-----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, TaWw/MLoRGXoomJaw58YovT2Wk1YElfFO9AI/CmTWQSbtxlfCOCAATLrWgTafpmC af1VaZzEVOV95nu9PIHWJg== 0000912057-96-011754.txt : 19960607 0000912057-96-011754.hdr.sgml : 19960607 ACCESSION NUMBER: 0000912057-96-011754 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960402 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960606 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORLAND MEDICAL SYSTEMS INC CENTRAL INDEX KEY: 0000946428 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 061387931 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26206 FILM NUMBER: 96577767 BUSINESS ADDRESS: STREET 1: 106 CORPORATE PARK DRIVE STREET 2: SUITE 106 CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 914-694-2285 MAIL ADDRESS: STREET 1: 106 CORPORATE PARK DRIVE STREET 2: SUITE 106 CITY: WHITE PLAINS STATE: NY ZIP: 10604 FORMER COMPANY: FORMER CONFORMED NAME: OSTECH INC DATE OF NAME CHANGE: 19950608 8-K/A 1 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): April 2, 1996 ------------------- NORLAND MEDICAL SYSTEMS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-26206 06-1387931 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 106 Corporate Park Drive, Suite 106, White Plains, NY 10604 - -------------------------------------------------------------------------------- (Address of principal executive offices (Zip Code) Registrant's telephone number, including area code: (914) 694-2285 ------------------- This Form 8-K/A Report amends the Form 8-K Report filed by the Registrant with the Securities and Exchange Commission on April 16, 1996 (the "Original Report") with respect to the merger of Dove Medical Systems, a California corporation, into a wholly-owned subsidiary of the Registrant (the "Merger"). Item 7 of the Original Report is amended and restated to read as set forth below. The per share information in the pro forma financial statements referred to in Item 7 gives effect to the 3-for-2 stock split declared by the Registrant on May 30, 1996, which stock split will be effective June 13, 1996. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of Dove. Included in the financial statements attached hereto and made a part hereof are the audited financial statements of Dove for the years ended December 31, 1995 and 1994 and the unaudited financial statements of Dove for the three months ended March 31, 1996 and 1995. -1- (b) Pro forma financial statements. Included in the financial statements attached hereto and made apart hereof are unaudited pro forma combined condensed financial statements giving effect to the Merger. (c) Exhibits. 2.1 Agreement and Plan of Merger among Registrant, New Dove and Dove.*/ 2.2 Purchase Agreement among Registrant, Robert L. Piccioni and Joan Piccioni, CHC, Inc. and Mirella Monti Belshe.*/ 99.1 Press Release relating to Merger.*/ - -------------------------------- */ Filed with the Original Report. -2- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NORLAND MEDICAL SYSTEMS, INC. Date: June 5, 1996 By: -------------------------------- Kurt W. Streams Vice President, Finance and Secretary -3- INDEX TO FINANCIAL STATEMENTS ------------ AUDITED FINANCIAL STATEMENTS: DOVE MEDICAL SYSTEMS PAGE ---- Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . F-2 Financial Statements: Balance Sheets as of December 31, 1995 and 1994. . . . . . . . . . . . . . F-3 Statements of Income for the years ended December 31, 1995 and 1994. . . . F-4 Statements of Changes in Stockholders' Equity for the years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . F-5 Statements of Cash Flows for the years ended December 31, 1995 and 1994. . F-6 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-7 UNAUDITED FINANCIAL STATEMENTS: DOVE MEDICAL SYSTEMS Condensed Balance Sheets as of March 31, 1996 and 1995 . . . . . . . . . .F-11 Condensed Statements of Income for the three months ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-12 Condensed Statements of Changes in Stockholders' Equity for the three months ended March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . .F-13 Condensed Statements of Cash Flow for the three months ended March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . .F-14 Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . .F-15 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS: NORLAND MEDICAL SYSTEMS, INC. Unaudited Pro Forma Combined Condensed Financial Statements. . . . . . . .F-16 Pro Forma Combined Condensed Balance Sheet as of March 31, 1996. . . . . .F-17 Pro Forma Combined Condensed Income Statement for the year ended December 31, 1995 and for the three months ended March 31, 1996. . . . .F-18 Notes to the Pro Forma Combined Condensed Financial Statements . . . . . .F-19 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors Dove Medical Systems: We have audited the accompanying balance sheets of Dove Medical Systems as of December 31, 1995 and 1994, and the related statements of income, changes in stockholders' equity and cash flows, for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dove Medical Systems as of December 31, 1995 and 1994, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. Hurley & Company Granada Hills, California May 10, 1996 F-2 DOVE MEDICAL SYSTEMS BALANCE SHEETS DECEMBER 31, 1995 AND 1994 ASSETS
1995 1994 ---------- ---------- Current assets: Cash and cash equivalents............................................................... $ 195,122 $ 158,696 Accounts receivable, net of allowance for doubtful accounts of $1,000 and $0 at December 31, 1995 and 1994, respectively........................................................ 160,366 19,396 Inventories............................................................................. 219,886 211,082 Prepaid expenses........................................................................ 3,487 3,338 ---------- ---------- Total current assets.................................................................. 578,861 392,512 ---------- ---------- Property and equipment: Equipment, furniture and fixtures....................................................... 39,364 23,914 Less accumulated depreciation........................................................... 13,498 7,536 ---------- ---------- 25,866 16,378 Other assets: Organization costs, net of accumulated amortization of $1,637 and $1,086 at December 31, 1995 and 1994, respectively............................................................ 1,118 1,669 Deposits................................................................................ 7,546 5,011 ---------- ---------- Total assets.......................................................................... $ 613,391 $ 415,570 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses................................................... $ 69,313 $ 71,859 Profit sharing contribution payable..................................................... 52,000 -- Accrued employee personal time.......................................................... 10,113 8,127 Product warranty reserve................................................................ 10,000 5,000 Service deposits........................................................................ 13,000 -- Income tax payable...................................................................... 1,374 2,534 ---------- ---------- Total current liabilities............................................................. 155,800 87,520 ---------- ---------- Commitments and contingencies............................................................. -- -- Stockholders' equity: Common Stock, no par value, authorized 100,000 shares, issued and outstanding 35,000 shares................................................................................. 35,000 35,000 Retained earnings....................................................................... 422,591 293,050 ---------- ---------- Total Stockholders' equity............................................................ 457,591 328,050 ---------- ---------- Total liabilities and stockholders' equity............................................ $ 613,391 $ 415,570 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the financial statements F-3 DOVE MEDICAL SYSTEMS STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ------------ ------------ Revenue, net of discounts and allowances.............................................. $ 1,860,929 $ 1,903,034 Cost of revenue....................................................................... 854,693 1,145,807 ------------ ------------ Gross profit...................................................................... 1,006,236 757,227 Sales and marketing expense........................................................... 150,761 33,569 General and administrative expense.................................................... 419,814 396,645 ------------ ------------ Operating income.................................................................. 435,661 327,013 Other income: Interest income..................................................................... 3,120 3,022 Other Income, net................................................................... 244 997 ------------ ------------ Income before income tax.......................................................... 439,025 331,032 Income tax............................................................................ 6,094 4,694 ------------ ------------ Net income........................................................................ $ 432,931 $ 326,338 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the financial statements. F-4 DOVE MEDICAL SYSTEMS STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
SHARES ISSUED TOTAL AND COMMON RETAINED STOCKHOLDERS' OUTSTANDING STOCK EARNINGS EQUITY ------------- --------- ----------- ------------ Balance as of January 1, 1994............................... 35,000 $ 35,000 $ 96,722 $ 131,722 Net Income.................................................. -- -- 326,328 326,328 Stockholder Distributions................................... -- -- (130,000) (130,000) ------ --------- ----------- ------------ Balance as of December 31, 1994............................. 35,000 35,000 293,050 328,050 Net Income.................................................. -- -- 432,931 432,931 Stockholder Distributions................................... -- -- (303,390) (303,390) ------ --------- ----------- ------------ Balance as of December 31, 1995............................. 35,000 $ 35,000 $ 422,591 $ 457,591 ------ --------- ----------- ------------ ------ --------- ----------- ------------
The accompanying notes are an integral part of the financial statements. F-5 DOVE MEDICAL SYSTEMS STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ----------- ----------- Cash flows from operating activities: Net Income............................................................................ $ 432,931 $ 326,328 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................................................... 6,513 4,764 Product warranty reserve............................................................ 5,000 5,000 Changes in: Accounts receivable............................................................... (140,970) (7,796) Inventories....................................................................... (8,804) (148,214) Prepaid expenses.................................................................. (149) (1,386) Deposits.......................................................................... (2,535) (1,785) Accounts payable and other accrued expenses....................................... 51,440 (55,415) Service deposits.................................................................. 13,000 -- Income tax payable................................................................ (1,160) 1,188 ----------- ----------- Total adjustments............................................................... (77,665) (203,644) ----------- ----------- Net cash provided by operating activities....................................... 355,266 122,684 ----------- ----------- Cash flows from investing activities: Furniture and equipment expenditures................................................ (15,450) (2,245) ----------- ----------- Net cash used by investing activities:.......................................... (15,450) (2,245) ----------- ----------- Cash flows from financing activities: Distributions to stockholders......................................................... (303,390) (30,000) ----------- ----------- Net cash used by financing activities........................................... (303,390) (30,000) ----------- ----------- Net increase in cash and cash equivalents............................................... 36,426 90,439 Cash and cash equivalents at beginning of year.......................................... 158,696 68,257 ----------- ----------- Cash and cash equivalents at end of year................................................ $ 195,122 $ 158,696 ----------- ----------- ----------- ----------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the year ended December 31, 1994, the Company distributed to its stockholder a $100,000 note receivable from a debtor. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 1995 1994 ----------- ----------- Income taxes paid....................................................................... $ 7,254 $ 3,506 ----------- ----------- ----------- ----------- Interest paid........................................................................... $ 0 $ 3 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of the financial statements. F-6 DOVE MEDICAL SYSTEMS NOTES TO FINANCIAL STATEMENTS 1. BUSINESS ACTIVITY: Dove Medical Systems (the "Company") manufactures medical scanning devices (bone densitometers, known as the "OsteoAnalyzer") that are utilized by hospitals, medical clinics, research institutions, and individual practitioners throughout the world to help in the diagnosis of osteoporosis and other bone disorders. 2. ORGANIZATION AND BASIS OF PRESENTATION: The Company was incorporated in California on December 9, 1992. Through December 31, 1995, all the issued and outstanding common shares of the Company (totaling 35,000 shares) were owned by a single stockholder (a husband and wife) as community property. In April 1996, Norland Medical Systems, Inc. ("Norland"), a publicly held company, acquired all the outstanding common shares of the Company (including exercised stock options issued to other individuals) through an exchange of common stock. The financial statements of the Company as of December 31, 1995 and 1994 and for the years then ended do not reflect any amounts or valuations arising from this transaction. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand and on deposit and highly liquid debt instruments with original maturities of three months or less. Substantially all funds are on deposit with one financial institution. INVENTORIES Inventories represent raw material (parts and components), work-in-process (assemblies) and finished goods. Inventories are valued at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets. The estimated useful lives range from five to seven years. ORGANIZATION COSTS Organization costs are amortized over sixty months using the straight-line method. REVENUE RECOGNITION Revenues are considered earned when all work on an inventoried system or replacement part intended for customer use has been completed and the unit has been shipped. INCOME TAXES Differences between financial statement and taxable income exist, due primarily to timing differences pertaining to depreciation. These differences are not material. The Company's stockholder has elected to be taxed as an S Corporation and pay taxes primarily at the shareholder level. As such, income taxes reflect only the 1.5% rate due California for S Corporations. In April 1996, the Company's S Corporation status was terminated prior to its merger with Norland. F-7 DOVE MEDICAL SYSTEMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. INVENTORIES: Inventories consisted of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Raw materials and component parts................................ $ 125,082 $ 106,163 Assemblies in process............................................ 33,534 76,616 Finished goods................................................... 65,270 32,303 ------------ ------------ 223,886 215,082 Less obsolescence reserve........................................ 4,000 4,000 ------------ ------------ $ 219,886 $ 211,082
5. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ Furniture and fixtures........................................... $ 4,243 $ 4,243 Equipment........................................................ 35,121 19,671 ------------ ------------ 39,364 23,914 Less accumulated depreciation.................................... 13,498 7,536 ------------ ------------ $ 25,866 $ 16,378 ------------ ------------ ------------ ------------
6. PROFIT SHARING PLAN: During the years ended December 31, 1995 and 1994, the Company had a defined contribution pension plan covering substantially all of its employees. The plan utilized an age weighted allocation, whereby the current year's contribution was allocated proportional to the participants' present value of a benefit payable at normal retirement date equal to 1% of pay, using annual pre-retirement interest of 8.00%. The Company contributed at approximately 15% of covered payroll (the maximum rate) during both of these years, resulting in pension plan costs of $52,000 and $34,391, respectively. The plan was subsequently terminated and vesting requirements waived (with employee accumulated benefit amounts transferred to individual IRA accounts) prior to the acquisition of 100% of the Company's common stock by Norland in April 1996. 7. RELATED PARTY TRANSACTIONS: (a) The Company was granted an exclusive worldwide license by the owners of intellectual property purchased from the bankruptcy estate of Osteon, Inc. pertaining to a U.S. patent employed in the manufacture and calibration of the Company's scanning devices, along with other software and technology. Approximately 83% of this intellectual property was owned by the Company's chairman and principal stockholder, 10% by his mother, and another 7% by an unrelated S corporation. As consideration for this license during the period January 1, 1994 through June 30, 1994, the Company paid its chairman $27,500 and issued a total of 17,700 options to the three intellectual property owners (15,000, 2,000, and 700 options, respectively) to purchase the Company's common stock at $6.00 per share over a term of five years. Another $100,000 was paid to the intellectual property owners as a use fee for the period July 1, 1994 through December 31, 1994. Extended agreements covering the 1995 calendar year and subsequent period dictated a use fee of $2,000 for every OsteoAnalyzer sold. Total use fees incurred, based upon shipment of 65 OsteoAnalyzers, amounted to $130,000 for the year ended December 31, 1995. F-8 DOVE MEDICAL SYSTEMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. RELATED PARTY TRANSACTIONS: (CONTINUED) (b) The Company's president (and wife of the chairman) was paid a salary of $150,000 during each of the years ended December 31, 1995 and 1994, respectively. Under California's community property laws, she beneficially held 100% of the Company's outstanding stock throughout these periods. 8. COMMITMENTS AND CONTINGENCIES: (a) The Company has a two-year lease to rent warehouse and office space in Newbury Park, California. The lease expires in January 1998. Monthly payments are currently $2,052, with a 3% to 6% rent adjustment to be made in February 1997. From inception, the Company previously leased smaller facilities in its Newbury Business Park location, and for part of 1994, rented additional office space in Los Angeles. Future minimum lease payments required under its operating lease(s) are as follows: Year ended December 31: 1996..................................................... $ 23,634 1997..................................................... 25,312 1998..................................................... 2,115 --------- $ 51,061 --------- ---------
Rental expense for the years ended December 31, 1995 and 1994 was $12,744 and $23,423, respectively. (b) The Company warrants its products for a full year from date of sale, including all parts and on-site labor. The Company limits its risk by having similar arrangements in place with its primary component manufacturers and suppliers. A warranty liability reserve in the amount of $10,000 and $5,000 was recognized at December 31, 1995 and 1994, respectively, to cover estimated repair and replacement costs to be incurred after the balance sheet date related, respectively, to revenues generated during the respective annual periods. 9. STOCK OPTIONS: The following stock option computations are reflective of a 100:1 common stock split, which occurred in December, 1993: At December 31, 1995, there were 2,100 options outstanding to purchase the Company's common stock at a price of $1.00 per share. These stock options had been issued under the Company's 1992 Incentive Stock Option Plan. Additionally, there were another 2,500 stock options exercisable at $6.00 per share which had been issued to a consultant, as well as 17,700 more stock options issued to intellectual property owners, also exercisable at $6.00 per share, as described in Note 7(a) above. The total number of options outstanding at December 31, 1995 was therefore 22,300. In April 1996, prior to the consummation of the acquisition of 100% of the Company's common stock by Norland, 5,600 of the above stock options were exercised, bringing the total number of common shares outstanding to 40,600, including 35,000 shares of stock owned as community property by the Company's chairman and president, and representing 100% of previously issued common stock. The balance of 16,700 stock options, namely, 15,000 held by the Company's chairman, 1,000 hold by his mother, and 700 held by an unrelated intellectual property owner, were not exercised and were voided. The chairman did sell 4,000 of his personal shares to the unrelated intellectual property owner at a price of $6.00 each. 10. EXPORT SALES AND MAJOR CUSTOMERS/SUPPLIERS: During the years ended December 31, 1995 and 1994, export sales, predominantly to Japan, China (both Taiwan and the mainland), and Korea, accounted for greater than 90% of the Company's total revenues. These sales were transacted in U.S. dollars, so revenues were not affected by currency translations. One customer accounted for approximately 67% of sales during calendar 1995 and approximately 83% of sales F-9 DOVE MEDICAL SYSTEMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. EXPORT SALES AND MAJOR CUSTOMERS/SUPPLIERS: (CONTINUED) during the 1994 year. Another customer accounted for approximately 17% of sales during 1995. No other customer accounted for 10% or more of sales during the years ended December 31, 1995 and 1994, respectively. While the Company believes it can develop alternate sources for all parts, there are currently three vendors that are the sole source for the items provided. During each of the years ended December 31, 1995 and 1994, respectively, these suppliers collectively accounted for approximately 60% of the Company's net purchases of parts and materials. 11. SUBSEQUENT EVENT: In April 1996, Norland acquired all the outstanding common stock of Dove Medical Systems (totalling 40,600 shares as detailed in Note 9 above), in a stock swap valued at approximately $3,311,000. F-10 DOVE MEDICAL SYSTEMS CONDENSED BALANCE SHEETS MARCH 31, 1996 AND 1995 (UNAUDITED) ASSETS
1996 1995 ---------- ---------- Current assets: Cash and cash equivalents............................................................... $ 167,063 $ 296,027 Accounts receivable, net of allowance for doubtful accounts of $1,000 and $0 at March 31, 1996 and 1995, respectively........................................................ 139,174 149,825 Inventories............................................................................. 233,688 211,915 Prepaid expenses........................................................................ 9,668 3,214 ---------- ---------- Total current assets.................................................................. 549,593 660,981 ---------- ---------- Property and equipment: Equipment, furniture and fixtures....................................................... 51,188 24,772 Less accumulated depreciation........................................................... 15,770 9,027 ---------- ---------- 35,418 15,745 Other assets: Organization costs, net of accumulated amortization of $1,774 and $1,224 at March 31, 1996 and 1995, respectively............................................................ 981 1,531 Deposits................................................................................ 7,546 4,576 ---------- ---------- Total assets.......................................................................... $ 593,538 $ 682,833 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses................................................... $ 158,934 $ 122,062 Accrued employee personal time.......................................................... 12,400 8,127 Product warranty reserve................................................................ 10,000 5,000 Service deposits........................................................................ 24,500 50 Income tax payable...................................................................... 710 676 ---------- ---------- Total current liabilities............................................................. 206,544 135,915 ---------- ---------- Commitments and contingencies............................................................. -- -- Stockholders' equity: Common stock, no par value, authorized 100,000 shares, issued and outstanding 40,600 shares and 35,000 shares at March 31, 1996 and 1995, respectively...................... 58,100 35,000 Retained earnings....................................................................... 328,894 511,918 ---------- ---------- Stockholders' equity.................................................................. 386,994 546,918 ---------- ---------- Total liabilities and stockholders' equity............................................ $ 593,538 $ 682,833 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the condensed financial statements. F-11 DOVE MEDICAL SYSTEMS CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
1996 1995 ---------- ---------- Revenue, net of discounts and allowances.................................................. $ 672,691 $ 594,705 Cost of revenue........................................................................... 329,221 269,427 ---------- ---------- Gross profit.......................................................................... 343,470 325,278 Sales and marketing expense............................................................... 95,821 15,647 General and administrative expense........................................................ 138,396 88,365 Staff service bonus....................................................................... 68,000 -- ---------- ---------- Operating Income...................................................................... 41,253 221,266 Other income: Interest income......................................................................... 790 902 ---------- ---------- Income before income tax.............................................................. 42,043 222,168 Income tax................................................................................ 2,240 3,300 ---------- ---------- Net income............................................................................ $ 39,803 $ 218,868 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the condensed financial statements. F-12 DOVE MEDICAL SYSTEMS CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
SHARES ISSUED TOTAL AND COMMON RETAINED STOCKHOLDERS' OUTSTANDING STOCK EARNINGS EQUITY ------------- --------- ----------- ------------ Balance as of December 31, 1995............................. 35,000 $ 35,000 $ 422,591 $ 457,591 Net Income.................................................. -- -- 39,803 39,803 Common Stock Issued Upon Exercise of Stock Options.......... 5,600 23,100 -- 23,100 Stockholder Distributions................................... -- -- (133,500) (133,500) ------ --------- ----------- ------------ Balance as of March 31, 1996................................ 40,600 $ 58,100 $ 328,894 $ 386,994 ------ --------- ----------- ------------ ------ --------- ----------- ------------ Balance as of December 31, 1994............................. 35,000 $ 35,000 $ 293,050 $ 328,050 Net Income.................................................. -- -- 218,868 218,868 ------ --------- ----------- ------------ Balance as of March 31, 1995................................ 35,000 $ 35,000 $ 511,918 $ 546,918 ------ --------- ----------- ------------ ------ --------- ----------- ------------
The accompanying notes are an integral part of the condensed financial statements. F-13 DOVE MEDICAL SYSTEMS CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 UNAUDITED
1996 1995 ----------- ----------- Cash flows for operating activities: Net income............................................................................ $ 39,803 $ 218,868 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................................................... 2,409 1,629 Changes in: Accounts receivable............................................................... (7,308) (130,429) Inventories....................................................................... (13,802) (833) Prepaid expenses.................................................................. (6,181) 124 Deposits.......................................................................... -- 435 Accounts payable and other accrued expenses....................................... 39,908 50,203 Service deposits.................................................................. 11,500 50 Income tax payable................................................................ (664) (1,858) ----------- ----------- Total adjustments............................................................... 25,862 (80,679) ----------- ----------- Net cash provided by operating activities:...................................... 65,665 138,189 ----------- ----------- Cash flows from investing activities: Furniture and equipment expenditures.................................................. (11,824) (858) ----------- ----------- Net cash used by investing activities:.......................................... (11,824) (858) ----------- ----------- Cash flows from financing activities: Issuance of common stock.............................................................. 23,100 -- Stockholder distributions............................................................. (105,000) -- ----------- ----------- Net cash used by financing activities........................................... (81,900) -- ----------- ----------- Net decrease in cash and cash equivalents............................................... (28,059) 137,331 Cash and cash equivalents at beginning of period........................................ 195,122 158,696 ----------- ----------- Cash and cash equivalents at end of period.............................................. $ 167,063 $ 296,027 ----------- ----------- ----------- ----------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the three months ended March 31, 1996, the Company distributed to its principal stockholder a $28,500 account receivable from a major customer.
The accompanying notes are an integral part of the condensed financial statements. F-14 DOVE MEDICAL SYSTEMS NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 (UNAUDITED) 1. BASIS OF PRESENTATION The financial information included herein has been prepared by management without audit by independent certified public accountants who do not express an opinion thereon. The information furnished herein includes all adjustments which are, in the opinion of management, necessary for a fair statement of financial position and the results of operations as of and for the three months ended March 31, 1996 and 1995, and all such adjustments are of a normal recurring nature. Management recommends the accompanying financial information be read in conjunction with the Company's audited financial statements and related notes set forth elsewhere herein. The results for the three-month period ended March 31, 1996 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 1996. 2. COMMITMENTS AND CONTINGENCIES (a) The Company has a two-year lease to rent warehouse and office space in Newbury Park, California. The lease expires in January 1998. Monthly payments are currently $2,052, with a 3% to 6% rent adjustment to be made in February 1997. Future minimum lease payments required under its operating lease are as follows: Twelve months ended March 31: 1997................................................................... $24,749 1998................................................................... 21,146 --------- $45,895 --------- ---------
Rental expense for the three month periods ended March 31, 1996 and 1995 was $5,166 and $3,186, respectively. (b) The Company warrants its products for a full year from date of sale, including all parts and on-site labor. The Company limits its risk by having similar arrangements in place with its primary component manufacturers and suppliers. A warranty liability reserve in the amount of $10,000 and $5,000, was recognized at March 31, 1996 and 1995, respectively, to cover estimated repair and replacement costs to be incurred after the balance sheet dates. F-15 PRO FORMA COMBINED FINANCIAL DATA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to the merger of Norland Medical Systems, Inc. (the "Company") and Dove Medical Systems ("Dove") under the purchase method of accounting. These pro forma financial statements are presented for illustrative purposes only, and therefore, are not necessarily indicative of the operating results and financial position that might have been achieved had the merger occurred as of an earlier date, nor are they necessarily indicative of operating results and financial position which may occur in the future. A pro forma combined condensed balance sheet is provided as of March 31, 1996, giving effect to the merger as though it had been consummated on that date. Pro forma combined condensed income statements are provided for the three month period ended March 31, 1996, and the year ended December 31, 1995, giving effect to the merger as though it had occurred on January 1, 1995. The pro forma combined condensed financial statements are derived from the historical audited financial statements of the Company and Dove, and should be read in conjunction with the Company's separate 1995 Annual Report on Form 10-K and separate Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, as filed, incorporated herein by reference, and with Dove's audited financial statements for 1995 and 1994, included herein. F-16 NORLAND MEDICAL SYSTEMS, INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF MARCH 31, 1996 (UNAUDITED) ASSETS
HISTORICAL ----------------------------- NORLAND MEDICAL DOVE MEDICAL PRO FORMA PRO FORMA SYSTEMS, INC. SYSTEMS ADJUSTMENTS NOTE REF. COMBINED --------------- ------------ ------------- --------- ------------- Current Assets: Cash.................................... $ 17,639,970 $ 167,063 $ (3,600,000) (a) $ 14,207,033 Accounts receivable..................... 5,851,325 139,174 0 5,990,499 Inventories............................. 879,132 233,688 0 1,112,820 Other................................... 157,415 9,668 0 167,083 --------------- ------------ ------------- ------------- Total current assets.................. 24,527,842 549,593 (3,600,000) 21,477,435 Other Assets: Fixed assets, net......................... 84,013 35,418 0 119,431 Other non current assets................ 75,906 8,527 0 84,433 Patent, net............................. 0 0 407,200 (a)(i) 407,200 Other intangible assets, net............ 0 0 3,257,800 (a)(i) 3,257,800 Goodwill, net........................... 0 0 2,984,535 (d)(i) 2,984,535 --------------- ------------ ------------- ------------- Total other assets.................... 159,919 43,945 6,649,535 6,853,399 --------------- ------------ ------------- ------------- Total Assets.............................. $ 24,687,761 $ 593,538 $ 3,049,535 $ 28,330,834 --------------- ------------ ------------- ------------- --------------- ------------ ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable........................ $ 2,578,326 158,934 0 $ 2,737,260 Accrued expenses........................ 374,156 22,400 125,000 (i) 521,556 Income taxes payable.................... 485,837 710 0 486,547 Other current liabilities............... 40,072 24,500 64,572 --------------- ------------ ------------- ------------- Total current liabilities............. 3,478,391 206,544 125,000 3,809,935 --------------- ------------ ------------- ------------- Common stock............................ 3,349 58,100 (58,019) (b)(c) 3,430 Additional paid-in capital.............. 18,346,732 0 3,311,448 (b) 21,658,180 Retained earnings....................... 2,859,289 328,894 (328,894) (b)(c) 2,859,289 --------------- ------------ ------------- ------------- Total stockholder's equity............ 21,209,370 386,994 2,924,535 24,520,899 --------------- ------------ ------------- ------------- Total Liabilities & Stockholders' Equity............................... $ 24,687,761 $ 593,538 $ 3,049,535 $ 28,330,834 --------------- ------------ ------------- ------------- --------------- ------------ ------------- -------------
See notes to unaudited pro forma combined condensed financial statements. F-17 NORLAND MEDICAL SYSTEMS, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, 1995 MARCH 31, 1996 ----------------------------------------------------------------- --------------- HISTORICAL HISTORICAL ----------------------------- --------------- NORLAND MEDICAL DOVE MEDICAL PRO FORMA PRO FORMA NORLAND MEDICAL SYSTEMS, INC. SYSTEMS ADJUSTMENTS NOTE REF. COMBINED SYSTEMS, INC. --------------- ------------ ----------- --------- ---------- --------------- Total revenues....................... $18,243,808 $1,860,929 $ 0 $20,104,737 $ 5,218,290 --------------- ------------ ----------- ---------- --------------- Expense (Income): Cost of revenue.................... 12,508,809 854,693 $(128,000) (e) 13,235,502 3,415,911 Sales and marketing expense........ 1,651,125 150,761 0 1,801,886 575,348 General and administrative expense........................... 960,368 419,814 352,837 (f) 1,733,019 305,716 Other (income) expense............. (412,983) (3,364) 0 (416,347) (242,941) --------------- ------------ ----------- ---------- --------------- Total Expenses................... 14,707,319 1,421,904 224,837 16,354,060 4,054,034 --------------- ------------ ----------- ---------- --------------- Earnings from continuing operations before income taxes................. 3,536,489 439,025 (224,837) 3,750,677 1,164,256 Provision for income taxes........... (1,436,000) (6,094) (128,538) (g) (1,570,632) (473,000) --------------- ------------ ----------- ---------- --------------- Earnings from continuing operations.......................... $ 2,100,489 $ 432,931 $(353,375) $2,180,045 $ 691,256 --------------- ------------ ----------- ---------- --------------- --------------- ------------ ----------- ---------- --------------- Earnings from continuing operations per common and common equivalent.... 0.40 0.40 0.10 Weighted average common and common equivalent shares outstanding....... 5,245,235 161,538 (h) 5,406,773 7,057,010 DOVE MEDICAL PRO FORMA PRO FORMA SYSTEMS ADJUSTMENTS NOTE REF. COMBINED ------------- ----------- --------- ----------- Total revenues....................... $ 672,691 $ 0 $5,890,981 ------------- ----------- ----------- Expense (Income): Cost of revenue.................... 329,221 $ (48,000) (e) 3,697,132 Sales and marketing expense........ 95,821 0 671,169 General and administrative expense........................... 206,396 88,209 (f) 600,321 Other (income) expense............. (790) 0 (243,731) ------------- ----------- ----------- Total Expenses................... 630,648 40,209 4,724,891 ------------- ----------- ----------- Earnings from continuing operations before income taxes................. 42,043 (40,209) 1,166,090 Provision for income taxes........... (2,240) (10,848) (g) (486,088) ------------- ----------- ----------- Earnings from continuing operations.......................... $ 39,803 $ (51,057) $ 680,002 ------------- ----------- ----------- ------------- ----------- ----------- Earnings from continuing operations per common and common equivalent.... 0.09 Weighted average common and common equivalent shares outstanding....... 161,538 (h) 7,218,548
See notes to unaudited pro forma combined condensed financial statements. F-18 NORLAND MEDICAL SYSTEMS, INC. AND DOVE MEDICAL SYSTEMS NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION: The unaudited pro forma combined condensed balance sheet reflects the issuance of 161,538 shares of the Company Common Stock, after giving effect to the Stock Split, in exchange for 40,600 shares of Dove Common Stock, based on the number of shares of Dove Common Stock outstanding as of April 2, 1996. In addition, the statement reflects a payment by the Company of $3,600,000 in exchange for certain patent and other intangible assets owned by the Dove majority shareholder and certain other investors. The purchase price also includes approximately $125,000 of direct costs related to the transaction. The acquisitions are accounted for under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, and are presented in the pro forma condensed combined balance sheet as though they had occurred on March 31, 1996. Earnings per share for each period is based on the weighted average number of shares of the Company's Common Stock outstanding, including common stock equivalents, and is presented on a combined basis giving effect to the issuance of the Company's shares in accordance with the terms of the merger as if the merger had occurred on January 1, 1995. NOTES TO PRO FORMA ADJUSTMENTS: Pro forma adjustments have been made to reflect the following: (a) Adjustment to reflect payment of $3,600,000 in cash in exchange for a patent and other intangible assets. (b) Adjustment to reflect the issuance of 161,538 shares of the Company's Common Stock after giving effect to the Stock Split, having an aggregate par value of $81 and a market value of $3,311,529 on April 2, 1996. (c) Adjustment to reflect the elimination of Dove's equity accounts. (d) Adjustment to record goodwill resulting from the transactions. (e) Adjustment to eliminate fees incurred by Dove according to various licensing arrangements acquired by NMS as part of the transaction. (f) Adjustment to reflect amortization expense related to goodwill, patent and other intangible assets, based on useful lives of 20, 10 and 20 years, respectively. (g) The tax provision calculated based on Dove's pretax earnings from continuing operations, giving effect on the pro forma adjustments, at the combined effective federal and state tax rate of 41%. (h) The number of new shares of common stock issued by the Company to owners of Dove, giving effect to the transaction on January 1, 1995 and after giving effect to the Stock Split. (i) Adjustment to reflect capitalization of acquisition costs. F-19 -----END PRIVACY-ENHANCED MESSAGE-----