<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
JANUARY 13, 1997
Date of Report (Date of earliest event reported)
NUTRITION MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 0-22247 41-1756256
(State or other jurisdiction (Originally filed under File (IRS Employer
of incorporation) No. 333-999) Identification No.)
(Commission File Number)
9850 51ST AVENUE NORTH, SUITE 110, MINNEAPOLIS, MN 55442
(Address of principal executive offices) (Zip Code)
(612) 551-9595
(Registrant's telephone number, including area code)
<PAGE>
This filing is an amendment to the previously filed Form 8-K dated January 13,
1997 of Nutrition Medical, Inc. (the "Company") regarding the Company's
acquisition of Nutrapharma ("Elan" or "Nutrapharma"), an operating division of
Elan Pharma, Inc.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
1. Audited statements of assets acquired as of March 31, 1996 and 1995 and
statements of revenues and direct operating expenses for the years ended
March 31, 1996 and 1995 of Nutrapharma. The financial statements for
Nutrapharma present the assets acquired by the Company and revenues and
direct operating expenses of Nutrapharma, and are not intended to be a
complete presentation of Nutrapharma's financial position and results of
operations.
2. Unaudited statement of assets acquired as of December 31, 1996 and
unaudited statements of revenues and direct operating expenses for the
nine months ended December 31, 1996 and 1995 of Nutrapharma. The
unaudited financial statements for Nutrapharma present the assets
acquired by the Company and revenues and direct operating expenses of
Nutrapharma, and are not intended to be a complete presentation of
Nutrapharma's financial position and results of operations.
(b) Pro forma financial information.
1. Unaudited pro forma condensed consolidated statement of assets acquired
as of December 31, 1996 and unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1996.
(c) Exhibits
23.1 Consent of KPMG Peat Marwick LLP
2
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Financial Statements
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 4
STATEMENTS OF ASSETS ACQUIRED
MARCH 31, 1996 AND 1995 5
STATEMENTS OF REVENUES AND DIRECT
OPERATING EXPENSES, YEARS
ENDED MARCH 31, 1996 AND 1995 6
NOTES TO FINANCIAL STATEMENTS 7
STATEMENT OF ASSETS ACQUIRED
DECEMBER 31, 1996 (UNAUDITED) 11
STATEMENTS OF REVENUES AND DIRECT
OPERATING EXPENSES, NINE MONTHS
ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED) 12
NOTES TO FINANCIAL STATEMENTS 13
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Elan Pharma, Inc.:
We have audited the accompanying statements of assets acquired of Nutrapharma,
an operating division of Elan Pharma, Inc. (the "Seller"), as of March 31, 1996
and 1995 and the related statements of revenues and direct operating expenses
for the years then ended. These financial statements are the responsibility of
the Seller'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 audit to
obtain reasonable assurance about whether the financial statements are free
from 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.
The accompanying statements were prepared to comply with the rules and
regulations, of the Securities and Exchange Commission and on the basis of
presentation as described in Note 2, to present the assets acquired and revenues
and direct operating expenses of Nutrapharma, an operating division of the
Seller, pursuant to the Purchase Agreement described in Note 2, and are not
intended to be a complete presentation of Nutrapharma's financial position and
results of operations.
In our opinion, the accompanying statements present fairly, in all material
respects, the assets acquired of Nutrapharma as of March 31, 1996 and 1995 and
its revenues and direct operating expenses for the years then ended pursuant to
the Purchase Agreement described in Note 2, on the basis of accounting described
in Note 2.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 19, 1997
4
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Statements of Assets Acquired
March 31, 1996 and 1995
1996 1995
---- ----
Current assets:
Inventory $ 768,626 1,630,164
Equipment and leased assets:
Manufacturing equipment 719,519 719,519
Equipment leased to others 1,558,270 1,647,141
------------- -------------
2,277,789 2,366,660
Less accumulated depreciation (1,485,365) (1,105,661)
------------- -------------
Net equipment and leased assets 792,424 1,260,999
------------- -------------
Assets acquired $ 1,561,050 2,891,163
------------- -------------
------------- -------------
See accompanying notes to statements of assets acquired
and revenues and direct operating expenses.
5
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Statements of Revenues and Direct Operating Expenses
Years Ended March 31, 1996 and 1995
1996 1995
---- ----
Net sales $ 7,581,943 9,102,399
Cost of sales 5,099,328 6,310,646
------------ ------------
Gross profit 2,482,615 2,971,753
Other revenues - 2,862,726
------------ ------------
Income before operating expenses 2,482,615 5,654,479
Direct operating expenses:
Selling, general, and administrative 2,186,096 4,088,737
Research and development 162,414 145,533
------------ ------------
Total operating expenses 2,348,510 4,234,270
------------ ------------
Excess of revenues over operating expenses $ 134,105 1,420,209
------------ ------------
------------ ------------
See accompanying notes to statements of assets acquired
and revenues and direct operating expenses.
6
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Notes to Statements of Assets Acquired and Revenues
and Direct Operating Expenses
Years Ended March 31, 1996 and 1995
(1) NATURE OF OPERATIONS
Nutrapharma, an operating division of Elan Pharma, Inc. (the "Seller"),
produces and markets a line of tube feeding (enteral) formulas,
disposable administration hardware (feeding tubes, administration sets,
containers) and pumps used by hospitals, nursing homes and home health
care providers to feed patients unable to consume adequate nutrition
orally.
(2) BASIS OF PRESENTATION
On January 13, 1997, the Seller entered into an Asset Purchase Agreement
(the "Agreement") with Nutrition Medical, Inc. (the "Buyer") for the
sale of the Seller's Nutrapharma operations (the "Business"). Under the
terms of the Agreement, on January 13, 1997 (the "Closing Date"), the
Seller sold to the Buyer essentially all of the assets related to the
Seller's operation of the Business.
Under the terms of the Agreement, the Seller retained the deferred service
and product warranty liabilities of the Business. Other liabilities,
which will also be retained by the Seller, are generally not
specifically identifiable with the Business. Under the Seller's
centralized cash management system, cash requirements of the Business
were generally provided directly to the Business by the Seller and cash
generated by the Business was generally remitted directly to the Seller.
Transaction systems (e.g. payroll, employee benefits, freight, and
accounts payable) used to record and account for cash disbursements were
provided by centralized Seller organizations. Most of these corporate
systems are not designed to track liabilities and payments on a division
basis. Accordingly, it is not practical to determine liabilities
associated with the Business for the above items; therefore, such
liabilities cannot be included in the statements. Given these
constraints, a statement of assets acquired is presented in lieu of a
statement of financial position.
Throughout the period covered by the statements, the Business' operations
were conducted and accounted for as a division of the Seller.
Historically, financial statements were not prepared for the Business.
These statements were prepared to comply with the rules and regulations
of the Securities and Exchange Commission.
These statements were derived from the Seller's historical accounting
records, and are presented as if the operations of the Business had been
conducted exclusively within a wholly owned subsidiary of the Seller.
The statements include all revenues, costs and expenses including
production, distribution, personnel, facility, and depreciation costs,
directly incurred by, or allocated to the Business. In addition, costs
relating to operating expenses shared with other business units of the
Seller have been included. Such costs, generally related to
administrative and sales functions, have been allocated to the Business
based upon management estimates. The statements do not reflect the
impact of income taxes or other corporate level functions such as
treasury, finance, or legal.
(Continued)
7
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Notes to Statements of Assets Acquired and Revenues
and Direct Operating Expenses
All of the allocations and estimates in the statements are based on assumptions
that Seller management believes are reasonable under the circumstances.
However, these allocations and estimates are not necessarily indicative
of costs that would have resulted if the Business had been operated as a
separate entity.
(3) SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ significantly from
those estimates.
REVENUE RECOGNITION
Sales and related cost of goods sold are included in income when goods are
shipped to customers. Service revenues are recognized ratably over the
life of the service agreement or as service is performed, if not under a
service agreement. Revenue on equipment leased to customers is
recognized over the term of the lease.
INVENTORIES
Inventories are valued at the lower of aggregate cost or market, with cost
being determined by the first-in, first-out method.
EQUIPMENT
Manufacturing equipment consists of specialized packaging machinery,
tooling and molds for use by various contract manufacturers and is stated
at cost. Depreciation is provided using the straight-line method over
the estimated useful lives of 5 to 10 years.
The Seller has not maintained records of the cost of certain manufacturing
equipment; therefore, the book value of such equipment is not reflected
in the accompanying statements.
EQUIPMENT LEASED TO OTHERS
Nutrapharma leases enteral feeding pumps to its customers as part of a
customer retention marketing strategy. In return for use of the pump,
the customer agrees to buy a minimum quantity of Nutrapharma products
over the lease term or pay a pre-established monthly rent. All leased
pumps are capitalized at cost and depreciated on a straight-line basis
over the useful life of the pump or the term of the underlying lease,
whichever is shorter.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment losses on long-lived assets used in operations are recorded
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount.
RESEARCH AND DEVELOPMENT
All research and development costs are charge to operations as incurred.
(Continued)
8
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Notes to Statements of Assets Acquired and Revenues
and Direct Operating Expenses
(4) INVENTORY
Inventories consist of the following as of March 31:
1996 1995
---- ----
Raw materials $ 756,899 968,054
Work in progress 51,838 43,581
Finished goods 248,009 829,504
----------- -----------
1,056,746 1,841,139
----------- -----------
Less: reserve for obsolescence (288,120) (210,975)
----------- -----------
$ 768,626 1,630,164
----------- -----------
----------- -----------
(5) PRODUCT RECALL
Nutrapharma voluntarily recalled certain formula products in August 1995.
As a result of the recall, Nutrapharma wrote off approximately $400,000
in inventory in the year ended March 31, 1996.
(6) REORGANIZATION/MAJOR CUSTOMER
Effective February 1, 1996, Nutrapharma entered into a distribution
agreement related to its enteral product line. As part of this
reorganization, a third party distributor, in exchange for reduced
prices on these Nutrapharma products, assumed all of the sales order
processing, inventory, distribution and invoicing functions related to
servicing the majority of Nutrapharma customers. Subsequent to this
conversion, Nutrapharma experienced a decrease in average per unit sale
price on these products, and decreases in selling, general and
administrative operating expenses as redundant operations were
eliminated. As a result of consolidating substantially all its customer
sales for these products through a single source, sales of enteral
products to the distributor as a percentage of total enteral sales
increased over the periods presented, representing 17% and 0% of total
sales in 1996 and 1995, respectively.
A single customer of Nutrapharma accounted for 18% and 5% of total sales in
the years ended 1996 and 1995, respectively.
(Continued)
9
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Notes to Statements of Assets Acquired and Revenues
and Direct Operating Expenses
(7) TERMINATION AGREEMENT
Effective July 1, 1994, the Seller entered into a Termination Agreement
(the "Agreement") with Clintec Nutrition Company ("Clintec") and Clintec
Nutrition Clinique ("Clinique") a French company, to terminate the
Distribution Agreement dated August 26, 1991 entered into between the
same parties providing for the distribution in North America of certain
enteral nutrition products, namely Reabilan, manufactured by Clinique.
Included in the Agreement was a provision to allow Clintec to be the
exclusive distributor of Reabilan in the United States. In exchange for
these distribution rights and inventory on-hand, Clintec paid Nutrapharma
$2,850,000. This amount is reflected as other revenue in 1995 in the
accompanying statements. Additionally, the Seller incurred expenses
related to the agreement, including severance costs, which are included
in the 1995 expenses.
(8) TRANSITION COSTS
During 1995, the Seller relocated its Nutrapharma operations from its
existing facility in Cambridge, Massachusetts to Smithfield, Rhode
Island. Costs of $448,483 relating to the relocation are included in the
selling, general and administrative costs in the 1995 statements and
relate primarily to a lease buyout of the Cambridge location.
10
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Statement of Assets Acquired
December 31, 1996
(Unaudited)
1996
----------
Current assets:
Inventory $ 732,628
Equipment and leased assets:
Manufacturing equipment 719,519
Equipment leased to others 1,558,270
----------
2,277,789
Less accumulated depreciation (1,694,970)
----------
Total equipment and leased assets 582,819
----------
Assets acquired $1,315,447
----------
----------
See accompanying notes to financial statements.
11
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Statements of Revenues and Direct Operating Expenses
Nine Months Ended December 31, 1996 and 1995
(Unaudited)
1996 1995
---------- ----------
Net sales $3,931,114 $5,453,303
Cost of sales 2,813,281 3,504,999
---------- ----------
Gross Profit 1,117,833 1,948,304
Direct operating expenses:
Selling, general, and administrative 1,060,737 1,715,506
Research and development 151,876 119,313
---------- ----------
Total operating expenses 1,212,613 1,834,819
---------- ----------
Excess of operating expenses over
revenues $ (94,780) $ 113,485
---------- ----------
---------- ----------
See accompanying notes to financial statements.
12
<PAGE>
NUTRAPHARMA
(An operating division of Elan Pharma, Inc.)
Notes to Financial Statements
Nine Months Ended December 31, 1996 and 1995
(Unaudited)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the net
assets acquired as of December 31, 1996 and the results of revenues
and direct operating expenses for the nine months ended December 31, 1996
and 1995. Such adjustments are of a normal recurring nature. The results
of revenues and direct operating expenses for the nine months ended
December 31, 1996 and 1995, are not necessarily indicative of the results
to be expected for the full year. These financial statements should be
read in conjunction with the audited financial statements for the years
ended March 31, 1996 and 1995 included herein.
(2) INVENTORY
Inventories consist of the following as of December 31, 1996:
Raw materials $ 314,864
Work in progress 97,945
Finished goods 319,819
----------
$ 732,628
----------
----------
13
<PAGE>
NUTRITION MEDICAL, INC.
Pro Forma Condensed Financial Statements
The following unaudited pro forma condensed financial statements give effect
to the acquisition by Nutrition Medical, Inc. (the "Company") of Nutrapharma
(an operating division of Elan Pharma, Inc.) using the purchase method of
accounting. The statements are based on estimates and assumptions set forth
below and in the accompanying notes, which include pro forma adjustments.
These pro forma financial statements are based upon the historical statements
of Nutrition Medical, Inc. adjusted to give effect to the acquisition of
Nutrapharma by Nutrition Medical, Inc., on January 13, 1997.
The pro forma condensed consolidated balance sheet presented herein reflects the
application of purchase accounting adjustments of the Nutrapharma acquisition to
the historical balance sheet of Nutrition Medical, Inc. The aggregate purchase
price of Nutrapharma was $4,800,000. The pro forma condensed consolidated
statement of operations of Nutrition Medical, Inc. for the year ended
December 31, 1996 gives effect to the acquisition as if it had occurred at the
beginning of the period presented. This statement is based on the historical
fiscal year ended March 31, 1996 statement of revenues and direct operating
expenses of Nutrapharma, adjusted to coincide with the December 31, 1996 year
end results of the Company. Such adjusted results were derived by adding to
the March 31,1996 fiscal year end balances the subsequent nine months ended
December 31, 1996 interim period results, and then deducting the nine months
ended December 31, 1995 interim period results.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deemed appropriate. Final
purchase accounting adjustments may differ from the pro forma adjustments
presented herein. The unaudited pro forma condensed consolidated financial
information is not necessarily indicative of the results that actually would
have occured had the acquisition been consummated on January 1, 1996 or the
results which may be obtained in the future. The pro forma condensed
consolidated financial information should be read in conjunction with the
Company's historical financial statements and notes thereto.
14
<PAGE>
NUTRITION MEDICAL, INC.
Pro Forma Condensed Consolidated Statement of Assets Acquired
December 31, 1996
(Unaudited, in thousands)
<TABLE>
<CAPTION>
NUTRITION (a) PRO FORMA PRO FORMA
MEDICAL, INC. NUTRAPHARMA ADJUSTMENTS CONSOLIDATED
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,554 $ 2,554
Short -term investments 1,672 1,672
Accounts receivable 356 356
Inventories 460 $ 733 $ (233) (b) 960
Prepaid expenses 34 34
------ ------- -------- -------
5,076 733 (233) 5,576
Equipment and office furniture 183 2,278 (1,428) (b) 1,033
Less accumulated depreciation (51) (1,695) 1,484 (b,c) (262)
------ ------- -------- -------
132 583 56 771
Goodwill 3,500 (b) 3,500
Less: accumulated amortization - - (350) (d) (350)
------ ------- -------- -------
- - 3,150 3,150
------ ------- -------- -------
Total assets $5,208 $ 1,316 $ 2,973 $ 9,497
------ ------- -------- -------
------ ------- -------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 509 $ 50 (b) $ 559
Subordinated note payable 3,090 (e,g) 3,090
Note payable discount (1,293) (e,g) (1,293)
------ -------- -------
Total liabilities 509 1,847 2,356
Shareholders' equity:
Common stock 46 9 (e) 55
Paid-in capital 6,943 3,197 (e) 10,140
Accumulated deficit (2,290) (764) (3,054)
------ -------- -------
Total shareholders' equity 4,699 2,442 7,141
------ -------- -------
Total liabilities and shareholders' equity $5,208 $ 4,289 $ 9,497
------ -------- -------
------ -------- -------
</TABLE>
See accompanying pro forma adjustment descriptions.
15
<PAGE>
NUTRITION MEDICAL, INC.
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1996
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
NUTRITION (a) PRO FORMA PRO FORMA
MEDICAL, INC. NUTRAPHARMA ADJUSTMENTS CONSOLIDATED
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $2,402 $6,060 $ 8,462
Cost of sales 1,550 4,400 $ 22 (f) 5,972
------ ------ ----- -------
852 1,660 22 2,490
Operating expenses 1,691 1,734 (116) (f) 3,309
Goodwill amortization - - 350 (d) 350
------ ------ ----- -------
1,691 1,734 234 3,659
------ ------ ----- -------
Operating loss (839) (74) (256) (1,169)
Other income (expense) 80 (203) (g) (123)
------ ------ ----- -------
Net loss $ (759) $ (74) $(459) $(1,292)
------ ------ ----- -------
------ ------ ----- -------
Net loss per share $(.18) $(.25)
------ -------
------ -------
Weighted average number of
shares outstanding 4,325 855 (e) 5,180
------ ----- -------
------ ----- -------
</TABLE>
See accompanying pro forma adjustment descriptions.
16
<PAGE>
NUTRITION MEDICAL, INC.
Notes to Pro Forma Condensed Consolidated Financial Statements
December 31,1996
(Unaudited)
PRO FORMA ADJUSTMENTS
(a) The financial statements for Nutrpharma present the net assets acquired and
revenues and direct operating expenses of Nutrpharma, an operating division
of Elan Pharma, Inc., and are not intended to be a complete presentation
of Nutrapharma's financial position and results of operations.
(b) These entries represent the valuation adjustments required to allocate the
$4,800,000 purchase price plus $50,000 in estimated acquisition related
expenses to the assets acquired from Nutrapharma. Valuations are based upon
the Company's estimates of the fair market value of the underlying assets
acquired, with the remaining unallocated balance classified as goodwill, as
follows:
Inventory $ 500,000
Equipment 850,000
Goodwill 3,500,000
----------
$4,850,000
----------
----------
(c) Pro forma adjustment in the amount of $210,833 to record 1996 depreciation
charged to operations.
(d) Reflects goodwill amortization in the amount of $350,000 charged to
operations in 1996.
(e) These entries reflect the debt and stock issued to acquire the Nutrapharma
assets as outlined in pro forma adjustment (b) above. The Company issued a
$3,000,000 note payable, which, together with all accrued interest, is due
on January 13, 2004. The note accrues interest at 3% per annum and has
been discounted in the amount of $1,406,000 to reflect the Company's
estimated fair market borrowing rate of 12%. In addition, the Company
issued 855,000 shares of Common Stock, $.01 par value, valued at $3.75
per share on the date of the acquisition.
(f) Reflects the changes in depreciation associated with the fair value basis
adjustments of the assets acquired.
(g) Reflects the additional interest expense associated with the note payable
issued to Nutrapharma.
17
<PAGE>
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.
NUTRITION MEDICAL, INC.
Dated: March 30, 1997 By: /s/ Richard J. Hegstrand
----------------------------
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
23.1 Consent of KPMG Peat Marwick LLP
19
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Elan Pharma, Inc.
We consent to the inclusion of our report dated March 19, 1997, with respect to
the statements of assets acquired of Nutrapharma, an operating division of Elan
Pharma, Inc., as of March 31, 1996 and 1995 and related statements of revenues
and direct operating expenses for the years ended March 31, 1996 and 1995, which
report appears in the Form 8-K/A of Nutrition Medical, Inc. dated March 30,
1997.
KPMG Peat Marwick LLP
Boston Massachusetts
March 30, 1997
