-----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, Nm3+tkHq1fHQfxwhK7FEGQ3Z0wwRp2BuG81ITwtKfho70dXF20G01+i16yp6ilAL cA6/Fa+iCqbXsV1hSxudew== 0000912057-97-025949.txt : 19970805 0000912057-97-025949.hdr.sgml : 19970805 ACCESSION NUMBER: 0000912057-97-025949 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORLAND MEDICAL SYSTEMS INC CENTRAL INDEX KEY: 0000946428 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 061387931 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26206 FILM NUMBER: 97650811 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 10-Q/A 1 FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q/A (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- ------------------------------ Commission file number 0-26206 ---------------------------------------------------------- NORLAND MEDICAL SYSTEMS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 06-1387931 ------------------------------ ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 106 Corporate Park Drive, Suite 106 White Plains, New York 10604 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (914) 694-2285 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ As of April 30, 1997, 7,148,531 shares of the registrant's Common Stock, $0.0005 par value, were outstanding. -1- This Form 10-Q/A Report amends the Form 10-Q filed by the Registrant with the Securities and Exchange Commission on May 15, 1997 (the "Original Report"). Items 1 and 2 of the Original Report are amended and restated in their entirety to read as set forth below. This amendment also amends Exhibit 27, the Financial Data Schedule, to conform the information contained therein to the other amendments made by this Form 10-Q/A Report. -2- PART I FINANCIAL INFORMATION Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- NORLAND MEDICAL SYSTEMS, INC. Condensed Consolidated Balance Sheets March 31, 1997 December 31, 1996 -------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,561,392 $ 8,133,468 Investment 1,977,599 1,949,039 Accounts receivable - trade, less allowance for doubtful accounts of $221,000 at March 31, 1997 and December 31, 1996 9,921,516 9,182,488 Income taxes recoverable 559,873 794,285 Inventories, net 1,490,399 616,865 Officers' loans receivable 590,285 581,704 Current portion of product development loan receivable - affiliate 31,436 38,685 Prepaid expenses and other current assets 551,352 361,902 -------------- -------------- Total current assets 21,683,852 21,658,436 -------------- -------------- Demonstration systems inventory, net 1,056,536 1,234,848 Investment in Vitel, Inc 260,000 260,000 Property and equipment, net 446,372 406,375 Product development loan receivable - affiliate 475,000 251,100 Goodwill, net 3,142,607 3,183,961 Other intangible assets, net 3,201,791 3,248,658 -------------- -------------- Total assets $ 30,266,158 $ 30,243,378 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable - Norland $ 1,547,318 $ 2,220,816 Accounts payable - Stratec 323,311 714,127 Accounts payable - trade 652,046 81,416 Accrued expenses 708,879 658,304 Customer deposits 40,500 47,850 -------------- -------------- Total current liabilities 3,272,054 3,722,513 -------------- -------------- Stockholders' equity: Common stock, par value of $0.0005 per share, 10,000,000 shares authorized, 7,148,531 shares issued at March 31, 1997 3,574 3,452 Additional paid-in capital 22,158,189 22,158,170 Retained earnings 4,832,341 4,359,243 -------------- -------------- Total stockholders' equity 26,994,104 26,520,865 -------------- -------------- Total liabilities and stockholders' equity $ 30,266,158 $ 30,243,378 -------------- -------------- -------------- -------------- See accompanying notes to condensed consolidated financial statements. -3- NORLAND MEDICAL SYSTEMS, INC. Condensed Consolidated Statements of Income (Unaudited) THREE MONTHS ENDED ---------------------------------------- MARCH 31, 1997 MARCH 31, 1996 -------------- --------------- Revenue $ 5,946,285 $ 5,218,290 Cost of revenue 3,384,872 3,415,911 ------------ ------------ Gross profit 2,561,413 1,802,379 Sales and marketing expense 1,186,742 575,348 General and administrative expense 714,467 305,716 ------------ ------------ Operating income 660,204 921,315 Other income 136,894 242,941 ------------ ------------ Income before income taxes 797,098 1,164,256 Provision for income taxes 324,000 473,000 ------------ ------------ Net income $ 473,098 $ 691,256 ------------ ------------ ------------ ------------ Net income per common share $ 0.07 $ 0.10 ------------ ------------ ------------ ------------ Weighted average number of common and common equivalent shares 7,166,878 7,057,010 ------------ ------------ ------------ ------------ See accompanying notes to condensed consolidated financial statements. -4- NORLAND MEDICAL SYSTEMS, INC. Condensed Consolidated Statement of Changes in Stockholders' Equity For the Three Months Ended March 31, 1997 and 1996 (Unaudited)
Common Paid-In Retained Total Shares Stock Capital Earnings ----------- ------------ ---------- -------------- ------------ Balance as of December 31, 1996 $ 26,520,865 6,904,781 $ 3,452 $ 22,158,170 $ 4,359,243 Issuance of shares for stock options exercised 141 243,750 122 19 -- Net income 473,098 -- -- -- 473,098 ------------ --------- -------- ------------ ------------ Balance as of March 31, 1997 $ 26,994,104 7,148,531 $ 3,574 $ 22,158,189 $ 4,832,341 ------------ --------- -------- ------------ ------------ ------------ --------- -------- ------------ ------------ Balance as of December 31, 1995 $ 20,520,846 6,000,000 $ 3,000 $ 18,349,813 $ 2,168,033 Issuance of shares for stock options exercised 270 698,250 349 (79) -- Cost and expenses directly related to the stock offering (3,002) -- -- (3,002) -- Net income 691,256 -- -- -- 691,256 ------------ --------- -------- ------------ ------------ Balance as of March 31, 1996 $ 21,209,370 6,698,250 $ 3,349 $ 18,346,732 $ 2,859,289 ------------ --------- -------- ------------ ------------ ------------ --------- -------- ------------ ------------
See accompanying notes to condensed consolidated financial statements. -5- NORLAND MEDICAL SYSTEMS, INC. Condensed Consolidated Statements of Cash Flows (Unaudited)
THREE MONTHS ENDED ---------------------------------------- MARCH 31, 1997 MARCH 31, 1996 -------------- -------------- Cash flows from operating activities: Net income $ 473,098 $ 691,256 Adjustments to reconcile net income to net cash used in operating activities: Inventory obsolescence expense -- 15,000 Amortization expense 96,544 12,933 Depreciation expense 28,182 -- Changes in: Accounts receivable (739,028) (1,099,552) Inventories (732,105) (108,581) Prepaid expenses and other current assets (189,450) (88,426) Accounts payable (493,684) (86,754) Accrued expenses 50,575 13,153 Income taxes 234,412 (819,200) Customer deposits (7,350) 5,408 -------------- -------------- Total adjustments (1,751,904) (2,156,019) -------------- -------------- Net cash used in operating activities (1,278,806) (1,464,763) -------------- -------------- Cash flows from investing activities: Purchases of property and equipment (68,179) (84,013) Loans to officers (8,581) -- Product development loan to affiliate (229,761) (27,387) Repayment of product development loan to affiliate 13,110 -- -------------- -------------- Net cash used in investing activities (293,411) (111,400) -------------- -------------- Cash flows from financing activities: Proceeds from stock options exercised 141 270 Cost and expenses of issuance of common stock -- (3,002) -------------- -------------- Net cash used in (provided by) financing activities 141 (2,732) -------------- -------------- Net decrease in cash (1,572,076) (1,578,895) Cash at beginning of period 8,133,468 19,218,865 -------------- -------------- Cash at end of period $ 6,561,392 $ 17,639,970 -------------- -------------- -------------- --------------
See accompanying notes to condensed consolidated financial statements. -6- NORLAND MEDICAL SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION The condensed consolidated financial statements of Norland Medical Systems, Inc. (the "Company") presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and footnote disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1996, which were audited by Coopers & Lybrand L.L.P., and included in the Company's Form 10-K as filed with the Securities and Exchange Commission on March 31, 1997. The figures in these statements have been restated to reflect the 3 for 2 stock split which was effective June 14, 1996. The condensed consolidated balance sheet as of March 31, 1997 and the condensed consolidated statements of income, changes in stockholders' equity and cash flows for the three months then ended are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 1997. (2) INVENTORIES As of March 31, 1997, inventories consist of the following: Raw materials, product kits spare parts and sub-assemblies $ 492,253 Work in progress 47,456 Rental systems, net of accumulated amortization of $11,907 218,667 Finished goods 773,918 Obsolescence reserve (41,895) ------------- $ 1,490,399 ------------- ------------- -7- Notes to Condensed Consolidated Financial Statements, continued: (2) INVENTORIES, continued: Inventories are stated at the lower of cost or market; cost is determined principally by the first-in, first-out method. Systems used in the Company's short-term rental program are carried in inventory at cost less amortization expense calculated on a straight-line basis over thirty-six months. (3) DEMONSTRATION SYSTEMS INVENTORY The Company maintains an inventory of demonstration systems used for marketing and customer service purposes. Such systems are carried in inventory at the lower of cost or net realizable value until the time of sale. From time to time, the Company may judge it desirable for marketing purposes to provide a device to a prominent scientist or research institution specializing in the study of bone disease. In such cases, the Company will carry the device in demonstration systems inventory at cost less amortization expense calculated on a straight-line basis over thirty-six months. As of March 31, 1997, demonstration systems inventories consist of the following: Demonstration systems inventory $1,158,904 Less accumulated amortization (102,368) ---------- $1,056,536 ---------- ---------- (4) ACQUISITION OF DOVE MEDICAL SYSTEMS On April 2, 1996, the Company acquired all of the outstanding shares of Dove Medical Systems (Dove) and a certain patent and other intangible assets owned by the Dove majority shareholder and certain other investors. The Company paid consideration of $6,911,529, consisting of $3,600,000 in cash and 161,538 shares of the Company Common Stock valued at $3,311,529. The acquisition has been accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based on the fair values at the date of acquisition. The excess purchase price over the fair values of the net assets was $3,308,011 and has been recorded as goodwill. The goodwill and other intangible assets are being amortized using the straight-line method over twenty years. The patent is being amortized using the straight-line method over the remaining patent period which is ten years as of the date of its acquisition. (5) ACQUISITION OF NORLAND CORPORATION On February 26, 1997, the Company signed an agreement to acquire all of the issued and outstanding stock of Norland Corporation for $17.5 million with a possible additional purchase price of up to $2.5 million based on the level of the Company's 1997 revenues. For each full $1,000,000 of 1997 revenues above $32,000,000, the purchase price will be increased by $312,500 (up to the maximum increase of $2.5 million). The $17.5 million will be payable at closing as follows: $1,250,000 in cash and a $16,250,000 Purchase Note which will bear interest at the rate of 7% per annum. A $1,250,000 portion of the principal will be payable six months after closing, and the remaining principal will be due and payable on the fifth anniversary of the closing. The Company may prepay the Purchase Note at any time. The amount of any additional purchase price will be determined following the completion of the audit of the Company's financial statements for the year ending December 31, 1997. This amount will be paid by an Additional -8- Note which will bear interest at 7% per annum and which will be due five years after the closing. The transaction is subject to approval by the Company's stockholders at its 1997 Annual Meeting. (6) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Primary income per share is calculated by dividing net income by the average shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents are stock options which have been included using the treasury stock method only when their effect is dilutive. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which is effective for the Company's year ending December 31, 1997. The Company does not expect a material impact on its net income per share resulting from the implementation of this Statement. -9- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ---------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES, SOME OF WHICH ARE DESCRIBED IN THE INTRODUCTION TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996. SUCH INTRODUCTION IS INCORPORATED HEREIN BY REFERENCE. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS. RESULTS OF OPERATIONS Revenue for the three months ended March 31, 1997 increased $727,995 (14.0%) to $5,946,285 from $5,218,290 for the comparable period of 1996. The increases were largely a result of increases in sales in the United States, Europe and Latin America, offset by a decrease in sales to the Pacific Rim and to Japan in particular. In addition, sales by Dove (which was acquired by the Company on April 2, 1996) contributed to the increase. Sales in Japan declined due in part to increased competition, reductions in reimbursement for certain densitometry tests in Japan and the effects of operational difficulties experienced with pDEXA units during part of 1996. The Company believes that these operational difficulties have been addressed. Sales in the United States and Japan represented 79.2% and 1.5%, respectively, of total revenue for the three months ended March 31, 1997 and 28.5% and 50.9% respectively, of total revenue for the three months ended March 31, 1996. Sales of complete bone densitometry systems represented 92.1% and 92.9% of total revenue for the three months ended March 31, 1997 and 1996, respectively. Sales of parts and services and rental income comprised the balance of revenues for such periods. Revenues have been affected by the reduction in the Medicare reimbursement rate for peripheral bone densitometry tests announced in November 1996. The mix of products sold has changed in that the majority of the Company's revenues are now derived from sales of the larger Eclipse and XR36 systems that scan the hip and spine and for which the Medicare reimbursement rate was not significantly decreased, as compared to the pDEXA system that performs peripheral bone densitometry tests. Revenues and the mix of products sold are expected to continue to be influenced by the degree of difference in Medicare reimbursement rate levels for peripheral and larger systems. They will also be influenced by the Company's ability to bring to the market lower cost peripheral systems that can be operated more profitably by end users at the lower reimbursement levels. Cost of revenue as a percentage of revenue was 56.9% and 65.5% for the three months ended March 31, 1997 and 1996 respectively, resulting in a gross margin of 43.1% for the three months ended March 31, 1997 compared to 34.5% for the comparable period of 1996. The increase in gross margin is primarily attributed to the impact of price reductions under the Distribution Agreement with Norland Corporation and Stratec Medizintechnik GmbH which became effective during the fourth quarter of 1996. Sales of OsteoAnalyzer systems manufactured by Dove, for which the Company receives the entire margin between the manufacturer's cost and the Company's sale price, also contributed to the increase in the Company's gross margin. A portion of such margins on the Company's other products is retained by Norland Corporation and Stratec Medizintechnik GmbH. Sales and marketing expense increased $611,394 (106.3%) to $1,186,742 for the three months ended March 31, 1997 from $575,348 for the three months ended March 31, 1996, and increased as a percentage of revenue to 20.0% from 11.0%. The increases were primarily due to increased expenses of new sales and marketing personnel, the cost of expanded marketing efforts, increased -10- expenses related to customer service and inclusion of the sales expenses of Dove. General and administrative expense increased $408,751 (133.7%) to $714,467 for the three months ended March 31, 1997 from $305,716 for the three months ended March 31, 1996 and increased as a percentage of revenue to 12.0% from 5.9%. These increases were primarily due to expenses of new personnel and increased expenses of existing personnel, and other expenses attributed to increased levels of business, and to the inclusion of Dove's operations, including $88,221 of amortization expense related to the acquisition. Other income in the three month periods ended March 31, 1997 and 1996 consisted primarily of interest earned on the proceeds of the Company's initial public offering and on other cash balances, reduced by other expenses consisting primarily of bank charges and other fees related to bank transfers. The decrease in other income in the three month period ended March 31, 1997 as compared to March 31, 1996 reflects reduced interest income resulting from utilization of such offering proceeds. The provision for taxes for the three months ended March 31, 1997 decreased by $149,000 (31.5%) to $324,000 from $473,000 for the three months ended March 31, 1996. The Company has provided for income taxes at its current effective tax rate of 40.6% for the three months ended March 31, 1997 and 1996. The decrease in the provision for taxes was entirely due to the relative change in income before taxes. The Company had net income of $473,098 for the three months ended March 31, 1997 compared to net income of $691,256 for the three months ended March 31, 1996, a decrease of $218,158 (31.6%). The decrease was due primarily to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES Cash decreased $1,572,076 to $6,561,392 in the three months ended March 31, 1997. The decrease in cash was primarily the result of increased accounts receivable, increased pDEXA and OsteoAnalyzer inventories, and decreased accounts payable and to a lesser extent cash loaned to Norland Corporation under the product development loan. At March 31, 1997, the Company had a $1.9 million investment in a U. S. Treasury bill which matures June 19, 1997. The Company's accounts receivable increased 8.0% to $9,921,516 at March 31, 1997 from $9,182,488 at December 31, 1996 which reflects higher sales volume. At March 31, 1997, the two largest balances, 19.8% and 12.0% of total outstanding trade receivables, were owed by a U. S. distributor and by Nissho Iwai, the Company's distributor in Japan, respectively. Property and equipment as of March 31, 1997 consisted of computer and telephone equipment, a management information system, office furniture and improvements to leased facilities. At the present time, no significant expenditures for additional equipment or systems are planned for 1997. -11- Should the proposed acquisition of Norland Corporation be approved by the Company's stockholders, the Company's cash requirements with respect to the transaction will consist of a $1,250,000 cash payment at close, a second $1,250,000 cash payment six months thereafter, plus interest payments on the Purchase Note and the Additional Note which will range from approximately $250,000 to $300,000 per quarter, depending upon the final amount of the purchase price. Following the acquisition, the Company will receive the entire margin on systems manufactured by Norland Corporation and will become responsible for financing manufacturing and research and development on the Norland Corporation product line. Any sales growth of the OsteoAnalyzer product line will also be financed by the Company. The Company believes that its current cash position, together with cash flow from operations, will be adequate to fund the Company's operations, including the proposed acquisition of Norland Corporation, for at least the next twelve months. However, the nature of the Company's business is such that it is subject to changes in technology, government approval and regulation, and changes in third-party reimbursement in the United States and numerous foreign markets. Significant changes in one or more of these factors in a major market for the Company's products could significantly affect the Company's ability to meet its cash needs through internal sources. -12- NORLAND MEDICAL SYSTEMS, INC. PART II OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits furnished: (27) Financial Data Schedule -13- NORLAND MEDICAL SYSTEMS, INC. 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 thereunto duly authorized. NORLAND MEDICAL SYSTEMS, INC. (Registrant) Date: July 31, 1997 /s/ Reynald G. Bonmati ------------------------------------- Reynald G. Bonmati President Date: July 31, 1997 /s/ Kurt W. Streams ------------------------------------- Kurt W. Streams Vice President, Finance (Principal Financial and Accounting Officer) -14- NORLAND MEDICAL SYSTEMS, INC. EXHIBIT INDEX - ------------- Number Description - ------ ----------- 27 Financial Data Schedule -15- EX-27 2 FDS
5 This schedule contains summary financial information extracted from the Condensed Financial Statements and is qualified in its entirety by reference to such financial statements. 1 3-MOS DEC-31-1997 MAR-31-1997 6,561,392 1,977,599 11,292,674 221,000 1,490,399 21,683,852 549,600 103,228 30,266,158 3,272,054 0 0 0 3,574 26,990,530 30,266,158 5,712,965 5,946,285 3,384,872 3,384,872 1,901,209 0 0 797,098 324,000 473,098 0 0 0 473,098 0.07 0.07
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