<PAGE> 1
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
<TABLE>
<S> <C>
Date of Report (date of earliest event reported): December 30, 1998 (October 15, 1998)
</TABLE>
HORIZON MEDICAL PRODUCTS, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 000-24025 58-1882343
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One Horizon Way, Post Office Box 627, Manchester, Georgia 31816
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
706-846-3126
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name or address, if changed since last report)
Page 1 of 21
<PAGE> 2
This amendment to the report on Form 8-K of Horizon Medical Products, Inc.,
dated October 30, 1998, is being filed to provide the information required by
Item 7 of Form 8-K (Financial Statements and Pro Forma Financial Information)
which was omitted from the Form 8-K as filed with the Securities and Exchange
Commission on October 30, 1998 in accordance with Item 7(a)(4).
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective October 15, 1998, Horizon Medical Products, Inc. ("Horizon")
consummated the acquisition (the "Acquisition") of the outstanding stock of
Stepic Corporation ("Stepic") pursuant to the terms of the Stock Purchase
Agreement, dated October 15, 1998, by and among Horizon, Steven Picheny, Howard
Fuchs, Christine Selby, and Stepic. The following summary of the transaction is
qualified in its entirety by the more detailed information contained in the
copy of the Stock Purchase Agreement included as Exhibit 2 to this Current
Report.
Pursuant to the Stock Purchase Agreement, Horizon acquired the assets and
liabilities of Stepic. The assets acquired consisted primarily of accounts
receivable and inventory, which were used by Stepic relating to the
distribution of medical products. Horizon intends to use the acquired assets in
a similar manner. As consideration for the Acquisition, Stepic received $8.0
million in cash at the closing date and has the opportunity to earn up to an
additional $12.0 million under the terms of the Stock Purchase Agreement, upon
the successful achievement of future earnings targets by Stepic. Horizon funded
the Acquisition from its line of credit with NationsCredit Commercial
Corporation. The purchase price was determined through arm's-length
negotiations between the management of Stepic and the management of Horizon and
was approved by the owners of Stepic and the Board of Directors of Horizon.
Stepic was a significant distributor of Horizon products prior to the
acquisition. In partial response to this item, Horizon's press release dated
October 19, 1998 is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements.
See index on page 4. The audited balance sheet of Stepic Corporation
as of December 31, 1997 and the accompanying statements of operations
and retained earnings and cash flows for the year then ended have been
included to comply with Rule 3-05 of Regulation S-X.
(b) Pro forma financial information.
See index on page 4.
Page 2 of 21
<PAGE> 3
(c) Exhibits.
*2. Stock Purchase Agreement, by and among Horizon Medical Products,
Inc., Steven Picheny, Howard Fuchs, Christine Selby and Stepic Corporation,
effective October 15, 1998. Pursuant to Item 601(b) of Regulation S-K, the
Company has omitted certain Schedules and Exhibits to the Stock Purchase
Agreement (all of which are listed therein) from this Exhibit 2. The Company
hereby agrees to furnish supplementally a copy of such omitted items to the
Securities and Exchange Commission upon its request.
*99. Press release dated October 19, 1998.
*Previously filed in the Form 8-K dated October 30, 1998.
Page 3 of 21
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STEPIC CORPORATION
Independent Auditor's Report 5
Balance Sheets as of December 31, 1997 and September 30, 1998 (unaudited) 6
Statement of Operations and Retained Earnings for the year ended
December 31, 1997, and Statements of Operations for the nine months
ended September 30, 1997 and 1998 (unaudited) 7
Statements of Cash Flows for the year ended December 31, 1997 and
the nine months ended September 30, 1997 and 1998 (unaudited) 8
Notes to Financial Statements 9-12
HORIZON MEDICAL PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Condensed Consolidated Financial
Statements 13
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year
ended December 31, 1997 and for the nine months ended September 30, 1998 14-15
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998 16
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements 17-20
</TABLE>
Page 4 of 21
<PAGE> 5
Independent Auditor's Report
To the Stockholder of
Stepic Corporation
Long Island City, New York
We have audited the accompanying balance sheet of Stepic Corporation (A New
York S Corporation) as of December 31, 1997 and the related statements of
operations and retained earnings and cash flows for the year 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 audit.
We conducted our audit 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 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 audit provides 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 Stepic Corporation as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Chassin Levine Rosen & Company, LLP
Great Neck, New York
February 13, 1998
Page 5 of 21
<PAGE> 6
STEPIC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash (Note 8) $ 362,220 $ 1,036,417
Accounts receivable (Note 4) 8,386,060 8,851,376
Inventory (Note 4) 6,251,662 6,930,119
Other receivables (Note 5) 994,325 813,135
Prepaid expenses 78,258 56,343
----------- -----------
Total current assets 16,072,525 17,687,390
----------- -----------
Property, plant and equipment
Leasehold improvements 295,272 298,357
Equipment, furniture and fixtures 559,680 566,720
----------- -----------
854,952 865,077
Less: accumulated depreciation 581,786 644,349
----------- -----------
Net 273,166 220,728
----------- -----------
Other assets
Distribution rights, net of amortization (Note 3) 430,950 364,650
Other receivables (Note 5) 299,286
Security deposits 4,000 4,000
----------- -----------
Total other assets 734,236 368,650
----------- -----------
Total assets $17,079,927 $18,276,768
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Note payable - bank (Note 4) $ 8,750,000 $ 6,670,000
Accounts payable - trade 3,881,588 6,419,431
Accrued expenses 574,441 551,645
Other liabilities (Notes 3 and 5) 337,000 220,184
----------- -----------
Total current liabilities 13,543,029 13,861,260
----------- -----------
Commitments and Contingency (Notes 5, 6 and 7)
Stockholder's equity
Common stock, no par value
Authorized 100 shares, issued and outstanding
1 share stated at 20,000 20,000
Retained earnings 3,516,898 4,395,508
----------- -----------
Total stockholder's equity 3,536,898 4,415,508
----------- -----------
Total liabilities and stockholder's equity $17,079,927 $18,276,768
=========== ===========
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
Page 6 of 21
<PAGE> 7
STEPIC CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the year ended For the nine months ended
December 31, September 30,
------------ -------------------------
1997 1997 1998
(unaudited) (unaudited)
<S> <C> <C> <C>
Net sales (Note 1) $38,752,168 $29,066,815 $31,373,736
Cost of sales 29,778,644 22,336,049 23,493,232
----------- ----------- -----------
Gross profit 8,973,524 6,730,766 7,880,504
----------- ----------- -----------
Operating expenses
Selling 3,598,454 2,559,524 2,563,277
Warehouse 374,960 276,723 276,454
General and administrative (Notes 5 and 6) 3,020,273 2,079,015 2,148,715
----------- ----------- -----------
Total operating expenses 6,993,687 4,915,262 4,988,446
----------- ----------- -----------
Operating income 1,979,837 1,815,504 2,892,058
----------- ----------- -----------
Other income (expense)
Commission income 145,687 122,064 88,256
Other income (Note 5) 25,241 12,099 7,617
Interest expense - bank (Note 4) (523,039) (362,123) (423,811)
----------- ----------- -----------
Total other expense (352,111) (227,960) (327,938)
----------- ----------- -----------
Income before depreciation and amortization
and provision for state and local income taxes 1,627,726 1,587,544 2,564,120
Depreciation and amortization 93,784 45,000 128,863
----------- ----------- -----------
Income before provision for state and local
income taxes 1,533,942 1,542,544 2,435,257
Provision for state and local income taxes 158,733 122,314 125,165
----------- ----------- -----------
Net income 1,375,209 $ 1,420,230 $ 2,310,092
=========== ===========
Retained earnings, January 1, 1997 3,624,250
Less: prior and current years' net income
distributed to stockholder (1,482,561)
----------
Retained earnings, December 31, 1997 $ 3,516,898
===========
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
Page 7 of 21
<PAGE> 8
STEPIC CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year
ended For the nine months ended
December 31, September 30,
------------ -------------
1997 1997 1998
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,375,209 $ 1,420,230 $ 2,310,092
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 93,784 45,000 128,863
Accounts receivable (69,734) 215,156 (465,316)
Inventory (1,648,696) (1,506,555) (678,457)
Other receivables (524,387) (597,965) 181,190
Prepaid expenses 13,070 13,761 21,915
Accounts payable - trade (843,525) 1,402,624 2,537,843
Accrued expenses 26,078 (52,679) (22,796)
Other liabilities 337,000 (30,008) (116,816)
----------- ----------- -----------
Net cash (used in) provided by
operating activities (1,241,201) 909,564 3,896,518
----------- ----------- -----------
Cash flows used in investing activities
Acquisition of equipment, furniture and fixtures (58,452) (54,712) (10,125)
Purchase of distribution rights (442,000)
----------- ----------- -----------
Net cash used in investing activities (500,452) (54,712) (10,125)
----------- ----------- -----------
Cash flows provided by (used in) financing activities
Repayment of note payable - bank (5,500,000) (5,500,000) (8,750,000)
Increase in note payable - bank 8,750,000 5,930,000 6,670,000
Decrease in other receivables 1,239 300,525 299,286
Prior and current years' net income distributed to
stockholder (1,482,561) (1,459,917) (1,431,482)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,768,678 (729,392) (3,212,196)
----------- ----------- -----------
Net increase in cash 27,025 125,460 674,197
Cash - beginning of period 335,195 335,195 362,220
----------- ----------- -----------
Cash - end of period $ 362,220 $ 460,655 $ 1,036,417
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 525,216
===========
Cash paid during the year for income taxes $ 191,327
===========
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements.
Page 8 of 21
<PAGE> 9
STEPIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - NATURE OF OPERATIONS
Stepic Corporation is a sales, marketing and distribution
organization for specialty medical products which are used primarily by
health care institutions in the areas of anesthesiology, critical care,
respiratory therapy, oncology, operating and emergency rooms, blood
banks and infection control predominately in the northeastern section
of the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE
Accounts receivable are written off when deemed by management to
be uncollectible.
INVENTORY VALUATION
Inventories are valued at the lower of cost or market, with cost
determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated useful
lives, principally on a straight-line basis.
Maintenance and repairs are charged to expense as incurred, except
that expenditures which increase the useful lives of the assets are
capitalized. When properties are replaced, retired or otherwise
disposed of, the cost of such properties and the accumulated
depreciation thereon is deducted from the respective accounts and the
related gain or loss, if any, is reflected in operations.
The estimated lives of the principal classes of assets are as
follows:
Leasehold improvements 5 to 10 years
Equipment, furniture and fixtures 5 to 7 years
DISTRIBUTION RIGHTS
Amortization is provided for over a period of five years (Note 3).
401(K) EMPLOYEE SAVINGS PLAN
On January 2, 1992, the Company established a 401(K) Savings Plan
for its employees. While contributions to the plan result from employee
payroll deductions, the Company may, from time to time, elect to make
contributions into the plan in addition to the aforementioned payroll
deductions. For the year 1997, the Company has elected not to make any
contributions to the Plan.
Page 9 of 21
<PAGE> 10
STEPIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
S CORPORATION - INCOME TAX STATUS
The Company, as of September 1, 1990, with the consent of its
stockholder, has elected to be treated as an S Corporation for Federal
and New York State income tax purposes. In lieu of corporate income
taxes, the stockholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. No provision or
liability for Federal income taxes has been included in the financial
statements. However, New York State imposes a tax rate of approximately
1.125% on New York S Corporations which has been provided for in the
financial statements. The Company has also provided for local corporate
income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of September 30, 1998,
and for the nine month periods ended September 30, 1998 and 1997, are
unaudited. In the opinion of management, these financial statements
include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial
position of the Company and the results of its operations. The results
of operations for the interim periods are not necessarily indicative of
the results of the full year.
NOTE 3 - DISTRIBUTION RIGHTS
On November 17, 1997, the Company acquired the distribution rights
to be the exclusive distributor of certain products in New England, as
defined. The agreement, containing certain non-compete covenants for
the seller for up to three years, requires a purchase price equal to
two (2) times the gross margin earned by the Company on sales of those
certain products to currently existing customers during a six month
period ending May 15, 1998. The Company has estimated the total
purchase price to be approximately $442,000 and paid $225,000 in
connection therewith. The balance of the purchase price, estimated at
$217,000 and due November 15, 1998, has been included in the
accompanying financial statements.
NOTE 4 - NOTE PAYABLE - BANK
During 1995, the Company entered into a banking facility which
provides for a $9,000,000 revolving line of credit evidenced by a
secured promissory note and loan agreement dated August 24, 1995 and
maturing June 30, 1998. The revolving line of credit is secured by
accounts receivable and inventory with permitted borrowings to be the
lesser of the credit line or a percentage of eligible accounts
receivable and inventory, as defined. The agreement provided that
borrowings bear interest at the bank's prime rate plus one quarter
percent or at the bank's match funded rate, as defined. Effective March
7, 1996, the bank reduced the interest rate charged to the Company to
the prime rate. The unused portion of the available credit line, as
defined, requires a commitment fee of one quarter percent per annum.
Additionally, the Company is required to meet certain covenants as
defined in the agreement which were complied with. At December 31,
1997, the outstanding loan balance was $8,750,000 bearing interest at
8.5% per annum.
Interest expense and commitment fees relating to bank debt were
$523,039 for the year ended December 31, 1997.
Page 10 of 21
<PAGE> 11
STEPIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company was obligated under a noncancellable real estate
operating lease for its office and warehouse. The facility was leased
from its sole stockholder, who in turn leased it from the New York City
Industrial Development Agency (IDA). The lease, due to expire on
November 2, 2006, was terminated on November 1, 1996, and the property
was turned over to the sole stockholder. Terms of the original lease
required the Company to pay all utilities, repairs and maintenance, and
maintain fire and liability insurance coverage for the property. The
Company now leases its facilities on a month to month basis from its
sole stockholder requiring annual rent, which for 1997 was $330,500,
which management estimates is current market value. Additionally, the
Company pays all utilities, repairs and maintenance, and maintains fire
and liability coverage for the property and, effective January 1, 1997,
is responsible for the payment of real estate taxes.
The Company at December 31, 1997 has two mortgage receivables
secured by properties with balances due totaling $305,022 for loans
made to related parties of the sole stockholder. One note with a
balance of $145,022, requires monthly payments of principal and
interest at 8% per annum beginning February 1, 1997 and maturing
January 1, 2009. The second note in the amount of $160,000, requires
monthly payments of interest only at 8.5% per annum until April 26,
2001, when the entire principal balance is due. At December 31, 1997,
the above amounts have been included in other receivables and $22,576
of interest income received is included in other income in the
accompanying financial statements.
Total principal payments to be received in the next four years and
thereafter are as follows:
<TABLE>
<S> <C>
1998 $ 8,214
1999 8,896
2000 9,635
2001 170,434
Thereafter 107,843
--------
$305,022
========
</TABLE>
The Company, at December 31, 1997, had a loan due its sole
stockholder, bearing interest at the prime rate, of $120,000 which is
included in other liabilities in the accompanying financial statements.
Page 11 of 21
<PAGE> 12
STEPIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - OPERATING LEASES
The Company leases office equipment under noncancellable operating
leases having remaining terms in excess of one year. The following are
the aggregate minimum future lease payments under operating leases:
<TABLE>
<S> <C>
1998 $ 49,505
1999 46,257
2000 15,650
--------
$111,412
========
</TABLE>
NOTE 7 - CONTINGENCY
The Company is contingently liable as guarantor of a loan made by
its bank to its sole stockholder in January, 1997 in the amount of
$1,000,000. The loan requires principal repayment in sixty monthly
installments beginning February, 1997 with interest at the bank's prime
rate, with a final installment due in January, 2002. The principal
balance of $853,337 at December 31, 1997 is due as follows:
<TABLE>
<S> <C>
1998 $178,333
1999 189,163
2000 208,333
2001 255,826
2002 21,682
--------
$853,337
========
</TABLE>
NOTE 8 - CONCENTRATIONS
CREDIT RISK
At December 31, 1997, the Company had demand deposits with a major
financial institution in excess of the federally insured limit of
$100,000. The possibility of loss exists if a bank holding excess
deposits were to fail.
SUPPLIERS
The Company has exclusive distribution arrangements with most all
of the manufacturers it represents. During 1997, the Company's sales
were comprised predominately of products supplied by the eight largest
manufacturers represented by the Company.
Page 12 of 21
<PAGE> 13
HORIZON MEDICAL PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The accompanying Unaudited Pro Forma Condensed Consolidated Financial
Statements reflect the consolidated financial position of Horizon Medical
Products, Inc. and subsidiaries (the "Company") as of September 30, 1998 and the
consolidated results of its operations for the year ended December 31, 1997, and
the nine months ended September 30, 1998. The Unaudited Pro Forma Condensed
Consolidated Financial Statements as of September 30, 1998 and for the nine
months then ended give pro forma effect for the fiscal 1998 (i) purchase of the
outstanding stock of Stepic Corporation (the "Stepic Acquisition"), (ii)
purchase of certain assets used in the manufacture and sale of medical devices
by Ideas for Medicine, Inc. (the "IFM Acquisition"), (iii) purchase of certain
assets used in the distribution and sale of medical devices by Columbia Vital
Systems, Inc. (the "CVS Acquisition"), and (iv) purchase of the human product
line of Norfolk Medical Products, Inc. (the "Norfolk Acquisition") (collectively
referred to herein as the "1998 Acquisitions") as well as (v) the initial public
offering of Common Stock by the Company (the "Offering") and the application of
the net proceeds thereof: (a) as if the transactions occurred January 1, 1998
with respect to statement of operations data and (b) as of September 30, 1998
with respect to balance sheet data. The Unaudited Pro Forma Condensed
Consolidated Financial Statements for the year ended December 31, 1997 give pro
forma effect for the (i) 1998 Acquisitions, (ii) the purchase of the port
business of Strato/Infusaid, Inc. (the "Strato Acquisition"), and (iii) the
Offering as though they occurred January 1, 1997. The Unaudited Pro Forma
Condensed Consolidated Financial Statements are qualified in their entirety by,
and should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the respective historical
financial statements of the Company and Strato/Infusaid, Inc. and related notes
thereto included in the Company's Registration Statement on Form S-1
(Registration No. 333-46349), the historical financial statements of the Company
included in its quarterly report on Form 10-Q for the nine months ended
September 30, 1998, and the historical results of Stepic Corporation included
elsewhere in this Form 8-K/A. The Unaudited pro forma information does not
purport to be indicative of the Company's actual financial position or of the
actual results that would have been achieved by the Company had the 1998
Acquisitions, the Strato Acquisition, and the Offering actually been completed
as of the dates indicated in the accompanying notes thereto, nor which may be
achieved in the future.
Page 13 of 21
<PAGE> 14
HORIZON MEDICAL PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1997
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Strato Norfolk CVS IFM
January 1, 1997 Acquired Acquired Acquired
Through Product Product Product
Horizon July 15,1997(a) Line(b) Line(c) Line(d)
------- --------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 15,798 $7,020 $2,532 $ 15,238 $5,555
Cost of goods sold 6,273 2,687 1,415 10,713 2,572
---------- ------ ------ -------- ------
Gross profit 9,525 4,333 1,117 4,525 2,983
Selling, general and administrative expenses 6,476 2,927 380 4,200 2,111
---------- ------ ------ -------- ------
Operating income (loss) 3,049 1,406 737 325 872
Interest income (expense) (3,971) -- -- 16 --
Non-recurring accretion of value of put warrant
repurchase obligation (8,000) -- -- -- --
Other income 70 -- -- 32 --
---------- ------ ------ -------- ------
Income (loss) before income taxes (8,852) 1,406 737 373 872
Income tax benefit (expense) (320) (622) -- (35) --
---------- ------ ------ -------- ------
Net income (loss) $ (9,172) $ 784 $ 737 $ 338 $ 872
========== ====== ====== ======== ======
Earnings (loss) per share - basic and diluted $ (0.97)
==========
Weighted average number of common shares
outstanding - basic and diluted 9,419,458
==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Offering As
Stepic (e) Adjustments Pro Forma Adjustments Adjusted
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales 38,752 (1,024) (f) $ 83,871 $ 83,871
Cost of goods sold 29,778 (1,094) (g),(h) 52,344 52,344
-------- ------- ----------- ------- -----------
Gross profit 8,974 70 31,527 31,527
Selling, general and administrative expenses 7,088 938 (i),(j),(k) 24,120 90 (o) 24,210
-------- ------- ----------- ------- -----------
Operating income (loss) 1,886 (868) 7,407 (90) 7,317
Interest income (expense) (523) (6,714)(l) (11,192) 6,931 (p) (4,261)
Non-recurring accretion of value of put warrant
repurchase obligation -- 8,000 (m) -- --
Other income 171 -- 273 -- 273
-------- ------- ----------- ------- -----------
Income (loss) before income taxes 1,534 418 (3,512) 6,841 3,329
Income tax benefit (expense) (159) 1424 (n) 288 (1,775) (n) (1,487)
-------- ------- ----------- ------- -----------
Net income (loss) $ 1,375 $ 1,842 $ (3,224) $ 5,066 $ 1,842
======== ======= =========== ======= ===========
Earnings (loss) per share - basic and diluted $ (0.34)(q) $ .14 (q)
=========== ===========
Weighted average number of common shares
outstanding - basic and diluted 9,419,458 (r) 12,800,000 (r)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma
condensed consolidated financial statements.
Page 14 of 21
<PAGE> 15
HORIZON MEDICAL PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
for the nine months ended September 30, 1998
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Norfolk CVS IFM
Acquired Acquired Acquired
Product Product Product
Horizon Line (a) Line (b) Line (c) Stepic (d)
------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 21,631 $1,265 $8,433 $3,863 31,373
Cost of goods sold 8,518 547 5,465 1,873 23,493
----------- ------ ------ ------ --------
Gross profit 13,113 718 2,968 1,990 7,880
Selling, general, and administrative expenses 8,645 389 2,175 1,588 5,117
----------- ------ ------ ------ --------
Operating income (loss) 4,468 329 793 402 2,763
Interest income (expense) (2,271) (3) (21) -- (424)
Other income 33 -- 17 -- 96
----------- ------ ------ ------ --------
Income (loss) before extraordinary item and
income taxes 2,230 326 789 402 2,435
Income tax benefit (expense) (1,467) (131) -- -- (125)
----------- ------ ------ ------ --------
Income (loss) before extraordinary item 763 195 789 402 2,310
Extraordinary item 1,017 -- -- -- --
----------- ------ ------ ------ --------
Net income (loss) $ 1,780 $ 195 $ 789 $ 402 $ 2,310
=========== ====== ====== ====== ========
Earnings per share - basic and diluted $ 0.15
===========
Weighted average number of common shares
outstanding - basic 11,789,682
===========
Weighted average number of common shares
outstanding - diluted 12,089,893
===========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Offering Pro Forma As
Adjustments Pro Forma Adjustments Adjusted
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales (1,580) (e) $ 64,985 $ 64,985
Cost of goods sold (1,021) (f),(g) 38,875 38,875
-------- ----------- -----------
Gross profit (559) 26,110 26,110
Selling, general, and administrative expenses 1,272 (h),(i) 19,186 15 (l) 19,201
-------- ----------- -------- -----------
Operating income (1,831) 6,924 (15) 6,909
Interest income (expense) (2,695)(j) (5,414) 2,170 (m) (3,244)
Other income 146 146
-------- ----------- -------- -----------
Income (loss) before extraordinary item and
income taxes (4,526) 1,656 2,155 3,811
Income tax benefit (expense) 480 (k) (1,243) (449)(k) (1,692)
-------- ----------- -------- -----------
Income (loss) before extraordinary item (4,046) 413 1,706 2,119
Extraordinary item 1,017 (1,017)(n) --
-------- ----------- -------- -----------
Net income (loss) $ (4,046) $ 1,430 $ 689 $ 2,119
======== =========== ======== ===========
Earnings per share - basic and diluted $ 0.12 (o) $ 0.16 (o)
=========== ===========
Weighted average number of common shares
outstanding - basic 11,789,682 (p) 13,400,000 (p)
=========== ===========
Weighted average number of common shares
outstanding - diluted 12,089,893 (p) 13,400,000 (p)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma
condensed consolidated financial statements.
Page 15 of 21
<PAGE> 16
HORIZON MEDICAL PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
PRO FORMA
HORIZON STEPIC(a) ADJUSTMENTS PRO FORMA
------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 787 $ 1,037 $ (758)(b) $ 1,066
Accounts receivable - trade, net 7,918 8,851 16,769
Inventories 10,886 6,930 17,816
Prepaid expenses and other current assets 344 869 1,354 (c) 2,567
Deferred taxes 569 569
-------- -------- -------- --------
Total current assets 20,504 17,687 596 38,787
Property and equipment, net 3,929 221 8 (b) 4,158
Intangible assets, net 40,793 365 12,163 (b) 53,321
Deferred taxes 255 255
Other assets 487 4 491
-------- -------- -------- --------
Total assets $ 65,968 $ 18,277 $ 12,767 $ 97,012
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Note payable to bank $ 6,670 $15,829 (b) $ 22,499
Accounts payable - trade $ 2,819 6,419 9,238
Accrued liabilities 1,069 772 289 (c) 2,130
Income taxes payable 1,236 1,236
Current portion of long-term debt 398 398
-------- -------- -------- --------
Total current liabilities 5,522 13,861 16,118 35,501
Long-term debt, net of current portion 19,050 19,050
Other liabilities 168 1,065 (c) 1,233
-------- -------- -------- --------
24,740 13,861 17,183 55,784
-------- -------- -------- --------
Stockholders' equity
Preferred stock
Common stock 13 20 $ (20)(b) 13
Additional paid-in capital 51,865 51,865
Stockholders' notes receivable (398) (398)
Retained earnings/accumulated deficit (10,252) 4,396 (4,396)(b) (10,252)
-------- -------- -------- --------
Total stockholders' equity 41,228 4,416 (4,416) 41,228
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 65,968 $ 18,277 $ 12,767 $ 97,012
======== ======== ======== ========
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
Page 16 of 21
<PAGE> 17
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
The unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1997 reflects the consolidated results of
operations of the Company after giving effect for the (i) 1998 Acquisitions,
(ii) Strato Acquisition and (iii) Offering as though they occurred January 1,
1997. The unaudited pro forma condensed consolidated statement of operations for
the nine months ended September 30, 1998 reflects the results of the Company's
operations after giving pro forma effect for the (i) 1998 Acquisitions and (ii)
Offering as though they occurred January 1, 1998. The unaudited condensed
consolidated balance sheet gives effect to the consolidated financial position
of the Company as of September 30, 1998 as if all of the 1998 Acquisitions
occurred at September 30, 1998.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PROFORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
ARE AS FOLLOWS:
a) Represents the historical operating results of the port business of
Strato for the period January 1, 1997 through the acquisition date of
July 15, 1997. The pump business of Strato, which was sold immediately
after the acquisition, is excluded. The pump business had net sales,
gross profit, selling, general and administrative expenses, and loss
before income tax for the period of $2,355, $587, $7,478 and $6,891,
respectively.
b) Represents the historical revenues, costs of sales, and allocated
selling expenses that relate directly to the human product line of
Norfolk for the year ended December 31, 1997.
c) Represents the historical revenues, costs of sales, and allocated
selling, general and administrative expenses that relate directly to
the CVS acquired product line for the year ended December 31, 1997.
d) Represents the historical revenues, costs of sales, and allocated
selling, general and administrative expenses that relate directly to
the IFM acquired product line for the year ended December 31, 1997.
e) Represents the historical results of operations of Stepic for the year
ended December 31, 1997.
f) Reflects a reduction in net sales for intercompany sales by Horizon to
Stepic during the year ended December 31, 1997.
g) Cost of goods sold has been reduced to eliminate Strato overhead cost
allocations which have not been incurred on an ongoing basis ($300)
partially offset by the increase in depreciation expense ($14) due to
the allocation of a portion of the excess purchase price of the human
business of Norfolk over the fair value of the net assets acquired to
machinery and equipment depreciated over an estimated useful life of
approximately 7 years.
h) Reflects a reduction in cost of goods sold of $808 for intercompany
sales by Horizon to Stepic during the year ended December 31, 1997.
Page 17 of 21
<PAGE> 18
i) Reflects the increase in selling, general and administrative expenses
due to the following: (i) amortization ($124) of the cost over fair
value of net assets acquired of Strato over a period of 30 years, (ii)
amortization ($475) of the fair value assigned to patents and
non-compete agreements of $6,583 and $250, respectively, obtained in
the Norfolk Acquisition over the useful lives of approximately 15 years
and 7 years, respectively, (iii) amortization ($60) of the cost over
fair value of net assets acquired of Norfolk of $1,797 over a period of
30 years, (iv) amortization ($88) of the cost over fair value of net
assets acquired of CVS of $2,628 over a period of 30 years, (v)
amortization ($490) of the cost over fair value of net assets acquired
of IFM of $14,700 over a period of 30 years, and (vi) amortization
($405) of the cost over fair value of net assets acquired of Stepic of
$12,163 over a period of 30 years.
j) Selling, general and administrative expenses have been reduced to
eliminate salaries and related benefits from sales personnel ($1,100)
and administrative personnel ($406) not retained following the
acquisition of Strato.
k) Reflects an estimate of the historical selling, general and
administrative expenses related to the human product line of Norfolk
($802), in addition to the product line's identified costs and
expenses.
l) Reflects the net increase in interest expense of $6,714 resulting from
additional debt of $23,500 with variable interest rates of 9.8% on
$21,500 during the period and 10.8% on $2,000 during the period to fund
the Strato Acquisition and amortization of the related debt issue
costs; and additional debt of $9,300, $4,000, $15,000 and $25,200 to
fund the Norfolk Acquisition, the CVS Acquisition, the IFM Acquisition,
and the Stepic Acquisition, respectively, calculated at the Company's
rate of interest in effect at December 31, 1997 of 9.8%.
m) Reflects the removal of the non-recurring accretion of the value of the
put warrant repurchase obligation associated with the Company's credit
facility ($8,000). See Notes 6 and 8 of the Consolidated Financial
Statements of the Company included in its Registration Statement on
Form S-1 (Registration no. 333-46349).
n) Reflects applicable income tax effects of adjustments as well as an
adjustment to treat Stepic as a C corporation for income tax purposes.
o) The Chief Executive Officer and the President of the Company did not
begin to receive compensation until after completion of the Offering.
This reflects the increase in expected compensation over amounts
recorded in the historical financial statements associated with
contributed services.
p) Reflects the reduction of interest expense ($6,931) resulting from the
application of the net proceeds of the Offering to repay debt of the
Company.
q) Earnings (loss) per common share is calculated by dividing pro forma
and as adjusted net income (loss) by the weighted average number of
common shares outstanding. Such pro forma and as adjusted net income
(loss) reflect the impact of the adjustments above.
r) Weighted average number of common shares outstanding is calculated
based upon the relevant weighted average shares outstanding assuming
anti-dilution features which exist and assuming an offering of
$3,120,950 shares by the Company as of January 1, 1997 for As Adjusted.
Page 18 of 21
<PAGE> 19
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 ARE AS FOLLOWS:
a) Represents the historical operating results of the human product line
of Norfolk for the five months, prior to acquisition, ended May 31,
1998.
b) Represents the historical revenues, costs of sales, and allocated
selling, general and administrative expenses that relate directly to
the CVS acquired product line for the eight months, prior to
acquisition, ended August 31, 1998.
c) Represents the historical revenues, costs of sales and allocated
selling, general and administrative expenses that relate directly to
the IFM acquired product line for the nine months ended September 30,
1998.
d) Represents the historical results of operations of Stepic for the nine
months ended September 30, 1998.
e) Reflects a reduction in net sales for intercompany sales by Horizon to
Stepic during the nine months ended September 30, 1998.
f) Cost of goods sold has been increased to reflect the increase in
depreciation expense ($6) due to the allocation of a portion of the
excess purchase price of the human product line of Norfolk over the
fair value of the net assets acquired to machinery and equipment
depreciated over an estimated useful life of approximately 7 years.
g) Reflects a reduction in cost of goods sold of $1,027 for intercompany
sales by Horizon to Stepic during the nine months ended September 30,
1998.
h) Reflects the increase in selling, general, and administrative expenses
due to the following: (i) amortization ($356) of the fair value
assigned to patents and non-compete agreements of $6,583 and $250,
respectively, obtained in the Norfolk Acquisition over the useful lives
of approximately 15 years and 7 years, respectively, (ii) amortization
($45) of the cost over fair value of net assets acquired of Norfolk of
$1,797 over a period of 30 years, (iii) amortization ($66) of the cost
over fair value of net assets acquired of CVS of $2,628 over a period
of 30 years, (iv) amortization ($368) of the cost over fair value of
net assets acquired of IFM of $14,700 over a period of 30 years, and
(v) amortization ($304) of the cost over fair value of net assets
acquired of Stepic of $12,163 over a period of 30 years.
i) Reflects an estimate of the historical selling, general and
administrative expenses related to the human product line of Norfolk
($133), in addition to the product line's identified costs and
expenses.
j) Reflects the net increase in interest expense of $2,695 resulting from
additional debt of (i) $9,300 to fund the Norfolk Acquisition, (ii)
$4,000 to fund the CVS Acquisition, (iii) $15,000 to fund the IFM
Acquisition and (iv) $25,200 to fund the Stepic Acquisition calculated
at the Company's current variable rate of interest of 8.5%.
k) Reflects applicable income tax effects of adjustments as well as an
adjustment to treat Stepic as a C corporation for income tax purposes.
l) The Chief Executive Officer and the President of the Company did not
begin to receive compensation until after completion of the Offering.
This reflects the increase in expected compensation over amounts
recorded in the historical financial statements associated with
contributed services.
m) Reflects the reduction of interest expense ($2,170) resulting from the
application of the net proceeds of the Offering to repay debt of the
Company.
Page 19 of 21
<PAGE> 20
n) Reflects the removal of the extraordinary gain of $1,100 on the
extinguishment of the past warrant repurchase obligation and the
extraordinary loss of $83 on early extinguishment of debt.
o) Earnings per common share is calculated by dividing pro forma and as
adjusted net income by the weighted average number of common shares
outstanding. Such pro forma and as adjusted net income reflects the
impact of the adjustments above.
p) Weighted average number of common shares outstanding is calculated
based upon the relevant weighted average shares outstanding assuming
anti-dilution features which exist and assuming an offering of
$3,120,950 shares by the Company as of the beginning of the period for
As Adjusted.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 1998 ARE AS FOLLOWS:
a) Represents the September 30, 1998 historical basis of the assets and
liabilities of Stepic which were derived from Stepic's internal
records.
b) Gives effect to the Stepic Acquisition including the additional debt to
be incurred and/or assumed by the Company to fund the acquisition
($15,829), the elimination of the historical equity of Stepic ($4,416),
the recording of a distribution to Stepic shareholder prior to the
acquisition ($7,581), and the allocation of the excess purchase price
to property, plant, and equipment ($8) and goodwill ($12,163) as if the
acquisition had occurred as of September 30, 1998.
c) Reflects the accrual of certain expenses incurred by Stepic as a result
of the acquisition by the Company ($1,354) which were reimbursed to the
Company by the former shareholders of Stepic after the acquisition.
Page 20 of 21
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Horizon Medical Products, Inc.
Dated: December 30, 1998 By: /s/ Mark A. Jewett
------------------------------------------
Mark A. Jewett, Vice President of Finance
Page 21 of 21
