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, 2000
[ ] 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.)
2320 NW 66TH COURT
GAINESVILLE, FL
32653
(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 28, 2000
Common Stock, $.01 par value 5,061,535
<PAGE>
EXACTECH, INC.
<TABLE>
<CAPTION>
INDEX
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND MARCH 31, 2000 2
CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTH PERIODS ENDED 3
MARCH 31, 1999 AND 2000
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE 4
MONTH PERIOD ENDED MARCH 31, 2000
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED 5
MARCH 31, 1999 AND 2000
NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIODS 6
ENDED MARCH 31, 1999 AND 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</TABLE>
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
EXACTECH, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,641,071 $ 2,089,235
Trade receivables, net of allowance
of $332,693 and $348,106 7,979,481 8,579,657
Refundable income taxes 22,952 -
Prepaid expenses and other assets, net 164,910 475,436
Inventories 11,638,895 13,940,672
------------ ------------
Total current assets 21,447,309 25,085,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land 462,629 462,629
Machinery and equipment 4,562,503 4,905,946
Surgical instruments 7,085,495 7,721,080
Furniture and fixtures 393,918 405,438
Facilities 3,472,548 3,476,203
------------ ------------
Total property and equipment 15,977,093 16,971,296
Accumulated depreciation (4,059,413) (4,531,912)
------------ ------------
Net property and equipment 11,917,680 12,439,384
------------ ------------
OTHER ASSETS:
Product licenses and designs, net 362,295 348,020
Deferred financing costs, net 123,748 109,591
Advances and deposits 230,872 138,714
Patents and trademarks, net 527,502 513,151
------------ ------------
Total other assets 1,244,417 1,109,476
------------ ------------
TOTAL ASSETS $ 34,609,406 $ 38,633,860
============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,418,502 $ 4,482,180
Income taxes payable - 294,838
Current portion of long-term debt 300,000 300,000
Commissions payable 396,858 586,783
Royalties payable 417,486 404,862
Other liabilities 61,781 125,557
------------ ------------
Total current liabilities 3,594,627 6,194,220
------------ ------------
DEFERRED INCOME TAXES 974,980 1,033,594
LONG-TERM DEBT, NET OF CURRENT PORTION 3,600,000 3,600,000
------------ ------------
Total liabilities 8,169,607 10,827,814
------------ ------------
COMMON SHAREHOLDERS' EQUITY:
Common stock 50,081 50,495
Additional paid-in capital 15,803,144 16,244,239
Retained earnings 10,586,574 11,511,312
------------ ------------
Total shareholders' equity 26,439,799 27,806,046
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 34,609,406 $ 38,633,860
============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
EXACTECH, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTH PERIOD
ENDED MARCH 31,
1999 2000
------------ ------------
NET SALES $ 7,168,417 $ 10,304,541
COST OF GOODS SOLD 2,398,081 3,673,159
------------ ------------
Gross profit 4,770,336 6,631,382
------------ ------------
OPERATING EXPENSES:
Sales and marketing 1,897,555 2,885,422
General and administrative 617,295 890,034
Research and development 324,830 472,988
Depreciation and amortization 373,907 487,915
Royalties 347,103 404,630
------------ ------------
Total operating expenses 3,560,690 5,140,989
------------ ------------
INCOME FROM OPERATIONS 1,209,646 1,490,393
OTHER INCOME (EXPENSE)
Interest income (expense), net (31,707) (32,458)
------------ ------------
INCOME BEFORE INCOME TAXES 1,177,939 1,457,935
PROVISION FOR INCOME TAXES 465,286 533,197
------------ ------------
NET INCOME $ 712,653 $ 924,738
============ ============
BASIC EARNINGS PER SHARE $ 0.14 $ 0.18
============ ============
DILUTED EARNINGS PER SHARE $ 0.14 $ 0.17
============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
EXACTECH, INC.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 5,008,079 $ 50,081 $15,803,144 $10,586,574 $26,439,799
Issuance of common stock 847 8 11,215 11,223
Exercise of stock options 4,000 40 23,250 23,290
Exercise of warrants 34,000 340 380,460 380,800
Issuance of common stock
under the Company's
Employee Stock Purchase Plan 2,609 26 26,170 26,196
Net income 924,738 924,738
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 5,049,535 $ 50,495 $16,244,239 $11,511,312 $27,806,046
=========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
EXACTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED MARCH 31,
1999 2000
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 712,653 $ 924,738
Adjustments to reconcile net income to net
cash provided by operating activities :
Depreciation and amortization 368,099 522,441
Loss on disposal of equipment 30,626 15,830
Deferred income taxes -- 58,614
Increase in trade receivables (471,158) (600,176)
Decrease (increase) in inventories 246,171 (2,301,777)
Decrease (increase) in prepaids and other assets 170,325 (204,211)
Increase in income taxes payable 312,708 317,790
(Decrease) increase in accounts payable (92,959) 2,063,678
Increase in other liabilities 221,972 241,078
----------- -----------
Net cash provided by operating activities 1,498,437 1,038,005
----------- -----------
INVESTING ACTIVITIES:
Purchase of product licenses and designs (150,000) --
Purchases of property and equipment (972,365) (1,031,350)
----------- -----------
Net cash used in investing activities (1,122,365) (1,031,350)
----------- -----------
FINANCING ACTIVITIES:
Principal payments on capital lease obligations (1,453) --
Proceeds from issuance of common stock 108,879 441,509
----------- -----------
Net cash provided by financing activities 107,426 441,509
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 483,498 448,164
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 662,652 1,641,071
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,146,150 $ 2,089,235
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 54,063 $ 55,584
Income taxes 138,954 156,951
Noncash investing and financing activities:
Relief of compensation accrual on issuance of stock 5,971 --
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 2000
(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, 1999 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, 2000 are not necessarily indicative of the results to be expected for
the full year.
2. DEBT
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
<S> <C> <C>
Industrial Revenue Bond note payable in annual $ 3,900,000 $ 3,900,000
principal installments as follows: $300,000 per year from
2000-2006; $200,000 per year from 2007-2013; $100,000 per
year from 2014-2017; monthly interest payments based on
adjustable rate as determined by the bonds remarketing
agent based on market rate fluctuations (4.05% as of
March 31, 2000); proceeds used to finance construction
of new facility
----------- -----------
Total long-term debt 3,900,000 3,900,000
Less current portion (300,000) (300,000)
----------- -----------
$ 3,600,000 $ 3,600,000
=========== ===========
</TABLE>
The following is a schedule of debt maturities as of March 31, 2000:
<TABLE>
<CAPTION>
LONG-TERM
DEBT
------------
<S> <C>
2000 .............................................................. $ 300,000
2001 .............................................................. 300,000
2002 .............................................................. 300,000
2003 .............................................................. 300,000
2004 .............................................................. 300,000
Thereafter .............................................................. 2,400,000
------------
Total .............................................................. $ 3,900,000
============
</TABLE>
6
<PAGE>
EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 2000
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is 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.
4. SEGMENT INFORMATION
Segment information is reported by the major product lines of the
Company: knee implants, hip implants, and tissue services. The "other" category
is for minor sales categories, such as instrument rental fees and shipping
charges. The Company evaluates the performance of its operating segments based
on income from operations before taxes, interest income and expense, and
nonrecurring items. Intersegment sales and transfers are not significant.
Summarized interim reporting information concerning the Company's
reportable segments is shown in the following table.
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------------------------------------
TISSUE
KNEE HIP SERVICES OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31,
1999
Net sales $ 4,953 $ 1,422 $ 688 $ 105 $ 7,168
Segment profit (loss) from operations 879 199 156 (24) 1,210
2000
Net sales $ 7,017 $ 1,724 $ 1,396 $ 168 $ 10,305
Segment profit from operations 939 260 231 60 1,490
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Total assets not identified with a specific segment (in thousands of
dollars) are $16,670 for the year ended December 31, 1999 and $18,049 for the
three months ended March 31, 2000. Assets not identified with a specific segment
include cash and cash equivalents, accounts receivable, refundable income taxes,
prepaid expenses, land, facilities, office furniture and computer equipment, and
other assets.
Segment assets are summarized in the following table.
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------------------------------------
TISSUE
KNEE HIP SERVICES OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED DECEMBER 31,
1999
Total assets, net $ 11,706 $ 5,213 $ 630 $ 390 $ 17,939
THREE MONTHS ENDED MARCH 31,
2000
Total assets, net $ 12,837 $ 6,568 $ 801 $ 379 $ 20,585
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
EXACTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 2000
(UNAUDITED)
5. SHAREHOLDERS' EQUITY
EARNINGS PER SHARE:
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for net income and net income available
to common shareholders:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 2000
INCOME SHARES INCOME SHARES
(NUMER- (DENOM- PER (NUMER- (DENOM- PER
ATOR) INATOR) SHARE ATOR) INATOR) SHARE
------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $712,653 $924,738
BASIC EPS:
Net income available to
common shareholders $712,653 4,921,257 $0.14 $924,738 5,020,696 $0.18
===== =====
Effect of dilutive
securities:
Stock options 161,928 261,258
Warrants 13,971 28,252
DILUTED EPS:
Net income available to
common shareholders
plus assumed conversions $712,653 5,097,156 $0.14 $924,738 5,310,206 $0.17
===== =====
</TABLE>
For the three months ended March 31, 1999, there were 531,358 options to
purchase shares of common stock at prices ranging from $3.28 to $9.00 per share
outstanding. All of the options were included in the computation of diluted EPS
because all of the options' exercise prices were less than the average market
price of the common shares.
For the three months ended March 31, 2000, there were 586,174 options to
purchase shares of common stock at prices ranging from $3.28 to $13.06 per share
outstanding. All of the options were included in the computation of diluted EPS
because all of the options' exercise prices were less than the average market
price of the common shares.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
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, 1999.
The Company develops, manufactures, markets and sells orthopaedic
implant devices, related surgical instrumentation, and biologic products to
hospitals and physicians. From the introduction of the Optetrak(R) knee system
in 1995 through 1998, sales of knee implant products accounted for an increasing
portion of the Company's revenues and profits. During 1999, the Company
commenced full-scale distribution of OpteFORM(TM), a 100% biologic based
allograft tissue. During 2000, the Company anticipates initial release of a
comprehensive update of it's hip systems under the trade name AcuMatch(TM) hip
systems. The Company anticipates that sales of knee implant products will
continue to account for a major portion of its revenues and profits, although
hip and biologic products are expected to become an increasingly important part
of the Company's product lines.
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):
SALES SUMMARY BY PRODUCT LINE ($1,000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
MARCH 31, 1999 MARCH 31, 2000
UNITS $ % UNITS $ %
----- - - ----- - -
<S> <C> <C> <C> <C> <C> <C>
HIP PRODUCTS
Cemented 1,571 742 10.4% 1,552 759 7.4%
Porous Coated 1,324 498 6.9% 1,838 712 6.9%
Bipolar Prosthesis 244 120 1.7% 267 132 1.3%
Revision 24 54 0.8% 76 111 1.1%
-------------------------------- --------------------------------
Total Hip Products 3,163 1,414 19.8% 3,733 1,714 16.7%
KNEE PRODUCTS
Cemented Cruciate Sparing 4,247 2,077 29.0% 5,432 2,370 23.0%
Cemented Posterior Stabilized 2,473 1,681 23.4% 3,681 2,384 23.1%
Porous Coated 360 407 5.7% 559 719 7.0%
Revision 1,128 659 9.2% 2,692 1,187 11.5%
-------------------------------- --------------------------------
Total Knee Products 8,208 4,824 67.3% 12,364 6,660 64.6%
Instrument Sales and Rental 147 2.0% 372 3.6%
Tissue Services 688 9.6% 1,396 13.6%
Acudriver 52 7.0% 55 0.5%
Miscellaneous 43 0.6% 108 1.0%
------------------ -------------------
TOTAL 7,168 100.0% 10,305 100.0%
================== ===================
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net sales increased by $3,136,124, or 44%, to $10,304,541 in the
quarter ended March 31, 2000, from $7,168,417 in the quarter ended March 31,
1999. The increase in net sales resulted from increased unit and dollar volume
in all of the Company's product lines. Sales of knee implant products increased
by 51% on a unit basis and by 38% on a dollar basis from the quarter ended March
31, 1999 to the quarter ended March 31, 2000. Sales of hip
9
<PAGE>
implant products increased by 18% on a unit basis and by 21% on a dollar basis
from the quarter ended March 31, 1999, to the quarter ended March 31, 2000.
Revenue from providing Opteform(TM) tissue service increased by 103% from the
quarter ended March 31, 1999, to the quarter ended March 31, 2000. The Company
believes that the increase in sales is a result of its continuing focus on
marketing, specifically in increasing the number of agencies and representatives
in the field. Domestic sales increased 36% to $8,248,418 in the quarter ended
March 31, 2000, from $6,076,004 in the quarter ended March 31, 1999.
International sales grew 88% to $2,056,123 in the quarter ended March 31, 2000,
from $1,092,413 in the comparable quarter of 1999, and comprised 20% of the
Company's total sales as compared to 15% in the quarter ended March 31, 1999.
Gross profit increased by $1,861,046, or 39%, to $6,631,382 in the
quarter ended March 31, 2000, from $4,770,336 in the quarter ended March 31,
1999, primarily as a result of an increase in total sales. As a percentage of
sales, gross profit decreased slightly to 64.4% in the quarter ended March 31,
2000, from 66.5% in the quarter ended March 31, 1999. The profit margin decrease
was primarily the result of an increase, as a percentage of total revenue, in
international sales which are sold at a lower gross margin than domestic sales.
Total operating expenses increased by $1,580,299, or 44%, to $5,140,989
in the quarter ended March 31, 2000, from $3,560,690 in the quarter ended March
31, 1999. Sales and marketing expenses, the largest component of total operating
expenses, increased by $987,867, or 52%, to $2,885,422 in the quarter ended
March 31, 2000, from $1,897,555 in the quarter ended March 31, 1999. Sales and
marketing expenses, as a percentage of sales, increased to 28% from 26% in the
quarters ended March 31, 2000 and March 31, 1999, respectively. The Company's
sales and marketing expenses are largely variable costs based on sales levels,
with the largest component being commissions.
General and administrative expenses increased by $272,739, or 44%, to
$890,034 in the quarter ended March 31, 2000, from $617,295 in the quarter ended
March 31, 1999, primarily as a result of additional costs associated with the
Company's expanded shareholder relations efforts and increased legal expenses.
As a percentage of sales, general and administrative expenses remained constant
at 8.6% in the quarters ended March 31, 2000 and 1999, respectively.
Research and development expenses increased by $148,158, or 46%, to
$472,988 in the quarter ended March 31, 2000, from $324,830 in the quarter ended
March 31, 1999, principally the result of testing costs of new hip product
lines. As a percentage of sales, research and development expenses were 4.6% and
4.5% in the quarters ended March 31, 2000 and 1999, respectively.
Depreciation and amortization increased to $487,915 in the quarter
ended March 31, 2000, from $373,907 in the quarter ended March 31, 1999,
primarily as a result of the increased investment in surgical instrumentation.
During the quarter ended March 31, 2000, $672,732 of such equipment was placed
in service, resulting in the increase in depreciation expense.
Royalty expenses increased by $57,527 to $404,630 in the quarter ended
March 31, 2000, from $347,103 in the quarter ended March 31, 1999, primarily as
a result of growth in knee implant sales. As a percentage of sales, royalty
expenses were 3.9% and 4.8% in the quarters ended March 31, 2000 and 1999,
respectively.
The Company's income from operations increased by $280,747, or 23%, to
$1,490,393 in the quarter ended March 31, 2000, from $1,209,646 in the quarter
ended March 31, 1999, primarily as a result of increase in sales.
The Company incurred net interest expense of $32,458 in the quarter
ended March 31, 2000, as compared to $31,707 in the quarter ended March 31,
1999. The increase was the primarily the result of slightly higher interest
rates on existing Industrial Revenue Bond (IRB) debt. For the quarter ended
March 31, 2000, interest income of $23,126 was offset by $55,584 of interest
expense.
Income before provision for income taxes increased by $279,996, or 24%,
to $1,457,935 in the quarter ended March 31, 2000, from $1,177,939 in the
quarter ended March 31, 1999. The provision for income taxes was $533,197 in the
quarter ended March 31, 2000, compared to $465,286 in the quarter ended March
31, 1999.
As a result of the foregoing, net income increased by $212,085, or 30%,
to $924,738 from $712,653 in the quarter ended March 31, 1999.
10
<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, 2000, the Company had working capital of $18,890,780 compared to
$17,852,682 at December 31, 1999. The increase in working capital is primarily
the result of additional inventory in support of new product lines. As a result
of operating, investing and financing activities, cash and cash equivalents at
March 31, 2000 increased to $2,089,235 from $1,641,071 at December 31, 1999. The
Company maintains a $6,000,000 credit facility with Merrill Lynch Business
Financial Services, Inc. which is secured by accounts receivable and inventory
and expires in June 2000. At March 31, 2000, there was no amount outstanding
under the line of credit. The Company believes that funds from operations and
borrowings under its existing credit facilities will be sufficient to satisfy
its contemplated cash requirements for the following twelve months.
OPERATING ACTIVITIES
Operating activities provided net cash of $1,038,005 in the three
months ended March 31, 2000, as compared to $1,498,437 in the three months ended
March 31, 1999. The primary reason for the change was an increase of $2,301,777
in inventory in the three months ended March 31, 2000, as compared to a decrease
of $246,171 in inventory that occurred in the three months ended March 31, 1999.
The increase in inventory was partially offset by an increase of $2,063,678 in
accounts payable for the three months ended March 31, 2000, as compared to a
decrease of $92,959 in the three months ended March 31, 1999.
INVESTING ACTIVITIES
The Company used net cash in investing activities of $1,031,350 in the
three months ended March 31, 2000 entirely for the purchase of property and
equipment. During the three months ended March 31, 1999, the Company used net
cash of $1,122,365, of which, $150,000 was for the purchase of a product license
and $972,365 was for purchases of property and equipment.
FINANCING ACTIVITIES
Financing activities for the three months ended March 31, 2000 provided
net cash of $441,509 as compared to $107,426 in the three months ended March 31,
1999. The primary reason for the increase in cash provided by financing
activities was the issuance of the Company's common stock due to the exercise of
stock warrants and options.
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, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, 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.
11
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from interest rates. For its cash
and cash equivalents, a change in interest rates effects the amount of interest
income that can be earned. For its debt instruments, changes in interest rates
effect the amount of interest expense incurred.
Since the year ended December 31, 1999, there have not been any
material changes in the Company's financial instruments that are sensitive to
changes in interest rates.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Shareholders (the "Meeting") of the Company was
held on April 13, 2000
b) Not applicable because
(i) Proxies for the Meeting were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934.
(ii) There was no solicitation in opposition to management's
nominees as listed in the Company's proxy statement dated
March 15, 2000, and
(iii) All such nominees were elected
c) The matters voted on at the Meeting consisted of the following:
(i) The election of six members to the Company's Board of
Directors. The name of each nominee for election and the
number of shares voted for and against such nominee, as well
as the number of abstentions and broker non-votes with
respect to such nominee, are set forth below:
<TABLE>
<CAPTION>
NAME FOR ABSTENTIONS NON-VOTES
---- --- ----------- ---------
<S> <C> <C> <C>
William Petty, M.D. 4,678,416 19,139 0
Timothy J. Seese 4,664,416 33,139 0
Gary J. Miller, Ph. D. 4,694,735 2,820 0
Albert H. Burstein, Ph. D. 4,694,735 2,820 0
R. Wynn Kearney, Jr., M.D. 4,694,735 2,820 0
Paul Metts 4,694,735 2,820 0
</TABLE>
(ii) A proposal to ratify the selection of Deloitte & Touche LLP
to serve as the Company's independent auditors for the fiscal
year ending December 31, 2000. 4,675,313 shares were voted in
favor of such proposal, 3,980 shares were voted against the
proposal and 18,262 votes abstained from voting on such
proposal. There were 0 shares broker non-votes with respect
to such proposal
12
<PAGE>
Item 5. Other Information
None
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.
13
<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.
Exactech, Inc.
Date: May 12, 2000 By: /S/ TIMOTHY J. SEESE
---------------------------------
Timothy J. Seese
President and Chief
Operating Officer
Date: May 12, 2000 By: /S/ JOEL C. PHILLIPS
---------------------------------
Joel C. Phillips
Treasurer and Chief
Financial Officer
14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
11 Statement re: computation of per share earnings
27 Financial Data Schedule
Exhibit 11
The table below details the number of common shares and common stock equivalents
used in the computation of basic and diluted earnings per share
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
---- ----
<S> <C> <C>
Basic:
Weighted average common shares outstanding
used in computing basic earnings per share 4,921,257 5,020,696
=========================
Basic Earnings Per Share $0.18
=========
Diluted:
Weighted average common and common equivalent
shares outstanding 4,921,257 5,020,696
Effect of shares issuable under stock plans
using the treasury method 161,928 261,258
Effect of shares contingently issuable under warrants
issued with the 8% subordinated debentures using
the treasury stock method 13,971 -
Effect of shares contingently issuable under warrants
issued with the Initial Public Offering (IPO) using
the treasury stock method - 28,252
-------------------------
Shares used in computing diluted earnings per share 5,097,156 5,310,206
=========================
Diluted Earnings Per Share $0.17
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,089,235
<SECURITIES> 0
<RECEIVABLES> 8,927,763
<ALLOWANCES> (348,106)
<INVENTORY> 13,940,672
<CURRENT-ASSETS> 25,085,000
<PP&E> 16,971,296
<DEPRECIATION> (4,531,912)
<TOTAL-ASSETS> 38,633,860
<CURRENT-LIABILITIES> 6,194,220
<BONDS> 3,600,000
0
0
<COMMON> 50,495
<OTHER-SE> 27,755,551
<TOTAL-LIABILITY-AND-EQUITY> 38,633,860
<SALES> 10,304,541
<TOTAL-REVENUES> 10,304,541
<CGS> 3,673,159
<TOTAL-COSTS> 3,673,159
<OTHER-EXPENSES> 5,140,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,458
<INCOME-PRETAX> 1,457,935
<INCOME-TAX> 533,197
<INCOME-CONTINUING> 924,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 924,738
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
