Back to GetFilings.com



 
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 29, 2002
 
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: 0-26538
 
Encore Medical Corporation
(Exact name of Registrant as specified in its charter)
 
Delaware
  
65-0572565
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
9800 Metric Boulevard
Austin, Texas
  
78758
(Address of principal executive offices)
  
(Zip code)
 
512-832-9500
(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  þ        No  ¨
 
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of July 31, 2002.
 
Title
  
Outstanding
Common Stock
  
11,056,491
$5 Warrants
  
3,536,700
 

 
PART I.    FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
Encore Medical Corporation and Subsidiaries
Consolidated Balance Sheets
As of June 29, 2002 and December 31, 2001
(in thousands, except share data)
(unaudited)
 
    
June 29,
2002
     
December 31,
2001
  
Assets
                  
Current assets:
                  
Cash and cash equivalents
   
$
189
 
   
$
5,401
 
Accounts receivable, net of allowance for doubtful accounts of $214 and $154, respectively.
   
 
15,200
 
   
 
5,828
 
Inventories, net of allowance of $4,208 and $4,477, respectively
   
 
28,371
 
   
 
22,911
 
Deferred tax assets
   
 
3,469
 
   
 
2,461
 
Prepaid expenses and other current assets
   
 
1,147
 
   
 
1,327
 
    
  
Total current assets
   
 
48,376
 
   
 
37,928
 
Property and equipment, net
   
 
12,153
 
   
 
7,233
 
Intangible assets, net
   
 
15,690
 
   
 
2,622
 
Goodwill, net
   
 
18,389
 
   
 
3,422
 
Other assets
   
 
3,372
 
   
 
457
 
    
  
Total assets
   
$
97,980
 
   
$
51,662
 
    
  
Liabilities and Stockholders’ Equity
                  
Current liabilities:
                  
Current portion of long-term debt
   
$
4,995
 
   
$
9,975
 
Accounts payable
   
 
5,906
 
   
 
2,737
 
Accrued expenses
   
 
5,117
 
   
 
3,355
 
    
  
Total current liabilities
   
 
16,018
 
   
 
16,067
 
Long-term debt, net of current portion
   
 
35,134
 
   
 
2,851
 
Deferred tax liabilities
   
 
5,473
 
   
 
—  
 
Other non current liabilities
   
 
642
 
   
 
567
 
    
  
Total liabilities
   
 
57,267
 
   
 
19,485
 
Stockholders’ equity:
                  
Series A Preferred Stock, $0.001 par value, 1,000,000 shares authorized; 132,353 shares issued and outstanding; aggregate liquidation preference of $13,500
   
 
12,840
 
   
 
12,840
 
Common stock, $0.001 par value, 50,000,000 shares authorized; 11,544,000 and 11,441,000 shares issued, respectively
   
 
12
 
   
 
11
 
Additional paid-in capital
   
 
30,245
 
   
 
22,052
 
Notes received for sale of common stock
   
 
(1,187
)
   
 
(1,187
)
Deferred compensation
   
 
(30
)
   
 
(56
)
Retained earnings
   
 
441
 
   
 
560
 
Less cost of repurchased stock, warrants and rights; 487,000 and 635,000, respectively
   
 
(1,608
)
   
 
(2,043
)
    
  
Total stockholders’ equity
   
 
40,713
 
   
 
32,177
 
    
  
Total liabilities and stockholders’ equity
   
$
97,980
 
   
$
51,662
 
    
  
 
See accompanying notes to unaudited consolidated financial statements.

-2-

Encore Medical Corporation and Subsidiaries
Consolidated Statements of Operations
For the three and six months ended June 29, 2002 and June 29, 2001
(in thousands, except per share amounts)
(unaudited)
 
    
Three Months Ended
     
Six Months Ended
  
    
June 29,
2002
     
June 29,
2001
     
June 29,
2002
     
June 29,
2001
  
Sales
   
$
25,631
 
   
$
8,411
 
   
$
45,027
 
   
$
17,130
 
Cost of goods sold
   
 
13,871
 
   
 
2,949
 
   
 
23,488
 
   
 
6,159
 
    
  
  
  
Gross margin
   
 
11,760
 
   
 
5,462
 
   
 
21,539
 
   
 
10,971
 
Operating expenses:
                                    
Research and development
   
 
862
 
   
 
413
 
   
 
1,480
 
   
 
812
 
Selling, general and administrative
   
 
8,761
 
   
 
4,144
 
   
 
17,087
 
   
 
8,611
 
Other charges
   
 
—  
 
   
 
1,623
 
   
 
—  
 
   
 
1,623
 
    
  
  
  
Operating income (loss)
   
 
2,137
 
   
 
(718
)
   
 
2,972
 
   
 
(75
)
Interest expense
   
 
(2,385
)
   
 
(301
)
   
 
(3,203
)
   
 
(663
)
Other income (expense)
   
 
(66
)
   
 
81
 
   
 
(19
)
   
 
146
 
    
  
  
  
Loss before income taxes
   
 
(314
)
   
 
(938
)
   
 
(250
)
   
 
(592
)
Benefit for income taxes
   
 
(160
)
   
 
(331
)
   
 
(130
)
   
 
(213
)
    
  
  
  
Net loss
   
 
(154
)
   
 
(607
)
   
 
(120
)
   
 
(379
)
Beneficial conversion feature related to Series A preferred stock
   
 
—  
 
   
 
(3,706
)
   
 
—  
 
   
 
(3,706
)
    
  
  
  
Net loss attributable to common stockholders
   
$
(154
)
   
$
(4,313
)
   
$
(120
)
   
$
(4,085
)
    
  
  
  
Basic and diluted loss per share attributable to common stockholders
   
$
(0.02
)
   
$
(0.47
)
   
$
(0.01
)
   
$
(0.45
)
Shares used in computing basic and diluted loss per share
   
 
10,244
 
   
 
9,189
 
   
 
10,175
 
   
 
9,042
 
 
See accompanying notes to unaudited consolidated financial statements.

-3-

Encore Medical Corporation and Subsidiaries
Consolidated Statements of Cash Flow
For the six months ended June 29, 2002 and June 29, 2001
(in thousands)
(unaudited)
 
    
Six Months Ended
  
    
June 29, 2002
     
June 29, 2001
  
Cash flows from operating activities:
                  
Net loss
   
$
(120
)
   
$
(379
)
Adjustments to reconcile net loss to net cash provided by operating activities:
                  
Depreciation
   
 
1,613
 
   
 
995
 
Amortization of intangibles
   
 
528
 
   
 
309
 
Amortization of debt issuance costs
   
 
1,033
 
   
 
—  
 
Non-cash interest expense
   
 
283
 
   
 
—  
 
Stock based compensation
   
 
179
 
   
 
69
 
Loss on disposal of assets
   
 
14
 
   
 
8
 
Other charges
   
 
—  
 
   
 
581
 
Changes in operating assets and liabilities:
                  
Increase in accounts receivable
   
 
(408
)
   
 
(711
)
Decrease in inventories
   
 
2,689
 
   
 
1,435
 
Decrease in prepaid expenses and other assets/liabilities
   
 
611
 
   
 
6
 
(Decrease) increase in accounts payable and accrued expenses
   
 
(1,024
)
   
 
659
 
    
  
Net cash provided by operating activities
   
 
5,398
 
   
 
2,972
 
    
  
Cash flows from investing activities:
                  
Proceeds on sale of assets
   
 
—  
 
   
 
3
 
Purchases of property and equipment
   
 
(727
)
   
 
(843
)
Acquisition of Chattanooga Group, Inc., net of cash acquired
   
 
(35,972
)
   
 
—  
 
    
  
Net cash used in investing activities
   
 
(36,699
)
   
 
(840
)
    
  
Cash flows from financing activities:
                  
Proceeds from issuance of stock
   
 
105
 
   
 
499
 
Proceeds from issuance of Series A preferred stock
   
 
—  
 
   
 
12,857
 
Proceeds from long-term obligations
   
 
39,748
 
   
 
16
 
Payments on long-term obligations
   
 
(13,764
)
   
 
(2,003
)
    
  
Net cash provided by financing activities
   
 
26,089
 
   
 
11,369
 
    
  
Net increase (decrease) in cash and cash equivalents
   
 
(5,212
)
   
 
13,501
 
Cash and cash equivalents at beginning of period
   
 
5,401
 
   
 
1
 
    
  
Cash and cash equivalents at end of period
   
$
189
 
   
$
13,502
 
    
  
Non-cash investing and financing activities:
                  
Repurchase of treasury stock through issuance of a note
   
 
—  
 
   
$
409
 
Notes received for sale of common stock
   
 
—