It
em
2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. There are a number of factors that could cause the Company’s actual results to differ materially from those forecasted or projected in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company is under no obligation and does not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. More information about factors that potentially could affect the Company's financial results is included in the Company's filings with the SEC, including its Annual Report on Form 10-K for the year ended
December 31, 2015
.
Critical Accounting Policies
The critical accounting policies utilized by the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since
December 31, 2015
.
Overview
Arrhythmia Research Technology
®
, Inc., a Delaware corporation ("ART"), through its wholly-owned Massachusetts subsidiary, Micron Products
®
, Inc. (“Micron” and together with ART, the "Company"), is a diversified contract manufacturing organization (“CMO”) that produces highly-engineered, innovative medical device components requiring precision machining and injection molding. The Company also manufactures components, devices and equipment for military, law enforcement, automotive and consumer product applications. The Company is engaged in the production and sale of silver/silver chloride coated and conductive resin sensors used as consumable component parts in the manufacture of integrated disposable electrophysiological sensors. These disposable medical devices are used worldwide in the monitoring of electrical signals in various medical applications. The Company's machining operations produce quick-turn, high volume patient-specific and off-the-shelf orthopedic implants and instruments. The Company’s machining operations also include laser marking, automated polishing, passivation and coating. The Company has thermoplastic injection molding capabilities as well, and provides a full array of design, engineering, production services and management. The Company competes globally, with approximately forty percent of its revenue derived from exports.
The Company's subsidiary, RMDDxUSA Corp. and its Prince Edward Island subsidiary RMDDx Corporation (collectively "WirelessDx"), discontinued operations in 2012, filed for relief under Chapter 7 (Liquidation) of the United States Bankruptcy Code in May 2014 and in March 2015, the Chapter 7 Order was formally discharged and the case was closed.
Results of Operations
The following table sets forth
,
for the periods indicated, the percentages of the net sales represented by certain items reflected in the Company's statements of operations.
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2016
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%
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2015
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%
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2016
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%
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2015
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%
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Net sales
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100.0
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100.0
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100.0
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100.0
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Cost of sales
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81.6
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81.8
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83.9
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84.1
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Gross profit
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18.4
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18.2
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16.1
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15.9
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Selling and marketing
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5.9
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4.6
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5.9
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4.5
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General and administrative
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9.6
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9.3
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11.7
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10.2
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Research and development
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0.5
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1.1
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0.5
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1.3
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Other expense
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1.2
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1.2
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1.2
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1.1
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Income (loss) from continuing operations before
income taxes
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1.2
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2.0
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(3.2)
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(1.2)
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Income tax provision
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—
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—
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—
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—
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Income (loss) from continuing operations
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1.2
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2.0
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(3.2)
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(1.2)
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Income from discontinued operations
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—
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—
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—
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3.1
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Net income (loss)
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1.2
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%
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2.0
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%
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(3.2)
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%
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1.9
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%
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Net Sales
The Company's consolidated net sales for
the
three months ended June 30, 2016
was
$5,129,013
, a decrease of
$530,081
, or
9.4%
, when compared to the consolidated net sales of
$5,659,094
for the
three months ended June 30, 2015
. The
decrease
in net sales for the three months ended June 30, 2016 was due
primarily to a decrease in net sales of orthopedic implant
s and instruments
. Sales also decreased in sensors and thermoplastic injection molding.
Net sales of orthopedic implant
s
and instruments
for the three months ended June 30, 2016 decreased 22.9% due to lower than expected volume from a large customer as compared to the same period in 2015
. The Company was notified by this customer at the end of second quarter that the demand for their product had decreased and to expect lower demand for the remainder of 2016. Partially offsetting the decrease in demand from this customer were new orders from two new orthopedic implant customers
.
Net sales of
thermoplastic injection molding for the three months ended June 30, 2016 decreased 4.4% due to lower sales
of
military and law enforcement components
, partially offset by increased sales of automotive components
when compared to the same period
in
2015.
Additionally, net sales of sensors decreased 1.2% for the three months ended June 30, 2016 when compared to the same period last year. While sensor volume increased 3.8% over the same quarter last year, net sales decreased due to customer mix,
product mix and competitive pricing
. Silver surcharge billed increased 3.9%
due to an
increase in the weighted average price of silver for the three months ended June 30, 2016, as compared to the same period in 2015.
The Company's consolidated net sales
for the
six months ended June 30, 2016
was
$10,112,294
, a decrease of
$1,405,142
, or
12.2%
, when compared to the consolidated net sales of
$11,517,436
for the
six months ended June 30, 2015
. The decrease in net sales for the six months ended June 30, 2016 was due primarily
to a decrease in net sales of orthopedic implant
s
and instruments
. Sales also
decreased in sensors and
thermoplastic injection molding.
Net sales of orthopedic implants and instruments
for the six months ended June 30, 2016 decreased 23.8% due to lower than expected volume from a large customer as compared
to the same period in 2015. The Company was notified by this customer that the demand for their product had decreased and to expect lower demand for the remainder of 2016. Partially offsetting the decrease in demand from this customer
were new orders
from two new
orthopedic implant
customers beginning in the second quarter of 2016.
Net sales
of
thermoplastic injection molding for the six months ended June 30,
2016 decreased 1.1%
due to lower sales
of
military and law enforcement components
, partially offset by increased sales of automotive components
when compared to the same period
in
2015.
Additionally, net sales of sensors decreased 11.3% for the six months ended June 30, 2016 when compared to the same period
last year. While sensor volume increased 8.8% over the same
period
last year, net sales decreased due to customer mix, product mix
and competitive pricing
. Silver surcharge billed decreased 12.5% due in part to
a
net
6.0% decrease in the weighted average price of silver for the six months ended June 30, 2016, as compared to the same period in 2015.
Gross Profit
The
Company's gross profit for the
three months ended June 30, 2016
was
$944,750
, a decrease of
$87,404
, or
8.5%
, when compared to gross profit of
$1,032,154
for the same period in 2015. Gross profit as a percentage of sales for the
three months ended June 30, 2016
increased to 18.4%, or 0.2 points from 18.2% for the
three months ended June 30, 2015
.
The decrease in gross profit
for the three months ended June 30, 2016
was due
in part
to a 24.3% decrease in gross profit from orthopedic implant
s and instrument
s due to lower
sales
volume
when compared to the same prior year period
.
G
ross profit as a percentage of sales
for orthopedic implants and instruments
decreased slightly, 0.6 points, due partly to product mix
,
offset by
improved efficiencies
due in part to automation
.
The decrease in gross profit for the three months ended June 30, 2016 was also due in part to a 20.5% decrease in gross profit from sensors
due largely to price reductions as well as customer and product mix
partially offset by increased gross profit from silver surcharge due to an increase in the weighted average price of silver when compared to the same prior year period
.
G
ross profit as a percentage of sales
for sensors
decreased 4.0 points due primarily to the reduction in net sales and selling price.
In addition, gross profit
for the three months ended June 30, 2016 from
thermoplastic injection
molding decreased 7.6%
due
primarily
to
the decline in sales of military and law enforcement components offset by increased sales of automotive components as well as efficiency improvements from automation when compared to the same prior year period. Gross profit as a percentage of sales from
thermoplastic injection molding decreased
1.2 points due primarily to lower sales of military and law enforcement components
.
The decrease in g
ross profit
for the three months ended June 30, 2016
was
offset by a decrease in expenses for
other manufacturing overhead departments as adjustments were made in part as a result of lower sales
as well as
customer mix of orthopedic implants
and instruments
.
Other
manufacturing overhead as a percentage of sales decreased to 7.9% for the three months ended June 30, 2016 as compared to 10.5% in the same period last year.
The Company's gross profit for the
six months ended June 30, 2016
was
$1,629,869
, a decrease of
$198,681
, or
10.9%
, when compared to gross profit of
$1,828,550
for the same period in 2015. Gross profit as a percentage of sales for the
six months ended June 30, 2016
increased to 16.1%, or 0.2 points from 15.9% for the
six months ended June 30, 2015
.
The decrease in gross profit
for the six months ended June 30, 2016 was due in part to a decrease of 29.7% in gross profit from
s
ensors
due largely to price reductions as well as cus
tomer and product mix. G
ross profit as a percentage of sales
from sensors
decreased 4.6 points due primarily to the reduction i
n net sales and selling price partially offset by increased gross profit from silver surcharge.
The decrease in gross profit
for the six months ended June 30, 2016
was
also
due
in part
to a
decrease of
23.0%
in gross profit f
rom orthopedic implant
s and instrument
s largely due to lower volume
combined with increased labor costs related to process validation efforts for new customers.
Gross profit as a percentage of sales from o
rthopedic implant
s and instruments
decreased slightly, 0.3 points, due partly to
lower net sales and
product mix
offset
by
improved
efficiencies
through
automation
.
In addition, gross profit
for the six months ended June 30, 2016 from
thermoplastic injection
molding decreased 1.3%
from the same period in the prior year
due to customer and product mix.
Gross profit as a percentage of sales from
thermoplastic injection molding decreased 0.1 points due to the product mix
partly offset by improved efficiencies through automation
.
The decrease in g
ross profit
for the six months ended June 30, 2016
was
offset by
a decrease in expenses
for
other manufacturing overhead departments
. The lower expenses were due to
adjustments made in part as a result of lower sales
as well as customer mix of orthopedic implants
and instruments
.
Other
manufacturing overhead as a percentage of sales decreased to 8.4% for the
six
months ended June 30, 2016 as compared to 10.4% in the same period last year.
Selling and Marketing
The Company's consolidated selling and marketing expenses amounted to
$303,564
(
5.9%
of net sales) for the
three months ended June 30, 2016
as compared to
$262,609
(
4.6%
of net sales) for the
three months ended June 30, 2015
, an
increase
of
$40,955
, or
15.6
%. For the three months ended June 30, 2016, the increase was primarily due to increased
compensation
of $88,966 as a result of two additional salespersons hired in the fourth quarter of 2015. The increase was partially offset by a decrease in commissions of $18,493 as a result of lower net sales from existing customers as compared to the same period in the prior year. Marketing and travel expenses decreased $16,735 and $8,399, respectively, due largely to lower trade show costs and attendance.
The Company's consolidated selling and marketing expenses amounted to
$596,910
(5.9% of net sales) for the
six months ended June 30, 2016
as compared to
$520,581
(4.5% of net sales) for the
six months ended June 30, 2015
, an increase of
$76,329
, or
14.7%
. For the six months ended June 30, 2016, the increase was primarily due to increased
compensation
of $174,862 as a result of two additional salespersons hired in the fourth quarter of 2015. The increase was
partially
offset by a decrease in commissions of $47,897 as a result of lower net sales as compared to the same period in the prior year
. Marketing and travel expenses decreased
$49,160 and
$4,919, respectively, due largely to lower trade show costs and attendance.
General and Administrative
The Company's consolidated general and administrative expenses decreased to
$491,432
(
9.6%
of net sales) for the
three months ended June 30, 2016
as compared to
$525,577
(
9.3%
of net sales) for the
three months ended June 30, 2015
a decrease of
$34,145
, or
6.5%
. The decrease in general and administrative expenses is due
in part
to
lower d
irectors’ fees
of $39,750 and lower executive compensation of $10,000 as the Board of Directors voluntarily waived their second quarter fees and executive officers voluntarily reduced their pay by 10% for the second quarter. Additionally, legal
fees decreased $11,254,
shareholder relations expenses decreased $10,220 due to lower annual meeting and proxy costs and
consulting and professional fees
decreased $7,986 compared to the prior year period. Bonus expense decreased
$15,000
during the quarter
as no accruals have been made
in 2016
to date
.
The
above d
ecreases were partially offset by
a net increase in
bad debt expense of
$15,678. The bad debt expense consists of
$45,678
which represents the deductible on our accounts receivable insurance for a claim related to an international customer in the second quarter of 2016. This expense was partially
offset by a $30,000 reduction in the allowance for doubtful accounts
based on an analysis of the Company’s accounts receivable aging as of June 30, 2016
.
There
were
increases
in bank fees,
share-based compensation, and depreciation expense totaling $24,264
for the three months ended
June 30
, 2016 versus the same period in the prior year.
The Company's consolidated general and administrative expenses increased to
$1,182,067
(
11.7%
of net sales) for the
six months ended June 30, 2016
as compared to
$1,173,804
(
10.2%
of net sales) for the
six months ended June 30, 2015
,
an increase of
$8,263
, or
0.7%
. The increase in general and administrative expenses is due in part to $51,600 of recruiting agency fees related to the replacement of three positions in the first quarter
as well as a net increase in bad debt expense of $15,678 as described above. Additionally, there were increases in depreciation expense of $29,839, legal fees of $14,615, share-based compensation of $10,703, and bank fees of $10,450 for the six months ended June 30, 2016 versus the same period in the prior year.
The
above
increases were partially offset by decreased
compensation
of
$50,625
due in part to executive
officers’
voluntary 10%
reduction in pay
for the second quarter as well as the timing of replacem
ent hires for three positions
.
Year to date directors’ fees decreased $10,167 due to the Board of Directors voluntarily waiving their second quarter fees, partially offset by the impact of a new director being added in April 2015
, one in July 2015 and one in 2016
. In addition, consulting fees related to environmental, health and safety decreased $21,500 due to bringing this function in house, accounting related expenses
decreased $8,616 due in part to savings realized from new SEC filing
software
.
Bonus expense decreased
$15,000
as no accruals have been made
in 2016
to date
.
Research and Development
The Company's consolidated research and development expenses decreased to
$24,415
(
0.5%
of net sales) for the three months ended June 30, 2016 as compared to
$62,224
(
1.1%
of net sales) for the three months ended June 30, 2015, a
decrease
of
$37,809
, or
60.8%
. The Company had a $26,538
decrease
due
to the elimination of one position in 2015,
as well as a $10,550 decrease in internal research and development costs for the development of new products and capabilities related to medical device components
when compared to the prior year quarter
.
The Company's consolidated research and development expenses decreased to
$50,258
(
0.5%
of net sales) for the
six months ended June 30, 2016
as compared to
$154,785
(
1.3%
of net sales) for the
six months ended June 30, 2015
, a decrease of
$104,527
, or
67.5%
.
The Company had a $51,402
decrease
due
to the elimination of one position in 2015,
as well as a $
52,410
decrease in internal research and development costs for the development of new products and capabilities related to medical device components
when compared the six months ended June 30, 2016
.
Other Expense
, net
Other expense, net decreased to
$63,226
for the
three months ended June 30, 2016
, as compared to
$66,518
, for
the three months ended June 30, 2015
, a decrease of
$3,292
.
The decrease in other expense
was due
in part
to a gain on the sales of fixed assets of $3,700 in 2015. In addition,
other expense
decreased $6,
564
in 2016
due primarily to reduced
interest expense related to servicing the
term debt.
Other expense, net
in
creased to
$122,669
for the
six months ended June 30, 2016
, as compared to
$118,702
, for
the six months ended June 30, 2015
, a
n in
crease of
$3,967
. The
in
crease in other expense was due to a gain on the sales of fixed assets of $14,729
in 2015
. In addition,
other expense decreased $12,037
in 2016
due primarily to reduced interest expense related to servicing the
term debt.
Income Tax Provision
The tax provisions for the
three and six months ended June 30, 2016 and 2015
attributable to the U.S. federal and state income taxes on our continuing operations
are zero
. The Company’s combined federal and state effective income tax rate from continuing operations for both the
three and six months ended June 30, 2016 and 2015
of
0%
is
due to the deferred tax assets
being fully
reserved for with a valuation allowance.
Income from Discontinued Operations
The Company's subsidiary, RMDDxUSA Corp. and its Prince Edward Island subsidiary RMDDx Corporation (collectively "WirelessDx"), discontinued operations in 2012, filed for relief under Chapter 7 (Liquidation) of the United States Bankruptcy Code in 2014 and on March 20, 2015, the Chapter 7 Order was formally discharged and the case was closed.
For the three
and six
months ended
June 30
, 2015
net income of $362,610 was recorded from discontinued operations as a result of the write-off of the remaining liabilities of $320,056 and the reversal of accumulated other comprehensive income of $42,553 from cumulative translation adjustments from RMDDx Corporation.
Earnings (Loss) Per Share
Consolidated basic and diluted earnings per share for the
three months ended June 30, 2016
was $0.02 per share as compared to basic and diluted earnings of $0.04 per share for the
same period in 2015, a decrease of $0.02 per share. The decrease in earnings per share for the
three months ended June 30, 2016
, is due largely to the decreased gross profit in
orthopedic implants and instruments and
sensors.
Consolidated basic and diluted loss per share for the
six months ended June 30, 2016
was $0.11 per share as compared to basic and diluted earnings of $0.08 per share for the same period in 2015, a decrease of $0.19 per share. The decrease in earnings per share for the
six months ended June 30, 2016
, is due largely to the dec
reased gross profit in sensors and orthopedic implants and instruments.
The basic and diluted earnings per share for the six months ended June 30, 2015 were impacted by income from discontinued operations of RMDDxUSA which received relief under Chapter 7 of the United States Bankruptcy Code and was formally discharged in March 2015.
Off-Balance Sheet Arrangements
The Company consolidated operating leases on office equipment in the three months ended June 30, 2016.
Lease expense under all operating leases was approximately
$3,613
and
$1,822
for the
three months ended June 30, 2016
and 2015
, respectively
.
For the
six months ended June 30, 2016 and 2015
the lease expense was
$5,435
and
$3,64
4, respectively.
Liquidity and Capital Resources
Working capital was
$682,309
as of
June 30, 2016
, as compared to
$2,509,588
at
December 31, 2015
, a
decrease
of
$1,827,279
. The
decrease
is due to
the reclassification of the revolving line of credit of $2,081,495 from long term to current liabilities because the maturity date is June 30, 2017, as well as increases in accounts payable, accrued expenses and other current liabilities
and customer deposits related to tooling. Partially offsetting the higher
current
liabilities is
an increase in cash, inventory and
insurance
receivable.
Cash and cash equivalents were
$526,294
and
$272,291
at
June 30, 2016
and
December 31, 2015
, respectively, a
n
increase
of
$254,003
. Substantially all of these funds are maintained in bank deposit accounts.
Inventories were $2,673,695 at June 30, 2016, as compared to $2,118,712 at December 31, 2015, an increase of
$554,983
mainly due to increased work in progress related to tooling
orders
. Raw materials for custom injection molding increased due to the volume demand increasing in the automotive market. In addition, raw materials and work in progress i
ncreased for orthopedic implants and instruments
due to the shift in product mix.
Trade accounts receivable
, net of allowance for doubtful accounts
were
$
2,722,023
and
$2,798,353
at
June 30, 2016
and
December 31, 2015
, respectively, a
decrease
of
$76,330
.
The Company has an i
nsurance
receivable
of
$258,842
at June 30, 2016 compared to $0 at
December 31, 2015,
as a result of a claim related to
a delinquent international customer.
Accounts payable increased $
185,567
due largely to the timing of disbursements.
Accrued expenses and other current liabilities increased $83,922 as compared to December 31, 2015 due largely to an increase of
$72,999
for goods received
not yet invoiced. Additionally, the Company accrued $26,204 in the second quarter 2016 related to customer rebates. These increases were partially offset by a $22,875 reduction in accrued commissions.
Customer deposits increased $298,627
due la
rgely to an increase
in
recorded
deposits due to a
n increase in tooling orders.
Capital equipment expenditures were
$960,144
for the
six months ended June 30, 2016
, due to investments in machinery and equipment primarily for the contract manufacturing of orthopedic implant
s
and instruments
as well as
custom
injection molding as compared to $784,157 in the same period in 2015.
At June 30, 2016, the Company’s total debt was $4,869,356 as compared to $4,031,767 at December 31, 2015, an increase of $837,589 or 20.8% due primarily to a net increase of $570,000 on the revolver
as well as $544,851 of additional draws from the equipment line of credit, partially offset by payments on term debt.
The total outstanding balance of the Company’s term debt increased $590,597 to $2,300,884 at June 30, 2016 as compared to $1,710,287 at December 31, 2015
due in part to the conversion of the equipment line of credit to term debt in June 2016
.
The Company also had a balance of $48
6
,
977
of subordinated promissory notes as discussed in more detail below.
The Company has a multi-year credit facility with a Massachusetts bank. Under this credit facility the Company has a revolving line of credit (the "revolver"), commercial term loan,
and three
equipment term loans as detailed below. The bank facility contains both financial and non-financial covenants, all of which the Company is in compliance with at June 30, 2016.
The revolver provides for borrowings up to 80% of eligible accounts receivable and 50% of eligible raw materials inventory. The interest rate on the revolver is calculated at the bank's prime rate plus 0.25% (3.75% at June 30, 2016). The balance outstanding on the revolver was $2,081,495 as of
June 30, 2016
. The revolver has a maturity date of June 30, 2017. Amounts available to borrow under the revolver are
$88,970
at June 30, 2016.
The commercial term loan has a five year term with a maturity date in March 2018. The interest rate on the loan is a fixed 4.25% per annum, and requires monthly payments of approximately $28,000. At
June 30, 2016
, the balance of the commercial term loan was $561,47
6
.
The original equipment line of credit allowed for advances of up to $1.0 million and included a one-year draw period during which payments were interest only. The draw period ended March 29, 2014 and the then outstanding balance on the equipment line of credit of $740,999 was converted to a five-year term loan with monthly payments of approximately $14,000 consisting of principal and interest at a fixed rate of 4.65%. The balance of this equipment term loan was $429,088 as of
June 30, 2016
.
On June 26, 2014, the Company entered into an equipment line of credit that allowed for advances of up to $1.0 million and included a one-year draw period during which payments were interest only. The draw period ended June 26, 2015 and the then outstanding balance on the equipment line of credit of $415,785 was converted to an equipment term loan with a five-year term, maturing
as
of June 26, 2020. The equipment term loan requires monthly payments of approximately $8,000, consisting of principal and interest at a fixed rate of 4.67% beginning in July 2015. The balance of this equipment term loan was $340,451 as of June 30, 2016.
On June 19, 2015, the Company entered into an equipment line of credit that allowed for advances of up to $1.0 million and included a one-year draw period during which payments were interest only. The draw period ended June 20, 2016 and the then outstanding balance on the equipment line of credit of $881,701 was converted to an equipment term loan with a five-year term, maturing
as
of June 19, 2021. The equipment term loan requires monthly payments of approximately $17,000, consisting of principal and interest at a fixed rate of 4.68% beginning in July 2016. The balance of this equipment term loan was $881,701 as of June 30, 2016.
The borrowing agreement, under the bank facility as described above, contains both financial and non-financial covenants. The financial covenants include maintaining certain debt coverage and leverage ratios. The non-financial covenants relate to various matters including notice prior to executing further borrowings and security interests, mergers or consolidations, acquisitions, guarantees, sales of assets other than in the normal course of business, leasing, changes in ownership and payment of dividends. The Company is in compliance with all covenants at June 30, 2016.
In January 2013, the Company entered into two equipment notes totaling $272,500 with a financing company to acquire production equipment. The notes bear interest at the fixed rate of 4.66% and require monthly payments of principal and interest of approximately $5,000 over a five year term maturing in January 2018. The outstanding balance of these equipment notes at June 30, 2015 was $88,167.
In December 2013, the Company completed a private offering in which the Company sold an aggregate of $500,000 in subordinated promissory notes. The notes are unsecured and
currently
require quarterly interest-only payments at a rate of 1
2
% per annum.
The notes mature in December 2016 at which point the outstanding balance is due in full. The subordinated promissory notes may be prepaid by the Company at any time following the first anniversary thereof without penalty. The notes are subordinated to all indebtedness of the Company pursuant to the bank credit facility.
No dividends were declared or paid in the
three or
six months ended June 30, 2016 and 2015
.
The Company believes that cash flows from its operations, together with its existing working capital, the revolving line of credit and other resources, will be sufficient to fund operations at current levels and repay debt obligations over the next twelve months. The Company continues to develop opportunities within new and existing channels where the Company can maximize its return on investments in capital equipment, research and development, marketing and human resources.
The Company is currently in negotiations with its bank on a new credit facility.
Summary of Changes in Cash Position
As of
June 30, 2016
, the Company had cash on hand of
$526,294
. For the
six months ended June 30, 2016
, net cash
provided by
operating activities was
$339,250
. Net cash
used in
investing activities for the
six months ended June 30, 2016
was
$960,144
. Net
cash
provided by
financing activities for the
six months ended June 30, 2016
was
$874,897
. All of the above were from continuing operations. The net cash flows for the six months ended June 30, 2016 are discussed in further detail below.
Operating Cash Flows
For the
six months ended June 30, 2016
, net cash
provided by
operating activities was
$339,250
.
Cash provided by operating activities was also impacted by non-cash add-backs for depreciation and amortization of $745,440, share-based compensation of $30,591 and non-cash interest expense of $13,842. The non-cash add-backs were offset by a decrease to allowance for doubtful accounts of $30,0
00
.
The cash provided was offset by a net loss of $322,035 for the six months ended June 30, 2016 and cash used in inventory of $554,983, due to increased work in process for orthopedic implant
s
and instruments,
and tooling. In
June of 2016
, the Company
filed a claim with its accounts receivable insurance company which has been recorded as an insurance receivable of $258,842. The Company is expected to collect on this receivable in the third quarter of 2016.
Investing Cash Flows
For the
six months ended June 30, 2016
, net cash used in investing activities was
$960,144
. The net cash used was for capital expenditures of
$960,144
, largely for machinery and equipment, primarily for the contract manufacturing of orthopedic implant
s
and instruments
as well as
custom
injection
molding equipment.
Financing Cash Flows
For the
six months ended June 30, 2016
, net cash
provided by
financing activities was
$874,897
. Cash was provided by net proceeds of $570,000 from the Company's revolver, proceeds of $544,851 from the equipment line of credit and proceeds of $51,150 from the exercise of stock options. These proceeds were offset by payments on term notes payable of $291,104.