-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Joa0f9tD0vIrsBYAROeDT1pyOGtRIBmipUbTnYv0i+gVuI91nZO9pr5eS/h8rqsr sgzQVadX4y5px5hwpbDF5w== 0000927016-97-000066.txt : 19970114 0000927016-97-000066.hdr.sgml : 19970114 ACCESSION NUMBER: 0000927016-97-000066 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUBURBAN OSTOMY SUPPLY CO INC CENTRAL INDEX KEY: 0001016872 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 042675674 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28850 FILM NUMBER: 97504850 BUSINESS ADDRESS: STREET 1: 75 OCTOBER HILL ROAD CITY: HOLLISTON STATE: MA ZIP: 01746 BUSINESS PHONE: 5084291000 MAIL ADDRESS: STREET 1: 75 OCTONBER HILL ROAD CITY: HOLLISTON STATE: MA ZIP: 01746 10-Q 1 THE QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q ---------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1996. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBURBAN OSTOMY SUPPLY CO., INC. (Exact name of registrant as specified in its charter)
MASSACHUSETTS 5047 04-2675674 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
75 OCTOBER HILL ROAD HOLLISTON, MA 01746 (508) 429-1000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: Title of each class Name of each exchange on which registered Common Stock, no par value per share NASDAQ 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 and (2) has been subject to such filing requirements for the past 90 days. Yes No X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any ammendment to this Form 10-K. [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the last practical date. As of December 31, 1996, 10,415,750 shares of the Registrants Common Stock, no par were outstanding. PART I ITEM 1. FINANCIAL STATEMENTS SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 AUGUST 31, 1996 ------------------------------------- ASSETS (unaudited) (audited) Current Assets Cash and cash equivalents $ 7,113,532 $ 1,994,731 Accounts receivable, less allowances of $427,000 at 11/30/96 and $415,963 at 8/31/96 7,783,987 8,624,795 Merchandise inventory 7,184,128 6,917,753 Prepaid expenses and other current assets 496,833 666,719 Deferred income taxes 474,378 474,378 ------------ ------------ Total current assets 23,052,858 18,678,376 Total fixed assets, net 1,048,187 1,113,486 Goodwill 12,904,657 13,039,243 Other long-term assets 249,268 298,451 ------------ ------------ Total assets $ 37,254,970 $ 33,129,556 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current maturities of long-term debt $ 451,305 $ 581,990 Accounts payable and accrued expenses 7,296,353 7,713,494 Accrued interest 14,146 380,846 Income taxes payable 569,409 175,028 ------------ ------------ Total current liabilities 8,331,213 8,851,358 ------------ ------------ Long-term Liabilities: Long-term debt, less current maturities 13,040 24,455,192 Subordinated debt to related parties -- 6,750,000 Notes payable to officers -- 2,500,000 St. Louis Note payable, less current portion -- 1,111,500 Deferred income taxes 71,322 71,322 ------------ ------------ Total long-term liabilities 84,362 34,888,014 ------------ ------------ Redeemable Preferred Stock: $.01 par value, $100 redemption value plus 10% cumulative return--Authorized - 1,000,000 shares, Issued and outstanding --0 shares at 11/30/96 and 66,500 shares at 8/31/96 -- 7,436,913 Stockholders' Equity (Deficit:) Common Stock, no par value Authorized-40,000,000 shares Issued and outstanding-10,415,750 and 6,223,250 shares 46,177,321 161,607 Accumulated deficit (17,337,926) (18,208,336) ------------ ------------ Total stockholders' equity (deficit) 28,839,395 (18,046,729) Total liabilities and stockholders' ------------ ------------ equity (deficit) $ 37,254,970 $ 33,129,556 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 2 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED NOVEMBER 30, DECEMBER 2, 1996 1995 Net sales $21,962,844 $13,531,052 Cost of goods sold 16,844,477 10,195,725 ------------ ----------- Gross margin 5,118,367 3,335,327 Operating expenses 2,797,105 1,637,146 Depreciation and amortization 213,041 54,739 ------------ ----------- Operating income 2,108,221 1,643,442 Interest income 73,729 52,017 Interest expense 414,852 517,482 Other expense 26,444 64,663 ------------ ----------- Income before income taxes 1,740,654 1,113,314 Provision for income taxes 769,431 455,482 ------------ ----------- Net income 971,223 657,832 Accretion of Preferred Stock 100,813 166,250 Net income applicable to common ------------ ------------ stockholders $ 870,410 $ 491,582 ============ ============ Supplemental Pro Forma ------------ ------------ Net income $ 1,231,468 $ 973,736 ============ ============ ----- ----- Net income per share $.11 $.09 ===== ===== Weighted average common shares ------------ ------------ outstanding 10,919,296 10,784,978 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 SUBURBAN OSTOMY SUPPLY CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED NOVEMBER 30, DECEMBER 2, 1996 1995 ----------- ----------- Cash flows used by operating activities: Net income $ 971,223 $ 657,832 Adjustments to reconcile net income to cash from (used by) operating activities: Depreciation and amortization 213,041 54,739 Net loss (gain) on sale of fixed assets 340 (22,174) Change in assets and liabilities, net of effects from acquisition of St. Louis Ostomy Accounts receivable 840,808 (447,216) Merchandise inventory (266,375) (898,455) Prepaid expenses and other 169,886 (33,337) Accounts payable and accrued expenses (389,460) 255,319 ----------- ----------- Net cash from (used by) operating activities 1,539,463 (433,292) ----------- ----------- Cash flows from investing activities: Purchase of fixed assets (13,496) 13,282 Decrease in other assets 49,183 270,292 ----------- ----------- Net cash from investing activities 35,687 283,574 ----------- ----------- Cash flows from (used by) financing activities: Issuance of common stock, net of issuance costs 46,015,714 6,250 Retirement of preferred stock (7,537,726) -- Repayments of long-term bank debt, net (24,449,337) (2,005,000) Repayments of subordinated debt (10,485,000) -- ----------- ----------- Net cash from (used by) financing activities 3,543,651 (1,998,750) ----------- ----------- Net increase (decrease) in cash and cash equivalents 5,118,801 (2,148,468) Cash and cash equivalents, beginning of period 1,994,731 3,970,113 ----------- ----------- Cash and cash equivalents, end of period $ 7,113,532 $ 1,821,645 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 SUBURBAN OSTOMY SUPPLY COMPANY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the three months ended November 30, 1996 are not necessarily indicative of the results that may be expected for the year ending August 30, 1997 or any other interim period. These statements should be read in conjunction with the consolidated financial statements, notes and other information included in the Company's latest Form 10-K. (2) PUBLIC OFFERING On October 10, 1996, the Securities and Exchange Commission declared effective the Company's Registration Statement on Form S-1 filed under the Securities Act of 1933, as amended. The Registration Statement related to the public offering of 3,900,000 shares of Common Stock. On October 10, 1996 the Company entered into an Underwriting Agreement with Dean Witter Reynolds Inc. (Underwriter) to purchase from the Company the shares of Common Stock at the public offering price of $12.00 per share, less an underwriting discount of $.84 per share. On October 15, 1996, the Company received net proceeds of the public offering in the amount of $43,524,000 exclusive of approximately $773,000 in expenses incurred in connection with the offering. On October 21, 1996, the Underwriter elected to purchase an additional 292,500 shares, for which the Company received net proceeds of $3,264,300. The sales of common stock increased the outstanding number of shares to 10,415,750. Of the total $46,015,714 net proceeds, $42,472,063 was used to pay down certain of the Company's indebtedness and preferred stock. (3) SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE As discussed in Note 2, the Company repaid borrowings under the Credit Facility, the Summit Notes, the Management Notes, the St. Louis Note and related accrued interest thereon with a portion of the net proceeds from the public offering of Common Stock. Supplemental pro forma net income per share for the three months periods ended November 30, 1996 and December 2, 1995 have been calculated, as of as if September 3, 1995, the Company had sold the 3,900,000 shares of Common Stock sufficient to fund the July 3, 1995 Recapitalization and repay indebtedness incurred to finance the acquisitions of St. Louis Ostomy and Patient-Care. The weighted average number of shares is the actual weighted average number of shares of Common Stock or equivalents thereof outstanding plus the 3,900,000 shares of Common Stock that were sold in connection with the public offering, assuming issuance occurred on September 3, 1995. 5 SUBURBAN OSTOMY SUPPLY COMPANY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 (2) SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE (CONTINUED) Supplemental pro forma net income per share has been calculated as follows (in thousands):
THREE MONTHS THREE MONTHS ENDED ENDED NOVEMBER 30, 1996 DECEMBER 2, 1995 Historical income before taxes $ 1,741 $ 1,113 Provision for income taxes (769) (455) Reversal of interest charges and amortization of deferred financing costs relating to debt treated as being repaid, net of tax 259 316 ------- ------- Supplemental pro forma net income $ 1,231 $ 974 ======= ======= Supplemental pro forma net income per share $ .11 $ .09 ======= ======= Supplemental pro forma weighted average shares outstanding 10,919 10,785 ======= =======
6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended November 30, 1996 (13 weeks) versus three months ended December 2, 1995 (13 weeks) Net sales increased by $8.5 million, or 63%, to $22.0 million for the quarter ended November 30, 1996 from $13.5 million for the prior year period. The number of customer orders filled increased 55% to approximately 125,500 orders for the quarter ended November 30, 1996 versus approximately 80,500 for the prior year period. Same store growth in net sales was approximately 11% and was primarily attributable to increased volume from national home health care chains and managed care organizations. The average order size increased to $180 for the quarter ended November 30, 1996 versus $173 for the same period ended December 2, 1995. Gross margin increased by $1.8 million, or 54%, to $5.1 million for the quarter ended November 30, 1996 from $3.3 million for the prior year period. Gross margin decreased to 23% versus 25% over the same period. The decrease in gross margin was primarily attributable to competitive pricing of products sold by the Company to maintain or increase market share, particularly with respect to volume based pricing incentives and the acquisitions of St. Louis Ostomy and Patient-Care. Operating expenses increased by $1.2 million, or 75%, to $2.8 million for the quarter ended November 30, 1996 versus $1.6 million for the prior year period, and as a percentage of net sales, increased to 13% versus 12% for the prior year period. The increase in operating expenses was due to the support required for higher sales volume. The increase in operating expenses as a percentage of net sales was primarily attributable to increased costs of a change in shipping policy. Depreciation and amortization expense increased by $158,000, or 287%, to $213,000 for the quarter ended November 30, 1996 versus $55,000 for the prior year period due to the amortization of goodwill associated with the acquisitions of St. Louis Ostomy and Patient-Care. Operating income increased by $0.5 million, or 28%, to $2.1 million for the quarter ended November 30, 1996 versus $1.6 million for the prior year period. Operating income decreased as a percentage of net sales to 10% for the quarter ended November 30, 1996 from 12% for the prior year period. The decrease in operating income as a percentage of net sales was primarily attributable to decreased gross margin and the amortization of St. Louis Ostomy's and Patient- Care's goodwill. Interest expense decreased by $102,000, or 20%, to $415,000 for the quarter ended November 30, 1996 versus $517,000 for the prior year period. Interest expense decreased as a percentage of net sales to 2% for the quarter ended November 30, 1996 versus 4% for the prior year period. This decrease in interest expense as a percentage of net sales was primarily due to the repayment of all long-term debt with the net proceeds of the public offering in October 1996. Provision for income taxes was $769,000, an effective tax rate of 44% of pre-tax income, for the quarter ended November 30, 1996 versus $455,000, or an effective tax rate of 41%, for the quarter ended December 2, 1995, primarily due to non-deductible goodwill amortization. LIQUIDITY AND CAPITAL RESOURCES Until its recent public offering, the Company financed its operations primarily through cash flow from operations and from bank borrowings secured by Company assets. In October, 1996 the Company completed an initial public offering of shares of its common stock. Pursuant to the offering the Company sold 4,192,500 shares of its common stock, raising proceeds of approximately $46,000,000 net of approximately $773,000 in offering costs. The Company used $42,472,000 of the proceeds to pay down virtually all of its long term debt and redeem all of the Company's preferred stock. The remaining proceeds, along with cash from operations, is currently being invested in short-term investments. 7 The above contains forward-looking statements that are subject to risks and uncertainties inherent in the company's business. The company's actual results could differ materially from those anticipated in those forward-looking statements as a result of certain factors, including those set forth in documents filed with the Securities and Exchange Commission including the prospectus dated October 9, 1996, related to the company's recently completed initial public offering, and the recently filed Form 10-K. 8 PART II ITEM 1. LEGAL PROCEEDINGS LEGAL MATTERS The Company is party to certain claims and litigation in the ordinary course of business. The Company is not involved in any legal proceeding that it believes will result, individually or in the aggregate, in a material adverse effect on its financial condition or results of operations. The Company has filed suit in St. Louis, Missouri against former employees of St. Louis Ostomy Distributors ("St. Louis Ostomy"), a wholly-owned subsidiary of the Company, alleging misappropriation of St. Louis Ostomy's proprietary and confidential information. The Company is seeking equitable relief and damages. Discovery has recently begun in the litigation and, thus, no evaluation of the likely outcome of such litigation can be made at this time. 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 INITIAL PUBLIC OFFERING In October, 1996 the Company completed an initial public offering of shares of its common stock. Pursuant to the offering, the Company issued and sold 4,192,500 shares of its common stock raising proceeds of approximately $46,000,000 net of approximately $773,000 in offering costs. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None. 9 SIGNATURES Pursuant to the requirements of the section 13 or 15(d) 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. January 13, 1997 By: /s/ HERBERT P. GRAY ----------------------------------------- Herbert P. Gray Chief Executive Officer and Director January 13, 1997 By: /s/ DONALD H. BENOVITZ ---------------------------------------- Donald H. Benovitz President and Director January 13, 1997 By: /s/ STEPHEN N. ASCHETTINO ----------------------------------------- Stephen N. Aschettino Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: January 13, 1997 By: /s/ MARTIN J. MANNION ----------------------------------------- Martin J. Mannion Director January 13, 1997 By: /s/ JOSEPH F. TRUSTEY ----------------------------------------- Joseph F. Trustey Director 10 EX-27 2 ARTICLE 5 -- FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 FOR SUBURBAN OSTOMY SUPPLY COMPANY INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS AUG-31-1996 SEP-1-1996 NOV-30-1996 7,113,532 0 8,210,987 427,000 7,184,128 23,052,858 2,049,022 1,000,835 37,254,970 8,331,213 0 0 0 46,177,324 (17,337,926) 37,254,970 21,962,844 21,962,844 16,844,477 2,797,105 239,485 0 414,852 1,740,654 769,431 0 0 0 0 971,223 0.11 0.11
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