SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended (Commission File Number):
June 30, 1996 0-20434
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
--------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 13-3531824
------ ----------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
151 Hempstead Turnpike, West Hempstead, New York 11552
------------------------------------------------ -----
(Address of registrant's principal executive offices)
(516) 481-9670
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Number of shares of Common Stock outstanding
At June 30, 1996 4,761,008
Page 1 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................3
a. Consolidated Balance Sheets as of June 30,
1996 (unaudited) and December 31, 1995
(audited)............................................3
b. Consolidated Statements of Income (Unaudited)
for the Three Months Ended June 30, 1996 and
June 30, 1995 and for the Six Months Ended
June 30, 1996 and June 30, 1995......................4
c. Consolidated Statements of Cash Flows
(unaudited) for the Six Months Ended June 30,
1996 and June 30, 1995 ..............................5
d. Summarized Financial Information.....................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................13
Item 2. Changes in Securities......................................13
Item 3. Defaults upon Senior Securities............................13
Item 4. Submission of Matters to a Vote of Security
Holders....................................................13
Item 5. Other Information..........................................13
Item 6. Exhibits and Reports on Form 8-K...........................13
SIGNATURES...................................................................16
Page 2 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- -----------
Current assets
Cash and cash equivalents $ 106,000 $ 216,000
Accounts receivable - net of allowance for
doubtful accounts of $326,000 and $204,000,
respectively 4,117,000 3,470,000
Inventory 1,150,000 1,038,000
Prepaid expenses 166,000 193,000
Recoverable income taxes -- 26,000
Deferred income taxes 259,000 192,000
----------- -----------
Total current assets 5,798,000 5,135,000
----------- -----------
Property and equipment - at cost 1,493,000 1,374,000
Less accumulated depreciation 889,000 819,000
----------- -----------
604,000 555,000
----------- -----------
Other assets
Intangibles - net of accumulated amortization
of $511,000 and $421,000, respectively 5,663,000 5,209,000
Deferred income taxes 18,000 28,000
Miscellaneous 99,000 104,000
----------- -----------
Total other assets 5,780,000 5,341,000
----------- -----------
Total $12,182,000 $11,031,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable $ 325,000 $ 247,000
Current maturities of long-term debt 1,183,000 1,065,000
Accounts payable 374,000 387,000
Accrued expenses 991,000 930,000
Deferred compensation 74,000 86,000
Income taxes payable 214,000 77,000
----------- -----------
Total current liabilities 3,161,000 2,792,000
----------- -----------
Deferred compensation -- 9,000
----------- -----------
Long-term debt 2,791,000 2,817,000
----------- -----------
Stockholders' equity
Common stock 4,000 4,000
Common stock warrants 18,000 18,000
Additional paid-in capital 3,405,000 3,082,000
Retained earnings 2,803,000 2,309,000
----------- -----------
Total stockholders' equity 6,230,000 5,413,000
----------- -----------
Total $12,182,000 $11,031,000
=========== ===========
Page 3 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
Sales $ 4,525,000 $ 3,422,000 $ 8,455,000 $ 6,759,000
Cost of sales 2,203,000 1,692,000 4,215,000 3,316,000
----------- ----------- ----------- -----------
Gross profit 2,322,000 1,730,000 4,240,000 3,443,000
Selling, general and
administrative expenses 1,684,000 1,343,000 3,199,000 2,788,000
----------- ----------- ----------- -----------
Operating income 638,000 387,000 1,041,000 655,000
----------- ----------- ----------- -----------
Other income (deductions)
Interest expense (85,000) (97,000) (173,000) (196,000)
Other income 3,000 4,000 6,000 6,000
----------- ----------- ----------- -----------
(82,000) (93,000) (167,000) (190,000)
----------- ----------- ----------- -----------
Income before provision for
income taxes 556,000 294,000 874,000 465,000
----------- ----------- ----------- -----------
Provision for income taxes
Current 264,000 124,000 422,000 212,000
Deferred (23,000) 9,000 (42,000) 1,000
----------- ----------- ----------- -----------
241,000 133,000 380,000 213,000
----------- ----------- ----------- -----------
Net income $ 315,000 $ 161,000 $ 494,000 $ 252,000
=========== =========== =========== ===========
Earnings per common share $ .06 $ .04 $ .10 $ .06
=========== =========== =========== ===========
Shares used in earnings per
common share computation 4,931,067 4,465,089 4,931,067 4,465,089
=========== =========== =========== ===========
Page 4 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Six months ended
June 30,
---------------------
1996 1995
---- ----
Cash flows from operating activities
Net income $ 494,000 $ 252,000
Items not requiring the current use of cash
Depreciation and amortization 165,000 170,000
Provision for doubtful accounts 140,000 87,000
Deferred compensation provision 9,000 14,000
Deferred income taxes (42,000) 1,000
Changes in items affecting operations
Accounts receivable (787,000) (148,000)
Inventory (59,000) (47,000)
Prepaid expenses 7,000 54,000
Recoverable income taxes 26,000 121,000
Miscellaneous -- 3,000
Accounts payable (13,000) 247,000
Accrued expenses 17,000 (272,000)
Deferred compensation paid (30,000) (30,000)
Income taxes payable 137,000 51,000
----------- -----------
Net cash provided by operating activities 64,000 503,000
----------- -----------
Cash flows from investing activities
Payment for acquired business (25,000) --
Purchase of property and equipment (45,000) (148,000)
Contingent purchase price of acquisitions (91,000) (40,000)
----------- -----------
Net cash used by investing activities (161,000) (188,000)
----------- -----------
Cash flows from financing activities
Proceeds from long-term debt 526,000 --
Principal payments of long-term debt (617,000) (366,000)
Proceeds from note payable 78,000 --
----------- -----------
Net cash used by financing activities (13,000) (366,000)
----------- -----------
Decrease in cash and cash equivalents (110,000) (51,000)
Cash and cash equivalents - beginning 216,000 166,000
----------- -----------
Cash and cash equivalents - end $ 106,000 $ 115,000
=========== ===========
Page 5 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Supplemental Schedule of Noncash Financing Activities
In 1996, the Company issued 450,000 shares of common stock in connection
with the acquisition of Med-Tech O & P Services, Inc. Of the shares issued,
250,000 are held in escrow. The value of the shares is $675,000 and $375,000,
respectively.
The Company's acquisition in 1996 was paid for as follows:
Cash paid for assets $ 25,000
Common stock issued 300,000
Liabilities assumed 220,000
--------
Fair value of assets acquired $545,000
========
In 1996, the Company issued 11,403 shares of common stock as contingent
purchase price of acquisitions. The value of the shares was $23,000.
In 1995, the Company issued 10,050 shares of common stock as contingent
purchase price of acquisitions and 4,934 shares of common stock to employees as
compensation.
The value of the shares was $25,000.
Supplemental Disclosure of Cash Flow Information
Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows:
Six months ended
June 30,
--------------------
1996 1995
---- ----
Interest paid $ 185,000 $ 210,000
Income taxes paid 259,000 40,000
Page 6 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION
JUNE 30, 1996
(NOTE 1) - The accompanying consolidated financial statements are prepared on
the basis of generally accepted accounting principles. In the opinion of the
management of Advanced Orthopedic Technologies, Inc., all adjustments are of a
normal recurring nature and have been reflected for a fair presentation of the
unaudited balance sheet as of June 30, 1996 and results of operations for the
periods ended June 30, 1996 and 1995, respectively. The operating results for
the periods are not necessarily indicative of the results to be expected for the
entire year.
(NOTE 2) - Effective January 5, 1996, the Company acquired certain assets of
Med-Tech O & P Services, Inc. for a cash payment of $25,000, additional
payments of approximately $220,000 payable through July 1997, 450,000 shares of
the Company's common stock (valued at $675,000) and additional amounts which may
be contingently payable. Of the shares issued, 250,000 shares (valued at
$375,000) are held in escrow. The acquisition has been accounted for by the
purchase method of accounting. The operating results of the acquisition are
included in the Company's consolidated results of operations from the effective
date of acquisition. The following unaudited proforma results of operations for
the six months ended June 30, 1995 and the three months ended June 30, 1995
assumes the acquisition occurred on January 1, 1995 and gives effect to certain
adjustments, including amortization of goodwill, increased interest expense on
acquisition indebtedness, officer salaries as a result of new employment
agreements and common shares issued.
Three months Six months
ended ended
June 30, 1995 June 30, 1995
------------- -------------
Sales $ 4,065,000 $8,009,000
=========== ==========
Net income $ 221,000 $ 358,000
=========== ==========
Earnings per common share $ .05 $ .07
=========== ==========
Shares used in earnings
per common share computation 4,915,089 4,915,089
=========== ==========
The proforma financial information presented above does not purport to
represent what the Company's results of operations would have been had this
acquisition occurred on January 1, 1995 or to project the Company's results of
operations for any future period.
Page 7 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION
JUNE 30, 1996
(NOTE 3) - Inventory at June 30, 1996 is based on historical gross profit
percentages. An analysis of inventory is as follows:
June 30, December 31,
1996 1995
----------- ---------
(Unaudited) (Audited)
Finished goods $ 646,000 $ 572,000
Work-in-process 164,000 138,000
Raw materials 340,000 328,000
----------- ----------
$ 1,150,000 $1,038,000
=========== ==========
(NOTE 4) - CAPITAL STOCK
Capital stock is summarized as follows:
Preferred stock, nonvoting, $.001 par value, 14,965,000 shares
authorized, none outstanding
Common stock, voting, $.001 par value, 75,000,000 shares authorized,
outstanding 4,484,341 shares in 1996 and 4,272,938 shares in 1995
Class C redeemable selling warrantholder warrants, $.001 par value,
outstanding 1,000,000 warrants
Common stock purchase warrants, $.001 par value, outstanding 66,666
warrants
Page 8 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
AOT has grown internally and by acquisitions. During 1988 it acquired the
assets of JDM Orthotics, Inc. (New York); Prosthetic and Orthotic Laboratories,
Inc. (New Jersey) and Para-Med Corp. (West Virginia). The assets of Westfield
Brace Company, Inc. (New Jersey) were acquired during 1991. The Company acquired
the stock of Lett Orthopedic Industries, Inc. (West Virginia) as of January 1,
1992, the stock of Prosthetic and Orthotic Associates, Inc. (Virginia) as of
January 1, 1993 and the stock of Orthopedic Technologies, Inc. (based in
Syracuse, New York) as of July 1, 1993. During August, 1993, the Company
acquired the assets of SFV Rehabilitation Specialists, Inc. (Sherman Oaks,
California), Exe, Inc. (Albuquerque, New Mexico) and Parmeco, Inc. (Huntington,
West Virginia). During April, 1994, the Company acquired the assets of Clayton
Prosthetics & Orthotics, Inc. located in Manasquan, Manahawkin and Middletown,
New Jersey. On January 5, 1996, the Company acquired the operating assets of
Med-Tech O&P Services, Inc., which operated several patient care centers in the
New York Metropolitan Area. AOT implemented such acquisitions by combinations of
cash down payments and deferred payments. In certain of the acquisitions, AOT
agreed to pay additional amounts of cash and stock to the sellers if certain
financial criteria were achieved by the acquired businesses.
Results of Operations:
The following table sets forth for the periods indicated certain items of
the Company's financial statements and their respective percentage of the
Company's net sales. The discussion which follows should be read in conjunction
with the Company's consolidated financial statements.
Page 9 of 16 pages
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
(Unaudited) (Unaudited)
1996 1995 1996 1995
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (48.7) (49.4) (49.9) (49.1)
Gross profit 51.3 50.6 50.1 50.9
Selling, general and
administrative expenses (37.2) (39.3) (37.8) (41.2)
Income from operations 14.1 11.3 12.3 9.7
Interest expense (1.9) (2.8) (2.1) (2.9)
Other income (expense) 0.1 0.1 0.1 0.1
Income before taxes 12.3 8.6 10.3 6.9
Income taxes (5.3) (3.9) (4.5) (3.2)
Net income 7.0 4.7 5.8 3.7
Net Sales:
Net sales for the three months ended June 30, 1996 were $4,525,000 as compared
to $3,422,000 for the same period in 1995, an increase of 32%. For the six
months ended June 30, net sales were $8,455,000 and $6,759,000 respectively in
1996 and 1995, an increase of 25%. The sales increase was primarily due to sales
added by the acquisition of Med-Tech O&P Services completed in January, 1996 and
sales generated from additional managed care contracts entered into over the
past year.
Gross Profit:
Gross profit for the three months ended June 30, 1996 was $2,322,000 as compared
to $1,730,000 for the same period in 1995, an increase of 34%. Gross profit for
the six months ended June 30, 1996 was $4,240,000 as compared to $3,443,000 for
the same period in 1995, an increase of 23%. The increase in year to date gross
profit was due primarily to the increase in sales volume. Gross profit as a
percentage of sales was 51.3% for the three months ended June 30, 1996 and 50.1%
for the six months ended June 30, 1996 as compared to 50.6% and 50.9%
respectively for the same periods in 1995. The increase in the percentage for
the three month period is attributable primarily to the increase in sales volume
and the integration of the Med-Tech acquisition into the
Page 10 of 16 pages
Company's existing New York metropolitan area operation and the economies
achieved by this integration. The decrease in the percentage for the six month
period is attributable primarily to the impact on the sales volume of the
climate conditions experienced during the first quarter of 1996 during which the
Company continued to incur practitioner salaries.
Selling, General and Administrative Expenses:
Selling, General and Administrative expenses increased to $1,684,000 for the
three months ended June 30, 1996 from $1,343,000 for the same period in 1995,
and increased to $3,199,000 for the six months ended June 30, 1996 from
$2,788,000 for the same period in 1995. Selling, General and Administrative
expenses decreased as a percentage of sales from 39.3% in 1995 to 37.2% in 1996
for the three months ended June 30 and decreased from 41.2% in 1995 to 37.8% in
1996 for the six months ended June 30. The decreases in these percentages are
attributable primarily to the integration of the Med-Tech acquisition into the
Company's existing New York metropolitan area operation and the economies
achieved by this integration.
Income from Operations:
Income from operations for the three months ended June 30, 1996 increased to
$638,000 as compared to $387,000 for the same period in 1995, an increase of
65%. Income from operations for the six months ended June 30, 1996 increased to
$1,041,000 as compared to $655,000 for the same period in 1995, an increase of
59%. Income from operations as a percentage of sales was 14.1% for the three
months ended June 30, 1996 as compared to 11.3% for the same period in 1995. For
the six months ended June 30, income from operations as a percentage of sales
was 12.3% in 1996 and 9.7% in 1995. The increases in these percentages are
attributable primarily to the acquisition of Med-Tech O&P Services and the
economies achieved by its integration into the Company's existing operations.
Other Income/Deductions::
Interest expense for the three months ended June 30, 1996 was $85,000 as
compared to $97,000 for the same period in 1995 and $173,000 and $196,000 for
the six months ended June 30, 1996 and 1995 respectively. Interest expense
consists primarily of interest on debt incurred to finance the Company's
acquisitions.
Net Income:
The Company earned $315,000 or $.06 per share for the three months ended June
30, 1996 as compared to $161,000 or $.04 per share
Page 11 of 16 pages
generated in the prior year's second quarter. For the six months ended June 30,
1996, the Company had net income of $494,000 or $.10 per share as compared to
$252,000 or $.06 per share for the same period in 1995. The increase in net
income was due primarily to the Company's increased sales volume discussed above
and the economies achieved through the integration of the acquisition of
Med-Tech O&P Services.
Liquidity and Capital Resources:
As of June 30, 1996, the Company had $106,000 in cash and cash equivalents. The
Company's consolidated working capital at June 30, 1996 was $2,637,000. As of
June 30, 1996, there were no additional commitments which will affect liquidity
in a material way.
Although the Company is actively seeking acquisition targets and discussing
proposals with potential sellers, at the date of this report, the Company does
not have any contracts or unexpired letters of intent for additional
acquisitions. If additional acquisitions do take place, additional financing may
be required.
The Company expects that cash generated from operations and from its credit
lines will be adequate to provide for future operations.
No material changes in inventory levels or machinery and equipment are presently
planned.
Other:
Statement No. 123 of the Financial Accounting Standards Board "Accounting for
Stock Based Compensation" is effective for fiscal years beginning after December
15, 1995. The Company believes the implementation of SFAS No. 123 will not have
a material effect.
Inflation has not had a significant impact on the Company's operating expenses.
There is no assurance inflation will not be a significant factor in the future.
Substantial changes in the methods of delivery of health care services, in the
nature and scope of health care insurance, the methods of payment of the costs
of health care services and insurance, the pricing of health care services and
governmental and insurance reimbursement of health care costs, as well as
proposals for an overall restructuring of the health care system as well as the
Medicare and Medicaid programs, continue to be the subject of major legislative
and budgetary initiatives at the federal and state levels. It is not possible to
predict whether such legislation will ultimately be enacted. If such legislation
is enacted, it is impossible to predict the form which such legislation will
take or the impact such legislation will have on the Company's operations or on
the health care industry in general.
Page 12 of 16 pages
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Form 10-KSB for the fiscal
year ended December 31, 1995.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statement re Computation of Earnings Per Common Share
for the Three Months and Six Months Ended June 30, 1996
and June 30, 1995 (unaudited) SEQUENTIAL PAGE NUMBER 14
(b) Reports on Form 8-K
NONE
Page 13 of 16 pages
EXHIBIT 11
Page 14 of 16 pages
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
Net income per statement of income $ 315,000 $ 161,000 $ 494,000 $ 252,000
=========== =========== =========== ===========
Reconciliation of weighted average
number of shares outstanding to
amount used in earnings per
share computation:
Weighted average number of
shares outstanding 4,484,341 4,217,516 4,484,341 4,217,516
Add-shares reserved for
employee stock plan 37,084 75,234 37,084 75,234
Add-shares assuming exercise
of warrants and stock
options 44,444 -- 44,444 --
Add-shares contingently
issuable in connection with
acquisitions 365,198 172,339 365,198 172,339
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding, as
adjusted 4,931,067 4,465,089 4,931,067 4,465,089
=========== =========== =========== ===========
Primary earnings per common share $ .06 $ .04 $ .10 $ .06
=========== =========== =========== ===========
Page 15 of 16 pages
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED ORTHOPEDIC TECHNOLOGIES, INC.
By: /s/ ANDREW H. MEYERS
Dated: -------------------------------------
August 1, 1996 Andrew H. Meyers, President
By: /s/ JESSE Z. FINK
Dated: --------------------------------------
August 1, 1996 Jesse Z. Fink, Chief Financial Officer
Page 16 of 16 pages