------------------ ----------------------------------------------------
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HIP PRODUCTS UNITS $ % UNITS $ % UNITS $ % UNITS $ %
----- - - ----- - - ----- - - ----- - -
Cemented 4,054 1,972 31.8% 3,954 1,734 17.2% 1,344 628 26.1% 1,346 564 17.3%
Porous Coated 3,217 1,445 23.3% 4,064 1,469 14.6% 1,000 458 19.0% 1,272 477 14.6%
Bipolar Prosthesis 679 355 5.7% 640 346 3.4% 247 121 5.0% 249 125 3.8%
----------------------- ------------------------ ------------------- -------------------
Total Hip Products 7,950 3,772 60.8% 8,658 3,549 35.2% 2,591 1,207 50.1% 2,867 1,166 35.8%
KNEE PRODUCTS
Cemented Cruciate Sparing 2,029 1,218 19.6% 6,558 3,278 32.5% 1,030 580 24.1% 2,037 1,159 35.6%
Cemented Poster Stabilized 516 368 5.9% 2,404 1,200 11.9% 352 217 9.0% 752 392 12.0%
Porous Coated 395 491 7.9% 986 1,382 13.7% 207 260 10.8% 244 460 14.1%
----------------------- ------------------------ ------------------- -------------------
Total Knee Products 2,940 2,077 35.5% 9,948 5,860 58.1% 1,589 1,057 43.9% 3,033 2,011 61.7%
Instrumental Sales and Rental 326 5.3% 621 6.2% 135 5.6% 66 2.0%
Miscellaneous 30 0.5% 51 0.5% 9 0.4% 14 0.4%
============== =============== =========== ===========
TOTAL 6,205 100.0% 10,081 100.0% 2,408 100.0% 3,257 100.0%
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Net sales increased by $849,572, or 35%, to $3,257,284 in the quarter
ended September 30, 1996, from $2,407,712 in the quarter ended September 30,
1995. The increase in net sales resulted primarily from increased unit volume of
the Company's knee implant products. Sales of knee implant products increased by
91% on a unit basis and by 90% on a dollar basis from the quarter ended
September 30, 1995 to the quarter ended September 30, 1996 as full-scale
marketing of the Optetrak/Registered trademark/ knee system resulted in an
increase of knee system sales. Sales of hip implant products increased by 10.7%
on a unit basis and decreased by 3.4% on a dollar basis from the quarter ended
September 30, 1995, to the quarter ended September 30, 1996. Sales of
MCS/Registered trademark/ porous coated hip implant products increased by 27.2%
on a unit basis while increasing 4.1% on a dollar basis. Sales of cemented hip
implant products were unchanged on a unit basis and decreased by 10.2% on a
dollar basis.
These average selling price reductions are the result of increased unit
sales of lower priced products. Specifically, the MCS/Registered trademark/
products unit increase of 27.2% is primarily the result of a 30% increase in
sales of
11
<PAGE>
the MCS/Registered trademark/ screw which is a lower priced product as compared
to other MCS/Registered trademark/ components. Similarly, the cemented product
group dollar decrease of 10.2% while unit sales were unchanged is a direct
result of the shift in product mix to the lower priced Opteon/Registered
trademark/ medium demand stem. Sales of the Opteon/Registered trademark/ stem
increased by 5% on a unit basis while sales of the high demand cemented stem
decreased by 25% . The list price for the Opteon/Registered trademark/ stem is
$999 and the list price for the high demand cemented stem is $1,695. Therefore,
the average selling price of total cemented hip implants declined.
Gross profit increased by $683,010, or 42.4%, to $2,292,592 in the
quarter ended September 30, 1996, from $1,609,582 in the quarter ended September
30, 1995. As a percentage of sales, gross profit increased to 70.4% in the
quarter ended September 30, 1996, from 66.9% in the quarter ended September 30,
1995. The profit margin increase as compared to the quarter ended September 30,
1995, was primarily the result of an increased mix of domestic and implant sales
from which the Company realizes higher margins as compared to international and
instrument sales.
Total operating expenses increased by $468,786, or 37.9%, to $1,707,040
in the quarter ended September 30, 1996, from $1,238,254 in the quarter ended
September 30, 1995. Sales and marketing expense, the largest component of total
operating expenses, increased by $242,058, or 38.6%, to $869,824 in the quarter
ended September 30, 1996, from $627,766 in the quarter ended September 30, 1995.
Sales and marketing expenses increased as a percentage of sales to 26.7% in the
quarter ended September 30, 1996, from 26.1% in the quarter ended September 30,
1995. The Company's sales and marketing expenses are largely variable costs
based on sales levels, with the largest component being commissions. The
Companys increased effort to expand the worldwide distribution and marketing
network also was a factor in the increase of sales and marketing expenses.
General and administrative expenses increased by $124,550, or 45.3%, to
$399,413 in the quarter ended September 30, 1996, from $274,863 in the quarter
ended September 30, 1995. As a percentage of sales, general and administrative
expenses increased to 12.8% in the quarter ended September 30, 1996, from 11.4%
in the quarter ended September 30, 1995. Total general and administrative
expenses increased primarily as a result of additional product liability
insurance costs directly relating to the increase in sales. During the period
ended September 30, 1996, the Company incurred a one time insurance expense
adjustment of $53,392 due to higher than expected sales for the recently
completed policy period.
Research and development expenses decreased by $22,078, or 11.0%, to
$178,606 in the quarter ended September 30, 1996, from $200,684 in the quarter
ended September 30, 1995, primarily as a result of reduced product testing costs
due to the completion of testing of the Optetrak/Registered trademark/ knee
system. The Company expects actual research and development expenses to increase
for the full year of 1996 as compared to 1995, due to development expenses
associated with the revision knee and revision hip systems. Research and
development expenses were 5.5% and 8.3% of sales in the quarters ended September
30, 1996 and 1995, respectively.
Depreciation and amortization increased to $141,335 in the quarter
ended September 30, 1996, from $88,080 in the quarter ended September 30, 1995,
as a result of the continued investment in knee and hip system instrumentation.
The Company capitalizes hip and knee instruments that are provided to its
domestic sales agencies. During the quarter ended September 30 1996, $492,844 of
such instruments were capitalized, resulting in the increase in depreciation and
amortization expenses.
Royalty expenses increased by $71,001 to $117,862 in the quarter ended
September 30, 1996, from $46,861 in the quarter ended September 30, 1995,
primarily as a result of growth in sales of knee implant products which incur a
higher royalty rate. As a percentage of sales, royalty expenses were 3.6% and
1.9% in the quarters ended September 30, 1996 and 1995, respectively.
12
<PAGE>
The Company's income from operations increased by $214,224, or 57.7%,
to $585,552 in the quarter ended September 30, 1996, from $371,328 in the
quarter ended September 30, 1995. The increase was primarily attributable to the
increase in sales and gross profits, partially offset by the increase in
operating expenses.
The Company realized net interest income of $93,519 in the quarter
ended September 30, 1996, as compared to net interest expense of $75,461 in the
quarter ended September 30, 1995. This change resulted from a reduction in
outstanding indebtedness and an increase of short-term investments as compared
to the quarter ended September 30, 1995. Interest expense of $18,139 for the
quarter ended September 30, 1996, was offset by $111,658 of interest income as
the proceeds of the Company's initial public offering (IPO) consummated in June
1996 were invested in short-term commercial paper and government backed
securities.
The Company recognized $100,000 of sublicense income during the quarter
ended September 30, 1996, as compared to $172,010 in the quarter ended September
30, 1995. The $100,000 had been received in July 1995 and was recorded as a
royalty related liability due to obligations to the original licenser if the
system received clearance to market from the Food and Drug Administration (FDA).
The licensee has not received clearance to market the system after initial
submissions with the FDA. Therefore, in accordance with the terms of the
agreement, the $100,000 is an additional payment for the system technology fully
earned by the Company.
In July 1995, the Company purchased a 50% interest in Techmed S.p.A.
("Techmed"), its Italian distributor. The investment is accounted for by the
equity method. Included in other expense in the quarter ended September 30, 1996
is the Company's equity share in the net loss of such subsidiary in the amount
of $20,155.
Income before provision for income taxes increased by $291,039, or
62.2%, to $758,916 in the quarter ended September 30, 1996, from $467,877 in the
quarter ended September 30, 1995. The provision for income taxes was $296,047 in
the quarter ended September 30, 1996, compared to $204,743 in the quarter ended
September 30, 1995.
As a result of the consummation of the IPO, all outstanding shares of
preferred stock were either converted to common stock or redeemed in the quarter
ended June 30, 1996. Preferred stock dividends for the quarter ended September
30, 1995 were $7,324.
As a result, the Company had net income of $462,869 in the quarter
ended September 30, 1996, compared to $255,810 in the quarter ended September
30, 1995, an 80.9% increase.
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Net sales increased by $3,875,909, or 62.5%, to $10,081,147 in the nine
months ended September 30, 1996, from $6,205,238 in the nine months ended
September 30, 1995. The increase in net sales resulted primarily from increased
unit volume of the Company's knee implant products. Sales of knee implant
products for the nine months ended September 30, 1996, increased by 238% on a
unit basis and by 182% on a dollar basis from the nine months ended September
30, 1995, resulting from the continued full-scale marketing of the
Optetrak/Registered trademark/ knee system. Sales of hip implant products for
the nine months ended September 30, 1996 increased by 8.9% on a unit basis and
decreased by 5.9% on a dollar basis from the nine months ended September 30,
1995. As discussed above in the quarterly comparison, the average selling price
reductions in the hip system are the result of increased unit sales of lower
priced products including the
13
<PAGE>
MCS/Registered trademark/ screw and the Opteon/Registered trademark/ medium
demand stem. Hip and knee instrument sales and rentals increased to $621,126 in
the nine months ended September 30, 1996, from $325,029 in the nine months ended
September 30, 1995 as international knee instrument sales increased.
Gross profit increased by $2,383,196, or 56.1%, to $6,632,916 in the
nine months ended September 30, 1996, from $4,249,720 in the nine months ended
September 30, 1995. As a percentage of sales, gross profit decreased to 65.8% in
the nine months ended September 30, 1996, from 68.5% in the nine months ended
September 30, 1995. The decrease was primarily the result of an increased mix of
international sales, instrument sales and Opteon/Registered trademark/ stem
sales at lower margins.
Total operating expenses increased by $1,408,221, or 42.2%, to
$4,748,043 in the nine months ended September 30, 1996, from $3,339,822 in the
nine months ended September 30, 1995. Operating expenses decreased as a
percentage of sales in the nine months ended September 30, 1996, to 47.1% from
53.8% in the nine months ended September 30, 1995. Sales and marketing expenses
increased by $832,789, or 49.9%, to $2,501,316 in the nine months ended
September 30, 1996, from $1,668,527 in the nine months ended September 30, 1995.
As a percentage of sales, sales and marketing expenses decreased in the nine
months ended September 30, 1996 to 24.8% from 26.9% in the nine months ended
September 30, 1995.
General and administrative expenses increased by $198,647, or 25.9%, to
$965,198 in the nine months ended September 30, 1996, from $766,551 in the nine
months ended September 30, 1995. As a percentage of sales, general and
administrative expenses decreased to 9.6% in the nine months ended September 30,
1996, from 12.4% in the nine months ended September 30, 1995. Total general and
administrative expenses increased during the most recent nine month period as
compared to the prior period primarily as a result of additional product
liability insurance expense resulting from increased sales and expenses relating
to the hiring of additional staff.
Depreciation and amortization increased to $370,306 in the nine months
ended September 30, 1996, from $234,512 in the nine months ended September 30,
1995. Depreciation and amortization expenses increased in the most recent nine
month period as a result of capitalization of hip and knee instruments as these
instruments are placed in service. During the nine months ended September 30
1996, $1,508,702 of such instruments were capitalized, resulting in the increase
in depreciation and amortization expenses.
Royalty expenses increased by $298,555, to $400,092 in the nine months
ended September 30, 1996, from $101,537 in the nine months ended September 30,
1995, primarily as a result of growth in sales of knee implant products which
incur a higher royalty rate. As a percentage of sales, royalty expenses were
4.0% and 1.6% in the nine month periods ended September 30, 1996 and 1995,
respectively.
The Company's income from operations increased by $974,975, or 107%, to
$1,884,873 in the nine months ended September 30, 1996, from $909,898 in the
nine months ended September 30, 1995. The increase was primarily attributable to
the increase in sales and gross profits, partially offset by the increase in
operating expenses.
Interest expense, net of interest income, decreased to $76,861 in the
nine months ended September 30, 1996, from $185,711 in the nine months ended
September 30, 1995, due to interest income and reduced indebtedness. Interest
expense of $228,597 for the nine-months ended September 30, 1996, was offset by
$151,736 of interest income as the proceeds of the Company's IPO consummated in
June 1996 were invested in short-term commercial paper and government backed
securities.
Included in other income and expenses for the nine months ended
September 30, 1996, are the Company's equity share in the net loss of Techmed in
the amount of $52,354 and sublicense income of
14
<PAGE>
$100,000. The nine month period ended September 30, 1995 included $172,010 of
sublicense income as a result of the initial $250,000 license payment net of
$77,990 in license acquisition costs.
Income before provision for income taxes increased by $959,461, or
107.1%, to $1,855,658 in the nine months ended September 30, 1996, from $896,197
in the nine months ended September 30, 1995. The provision for income taxes was
$712,809 in the nine months ended September 30, 1996, compared to $367,504 in
the nine months ended September 30, 1995.
As a result of the consummation of the IPO, all outstanding shares of
preferred stock were either converted to common stock or redeemed in the quarter
ended June 30, 1996. As a result, preferred stock dividends for the nine months
ended September 30, 1996, decreased to $10,154 from $16,973 in the nine months
ended September 30, 1995.
As a result, the Company had net income of $1,132,695 in the nine
months ended September 30, 1996, compared to $511,720 in the nine months ended
September 30, 1995, a 121.4% increase.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through borrowings, the sale of equity securities and cash flow from operations.
At September 30, 1996, the Company had working capital of $14,685,912 compared
to $3,934,759 at December 31, 1995. As a result of operating, investing and
financing activities, cash and cash equivalents at September 30, 1996 increased
to $5,093,217 from $201,979 at December 31, 1995. In June 1996, the Company
consummated an underwritten initial public offering (the "IPO") of 1,840,000
shares of its common stock resulting in net proceeds to the Company of
$12,657,907 after deduction of underwriting, legal, accounting and other
offering related expenses. The significant increase in working capital is
primarily the result of the proceeds from the IPO. The proceeds of the IPO have
been used to date to repay outstanding debt and increase investment in product
inventory and instrumentation. The Company projects that the current working
capital will be sufficient to fund operations and expand the business for at
least the next twelve months.
OPERATING ACTIVITIES
Operating activities provided net cash of $820,268 in the nine months
ended September 30, 1996 compared to using net cash of $819,291 in the nine
months ended September 30, 1995. The primary reason for the change was the
$49,641 decrease in inventory that occurred in the first nine months of 1996 as
compared to the $1,961,936 increase in inventory that occurred in the first nine
months of 1995. Another factor resulting in less cash being used in operating
activities for the nine month period ended September 30, 1996, was reduced
growth in trade receivables. Cash required as a result of the increase in trade
receivables was $183,932, for the first nine months of 1996, as compared to
$785,378, for the first nine months of 1995.
FINANCING ACTIVITIES
The Company had entered into a loan agreement with Merrill Lynch
Business Financial Services, Inc. (the "Lender") which provided for a term loan
in the amount of $1,250,000 and a $3,000,000 line of credit which expired in
June 1996. In June 1996, the Company used a portion of the net proceeds of the
IPO to repay the $1,047,825 outstanding under the term loan and the $2,826,712
outstanding balance under the line of credit in full. William Petty and Betty
Petty, executive officers and principal shareholders of the Company, had
personally guaranteed the repayment of the Companys obligations under the loan
agreement with the Lender. The Company has negotiated a new loan agreement with
the Lender providing for a $3,000,000 line
15
<PAGE>
of credit and the elimination of the personal guarantees of William Petty and
Betty Petty.
The Company had a term loan secured by real property. In August
1996, the Company repaid the term loan which was secured by certain of the
Company's real property.
The Company had issued an aggregate of $500,000 in principal amount of
its 8% Subordinated Debentures (the 8% Debentures) to Michael M. Kearney, a
shareholder of the Company, and R. Wynn Kearney, a director and shareholder of
the Company. Interest on the 8% Debentures accrued at the rate of 8% per annum
and was payable quarterly. The Company redeemed the $450,000 of 8% Debentures in
full on June 19, 1996, at a redemption price equal to the outstanding principal
amount thereof. In connection with the issuance of the 8% Debentures, the
Company issued to the holders thereof warrants (the Debenture Warrants) to
purchase 32,194 shares of Common Stock at an exercise price per share equal to
$6.00 (75% of the initial public offering price of the Common Stock-$8.00). The
Debenture Warrants are exercisable during the three-year period commencing on
the date of the IPO (June 4, 1996). In addition, in April and May 1995, the
Company issued an aggregate of $310,000 in principal amount of its 10%
Subordinated Convertible Debentures (the 10% Debentures), of which $100,000 was
issued to Alan Chervitz, a shareholder of the Company. The 10% Debentures are
payable in full three years from the date of issuance thereof. Interest on the
10% Debentures accrues at the rate of 10% per annum and is payable quarterly. As
a result of the IPO, the 10% Debentures are redeemable, at the option of the
holders thereof until November 30, 1996, at a redemption price equal to the
outstanding principal amount thereof. The 10% Debentures are also convertible,
at the option of the holders thereof, until November 30, 1996, into shares of
common stock at a conversion rate per share equal to $7.33. In April 1996, the
holders of $50,000 of the 10% Debentures elected to convert such debentures into
shares of Common Stock at the then conversion rate of $6.67 per share. In July
1996, $15,000 of the 10% Debentures were redeemed resulting in an outstanding
balance of 10% Debentures of $245,000 as of September 30, 1996.
Net cash provided by financing activities increased from $1,340,278 in
the first nine months of 1995, to $9,141,428 in the first nine months of 1996.
The primary reason for the increase in cash provided by financing activities was
the net proceeds derived from the Company's IPO.
INVESTING ACTIVITIES
The Company has invested the remaining proceeds of the IPO in
short-term investments. As of September 30, 1996, $2,967,926 was invested in 90
day commercial paper rated A1/P1 with a maturity date of December 16, 1996,
yielding 5.30%, $3,073,287 was invested in United States Treasury Notes with
maturities ranging from June 30, 1997 through July 30, 1997 and yielding from
5.57% to 5.75%, and $1,593,182 was invested in Merrill Lynch's Institutional
Investment Fund comprised of commercial paper and government backed securities
with a current yield of 5.16%. During the first nine months of 1996, net cash
used in investing activities increased significantly as compared to the first
nine months of 1995, from $531,589 to $5,070,458. This increase was primarily
due to the increased investment in knee instruments and the purchase of short
term investments of $3,073,287 during the first nine months of 1996.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit Description
------- -----------
10 Merrill Lynch WCMA line of credit extension dated July 29, 1996
11 Statement re: computation of per share earnings
27 Financial Data Schedule
b) Reports on Form 8-K
None.
17
<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.
Date: October 25, 1996 By: /s/ Timothy J. Seese
------------------------------
Timothy J. Seese
President and Chief
Operating Officer
Date: October 25, 1996 By: /s/ Joel C. Phillips
------------------------------
Joel C. Phillips
Treasurer
18
<PAGE>
Item 1. Financial Statements
EXACTECH, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
December 31, September 30,
1995 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 201,979 $ 5,093,217
Short-term investments 0 3,073,287
Trade receivables 1,802,129 1,986,061
Prepaid expenses and other assets 84,670 256,071
Inventories 6,322,355 6,272,714
------------ ----------
Total Current Assets 8,411,133 16,681,350
PROPERTY AND EQUIPMENT
Machinery and equipment 2,504,130 4,374,302
Furniture and fixtures 101,137 104,137
------------ ----------
Total 2,605,267 4,478,439
Accumulated depreciation (881,747) (1,245,234)
------------ ----------
Net property and equipment 1,723,520 3,233,205
OTHER ASSETS
Land held for future use 263,301 263,301
Investment in Subsidiary 67,987 107,770
Deferred financing costs, net 56,152 12,055
Deferred stock issuance costs 10,000 0
Advances and deposits 2,442 2,442
Patents and trademarks (net of amortization) 86,215 111,261
------------ ----------
Total Other Assets 486,097 496,829
------------ ----------
TOTAL ASSETS $ 10,620,750 $ 20,411,384
============ ============
See notes to condensed financial statements
2
<PAGE>
EXACTECH, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
December 31, September 30,
1995 1996
------------- -------------
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 1,439,598 $ 1,029,231
Borrowings under line of credit 1,844,266 0
Income taxes payable 275,991 229,228
Current portion of long-term debt and 266,389 113,369
Commissions payable 351,431 346,290
Royalties payable 232,735 152,673
Other liabilities 65,964 124,647
----------- ------------
Total Current Liabilities 4,476,374 1,995,438
Deferred income taxes 213,796 213,800
Long-term debt and capital lease-net of 1,002,309 19,130
Subordinated debentures-related parties 550,000 100,000
Subordinated debentures-other 210,000 145,000
----------- ------------
Total Liabilities 6,452,479 2,473,368
Mandatorily Redeemable Preferred Stock:
Series A preferred stock 136,220 0
Series C preferred stock 50,000 0
Nonredeemable Preferred Stock:
Series B preferred stock 105,000 0
COMMON SHAREHOLDERS' EQUITY:
Common stock 29,539 48,291
Additional paid in capital 1,676,383 14,585,900
Retained earnings 2,171,129 3,303,825
----------- ------------
Total Common Shareholders' Equity 3,877,051 17,938,016
--------------------------
TOTAL LIABILITIES AND EQUITY $10,620,750 $ 20,411,384
==========================
See notes to condensed financial statements
3
<PAGE>
EXACTECH, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
1995 1996 1995 1996
----------- ---------- ----------- -----------
NET SALES $ 2,407,712 $ 3,257,284 $ 6,205,238 $10,081,147
COST OF GOODS SOLD 798,130 964,692 1,955,518 3,448,231
----------- ---------- ----------- -----------
Gross profit 1,609,582 2,292,592 4,249,720 6,632,916
OPERATING EXPENSES:
Sales and marketing 627,766 869,824 1,668,527 2,501,316
General and administrative 274,863 399,413 766,551 965,198
Research and development 200,684 178,606 568,695 511,131
Depreciation and amortizat 88,080 141,335 234,512 370,306
Royalties 46,861 117,862 101,537 400,092
----------- ---------- ----------- -----------
Total operating expenses 1,238,254 1,707,040 3,339,822 4,748,043
----------- ---------- ------------ -----------
INCOME FROM OPERATIONS 371,328 585,552 909,898 1,884,873
OTHER INCOME (EXPENSE)
Interest income (expense) (75,461) 93,519 (185,711) (76,861)
Income from sublicense 172,010 100,000 172,010 100,000
agreement
Equity in net loss of subs 0 (20,155) 0 (52,354)
----------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 467,877 758,916 896,197 1,855,658
PROVISION FOR INCOME TAXES 204,743 296,047 367,504 712,809
----------- ---------- ----------- -----------
NET INCOME 263,134 462,869 528,693 1,142,849
PREFERRED STOCK DIVIDENDS 7,324 0 16,973 10,154
----------- ---------- ----------- -----------
NET INCOME AVAILABLE TO $ 255,810 $ 462,869 $ 511,720 $ 1,132,695
COMMON SHAREHOLDERS =========== ========== =========== ===========
NET INCOME PER COMMON AND $ 0.08 $ 0.09 $ 0.17 $ 0.29
COMMON SHARE EQUIVALENT ----------- ----------- ------------ -----------
WEIGHTED AVERAGE COMMON 3,037,029 4,893,414 3,021,114 3,878,950
AND COMMON SHARE
EQUIVALENTS OUTSTANDING
See notes to condensed financial statements
4
<PAGE>
EXACTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30,
1995 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 528,693 $ 1,142,849
Adjustments to reconcile net income to net
cash used in operating activities :
Depreciation and amortization 234,512 370,306
Equity in net loss of subsidiary 0 52,354
Deferred income taxes 47,840 4
Decrease (increase) in trade receivables (785,378) (183,932)
Decrease (increase) in inventories (1,961,936) 49,641
Decrease (increase) in other prepaids and assets (74,887) (127,304)
(Decrease) increase in income taxes payable 288,212 (46,763)
(Decrease) increase in accounts payable 571,127 (410,367)
(Decrease) increase in other liabilities 332,526 (26,520)
----------- -----------
Net cash (used in) provided by operating (819,291) 820,268
activities ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (455,067) (1,873,172)
Purchases of short-term investments 0 (3,073,287)
Investment in subsidiary (39,310) (92,137)
Cost of patents and trademarks (37,212) (31,862)
----------- -----------
Net cash (used in) investing activities (531,589) (5,070,458)
----------- -----------
FINANCING ACTIVITIES:
Proceeds (repayments) under line of credit 414,615 (1,844,266)
Proceeds from issuance of debt 1,568,267 284,763
Principal payments on debt (1,040,031) (1,420,962)
Proceeds (repayments) of subordinated debenture 260,000 (465,000)
Proceeds from issuance of common stock 104,400 14,725,100
Payment of offering costs (2,052,093)
Preferred dividends paid (16,973) (10,154)
Proceeds (repayments) of preferred stock 50,000 (75,960)
----------- -----------
Net cash provided by financing activities 1,340,278 9,141,428
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALE (10,602) 4,891,238
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 267,416 201,979
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 256,814 $ 5,093,217
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 183,781 $ 214,703
Income taxes 67,650 761,168
Noncash investing and financing activities:
Conversion of subordinated debt to common stock 50,000
Conversion of preferred stock to common stock 215,260
Financing of insurance premiums 92,690 296,106
</TABLE>
See notes to condensed financial statements
6
<PAGE>
EXACTECH, INC.
CONDENSED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Additional Common
Common Stock Paid-In Retained Shareholder's
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,1995 2,953,903 $ 29,539 $ 1,676,383 $ 2,171,129 $ 3,877,051
Issuance of common stock 1,874,405 18,744 14,966,518 14,985,262
Dividends on preferred stock (10,154) (10,154)
Excercise of stock options 750 8 4,992 5,000
Excercise of warrants 100 100
Stock issuance costs (2,062,093) (2,062,093)
Net income 1,142,850 1,142,850
--------- ---------- ------------ ----------- -------------
Balance, September 30, 1996 4,829,058 $ 48,291 $ 14,585,900 $ 3,303,825 $ 17,938,016
========= ========== ============ =========== =============
</TABLE>
See notes to condensed financial statements
5
Exhibit 10
Private Client Group
Merrill Lynch Business
Financial Services, Inc.
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
312/845-1020
FAX 312/845-9093
Exactech, Inc.
4613 NW 6th Street, Suite D
Gainesville, FL 32609
Re: WCMA Line of Credit Extension
Ladies And Gentlemen:
This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. ("MLBFS") and Exactech, Inc. ("Customer") with
respect to: (i) that certain WCMA AND TERM LOAN AND SECURITY AGREEMENT NO.
9504550701 between MLBFS and Customer (including any previous amendments and
extensions thereof), and (ii) all other agreements between MLBFS and Customer in
connection therewith (collectively, the "Loan Documents"). Capitalized terms
used herein and not defined herein shall have the meaning set forth in the Loan
Documents.
Subject to the terms hereof, effective as of the "Effective Date" the Loan
Documents are hereby amended as follows:
1. The term "Maturity Date" shall mean June 30, 1998.
2. The "Line Fee" for the period ending June 30,1998, shall be $30,000.00.
Customer hereby authorizes and directs MLBFS to charge (I) $15,000.00 to WCMA
Account No. 750-07R53 on or at any time after the Effective Date and (ii)
$15,000.00 to WCMA Account No. 750-07R53 on or at any time after June 30,
1997.
3. The "tangible net worth" of Customer, consisting of Customer's net worth as
shown on Customer's regular financial statements prepared in a manner
consistent with the terms hereof, but excluding an amount equal to : (i) any
assets which are ordinarily classified as "intangible" in accordance with
generally accepted accounting principles, and (ii) any amounts now or
hereafter directly or indirectly owing to Customer by officers, shareholders
or affiliates of Customer, shall at all times exceed $5,000,000.00.
4. Customer shall not directly or indirectly acquire or invest in any other
entity without the prior written approval of MLBFS.
5. The term "Maximum WCMA Line of Credit" shall mean $3,000,000.00.
Except as expressly modified hereby, the Loan Documents shall continue in full
force and effect upon all of their terms and conditions.
<PAGE>
Exhibit 10 (Cont)
Customer acknowledges, warrants and agrees, as a primary inducement to MLBFS to
enter into this Agreement, that: (i) no default or Event of Default has occurred
and is continuing under the Loan Documents; (ii) each of the warranties of
Customer in the Loan Documents are true and correct as of the date hereof; and
Customer does not have any claim against MLBFS or any of its affiliates arising
out of or in connection with the Loan Documents or any other matter whatsoever;
and (iv) Customer does not have any defense to payment of any amounts owing, or
any right of counterclaim for any reason under, the Loan Documents.
The amendments and agreements in this Letter Agreement will become effective on
the date (the "Effective Date") upon which: (i) Customer shall have executed and
returned the duplicate copy of this Letter Agreement enclosed herewith; (ii) an
officer of MLBFS shall have reviewed and approved this Letter Agreement as being
consistent in all respects with the original internally authorization hereof;
and (iii) to the extent applicable, MLBFS shall have entered such amendments and
agreements in its computer system (which MLBFS agrees to do promptly after the
receipt of such executed duplicate copy). Notwithstanding the foregoing, if for
any reason other than the sole fault of MLBFS the Effective Date shall not occur
within 40 days from the date of this Letter Agreement, then all of said
amendments and agreements herein will, at the sold option of MLBFS, be void.
Very truly yours,
Merrill Lynch Business Financial Services Inc.
By: Hugh E. Johnson
Credit Services Account Manager
Accepted:
Exactech, Inc.
By: Joel C. Phillips 7/29/96
Treasurer
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11
EARNINGS PER SHARE COMPUTATIONS
The table below details the number of common shares and common stock equivalents
used in the computation of primary and fully diluted earnings per share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares outstanding 2,928,778 4,829,058 2,925,435 3,806,842
Effect of shares issuable under stock option plans 76,876 62,708 64,304 68,392
using the treasury stock method
Effect of shares issued and options granted in 31,375 31,375
prices below the initial public offering price using
the treasury stock method
Effect of shares issuable upon exercise of warrants 1,648 3,716
using the treasury stock method
-------------------- ---------------------
Shares used in computing primary earnings per share 3,037,029 4,893,414 3,021,114 3,878,950
==================== =====================
Fully Diluted:
Weighted average common and common equivalent 3,037,029 4,893,414 3,021,114 3,878,950
shares outstanding
Effect of period end market price over average price for 11,198 3,926
common stock equivalents (1)
Effect of shares issued upon conversion of subordinated debentures 34,403
and preferred stock as of the beginning of the period
Effect of shares contingently issuable under warrants 3,909 3,909
issued with the 8% subordinated debentures using
the treasury stock method
Effect of assumed conversion of convertible subordinated 33,424
debentures using if converted method
-------------------- ----------------------
Shares used in computing fully diluted earnings 3,040,938 4,938,036 3,025,023 3,917,279
per share ==================== ======================
Increase in net income available to common shareholders $ 3,736 $ 5,394
due to above assumed repayment and redemption ==================== ======================
</TABLE>
The following table details the number of common shares and common stock
equivalents used in the computation of primary and fully diluted earnings per
share on a pro forma basis to reflect the effect of the issuance of additional
shares of common stock and the related repayment of debt and redemption of
preferred stock as contemplated under the Company's initial public offering in
June, 1996.
Primary:
<TABLE>
<CAPTION>
<S> <C> <C>
Shares used in computing actual primary earnings per share 4,893,414 3,878,950
Effect of assumed repayment of debt and redemption of preferred stock 255,919 255,919
---------- -----------
Shares used in computing primary earnings per share 5,149,333 4,134,869
========== ===========
Increase in net income available to common shareholders due $ - $ 39,545
========== ===========
to above assumed repayment and redemption
Pro forma Primary Earnings Per Share $0.09 $0.27
========== ===========
Fully Diluted:
Shares used in computing actual fully diluted earnings per share 4,938,036 3,917,279
Effect of assumed repayment of debt and redemption of preferred stock 255,919 255,919
---------- -----------
Shares used in computing fully diluted earnings per share 5,193,955 4,173,198
========== ===========
Increase in net income available to common shareholders $ - $ 39,545
========== ===========
due to above assumed repayment and redemption
Pro forma Fully Diluted Earnings Per Share $0.09 $0.27
========== ===========
</TABLE>
Note (1): The end of period prices and average prices for the Company's
common stock was substantially the same for the periods ended
September 30, 1995. Accordingly, there are no differences in the
number of weighted average common and common equivalent shares
outstanding for primary and fully diluted bases for the 1995
periods.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,093,217
<SECURITIES> 3,073,287
<RECEIVABLES> 2,005,897
<ALLOWANCES> (19,836)
<INVENTORY> 6,272,714
<CURRENT-ASSETS> 16,681,350
<PP&E> 4,478,439
<DEPRECIATION> (1,245,234)
<TOTAL-ASSETS> 20,411,384
<CURRENT-LIABILITIES> 1,995,438
<BONDS> 245,000
0
0
<COMMON> 48,291
<OTHER-SE> 17,889,725
<TOTAL-LIABILITY-AND-EQUITY> 20,411,384
<SALES> 3,257,284
<TOTAL-REVENUES> 3,257,284
<CGS> 964,692
<TOTAL-COSTS> 964,692
<OTHER-EXPENSES> 1,707,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (93,519)
<INCOME-PRETAX> 758,916
<INCOME-TAX> 296,047
<INCOME-CONTINUING> 462,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462,869
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
