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 March 31, 1997
_____ 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(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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at April 18, 1997
Common Stock, $.01 par value 4,860,434
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<CAPTION>
EXACTECH, INC.
INDEX
PAGE
NUMBER
<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND MARCH 31, 1997 2
CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTH PERIODS ENDED 4
MARCH 31, 1996 AND MARCH 31, 1997
CONDENSED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY 5
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED 6
MARCH 31, 1996 AND MARCH 31, 1997
NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIODS 7
ENDED MARCH 31, 1996 AND MARCH 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
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EXACTECH, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, MARCH 31,
1996 1997
------------ ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,992,442 $ 3,050,597
Short-term investments 3,083,788 3,054,290
Trade receivables 2,462,864 2,982,380
Prepaid expenses and other assets 194,009 429,364
Inventories 7,625,756 8,845,836
----------- -----------
Total Current Assets 17,358,859 18,362,467
PROPERTY AND EQUIPMENT
Machinery and equipment 4,174,394 4,246,130
Furniture and fixtures 115,089 120,336
----------- -----------
Total 4,289,483 4,366,466
Accumulated depreciation (1,322,392) (1,478,395)
----------- -----------
Net property and equipment 2,967,091 2,888,071
OTHER ASSETS
Land held for future sale 263,301 263,301
Investment in Subsidiary 100,638 85,638
Deferred financing costs, net 21,296 13,662
Advances and deposits 2,442 1,800
Patents and trademarks
(net of amortization) 393,445 389,684
----------- -----------
Total Other Assets 781,122 754,085
----------- -----------
TOTAL ASSETS $21,107,072 $22,004,623
=========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
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EXACTECH, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, MARCH 31,
1996 1997
------------ ---------
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 1,430,321 $ 1,683,813
Income taxes payable 40,986 230,764
Current portion of long-term
debt and leases 32,861 4,447
Commissions payable 373,900 387,491
Royalties payable 168,387 193,827
Other liabilities 135,823 142,523
----------- -----------
Total Current Liabilities 2,182,278 2,642,865
Deferred income taxes 326,875 326,875
Long-term debt and capital lease-
net of current portion 18,144 16,873
----------- -----------
Total Liabilities 2,527,297 2,986,613
COMMON SHAREHOLDERS' EQUITY:
Common stock 48,604 48,604
Additional paid in capital 14,815,588 14,815,588
Retained earnings 3,715,583 4,153,818
----------- -----------
Total Common Shareholders' Equity 18,579,775 19,018,010
----------- -----------
TOTAL LIABILITIES AND EQUITY $21,107,072 $22,004,623
=========== ===========
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
EXACTECH, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTH PERIOD
ENDED MARCH 31,
1996 1997
------------ ---------
NET SALES $3,423,629 $4,099,539
COST OF GOODS SOLD 1,267,332 1,366,685
---------- ----------
Gross profit 2,156,297 2,732,854
OPERATING EXPENSES:
Sales and marketing 837,209 1,217,172
General and administrative 273,276 359,786
Research and development 161,054 241,955
Depreciation and amortization 116,075 164,786
Royalties 144,196 188,386
---------- ----------
Total operating expenses 1,531,810 2,082,085
---------- ----------
INCOME FROM OPERATIONS 624,487 650,769
OTHER INCOME (EXPENSE)
Interest income (expense) (104,109) 82,820
Equity in net loss of subsidiary (18,000) (15,000)
---------- ----------
INCOME BEFORE INCOME TAXES 502,378 718,589
PROVISION FOR INCOME TAXES 190,903 280,354
---------- ----------
NET INCOME 311,475 438,235
PREFERRED STOCK DIVIDENDS 5,824 0
---------- ----------
NET INCOME AVAILABLE TO $ 305,651 $ 438,235
COMMON SHAREHOLDERS ========== ==========
NET INCOME PER COMMON AND $ 0.10 $ 0.09
COMMON SHARE EQUIVALENT ========== ==========
WEIGHTED AVERAGE COMMON 3,060,971 4,981,559
AND COMMON SHARE
EQUIVALENTS OUTSTANDING
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
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<CAPTION>
EXACTECH, INC.
CONDENSED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
(UNAUDITED)
TOTAL
ADDITIONAL COMMON
COMMON STOCK PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,860,434 $48,604 $14,815,588 $3,715,583 $18,579,775
Net income 438,235 438,235
--------- ------- ----------- ---------- -----------
Balance, March 31, 1997 4,860,434 $48,604 $14,815,588 $4,153,818 $19,018,010
========= ======= =========== ========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
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<CAPTION>
EXACTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTH PERIOD ENDED MARCH 31,
1996 1997
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 311,475 $ 438,235
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 116,077 164,786
Equity in net loss of subsidiary 18,000 15,000
Deferred income taxes 4 -
Decrease (increase) in trade receivables (245,672) (519,516)
Decrease (increase) in inventories 319,904 (1,220,080)
Decrease (increase) in other prepaids and assets (92,747) (227,079)
(Decrease) increase in income taxes payable (102,623) 189,778
(Decrease) increase in accounts payable (97,470) 253,492
Increase in other liabilities 97,473 45,731
--------- -----------
Net cash provided by (used in) oeprating activities 324,421 (859,653)
--------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (826,776) (76,983)
Distribution of short-term investments 0 29,498
Investment in subsidiary (27,134) -
Cost of patents and trademarks - (5,022)
--------- -----------
Net cash used in investing activities (853,910) (52,507)
--------- -----------
FINANCING ACTIVITIES:
Proceeds under line of credit 643,993 -
Principal payments on debt (65,278) (29,685)
Proceeds from issuance of common stock 5,000 -
Payment of offering costs (34,457) -
Preferred dividends paid (5,824) -
--------- -----------
Net cash provided by (used in) financing activities 543,434 (29,685)
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,945 (941,845)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 201,979 3,992,442
--------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 215,924 $ 3,050,597
--------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 96,148 $ 932
Income taxes 295,123 90,576
Noncash investing and financing activities:
Financing of insurance premiums 296,106 -
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
6
<PAGE>
EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
(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 contained in the Annual Report on Form 10-K for the
year ended December 31, 1996 of Exactech, Inc. (the "Company"), as filed with
the Securities and Exchange Commission.
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 three month period ending
March 31, 1997 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 31, 1997 and yielding from 5.57% to 5.75%. The fair
value of such investments approximated the carrying value at March 31, 1997.
7
<PAGE>
EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND MARCH 31, 1997
(UNAUDITED)
3. DEBT
<TABLE>
<CAPTION>
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: December 31, March 31,
1996 1997
---- ----
<S> <C> <C>
Capitalized lease obligation payable in monthly installments 23,539 21,320
of $611 through July, 2000, collateralized by equipment with a
carrying value of approximately $27,000 as of December 31, 1996
Notes payable to finance company bearing interest 27,466 -
at 7.43% payable in monthly installments through
February 1997; proceeds used to finance insurance policies
-------- -------
Total long-term debt and capital lease obligations 51,005 21,320
Less current portion (32,861) (4,447)
------- -------
$ 18,144 $ 16,873
======== ========
</TABLE>
The following is a schedule of future minimum lease payments under the
capital leases, together with the present value of minimum lease payments as of
March 31, 1997:
Capital Lease
Obligations
-----------
1997................................................ 4,889
1998................................................ 7,333
1999................................................ 7,333
2000................................................ 7,188
-----
Total .....................................$26,743
Less interest on capital lease obligations ......... (5,423)
-------
$21,320
4. CONTINGENCIES
On January 28, 1997, a competitor filed a complaint and jury demand for
patent infringement against the Company. Management has examined the patent and
concluded that the structure of the Company's product differs significantly from
the teachings of the patent. In addition, the Company has sought the advice of
patent counsel who believes that the Company's products do not infringe the
competitor's patent.
The Company, in the normal course of business, is also subjected to
claims and litigation in the areas of product and general liability. Management
does not believe any of such claims will have a material impact on the Company's
financial position.
8
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EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
5. COMMON SHAREHOLDERS' EQUITY
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 Director's 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:
<TABLE>
<CAPTION>
NUMBER OF OPTION NUMBER OF
SHARES PRICE SHARES
UNDER OPTION PER SHARE EXERCISABLE
<S> <C> <C> <C>
Outstanding at December 31, 1996 560,199 $2.30-9.00 172,907
------- ----------
Granted 16,000 7.88-9.00
Exercised - -
Expired - -
-------- ---------
Outstanding at March 31, 1997 576,199 $2.30-9.00 174,407
======= ==========
</TABLE>
The remaining nonexercisable options as of March 31, 1997 become exercisable as
follows:
1997 95,566
1998 88,227
1999 86,467
2000 85,792
2001 43,590
2002 2,150
---------
401,792
9
<PAGE>
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 Company's Annual Report on Form 10-K for the year
ended December 31, 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):
EXACTECH, INC.
SALES SUMMARY BY PRODUCT LINE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31, 1996 MARCH 31, 1997
HIP PRODUCTS UNITS $ % UNITS $ %
----- - - ----- - -
<S> <C> <C> <C> <C> <C> <C>
Cemented 1,134 556.4 16.3% 1,194 564.9 13.8%
Porous Coated 1,393 551.9 16.1% 1,226 40.3 9.8%
Revision - - - 9 16.8 0.4%
Bipolar Prosthesis 181 101.1 3.0% 193 102.0 2.5%
------------------------- ----------------------
Total Hip Products 2,708 1,209.4 35.3% 2,622 1,085.0 26.5%
KNEE PRODUCTS
Cemented Cruciate Sparing 2,232 1,012.9 29.6% 2,831 1,375.4 33.6%
Cemented Posterior Stabilized 870 409.4 11.9% 1,311 867.2 21.2%
Porous Coated 368 477.9 14.0% 456 466.4 11.4%
Revision - - 0.0% 568 134.6 3.3%
------------------------- ----------------------
Total Knee Products 3,470 1,900.2 55.5% 5,166 2,843.6 69.3%
Instrument Sales and Rental 299.3 8.7% 156.4 3.8%
Miscellaneous 14.7 0.4% 14.5 0.4%
================= ===============
TOTAL 3,423.6 100.0% 4,099.5 100.0%
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales increased by $675,910, or 19.7%, to $4,099,539 in the quarter
ended March 31, 1997, from $3,423,629 in the quarter ended March 31, 1996. 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
48.9% on a unit basis and by 49.7% on a dollar basis from the quarter ended
March 31, 1996 to the quarter ended March 31, 1997, as the Company continued to
penetrate new markets with the Optetrak/registered trademark/ knee system. Sales
of hip implant products decreased by 3.2% on a unit basis and decreased by 10.3%
on a dollar basis from the quarter ended March 31, 1996, to the quarter ended
March 31, 1997 as overall hip implant margins decreased. While reductions in
average selling prices in prior quarters have been the result of a mix shift to
lower priced products, the Company believes that the average selling price
reductions for hip products in this period are the result of more competitive
pricing throughout the industry. The Company believes that while the competitive
pricing will continue, it will not have a material adverse effect on the results
of operations of the Company because lower average selling prices for existing
products will be partially offset by higher selling prices for newer products
including the AuRA revision hip components.
Gross profit increased by $576,557, or 26.7%, to $2,732,854 in the quarter
ended March 31, 1997, from $2,156,297 in the quarter ended March 31, 1996. As a
percentage of sales, gross profit increased to 66.7% in the quarter ended March
31, 1997, from 63.0% in the quarter ended March 31, 1996. The profit margin
increase as compared to the quarter ended March 31, 1996, 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 $550,275, or 35.9%, to $2,082,085 in
the quarter ended March 31, 1997, from $1,531,810 in the quarter ended March 31,
1996. Sales and marketing expenses, the largest component of total operating
expenses, increased by $289,963, or 34.6%, to $1,127,172 in the quarter ended
March 31, 1997, from $837,209 in the quarter ended March 31, 1996. Sales and
marketing expenses increased as a percentage of sales to 27.5% in the quarter
ended March 31, 1997, from 24.5% in the quarter ended March 31, 1996. The
Company's sales and marketing expenses are largely variable costs based on sales
levels, with the largest component being commissions. The Company's increased
effort to expand the worldwide distribution and marketing network through sales
agent recruitment and other promotions was a factor in the increase of sales and
marketing expenses.
General and administrative expenses increased by $86,510, or 31.7%, to
$359,786 in the quarter ended March 31, 1997, from $273,276 in the quarter ended
March 31, 1996. As a percentage of sales, general and administrative expenses
increased to 8.8% in the quarter ended March 31, 1997, from 8.0% in the quarter
ended March 31, 1996. Total general and administrative expenses increased
primarily as a result of additional product liability insurance costs directly
relating to the increase in sales. In addition, the Company incurred higher
investor relations, accounting and financial reporting expenses.
Research and development expenses increased by $80,901, or 50.2%, to
$241,955 in the quarter ended March 31, 1997, from $161,054 in the quarter ended
March 31, 1996, primarily as a result of development and testing costs of the
Optetrak/registered trademark/ CC Revision knee system. Research and development
expenses were 5.9% and 4.7% of sales in the quarters ended March 31, 1997 and
1996, respectively. The Company expects research and development expenses to
increase for the full year of 1997 as compared to 1996, due to continued
development expenses associated with the revision knee and revision hip systems.
11
<PAGE>
Depreciation and amortization increased to $164,786 in the quarter ended
March 31, 1997, from $116,075 in the quarter ended March 31, 1996, as a result
of the increased investment in instrumentation and manufacturing tools used by
third party suppliers. During the quarter ended March 31, 1997, $156,452 of such
manufacturing tools associated with the revision knee and hip systems were
placed in service, resulting in the increase in depreciation expense.
Royalty expenses increased by $44,190 to $188,386 in the quarter ended
March 31, 1997, from $144,196 in the quarter ended March 31, 1996, 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 4.6% and 4.2% in
the quarters ended March 31, 1997 and 1996, respectively.
The Company's income from operations increased by $26,282, or 4.2%, to
$650,769 in the quarter ended March 31, 1997, from $624,487 in the quarter ended
March 31, 1996. 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 $82,820 in the quarter ended
March 31, 1997, as compared to net interest expense of $104,109 in the quarter
ended March 31, 1996. This change resulted from a reduction in outstanding
indebtedness and an increase of short-term investments as compared to the
quarter ended March 31, 1996. Interest expense of $6,557 for the quarter ended
March 31, 1997, was offset by $89,377 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.
In July 1995, the Company purchased a 50% interest in Techmed S.p.A.
(ATechmed@), its Italian distributor. The investment is accounted for by the
equity method. Included in other expense in the quarter ended March 31, 1997 is
the Company=s equity share in the net loss of such subsidiary in the amount of
$15,000 as compared to the $18,000 loss in the quarter ended March 31, 1996.
Income before provision for income taxes increased by $216,211, or 43.0%,
to $718,589 in the quarter ended March 31, 1997, from $502,378 in the quarter
ended March 31, 1996. The provision for income taxes was $280,354 in the quarter
ended March 31, 1997, compared to $190,903 in the quarter ended March 31, 1996.
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 therefore there were no preferred stock dividends in the
quarter ended March 31, 1997. Preferred stock dividends for the quarter ended
March 31, 1996 were $5,824.
As a result, the Company had net income available to common shareholders
of $438,235 in the quarter ended March 31, 1997, compared to $305,651 in the
quarter ended March 31, 1996, a 43.4% increase. Net income available to common
shareholders increased as a percentage of sales from 8.9% in the quarter ended
March 31, 1996 to 10.7% in the quarter ended March 31, 1997.
12
<PAGE>
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
March 31, 1997, the Company had working capital of $15,719,602 compared to
$15,176,581 at December 31, 1996. As a result of operating, investing and
financing activities, cash and cash equivalents at March 31, 1997 decreased to
$3,050,597 from $3,992,442 at December 31, 1996. The increase in working capital
and reduction in cash and cash equivalents is primarily the result of the
instrument and inventory build associated with the development of the Company's
revision hip and knee systems. 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 used net cash of $859,653 in the three months ended
March 31, 1997 compared to providing net cash of $324,421 in the three months
ended March 31, 1996. The primary reason for the change was the $1,220,080
increase in inventory that occurred in the period ended March 31, 1997. Another
factor resulting in more cash being used in operating activities for the period
ended March 31, 1997 was the growth in trade receivables as average monthly
sales increased. Cash required as a result of the increase in trade receivables
was $519,516, for the three month period ended March 31, 1997, as compared to
$245,672, for the first three months of 1996.
INVESTING ACTIVITIES
The Company has invested the remaining proceeds of the IPO in
short-term investments. As of March 31, 1997, $3,054,290 was invested in United
States Treasury Notes with maturities ranging from June 30, 1997 through July
31, 1997 and yielding from 5.57% to 5.75%, and $2,716,232 was invested in
Merrill Lynch's Institutional and Treasury Funds comprised of commercial paper
and government backed securities with a current yield of 5.1%.
FINANCING ACTIVITIES
The Company used net cash in financing activities of $29,685 in the
period ended March 31, 1997 as compared to providing cash from financing
activities of $543,434 in the period ended March 31, 1996. The primary reason
for the reduction in cash provided by financing activities was the Company's
repayment of an insurance note payable in the amount of $29,685 during the
current period as compared to borrowing $643,993 under a line of credit in the
period ended March 31, 1996.
13
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to all entities with publicly held common stock or potential
common stock. This Statement replaces the presentation of primary EPS and fully
diluted EPS with a presentation of basic EPS and diluted EPS, respectively.
Basic EPS excludes dilution and is computed by dividing earnings available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Similar to fully diluted EPS, diluted EPS reflects the potential
dilution of securities that could share in the earnings. This Statement is not
expected to have a material effect on the Company's reported EPS amounts. This
Statement is effective for the Company's financial statements for the year ended
December 31, 1997.
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which
represent the Company's expectations or beliefs concerning future events,
including, but not limited to, statements regarding growth in sales of the
Company's products, profit margins and the sufficiency of the Company's cash
flow for its future liquidity and capital resource needs. These forward looking
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward looking statements. These
factors include, without limitation, the effect of competitive pricing, the
Company's dependence on the ability of its third-party manufacturers to produce
components on a basis which is cost-effective to the Company, market acceptance
of the Company's products and the effects of governmental regulation. Results
actually achieved may differ materially from expected results included in these
statements as a result of these or other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Currently Required.
14
<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
11 Statement re: computation of per share earnings
27 Financial Data Schedule
b) Reports on Form 8-K
None.
15
<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: April 29, 1997 By: __________________________
Timothy J. Seese
President and Chief
Operating Officer
Date: April 29, 1997 By: __________________________
Joel C. Phillips
Treasurer
16
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
11 Statement re: computation of per share earnings
27 Financial Data Schedule
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
MARCH 31,
1996 1997
---- ----
<S> <C> <C>
Primary:
Weighted average common shares outstanding 2,954,472 4,860,434
Effect of shares issuable under stock option plans 75,124 111,762
using the treasury stock method
Effect of shares issue and options granted in 1995 at 31,375
prices below the initial public offering price using
the treasury stock method
Effect of shares issuable upon exercise of warrants 9,363
using the treasury stock method -----------------------
Shares used in computing primary earnings per share 3,060,971 4,981,559
=======================
Primary Earnings Per Share $0.09
=========
Fully Diluted:
Weighted average common and common equivalent 3,060,971 4,981,559
shares outstanding
Effect of period end market price over aggregate price for 10,430
common stock equivalents
Effect of shares contingently issuable under warrants 7,629
issued with the 8% subordinated debentures using
the treasury stock method -----------------------
Shares used in computing fully diluted earnings per share 3,079,030 4,981,559
=======================
Fully Diluted Earnings Per Share $0.09
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,050,597
<SECURITIES> 3,054,290
<RECEIVABLES> 2,982,380
<ALLOWANCES> (37,164)
<INVENTORY> 8,845,836
<CURRENT-ASSETS> 18,362,467
<PP&E> 4,366,466
<DEPRECIATION> (1,478,395)
<TOTAL-ASSETS> 22,004,623
<CURRENT-LIABILITIES> 2,642,865
<BONDS> 0
0
0
<COMMON> 48,604
<OTHER-SE> 18,969,406
<TOTAL-LIABILITY-AND-EQUITY> 22,004,623
<SALES> 4,099,539
<TOTAL-REVENUES> 4,099,539
<CGS> 1,366,685
<TOTAL-COSTS> 1,366,685
<OTHER-EXPENSES> 2,082,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (82,820)
<INCOME-PRETAX> 718,589
<INCOME-TAX> 280,354
<INCOME-CONTINUING> 438,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 438,235
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
