FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
/ / 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: 000-16893
DANNINGER MEDICAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-0992628
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
4140 Fisher Road
Columbus, Ohio
43228-1607
(Address of principal executive offices)
(614) 276-8267
(Registrant's telephone number)
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
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4,683,490
Shares of Common Stock Outstanding
As Of
June 30, 1995
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 Omitted)
June 30, December 31,
1995 1994
(Unaudited) (Audited)
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ASSETS
Current assets:
Cash............................................. $ 67 $ 3
Accounts receivable trade (net of allowance
for doubtful accounts of $159,000 and
$131,000 for 1995 and 1994, respectively)....... 2,800 2,647
Net investment in sales-type leases, current..... 20 30
Note receivable.................................. 24 28
Inventories...................................... 4,678 3,316
Prepaid expenses................................. 439 498
Deferred income taxes............................ 128 127
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Total current assets........................... 8,156 6,649
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Property and equipment, net........................ 670 487
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Other assets:
Notes receivable................................. 76 85
Other assets..................................... 101 171
Deferred income taxes............................ 91 41
----------- ------------
Total assets................................... $ 9,094 $ 7,433
----------- ------------
----------- ------------
The accompanying notes are an integral part
of the financial statements
1
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 Omitted)
June 30, December 31,
1995 1994
(Unaudited) (Audited)
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion, term debt....................... $ 2,200 $ 2,140
Current portion, capital lease obligations....... 52 37
Accounts payable, trade.......................... 1,673 1,532
Accrued expenses................................. 395 326
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Total current liabilities...................... 4,320 4,035
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Other liabilities:
Non-current portion, term debt................... 800
Obligations under capital leases, net of
current maturities.............................. 21 8
----------- ------------
Shareholders' equity:
Common stock, $.01 par value:
Authorized, 10,000,000 shares; issued and
outstanding 4,683,490 and 4,551,390 shares
for 1995 and 1994, respectively................. 47 45
Paid-in capital.................................. 3,282 2,878
Retained earnings................................ 624 467
----------- ------------
Total shareholders' equity..................... 3,953 3,390
----------- ------------
Total liabilities and shareholders'
equity..................................... $ 9,094 $ 7,433
----------- ------------
----------- ------------
The accompanying notes are an integral part
of the financial statements
2
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three month and six month periods ending June 30, 1995 and 1994
(000 Omitted)
(Unaudited)
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
--------------------------------------------------------------------------------
Revenue:
Net sales......................... $ 2,474 $ 1,933 $ 5,693 $ 4,491
Lease and rental revenue.......... 176 256
--------- --------- --------- ---------
2,650 1,933 5,949 4,491
Cost of goods sold................ 1,104 1,003 2,638 2,234
--------- --------- --------- ---------
Gross margin.................... 1,546 930 3,311 2,257
--------- --------- --------- ---------
Operating expenses:
Sales and marketing............... 695 383 1,412 889
General and administrative........ 460 370 971 716
Research and development.......... 306 359 572 751
--------- --------- --------- ---------
1,461 1,112 2,955 2,356
--------- --------- --------- ---------
Operating income (loss).......... 85 (182) 356 ( 99)
--------- --------- --------- ---------
Other (expense) income:
Interest expense.................. ( 65) ( 35) (123) ( 67)
Other income, net................. 2 4
--------- --------- --------- ---------
( 65) ( 33) (123) ( 63)
--------- --------- --------- ---------
Income (loss) before
income taxes................... 20 (215) 233 (162)
Income tax expense (benefit)....... 17 ( 24) 76 ( 2)
--------- --------- --------- ---------
Net income (loss)................ $ 3 $ (191)$ 157 $ (160)
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share:
Net income (loss) per share....... $ .00 $ (.04)$ .03 $ (.04)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares
outstanding including
common stock equivalents.......... 4,914,665 4,438,412 4,875,962 4,434,878
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part
of the financial statements
3
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six month periods ending June 30, 1995 and 1994
(000 Omitted)
(Unaudited)
1995 1994
------- -------
Net cash (used in)/provided by operating activities.. $ (933) $ 160
------- -------
Cash flows used in investing activities:
Purchases of property and equipment................ (297) (175)
------- -------
Net cash used in investing activities.............. (297) (175)
------- -------
Cash flows from financing activities:
Proceeds from term debt............................ 860 5
Repayment of term debt and capitalized
lease obligations................................ 29 ( 27)
Proceeds from issuance of common stock
and exercise of stock options.................... 405 33
------- -------
Net cash provided by financing activities...... 1,294 10
------- -------
Net increase/(decrease) in cash................ 64 ( 5)
Cash balance at the beginning of the period.......... 3 46
------- -------
Cash balance at the end of the period................ $ 67 $ 41
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest........... $ 123 $ 67
------- -------
------- -------
The accompanying notes are an integral part
of the financial statements
4
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(000 Omitted)
(Unaudited)
1. Management's Statement
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring in
nature) necessary to present fairly the financial position of Danninger Medical
Technology, Inc. and Subsidiaries at June 30, 1995, and the results of
operations and cash flows for the three month and six month periods ending June
30, 1995 and 1994. The notes to the Consolidated Financial Statements which
are contained in the 1994 Annual Report to Shareholders should be read in
conjunction with these Consolidated Financial Statements.
2. Inventories
Inventories are valued at the lower of first-in, first-out cost or market
and consisted of the following:
June December
1995 1994
-------- --------
Raw Materials................... $ 1,124 $ 1,086
Work-in-process................. 16 99
Finished goods.................. 3,091 1,790
Consigned inventory............. 447 341
-------- --------
$ 4,678 $ 3,316
-------- --------
-------- --------
3. Income Taxes
The Company provides for federal, state, and local income taxes in interim
periods using an estimated effective tax rate for the year. The Company
continues to maintain valuation allowances of $412,000 established at December
31, 1994 against net deferred tax assets.
4. Contingency
The Company is involved in litigation that has arisen in the ordinary
course of its business. These actions, when finally concluded, will not, in the
opinion of the Company, have a material adverse effect upon the financial
position or results of operations of the Company, however, there can be no
assurance that the future quarterly or annual operating results will not be
materially affected by final resolution of these matters.
5
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows Danninger Medical Technology's operating results
as a percent of revenues for the periods indicated for certain items reflected
in the statement of operations.
--------------------------------------------------------------------------------
Percent Percent
of Sales of Sales
for for
three months six months
ending ending
June 30, June 30,
--------------------------------------------------------------------------------
1995 1994 1995 1994
------ ------ ------ ------
Sales revenue.................... 93.4% 100.0% 95.7% 100.0%
Lease/rental revenue............. 6.6% 4.3%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 41.7% 51.9% 44.3% 49.7%
Gross margin..................... 58.3% 48.1% 55.7% 50.3%
Operating expenses:
Sales and marketing............ 26.2% 19.8% 23.7% 19.8%
General and administrative..... 17.4% 19.2% 16.3% 15.9%
Research and development....... 11.5% 18.6% 9.6% 16.7%
Interest....................... 2.5% 1.8% 2.1% 1.5%
Other income..................... .0% .1% .0% .1%
Income before taxes.............. .8% (11.1)% 3.9% (3.6)%
Net income....................... .1% (9.9)% 2.6% (3.6)%
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6
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AS OF JUNE 30, 1995
---------------------------------------
As of June 30, 1995, the Company's working capital position increased by
approximately $952,000 resulting in a working capital ratio of 1.89 to 1. The
increase in working capital is principally attributable to the restructuring of
the Company's short-term debt. On June 26, 1995, the Company entered into a
five (5) year term loan agreement for $1,000,000 with its bank at a rate of
prime plus 50 basis points. In addition, the Company's line of credit facility
was increased to $3,000,000 and extended to June 30, 1996 at a rate of prime
plus 75 basis points.
Accounts receivables decreased by $742,000 and inventories increased by
$577,000. The decrease in accounts receivables relates to collection of
accounts receivables from the first quarter. Inventories continue to increase
to support the anticipated 510(K) marketing clearance for the posterior portion
of the Synergy(TM) Spinal System developed by the Company's subsidiary Cross
Medical Products. Marketing clearance was received for this portion in July
1995. Property, plant, and equipment increased due to capital charges incurred
in developing new vendors. A decrease in trade payables, and conversion of a
portion of short term debt to long term contributed to an overall decrease in
current liabilities.
Shareholder's equity increased principally due to the Company's second
quarter earnings and the exercise of outstanding stock options in the second
quarter.
The Company believes that the working capital, bank commitments, and funds
anticipated to be generated by operations will be sufficient to fund the
Company's growth plans through 1995. The Company continues to review capital
needs in future years and identify possible sources of capital to meet those
needs.
7
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995 AS COMPARED TO
-----------------------------------------------------------------------------
THE THREE MONTHS ENDED JUNE 30, 1994
------------------------------------
Net sales increased 37% for the three months ended June 30, 1995 to
$2,650,000 from $1,933,000 for the three months ended June 30, 1994. The
increase is attributed to continued demand for the Company's continuous passive
motion (CPM) devices as well as an increase in sales of the Company's spinal
implant system.
Cost of sales as a percentage of net sales decreased to 41.7% for the
three months ended June 30, 1995 from 51.9% for the three months ended June 30,
1994. The decrease is primarily attributable to a recovery of reserves
established for slow moving inventory which can now be used in several of the
Company's core products. The recovery was $218,000 or 8.2% of sales. Without
the recovery cost of sales would have decreased to 49.9% from 51.9% for the
three months ended June 30, 1995 and 1994, respectively. Manufacturing
efficiencies as well as material costs contributed to the overall decrease in
the cost of sales percentage. Sales and marketing expense increased to 26.2% of
sales compared to 19.8% for the first quarter of 1994 principally as a result of
the addition of sales and marketing employees and advisors in the continued
expansion of the Company's distribution network. The decrease in general and
administrative expenses to 17.4% from 19.2% as a percentage of sales for the
three months ended June 30, 1995 and 1994 respectively is attributed to expenses
that were incurred in the first quarter of 1995 but were incurred in the three
months ended June 30, 1994.
While research and development expenses decreased to 11.5% from 18.6% of
net sales for the three months ended June 30, 1995 and 1994, respectively, the
Company continues to invest in research and development and in July received
marketing clearance on the posterior portion of it's Synergy(TM) Spinal System.
The Company anticipates additional product submissions to the FDA for marketing
clearance in subsequent quarters.
These factors resulted in an overall increase in operating income to
$85,000 or 3.2% of net sales for the three months ended June 30, 1995 from an
operating loss of ($182,000) or (9.4%) for the three months ended June 30, 1994.
Interest expense increased as a result of increased borrowings to provide
additional working capital.
Net income increased to $3,000 from a net loss of ($191,000) for the three
months ended June 30, 1995 and, 1994, respectively, and earnings per share
increased to $.00 from $(.04) for the same periods.
8
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AS COMPARED TO THE
-------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1994
------------------------------
For the six months ended June 30, 1995 net sales increased 24.5% to
$5,949,000 from $4,491,000 for the six months ended June 30, 1994. Cost of
goods sold decreased to 44.3% from 49.7% for the six months ended June 30, 1995
and 1994, respectively. Before recovery of the inventory reserves, cost of
goods sold decreased to 48.0% from 49.7%. As a percentage of net sales, sales
and marketing expense increased to 23.7% from 19.8%, general and administrative
expenses increased to 16.3% from 15.9% and research and development expense
decreased to 9.6% from 16.7% for the six months ended June 30, 1995 and 1994.
Interest expense increased to 2.1% from 1.5% for the same periods.
Net income for the six months ended June 30, 1995 increased to $157,000
from a net loss of ($160,000) for the six months ended June 30, 1994. Earnings
per share increased to $.03 from $(.04) for the same periods.
9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is involved in litigation that has arisen in the ordinary
course of its business. These actions, when finally concluded, will not, in the
opinion of the Company, have a material adverse effect upon the financial
position or results of operations of the Company, however, there can be no
assurance that the future quarterly or annual operating results will not be
materially affected by final resolution of these matters.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) Danninger Medical Technology, Inc. held its annual meeting of
stockholders on May 18, 1995, for the purpose of electing three Class II
directors and ratifying the appointment of independent certified public
accountants for the fiscal year 1995.
(b) At the annual meeting of stockholders, all directors nominated were
elected.
(c) The table shows the voting tabulation for each matter voted upon at the
annual meeting of shareholders.
ACTION FOR WITHHELD
------------- --------- --------
Election of Class II Directors:
Edward R. Funk 3,893,111 20,100
Herbert J. Kahn 3,896,331 17,100
Curtis A. Loveland 3,895,331 18,100
FOR AGAINST ABSTENTIONS
--------- ------- -----------
Ratification of appointment 3,896,656 1,800 14,975
of Coopers & Lybrand as
independent certified public
accountants for the fiscal
year 1995
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying index to exhibits are filed
as a part of this Report.
(b) Reports on Form 8-K
None
10
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DANNINGER MEDICAL TECHNOLOGY, INC.
(Registrant)
Dated: August 14, 1995 /S/ Joseph A. Mussey
--------------------
Joseph A. Mussey
Chief Executive Officer, President,
and Treasurer,
Dated: August 14, 1995 /S/ Paul A. Miller
--------------------
Paul A. Miller
Chief Financial Officer
(Principal Financial Officer)
11
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
Exhibit Method of Filing
4 Reference is made to Articles Fourth,
Eighth, Ninth and Tenth of the Company
and Articles II, III, IV, VI, VII and
VIII of the Company's Bylaws, filed as
Exhibits 3(a) and 3(b) to the Form 10
filed May 3, 1988 and incorporated by
reference herein.
Instruments defining the rights of
holders of long-term debt will be
furnished to The Securities and Exchange
Commission upon request.
10 Loan Agreement between Danninger Medical Filed herewith
Technology, Inc., Cross Medical Products, electronically
Inc., Recovery Services, Inc., and Bank
One, Columbus, NA
11 Statement re: Computation of Per Share Filed herewith
Earnings electronically
27 Financial Data Schedules Filed herewith
electronically