Hanger Inc (OTCMKTS:HNGR) Hits The OTC

Hanger Inc (OTCMKTS:HNGR) has exploded onto the OTC after getting delisted from the NYSE. The delisting is due to the company's failure to file its 10-K with the SEC for 2014. This is because Hanger found accounting irregularities and will need to restate its financials. Making matters worse, the company said that it doesn't expect to file any periodic reports prior to the fourth quarter of 2016. These factors are never a good sign, but OTC investors seem to not care.

Hanger Inc was built on the legacy of James Edward Hanger, the first amputee of the American Civil War. Hanger Inc delivers orthotic and prosthetic (O&P) patient care, and distributes O&P products and rehabilitative solutions to the broader market. Hanger's Patient Care segment is the largest owner and operator of O&P patient care clinics nationwide. Through its Products & Services segment, Hanger distributes branded and private label O&P devices, products and components, and provides rehabilitative solutions. With over 150 years of clinical excellence and innovation, Hanger's vision is to be the partner of choice for products and services that enhance human physical capability.

Hanger is not your usual OTC stock. The company has 1,000,000+ Patients treated annually, 750,000+ Patients benefited annually from therapeutic solutions, 270,000+ Orthotic and prosthetic product offerings, 35,000+ Therapists trained annually, 5,000+ Employees, 4,500+ Skilled Nursing Facility client-partners, 1,300+ Clinicians on staff, 740+ Hanger Clinic locations, 150+ Therapists on staff, 150+ Years in business, 45 States with Hanger Clinic locations, 26 Evidence-based clinical therapy programs, 16 Proprietary technologies, 5 National distribution centers, and 4 National lab facilities.

In the last 10-Q that was filed, the company said that for the three months and six months ended June 30, 2014, net sales were $275.9 million and $511.5 million and net income of $12.6 million and $18.6 million. For the three months and six months ended June 30, 2013, net sales were $267.8 million and $497.1 million and net income of $14.1 million and $23.6 million.

Hanger estimates that approximately $4.4 billion is spent in the United States each year for orthotic and prosthetic products and services. Of this, Hanger estimates its market share at 20%.

The biggest concern for investors is the delayed financial statements. The company has not yet filed financial statements for the third quarter of 2014, the fourth quarter and full year ended December 31, 2014, and the first, second and third quarters of 2015. The reason being is that the company has conducted an investigation and what it discovered is quite disturbing. The company said:

To date, the investigation has uncovered inappropriate activities by certain former employees of the Company that contributed to certain of the previously disclosed accounting misstatements underlying the restatement. In particular, a former employee intentionally fabricated records used in the valuation of work-in-process inventory at October 31, 2013 that were provided to our internal and external auditors. Additionally, certain former officers and employees of the Company may have engaged in inappropriate activities in connection with the establishment and use of an unsupported general reserve from 2008 through 2012. The investigation has also uncovered evidence suggesting that former officers and employees of the Company may have engaged in other inappropriate activities that contributed to certain of the previously disclosed accounting misstatements underlying the restatement. The investigation is ongoing, and could uncover evidence of additional inappropriate activities.

Furthermore, it said:

"The Company has also substantially completed analyses of its accounts receivable balances for the years 2011 through 2014, and has determined that disallowances and write-offs of receivables have exceeded the related allowances originally recorded for 2011, 2012, 2013 and the first and second quarters of 2014. Based on these determinations, the Company has preliminarily concluded that the original allowances for these periods were misstated. The preliminary unaudited cumulative amount of the pre-tax income statement effect of these misstatements over that timeframe is estimated to be approximately $40.4 million, comprised of an estimated $2.9 million in 2011, an estimated $9.6 million in 2012, an estimated $16.0 million in 2013, an estimated $7.5 million in the first quarter of 2014, and an estimated $4.4 million in the second quarter of 2014."

It will be quite some time before we know the true picture of Hanger's financials and the extent of the fraud that has been committed. We're not sure if the scale is Tyco (non-bankruptcy) or Worldcom or Enron (bankruptcy). Hanger does have $539 million in debt and just $4.9 million in cash. However, with a market cap of just $138 million, OTC investors are overlooking these factors and looking at a former NYSE company that was trading at $26 a year ago. We will be updating Insider Financial as soon as we know more. For continuing coverage on HNGR and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

Disclosure: We have no position in HNGR and have not been compensated for this article.