-----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, P+A7dyg63wnQZHYqtewxF3N3NQRbvriTvvabGcaInuImLgiakCfX03nseWjfvwYt ldM4oA5lYPgH8pbc9tkRog== 0000950120-04-000251.txt : 20040330 0000950120-04-000251.hdr.sgml : 20040330 20040330111935 ACCESSION NUMBER: 0000950120-04-000251 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040114 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISTINCTIVE DEVICES INC CENTRAL INDEX KEY: 0000059963 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 131999951 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-02749 FILM NUMBER: 04698750 BUSINESS ADDRESS: STREET 1: ONE BRIDGE PLAZA SUITE 100 CITY: FORT LEE STATE: NJ ZIP: 07024 BUSINESS PHONE: 5612744233 MAIL ADDRESS: STREET 1: ONE BRIDGE PLAZA SUSITE 100 CITY: FORT LEE STATE: NJ ZIP: 07024 FORMER COMPANY: FORMER CONFORMED NAME: LMC DATA INC DATE OF NAME CHANGE: 19761021 8-K/A 1 dis8ka.txt FORM 8-K/A DISTINCTIVE DEVICES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------------- FORM 8-K/A CURRENT REPORT (AMENDED) PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): JANUARY 14, 2004 ---------------- DISTINCTIVE DEVICES, INC. ------------------------- (Exact Name of Registrant as Specified in Charter) DELAWARE 0-2749 13-1999951 -------- ------ ---------- (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) ONE BRIDGE PLAZA, SUITE 100, 07024 FORT LEE, JERSEY ----- ---------------- (Zip Code) (Address of Principal Executive Offices) Registrant's telephone number, including area code: (201) 363-9922 ---------------- NOT APPLICABLE -------------- (Former Name or Former Address, if Changed Since Last Report) On January 19, 2004, Distinctive Devices, Inc. (the "Company") filed a Form 8-K to report that it had closed its acquisition of galaxis technology ag ("galaxis"). In response to parts (a) and (b) of Item 7 of such Form 8-K, the Company stated that it would file the required financial information by amendment, as permitted by Instructions (a)(4) and (b)(2) to Item 7 to Form 8-K. This Form 8-K/A is being filed to provide the required financial information. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS --------------------------------- (a) Financial statements of businesses acquired: Consolidated Financial Statements of galaxis as of and for the years ended December 31, 2002 and 2001 (audited) Condensed Interim Consolidated Financial Statements of galaxis as of and for the nine months ended September 30, 2003 (unaudited) (b) Pro forma financial information: Unaudited Pro Forma Condensed Combining Balance Sheet as of September 30, 2003 Unaudited Pro Forma Condensed Combining Statement of Operations for the nine months ended September 30, 2003 Unaudited Pro Forma Condensed Combining Statement of Operations for the year ended December 31, 2002 Notes to Unaudited Pro Forma Condensed Combining Financial Information 1 (a) FINANCIAL INFORMATION FOR GALAXIS TECHNOLOGY INDEX Page ---- Report of Independent Certified Public Accountants 3 Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001 (audited) 4 Consolidated Income Statements for the two years ended December 31, 2002 (audited) 5 Consolidated Statements of Cash Flows for the two years ended December 31, 2002 (audited) 6 Consolidated Statements of Changes in Stockholder's Equity (audited) 7 Notes to Financial Statements 8 Consolidated Balance Sheet as of September 30, 2003 (Unaudited) 17 Consolidated Income Statement for the nine months ended September 30, 2003 (unaudited) 18 Consolidated Statement of Cash Flow for the nine months ended September 30, 2003 (unaudited) 19 Consolidated Statements of Changes in Stockholder's Equity for the two years and nine months ended September 30, 2003 (unaudited) 20 Notes to Unaudited Financial Statements 21 2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE BOARD OF MANAGEMENT AND STOCKHOLDERS OF GALAXIS TECHNOLOGY AG., LUBECK, GERMANY We have audited the accompanying consolidated balance sheets of galaxis technology ag. as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholder's equity and cash flows for each of the two years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of galaxis technology ag. as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 9 to the consolidated financial statements, the Company's working capital is not sufficient to fund its current level of operations for the next year and the Company has an accumulated deficit of approximately $7,083,000 as of December 31, 2002. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 9 and Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 3 to the consolidated financial statements, the Board of Management is a party to certain legal actions. Management and legal counsel for the Company are of the opinion that these legal actions will not have a material effect on the Company's financial position. Kohberg und Kollegen GmbH Wirtschaftsprufungsgesellschaft, Lubeck Lubeck, Germany January 9, 2004, except for note 3, January 14, 2004 3
galaxis technology ag CONSOLIDATED BALANCE SHEETS - --------------------------- December 31, December 31, ASSETS 2002 2001 - ------ ---------------- ------------------- USD USD Current Assets Cash and cash equivalents $ 113,372 $ 147,407 Accounts receivable 8,261,873 2,518,440 Inventories 5,755,039 978,404 Prepaid expenses 783,043 743,441 Other current assets 2,185,755 4,730,099 ---------------- ------------------- 17,099,081 9,117,791 Machinery and Equipment 631,828 460,252 Intangible Assets 41,099,433 18,444,564 ---------------- ------------------- TOTAL ASSETS $ 58,830,342 $ 28,022,607 ================ ===================
galaxis technology ag CONSOLIDATED BALANCE SHEETS - --------------------------- December 31, December 31, LIABILITIES & STOCKHOLDER'S EQUITY 2002 2001 ---------------------------------- ------------------- ----------------- USD USD Liabilities Current Liabilities Short term borrowings $ 10,742,294 $ 8,829,253 Accounts payable 25,109,628 5,272,055 Advance payments 7,296 359,966 Other accrued and current liabilities 13,042,031 7,933,653 ------------------- ----------------- 48,901,249 22,394,926 Minority Interest 6,552 0 Stockholder's equity Common Stock 47,105 47,105 Additional paid in capital 16,283,860 16,286,508 Other Comprehensive Income 674,311 (610,013) Retained earnings (7,082,735) (10,095,920) ------------------- ----------------- 9,922,541 5,627,681 ------------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 58,830,342 $ 28,022,607 =================== =================
See notes to financial statements 4
galaxis technology ag CONSOLIDATED INCOME STATEMENTS - ------------------------------ 2002 2001 ----------------- ---------------- A. OPERATING SECTION USD USD - --------------------- 1. Net sales and gross revenues $ 37,079,672 $ 16,587,534 2. Costs and expenses applicable to sales and revenues (30,292,055) (15,578,581) 3. Other operating costs and expenses (1,704,308) (2,033,845) ----------------- ---------------- GROSS MARGIN/GROSS PROFIT ON SALE 5,083,309 (1,024,892) 4. Selling, general and administrative expenses (7818,425) (8,511,907) ----------------- ---------------- OPERATING INCOME/INCOME FROM OPERATIONS (2,735,115) (9,536,799) B. NONOPERATING SECTION: 5. Nonoperating income 6,479,298 2,028,469 6. Interest and amortization of debt discount and expense a) interest income 490,941 161,594 b) interest expense (1,221,939) (912,926) ----------------- ---------------- 7. INCOME OR LOSS BEFORE INCOME TAX EXPENSE AND APPROPRIATE ITEMS BELOW 3,013,185 (8,259,662) 8. INCOME OR LOSS FROM CONTINUING OPERATIONS 3,013,185 (8,259,662) ----------------- ---------------- 9. NET INCOME OR LOSS $ 3,013,185 $ (8,259,662) ================= ================
See notes to financial statements 5
galaxis technology ag CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------- 2002 2001 ------------------ ------------------ USD USD cash flows from operating activities - ------------------------------------ Net income $ 3,013,185 $ -8,259,662 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation expense 3,249,013 825,515 Decrease (+)/ Increase (-) in inventories -4,776,635 1,602,035 Decrease (+)/ Increase (-) in accounts receivable -5,743,432 -1,737,491 Decrease (+)/ Increase (-) in prepaid expenses and other assets 2,504,743 -2,385,602 Decrease (-)/ Increase (+) in short term borrowings 1,913,041 3,241,487 Decrease (-)/ Increase (+) in accounts payable and advance payments 19,484,904 4,038,851 Decrease (-)/Increase (+) in other accrued and current liabilities 5,108,378 1,823,445 ------------------ ------------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 24,753,196 -851,422 Cash flows from investing activities Purchase of intangible assets -21,961,542 -324,621 Purchase of equipment -677,085 -258,791 Sale of intangible assets and equipment 26,208 37,758 ------------------ ------------------ NET CASH (USED IN) INVESTING ACTIVITIES -22,612,419 -545,654 Cash flows from financing activities Additional paid-in capital and minority interest 3,903 -3,299 ------------------ ------------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,903 -3,299 EFFECT OF EXCHANGE RATE CHANGES ON CASH -2,178,715 604,729 ------------------ ------------------ NET INCREASE (+)/ DECREASE (-) IN CASH -34,035 -795,647 Cash January 1 147,407 943,054 ------------------ ------------------ Cash December 31 $ 113,372 $ 147,407 ================== ==================
See notes to financial statements 6
galaxis technology ag CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ---------------------------------------------------------- Common Stock Additional paid in capital --------------------- ---------------------------------- USD USD --------------------- ---------------------------------- BALANCE AT DECEMBER 31, 2000 $ 47,105 $ 16,289,808 Net Loss 2001 -- 0 Other changes not related to stockholders -- (3,299) Other comprehensive Income -- 0 --------------------- ---------------------------------- BALANCE AT DECEMBER 31, 2001 47,105 16,286,509 Net Income 2002 -- 0 Other changes not related to stockholders -- (2,649) Other comprehensive Income -- 0 --------------------- ---------------------------------- BALANCE AT DECEMBER 31, 2002 $ 47,105 $ 16,283,860
galaxis technology ag CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ---------------------------------------------------------- Retained earnings Translation adjustments Total --------------------------- ---------------------------- --------------------- USD USD USD --------------------------- ---------------------------- --------------------- BALANCE AT DECEMBER 31, 2000 $ (1,836,257) $ 0 $ 14,500,655 Net Loss 2001 (8,259,662) 0 (8,259,662) Other changes not related to stockholders 0 0 (3,299) Other comprehensive Income 0 (610,013) (610,013) --------------------------- ---------------------------- --------------------- BALANCE AT DECEMBER 31, 2001 (10,095,920) (610,013) 5,627,681 Net Income 2002 3,013,185 0 3,013,185 Other changes not related to stockholders 0 0 (2,649) Other comprehensive Income 0 1,284,324 1,284,324 --------------------------- ---------------------------- --------------------- BALANCE AT DECEMBER 31, 2002 $ (7,082,735) $ 674,311 $ 9,922,541
See notes to financial statements 7 NOTES TO FINANCIAL STATEMENTS 2002 ---------------------------------- 1. Summary of Significant Accounting Policies 2. Related Party Transactions 3. Subsequent Events 4. Certain Significant Risks and Uncertainties 5. Accounting Change 6. Business Combinations 7. Discontinued Operations 8. Income Taxes 9. Going concern 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1.1 Description of the business operations, the foundation and the -------------------------------------------------------------- presentation principles - ----------------------- The corporation's parent company was entered in the company's register of Lubeck district court on January 21, 2000 under the No. HRB 4762. The business of the Company (Art. 2 of the articles of association) is the permit-free trading of all types of merchandise, in particular with electrical and electronic equipment as well as entertainment electronics, computers and trading in satellite reception systems and their accessories, which are sold under the name "galaxis". The Company is entitled to carry out all legal transactions and other action considered necessary or purposeful for it to achieve the purpose of the business. In particular, it may set up, acquire, sell or invest or participate in domestic and foreign companies and set up branches. At the time of the audit the Company had three legally independent branches in Wismar, Livorno (Italy) and Madrid (Spain). The consolidated financial statements have been prepared according to the generally accepted accounting standards in the USA ("US GAAP"). galaxis technology ag. is a public stock corporation under German law. Consolidated financial statements according to the HGB are not required as the company falls below the size classes defined in Art, 293 HGB. 1.2 Accounting and valuation ------------------------ The consolidated financial statements have essentially been prepared according to the following accounting and valuation principles: The consolidated financial statements include galaxis technology ag. as well as its subsidiary and sub-subsidiary. 8 The consolidated companies include the following: Corporation parent company: galaxis technology ag., Lubeck Capital stock : 50,000.00 EUR Sole stockholder : Media Hill Communication GmbH, Hanover Board of Management : W. M. Klimek, W. Hopp Subsidiary: OmniScience Multimedia Lab GmbH, Lubeck Capital stock : 25,000.00 EUR Sole stockholder : galaxis technology ag., Lubeck General Manager : F. Fischer Sub-subsidiary: Convergence GmbH, Berlin Capital stock : 25,000.00 EUR Stockholder : OmniScience Multimedia Lab, Lubeck, 75% H. Curanz, Berlin, 25% General Managers : W .M. Klimek, F. Fischer No associated companies remain after the consolidation. As of the balance sheet date there were no noteworthy co-determination rights of minority stockholders and these also do not exist today. At the day of this report, OmniScience Multimedia Lab GmbH owns 100% of Convergence GmbH. The consolidation is carried out according to the purchase accounting method. As the subsidiary and sub-subsidiary are new startup or the acquisition of the shell companies, no purchase costs were due apart from the fees payable on purchasing the companies (notary, company's register) , so that the purchase costs match the amount of capital taken over. Currency - -------- The functional currency of the corporation is the Euro (EUR). Therefore the consolidated financial statements are prepared in Euros (EUR). There are no foreign currencies of included companies, whose functional currency is not the Euro. For US-Reporting purposes the financial statements have also been prepared in US-Dollars (USD). The translation has been prepared in accordance with FAS 52. Securities - ---------- The corporation did not hold any securities as of the balance sheet date. Inventories - ----------- Inventories are valued at the purchase or production costs or at the lower market price. The production costs include wages and material costs as well as overheads. 9 Fixed assets - ------------ The fixed assets, i.e. machinery and equipment, are reported at purchase or manufacturing costs, less the planned depreciation due to wear. The depreciation is calculated using the linear method. The simplification rule in accordance with Art. 6 Para 2 EStG/1/ was used for the new additions of low cost items./2/ Other short-term assets - ----------------------- Accounts receivable and other assets were valued at their face value. Identifiable individual risks were taken into account in the accounts receivable by means of allowances. The general credit risk is adequately taken into account by a lump-sum allowance. The other reserves and accruals take into account all the identifiable risks, losses and uncertain liabilities with the sums required according to sensible business assessment. In total, all the risks existing as of the balance sheet date, where they were identifiable at the time the consolidated financial statements were prepared, were taken into account by forming adequate reserves and allowances. Where such risks were incurred after the balance sheet date they are referred to under Item 3 of these Notes. Intangible assets - ----------------- In July 2001 the FASB published the SFAS No. 141 "Business Mergers". The Company applied the acquisition method during the whole of the report period. The revaluation of intangible assets acquired within the scope of company acquisitions within the scope of the introduction of SFAS No. 142 "goodwill and other intangible assets" is used analog by the Company. For the first time preparation of these consolidated financial statements according to US GAAP, all the purchased and self-produced intangible assets were valued with respect to their purchase costs and useful life. The Board of Management decided to assign a planned useful life of 40 years for the intangible asset items "trademark rights" as well as all basic patents and similar rights. The depreciation is linear. Applying SFAS No. 142 the corporation does not depreciate the intangible asset "good-will". The historical costs amount to 15.429.043 Euros (i.e. 16.174.266 USD as of Dec 31,2002) The management obeys the obligation of annually impairment tests. Unplanned depreciation - ---------------------- There was no unplanned depreciation of assets. Financial instrument - -------------------- Derivative financial instruments were not used. - -------------------- 1 Income tax law 2 Items less than ca. 445(euro)net are fully written off at the time of purchase 10 Sales realization - ----------------- Sales are reported less discounts and other reductions, as soon as the deliveries or services are provided. The income from license fees are realized as soon as the service is provided and the payment has been received. There is no long-term production with partial realization of profits. Use of the SEC Staff Accounting Bulletin (SAB) No. 101 did not have any material influence on the earnings position. Nonoperating income - ------------------- Nonoperating Incomes are arising about US $ 6,5 million. Here especially compensation claims (about US$ 4,8 million) and income from reversal of accruals/reserves Re. the significant balance sheet items: - ---------------------------------------- Intangible Assets The "galaxis" trademark right was contributed by the sole stockholder in 2000 at their own purchase costs of 15.8 mln. Euro. For the purposes of the US GAAP accounting the sum is amortized over 40 years. The disclosed value as of Dec 31, 2002 is 15.7 mln. USD. The goodwill purchased for cash include the right to regular customer and supplier trade of COMET Vertriebsgesellschaft mbH. The total purchase costs amounted to 15.1 mln. Euro. Of which, 3.6 mln. Euro were added in 2000 and 11.5 mln. Euro in 2002. As of Dec 31,2002 the disclosed value is 16.2 mln. USD. The item also includes purchase costs of 9.0 mln. Euro (9.4 mln. USD) for self-produced intangible assets, especially software. The corporation applies SFAS No. 86. The other intangible assets essentially include the purchase of licenses, which have been purchased from external firms. In the opinion of the Board of Management, the total reported value of around 39.2 mln. Euro (41.1 mln. USD) has been adequately verified by expert valuations and reports and assessment made within the scope of due diligence audits. Machinery and Equipment Includes around 0.5 mln. Euro (0.5 mln. USD) essentially for tool costs. The costs of purchasing and producing tools for the production of housings are reported as tool costs. The tools are located on the premises of Riwotec GmbH, Bad Blankenburg. The costs are written off over the planned production period of three years. 11 The other machinery and equipment (fixed assets) essentially include office equipment and furnishings and computing hardware. Inventories The finished products and work in process of galaxis technology ag. were recorded within the scope of a physical stock take on January 2, 2003. The work in process includes stocks of merchandise, pre-financed for Katek GmbH and where they are kept in storage. The valuation was made at cost or production costs. The figure in the balance sheet contains write-downs of 300 kEUR. The balance sheet figure for 2002 includes services in progress of Convergence GmbH for around 2.8 mln. Euro (2.9 mln. USD). Trade accounts receivable The accounts receivable from customers includes 5 mln. Euro (5.2 mln. USD) accounts receivable from the factoring contract with Company A. The remaining accounts receivable from customers amounted to 3.2 mln. (3.3 mln. USD) Euro gross. The main debtors were Company B with 1.8 mln. Euro (1.9 mln. USD) and Company C with 0.5 mln. Euro (0.5 mln. USD). At the time of the audit the accounts receivable had been received. Other current assets The other assets essentially include prepaid value added tax reimbursements to which the Company is entitled from the tax office. Cash and cash equivalents Cf. the statement of cash flows for the liquid assets (cash and cash equivalents), includes financial instruments with original maturities of three months or less. Prepaid expenses The prepaid expenses were essentially formed for accrued advance payments for licenses. Stockholder's equity Apart from the unchanged "capital subscribed", the loss carried forward and the net loss for the year, the stockholder's equity includes the capital surplus (capital reserves). The capital reserves were formed for transfers in accordance with Art. 272 Para. 2 No. 4 HGB. Other accrued and current liabilities The accruals and reserves include provisions for warranty claims (120 kEUR), for individual licenses still to be paid (443 kEUR), for employees' holiday entitlement (354 kEUR), financial statement accounting and auditing 12 costs (58 kEUR) and for still outstanding invoices (330 kEUR). Further accruals were formed (each < 100 kEUR) for other uncertain liabilities as of the balance sheet date. The notes payable reported as of the balance sheet date had been settled by the time of the audit. The other liabilities include accounts payable to COMET Vertriebsgesellschaft mbH for 4.3 mln. Euro (4.5 mln. USD), loans amounting to 1.3 mln. Euro (1.5 USD) due to Omnivest OHG, Stockelsdorf, and customers with credit balances amounting to 677 kEUR (710 kUSD). The accounts payable to COMET Vertriebsgesellschaft mbH were incurred by the purchase of the goodwill in 2002. Short term borrowings - --------------------- The bank debts almost exclusively include the overdraft facility with Lloyds TSB Bank, Geneva. Accounts payable - ---------------- The trade accounts payable essentially concern 3.6 mln. Euro (3.8 mln. USD) due to Company A, 18.9 mln. Euro (19.8 mln. USD) due to Company B and 2.4 mln. Euro (2,5 mln. USD) due to Company C. At the time of the audit the accounts payable had only been partly settled. There are payment agreements. 1.3 Capital stock ------------- The capital stock of the corporation's parent company as of the balance sheet date amount to 50,000.00 EURO. It is divided into 50,000 no-par shares. The shares are made out in the bearer's name 1.4 Income per share ---------------- The income per share is calculated on the basis of the capital stock described above as follows: 2002/kUSD 2001/kUSD 2000/kUSD --------- --------- --------- o Net income for the year 3,013 -8,259 -1,823 o Shares 50,000 50,000 50,000 Income per share (in USD): 60.26 -165.18 -36.46 2. RELATED PARTY TRANSACTIONS -------------------------- In 2000 transfers were made to the capital reserves of galaxis technology ag. amounting to 17.3 mln. Euro. Of which around 1.4 mln. EUR was provided by cash payments. The difference was made up by the contribution of the rights to the "galaxis" trademark by the sole stockholder of galaxis technology ag., Media Hill Communication GmbH, Hanover. 13 Further, in the business years 2000 and 2002, intangible assets amounting to around 13mln. EUR (13.6 mln. USD) were acquired from Comet Vertriebsgesellschaft mbH, Lubeck, with whom the corporation does not have any legal association. The Members of galaxis technology ag's Board of Management were previously the general managers of Comet Vertriebsgesellschaft mbH. During the report period, Mr. W. Hopp was still the general manager of Comet Vertriebsgesellschaft mbH. 3. SUBSEQUENT EVENTS ----------------- The public prosecutor of Lubeck has for many months been investigating the Board of Management, senior staff, the Supervisory Board and third parties. We have not yet been granted access to the files. The company itself is not subject of the investigation. Management has determined that there will be no material impact to the financial statements resulting from these investigations. On September 30, 2003 galaxis technology ag. concluded a payment agreement with its main supplier under which galaxis shall pay the sum of 12.0 mln. EUR (12.6 mln. USD) due in accordance with the payment schedule against the jointly determined trade account payable to this supplier of around 21.8 mln. EUR (22.8 mln. USD. The first sum due of 1.0 mln. EUR (1.0 mln. USD) was passed on to the supplier on schedule. On January 14, 2004, Distinctive Devices Inc. (DDI), a United States corporation (incorporated in Delaware) completed its acquisition of all of the outstanding capital stock of galaxis technology AG ("galaxis"), from Media Hill Communication Beratungs- und Vertriebs GmbH, a German corporation ("Media Hill"), the sole shareholder of galaxis, in exchange for 6,400,000 shares of the DDI's Common Stock, pursuant to a Share Purchase Agreement. In addition, DDI made a US $2,000,000 capital contribution to galaxis, including converting a prior loan made to galaxis in 2003 in the principal amount of US $1 million, into equity. DDI is to make an additional capital contribution of US$1,000,000 no later than thirty (30) days after closing. 4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES ------------------------------------------- The preparation of the consolidated financial statements requires the Board of Management to make judgments, estimates and assumptions. These have an influence on the reporting of assets and debts, the details of possible liabilities at the time of the balance sheet date as well as the reporting of income and expenditure during the report period. The actual sums can differ significantly from the estimates. 5. ACCOUNTING CHANGE ----------------- The valuation methods used by the corporation remained unchanged during the report period. From the current announcements of the Financial Accounting Standards Board (FASB) - SFAS 143 "Accounting for the shutdown of assets" - SFAS 144 "Accounting for valuation reserves, allowances or sales of fixed assets" 14 - SFAS 146: "Accounting for costs related with the abandonment and sale of business operations" do not result in any expected changes in the accounting of the consolidated companies or any other noteworthy effects on the corporation's assets, liabilities, financial position and earnings position. 6. BUSINESS COMBINATIONS --------------------- OmniScience MultimediaLab GmbH, Lubeck -------------------------------------- Share of the voting rights 100 % Business purpose Software development Purchase price None, as new startup Time of the first consolidation 01.01.2001 Goodwill acquired 0.00 EUR Convergence GmbH, Berlin Share of the voting rights 75 % Business purpose Software development Purchase price None, as new startup Time of the first consolidation 01.01.2001 Goodwill acquired 0.00 EUR 7. DISCONTINUED OPERATIONS ----------------------- Not applicable 8. INCOME TAXES ------------ The corporation's companies are subject to German income tax (corporate tax and municipal trade tax). As the tax assessments have not yet been received, there are not fixed sums with respect to tax losses carried forward. Therefore, the capitalization of deferred tax claims has been dispensed with. The income tax burden of a German corporation is around 43.5 %. Actual income taxes have not yet had to be paid. As the corporation has made a loss during the whole of the period of accounting under US GAAP and deferred tax claims have not been capitalized, we have fully dispensed with including the effects of tax for reasons of insignificance. Overall, these would not have any noteworthy effect on the corporation's assets, liabilities, financial position and earnings position. 9. GOING CONCERN ------------- As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of approximately $7,083,000 and a working capital deficit of approximately $31,802,000 as of December 31, 2002. 15 In response to the economic conditions of the Company, management has restructured its current financing agreements and as described in Note 3 has become a subsidiary of Distinctive Devices, Inc., effective January 14, 2004. Management continues to obtain new customer contracts and agreements which should improve working capital. Management believes the combination of these actions maximizes the probability of the Company's ability to remain in business. Because it is unclear whether the Company will be successful in accomplishing these objectives, there is uncertainty about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of asset and the satisfactions of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets, including intangible assets, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 16 GALAXIS TECHNOLOGY AG CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2003 - ---------------------------------------------------
Consolidated Consolidated Unaudited Unaudited ASSETS 9/30/2003 LIABILITIES & STOCKHOLDER'S EQUITY 9/30/2003 ------ ---------------------------------- ---------------- --------------- USD USD Current Assets Liabilities Cash and cash equivalents $ 271,132 Current liabilities Accounts receivable 2,253,365 Short term borrowings $ 14,293,952 Inventories 4,757,891 Accounts payable 24,379,349 Prepaid expenses 600,676 Advance payments 16,027 Other accrued and current Other current assets 4,097,046 liabilities 12,430,974 ---------------- --------------- 11,980,110 51,120,302 Property, Plant and Equipment Stockholder's equity Machinery and Equipment 855,211 Common Stock 47,105 ---------------- 855,211 Additional paid in capital 16,288,504 Other Comprehensive Income 1,735,677 Intangible Assets 49,372,419 Retained earnings (6,983,849) --------------- 11,087,437 ---------------- --------------- Total liabilities and stockholder's Total assets $ 62,207,739 equity $ 62,207,739 ================ ===============
See notes to financial statements 17 GALAXIS TECHNOLOGY AG CONSOLIDATED INCOME STATEMENT - -----------------------------
Unaudited Nine months ended September 30, 2003 --------------------------------------------- A. Operating section USD 1. Net sales and gross revenues $ 31,135,415 2. Costs and expenses applicable to sales and revenues (24,650,692) 3. Other operating costs and expenses (1,511,691) --------------------------------------------- Gross margin/ gross profit on sale 4,973,031 4. Selling, general and administrative expenses (8,469,150) --------------------------------------------- Operating income (3,496,119) B. Nonoperating section: 5. Nonoperating income 4,862,950 6. Interest and amortization of debt discount and expense a) interest income 9,790 b) interest expense (1,277,735) 7. Nonoperating expenses --------------------------------------------- 8. Income from continuing operations before taxes 98,886 --------------------------------------------- 9. NET INCOME OR LOSS $ 98,886 =============================================
See notes to financial statements 18 GALAXIS TECHNOLOGY AG CONSOLIDATED STATEMENT OF CASH FLOW - -----------------------------------
January 1 - September 30, 2003 --------------------------------- USD cash flows from operating activities Net income $ 98,886 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense 2,068,405 Capitalised Intangible assets own work Decrease (+)/ Increase (-) in inventories 997,148 Decrease (+)/ Increase (-) in accounts receivable 6,008,508 Decrease (+)/ Increase (-) in deferred taxes 0 Decrease (+)/ Increase (-) in prepaid expenses and other assets 182,367 Decrease (-)/ Increase (+) in short term borrowings 3,551,659 Decrease (-)/ Increase (+) in accounts payable and advance payments -721,549 Decrease (-)/ Increase (+) in other accrued and current liabilities -611,057 --------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 11,574,366 Cash flows from investing activities Purchase of Intangible Assets -6,078,222 --------------------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES -6,078,222 Cash flows from financing activities Additional paid-in capital and minority interest 4,645 --------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,645 EFFECT OF EXCHANGE RATE CHANGES ON CASH -5,343,029 --------------------------------- NET INCREASE (+) / DECREASE (-) IN CASH 157,760 Cash January 1 113,372 --------------------------------- CASH SEPTEMBER 30 $ 271,132 =================================
See notes to financial statements 19 GALAXIS TECHNOLOGY AG CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY - ----------------------------------------------------------
Additional paid Retained translation Common Stock in capital earnings adjustments Total ------------ --------------- ------------ ------------- --------------- USD USD USD USD USD BALANCE AT DECEMBER 31, 2000 $ 47,105 $ 16,289,808 $(1,836,257) $ 0 $ 14,500,655 Net Loss 2001 -- 0 (8,259,662) 0 (8,259,662) Other changes not related to stockholder -- (3,299) 0 0 (3,299) Other comprehensive Income -- 0 0 (610,013) (610,013) ------------ --------------- ------------ ------------- --------------- BALANCE AT DECEMBER 31, 2001 47,105 16,286,509 10,095,920) (610,013) 5,627,681 Net Income 2002 -- 0 3,013,185 0 3,013,185 Other changes not related to stockholder -- (2,649) 0 0 (2,649) Other comprehensive Income -- 0 0 1,284,324 1,284,324 ------------ --------------- ------------ ------------- --------------- BALANCE AT DECEMBER 31, 2002 47,105 16,283,860 (7,082,735) 674,311 9,922,541 Net Income 2003 (01-09) -- 0 98,886 0 98,886 Other changes not related to stockholder -- 4,644 0 0 4,644 Other comprehensive Income -- 0 0 1,061,366 1,061,366 ------------ --------------- ------------ ------------- --------------- BALANCE AT SEPTEMBER 30, 2003 $ 47,105 $ 16,288,504 $(6,983,849) $ 1,735,677 $ 11,087,437 ============ =============== ============ ============= ===============
See notes to financial statements 20 GALAXIS TECHNOLOGY AG NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: BASIS OF CONSOLIDATION The accompanying unaudited condensed consolidated financial statements include the accounts of galaxis technology ag and its subsidiaries (the "Company"): OmniScience Multimedia Lab Gmb H and Convergence GmbH. NOTE 2: INTERIM FINANCIAL DATA In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States of America for interim financial information. These condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The annual consolidated financial statements of the Company as of December 31, 2002 should be read in conjunction with these statements. The financial information included herein has not been audited. However, management believes the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company as of September 30, 2003 and the results of its consolidated operations and cash flows for the nine month period ended September 30, 2003. The results of its consolidated operations and cash flows for the nine month period ended September 30, 2003 are not necessarily indicative of the results of consolidated operations or cash flows for the year ending December 31, 2003. NOTE 3: INVENTORIES The Company's inventories consists mainly of finished products and work in process for multimedia equipment. The inventories include stocks of merchandise, pre-financed for Katek GmbH and where they are kept in storage. The valuation was made at cost or production costs. NOTE 4: GOING CONCERN As shown in the accompanying consolidated financial statements, the Company has an accumulated deficit of approximately $6,983,000 and a working capital deficit of approximately $39,140,192 as of September 30, 2003. In response to the economic conditions of the Company, management has restructured its current financing agreements and as described in Note 5 has become a subsidiary of Distinctive Devices, Inc., effective January 14, 2004. Management continues to obtain new customer contracts and agreements which should improve working capital. Management believes the combination of these actions maximizes the probability of the Company's ability to remain in business. 21 GALAXIS TECHNOLOGY AG NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4: GOING CONCERN (CONTINUED) Because it is unclear whether the Company will be successful in accomplishing these objectives, there is uncertainty about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of asset and the satisfactions of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets, including intangible assets, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. NOTE 5: SUBSEQUENT EVENT On January 14, 2004, Distinctive Devices Inc. (DDI), a United States corporation (incorporated in Delaware) completed its acquisition of all of the outstanding capital stock of galaxis technology AG, from Media Hill Communication Beratungs- und Vertriebs GmbH, a German corporation ("Media Hill"), the sole shareholder of galaxis technology AG, in exchange for 6,400,000 shares of the DDI's Common Stock, pursuant to a Share Purchase Agreement. In addition, DDI made a US $2,000,000 capital contribution to galaxis technology AG, including converting a prior loan made to galaxis in 2003 in the principal amount of US $1 million, into equity. DDI is to make an additional capital contribution of US$1,000,000 no later than thirty (30) days after closing. 22 (B) UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION FOR THE COMPANY AND GALAXIS INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION Unaudited Pro Forma Condensed Combining Balance Sheet as of September 30, 2003 25 Unaudited Pro Forma Condensed Combining Statement of Operations for the Nine Months Ended September 30, 2003 26 Unaudited Pro Forma Condensed Combining Statement of Operations for the Year Ended December 31, 2002 27 Notes to Unaudited Pro Forma Condensed Combining Financial Information 28 23 SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA The following unaudited pro forma condensed combining financial statements have been prepared to give effect to the Company's acquisition of galaxis using the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to unaudited pro forma condensed combining financial information. The unaudited pro forma condensed combining balance sheet gives effect to the acquisition as if it had occurred on September 30, 2003. The unaudited pro forma condensed combining statements of operations for the year ended December 31, 2002 and the nine-months ended September 30, 2003 give effect to the acquisition as if it had occurred on January 1, 2002. The pro forma information is based upon the historical financial information of the Company and galaxis and the assumptions, estimates and adjustments described in the notes to the unaudited pro forma condensed combining financial information. The assumptions, estimates and adjustments are preliminary and have been made solely for purposes of developing such pro forma information. Under the purchase method of accounting, the aggregate consideration paid is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values on the transaction date. As currently estimated, the purchase price is less than the estimated fair value of the net assets acquired. As a result, the excess of the estimated fair values over the purchase price, $8,234,018, will be allocated through a reduction of long lived assets for purchase accounting purposes. The estimated purchase price allocation is based on management's preliminary analysis and estimates. The unaudited pro forma condensed combining financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or consolidated results of operations that would have been reported had the acquisition occurred on the date indicated, nor do they represent a forecast of the consolidated financial position at any future date or the consolidated results of operations for any future period. Furthermore, no effect has been given in the unaudited pro forma condensed combining statements of operations for synergistic benefits that may be realized through the combination of the two companies or costs that may be incurred in integrating their operations. The unaudited pro forma condensed combining financial information should be read in conjunction with the historical consolidated financial information, including the notes thereto, and management's discussion and analysis of financial condition and results of operations of the Company covering those periods included in its annual report and quarterly report, as the case may be, made under the Securities Exchange Act of 1934, as amended. 24 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET SEPTEMBER 30, 2003
HISTORICAL PRO FORMA DISTINCTIVE DEVICES, INC. GALAXIS ADJUSTMENTS COMBINED ------------ ------- ----------- -------- ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 344,768 $ 271,132 (A) $ (105,000) $ 510,900 Accounts Receivable, Net 169,817 2,253,365 -- 2,423,182 Inventories 668,418 4,757,891 -- 5,426,309 Prepaid Expenses and Other Current Assets 56,123 4,697,722 -- 4,753,845 ------------ -------------- ------------ ------------ Total Current Assets 1,239,126 11,980,110 (105,000) 13,114,236 PROPERTY AND EQUIPMENT, Net 757,743 855,211 -- 1,612,954 INTANGIBLE ASSETS, Net -- 49,372,419 (B) 1,893,563 51,265,982 OTHER ASSETS 76,062 -- -- 76,062 ------------ -------------- ------------ ------------ Total Assets $ 2,072,931 $ 62,207,740 $ 1,788,563 $ 66,069,234 ============ ============== ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Term Loan Due Banks $ 19,508 $ -- $ -- $ 19,508 Other Loans Payable 857,929 14,293,952 -- 15,151,881 Accounts Payable and Accrued Liabilities 508,354 24,395,377 -- 24,903,731 Other Accrued and Current Liabilities 173,718 12,430,974 -- 12,604,692 ------------ -------------- ------------ ------------ Total Current Liabilities 1,559,509 51,120,303 -- 52,679,812 ------------ -------------- ------------ ------------ MINORITY INTEREST 165,403 -- -- 165,403 ------------ -------------- ------------ ------------ STOCKHOLDERS' EQUITY: Common Stock 7,655 47,105 (C) (47,105) (D) 6,400 14,055 Additional Paid-In Capital 5,758,994 16,288,504 (C) (16,288,504) (D) 10,809,600 (E) 2,060,000 18,628,594 Accumulated Other Comprehensive Income -- 1,735,677 (C) (1,735,677) -- Accumulated Deficit (5,418,630) (6,983,849) (C) 6,983,849 (5,418,630) ------------- --------------- ------------ ------------- Total Stockholders' Equity 348,019 11,087,437 1,788,563 13,224,019 ------------ -------------- ------------ ------------ Total Liabilities and Stockholders' Equity $ 2,072,931 $ 62,207,740 $ 1,788,563 $ 66,069,234 ============ ============== ============ ============
See accompanying notes to unaudited pro forma condensed combining financial information 25 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2003
HISTORICAL PRO FORMA --------------------------------- ---------------------------------- DISTINCTIVE DEVICES, INC. GALAXIS ADJUSTMENTS COMBINED ------------- ------------ ----------- ---------------- Revenue, Net $ 913,952 $ 31,135,415 $ -- $ 32,049,367 Cost of Goods Sold 548,718 24,650,692 -- 25,199,410 ------------- ------------- ------------- ---------------- Gross Profit 365,234 6,484,723 -- 6,849,957 Operating Expenses 951,577 9,980,841 (F) 312,500 (G) 1,073,790 12,318,708 ------------- ------------- ------------- ---------------- Operating Loss (586,343) (3,496,118) (1,386,290) (5,468,751) -------------- -------------- -------------- ----------------- Other Income (Expense): Interest and Other Income 37,823 9,790 -- 47,613 Other -- 4,862,949 4,862,949 Interest Expense (141,840) (1,277,735) -- (1,419,575) -------------- -------------- ------------- ----------------- Total Other Income (Expense) (104,017) 3,595,004 -- 3,490,987 -------------- ------------- ------------- ---------------- Income (Loss) from Continuing Operations $ (690,360) $ 98,886 $ (1,386,290) $ (1,977,764) ============== ============= ============= ================ 7,257,103 13,657,103 ============= =============== Weighted Average Shares of Common Stock Outstanding Loss Per Share-- Basic and Diluted: $ (0.10) $ (0.14) ============== ================= Loss From Continuing Operations
See accompanying notes to unaudited pro forma condensed combining financial information 26 DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002
HISTORICAL PRO FORMA ---------------------------------- ---------------------------------- DISTINCTIVE DEVICES, INC. GALAXIS ADJUSTMENTS COMBINED --------------- ------------- ------------- ------------- Revenue, Net $ 882,134 $ 37,079,672 $ - $ 37,961,806 Cost of Goods Sold 687,314 30,292,055 - 30,979,369 ------------- ------------- ------------- ------------- Gross Profit 194,820 6,787,617 - 6,982,437 Operating Expenses 1,067,737 9,522,732 (F) 312,500 11,843,550 ------------- ------------- ---------- (G) 940,581 Operating Loss (872,917) (2,735,115) (1,253,081) (4,861,113) -------------- -------------- -------------- -------------- Other Income (Expense): Interest and Other Income 47,889 490,941 - 538,830 Other -- 6,479,298 - 6,479,298 Interest Expense (59,001) (1,221,939) - (1,280,940) -------------- -------------- ------------- -------------- Total Other Income (Expense) (11,112) 5,748,300 - 5,737,188 -------------- ------------- ------------- ------------- Income (Loss) from Continuing Operations $ (884,029) $ 3,013,185 $ (1,253,081) $ 876,075 ============== ============= ============== ================= Weighted Average Shares of Common Stock Outstanding Basic 3,775,134 10,175,134 ============= ============= Diluted 3,775,134 11,535,949 ============= ============= Earnings (Loss) Per Share from Continuing Operations: Basic $ (0.23) $ 0.09 ================= ================ Diluted $ (0.23) $ 0.08 ================= ================
See accompanying notes to unaudited pro forma condensed combining financial information 27 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION The unaudited pro forma condensed combining financial information included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. 1. BASIS OF PRESENTATION On January 14, 2004, Distinctive Devices, Inc. (the "Company") completed its acquisition of all of the outstanding capital stock of galaxis technology AG ("galaxis") from Media Hill Communication Beratungs - und Vertriebs GmbH ("Media Hill"), a German corporation, the sole shareholder of galaxis, in exchange for 6,400,000 shares of the Company's common stock. In addition, the Company granted stock options to a member of management and a board member for 1,000,000 shares and 250,000 shares, respectively, of common stock, exercisable at $.70 per share for five years for their services attributed to the acquisition. 2. PRELIMINARY PURCHASE PRICE- GALAXIS The Company used the estimated value of its common stock of approximately $1.69 per share based upon the average closing price of the Company's common stock for the three trading days before and after the acquisition date. Based on these factors, the estimated value amounted to approximately $10,816,000. The Company used the Black-Scholes option pricing model to determine the estimated fair value of the granted stock options. The assumptions were applied as follows: risk free interest rate 3.12%; expected option life 5 years; expected stock price volatility 184%; expected dividend yield 0%. Based on these assumptions, the estimated value amounted to approximately $2,060,000. The total estimated purchase price is summarized below: Estimated value of common stock issued $ 10,816,000 Estimated value of stock options 2,060,000 Estimated acquisition transaction costs 105,000 ------------- Total estimated purchase price $ 12,981,000 ============= The above estimated purchase price does not included any amounts to be derived from contingent considerations. 28 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION 2. PRELIMINARY PURCHASE PRICE- GALAXIS (CONTINUED) The preliminary allocation of the aggregate purchase price to the tangible and intangible assets acquired and liabilities assumed in connection with this acquisition was based upon estimated fair values as determined by management. The preliminary purchase price allocation is summarized below: Tangible assets acquired $ 12,835,321 Intangible assets acquired 51,265,982 Liabilities assumed (51,120,303) ------------- Total estimated purchase price $ 12,891,000 ============= The allocation of the purchase price is preliminary. The purchase price allocation will remain preliminary until the Company completes a third party valuation of identifiable intangible assets acquired and determines the fair values of other assets and liabilities acquired. The final determination of the purchase price allocation is expected to be completed as soon as practicable. The final amounts allocated to assets and liabilities acquired could differ from the amounts presented in the unaudited pro forma condensed combining financial information. 3. PRO FORMA ADJUSTMENTS The accompanying unaudited pro forma combining financial information have been prepared as if the acquisition was completed on September 30, 2003 for balance sheet purposes and as of January 1, 2002 for statement of operations purposes and reflect the following pro forma adjustments: BALANCE SHEET ADJUSTMENTS ------------------------- (A) To record estimated acquisition transaction costs, as previously discussed. (B) To adjust the value to the allocated purchase price of the intangible assets acquired: intellectual property of $38,772,591, with an estimated useful life of 10 years and trademarks of $12,493,391, with an estimated useful life of 40 years. (C) To eliminate galaxis' common stock, additional paid-in capital, accumulated other comprehensive income and accumulated deficit. (D) To record issuance of the 6,400,000 shares of the Company's common stock, $.001 par value, as previously discussed. 29 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION (CONTINUED) 3. PRO FORMA ADJUSTMENTS (CONTINUED) (E) To record grant of 1,250,000 stock options, in total, for the Company's common stock to a member of management and a board member, as previously discussed. STATEMENT OF OPERATIONS ADJUSTMENTS ----------------------------------- (F) To adjust executive compensation expense for the 1,250,000 stock options issued to galaxis's CEO to reflect current estimated compensation expense. (G) To adjust amortization expense for the adjustment in intangible asset values (A). 4. ITEMS NOT ADJUSTED The pro forma adjustments do not reflect any integration adjustments such as operating efficiencies and cost savings that may be achieved with respect to the combining entity. 5. COMMON SHARES OUTSTANDING The number of pro forma common shares outstanding after giving effect to the acquisition for purposes of the pro forma September 30, 2003 balance sheet is: Company's common shares outstanding at September 30, 2003 - Historical 7,654,736 Increase in common shares attributable to acquisition of galaxies 6,400,000 ---------- Total pro forma common shares outstanding 14,054,736 ========== 30 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION (CONTINUED) 6. PRO FORMA COMBINING EARNINGS (LOSS) PER SHARE The pro forma combining earnings (loss) per share attributable to common stockholders, basic and diluted, is computed as follows:
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------------ ------------------ BASIC EARNINGS (LOSS) PER SHARE COMPUTATION: NUMERATOR: Income (loss) from continuing operations - historical $ (591,474) $ 2,129,156 Adjustment to executive compensation expense (312,500) (312,500) Adjustment to amortization expense (1,073,790) (940,581) ------------------ ----------------- $ (1,977,764) $ 876,075 ================== ================= DENOMINATOR: Average number of common shares outstanding - historical 7,257,103 3,775,134 Issuance of common stock for acquisition 6,400,000 6,400,000 ------------------ ----------------- 13,657,103 10,175,134 ================== ================= NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------------ ------------------ DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION: NUMERATOR: Income (loss) from continuing operations - historical $ (591,474) $ 2,129,156 Adjustment to executive compensation expense (312,500) (312,500) Adjustment to amortization expense (1,073,790) (940,581) ------------------ ----------------- $ (1,977,764) $ 876,075 ================== ================= DENOMINATOR: Average number of common shares outstanding - historical 7,257,103 3,775,134 Issuance of common stock for acquisition 6,400,000 6,400,000 Incremental shares for assumed exercise of securities (a) 1,360,815 ------------------ ----------------- 13,657,103 11,535,949 ================== =================
(A) The weighted average shares of common stock outstanding are not adjusted for potential effects of the Company's stock options/warrants because of their antidilutive effect. 31 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this amendment to its Current Report on Form 8-K to be signed on its behalf by the undersigned, hereunto duly authorized. Date: March 29, 2004 Distinctive Devices, Inc. By: /s/ Sanjay Mody ------------------------------- Sanjay Mody President and Chief Executive Officer 32 -----END PRIVACY-ENHANCED MESSAGE-----