<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 31, 1996
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 1-9767 94-2579751
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
9162 Eton Avenue, Chatsworth, California 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (818) 709-1244
<PAGE> 2
This amendment to the Current Report on Form 8-K of International
Remote Imaging Systems, Inc. (the "Registrant" or "IRIS") relating to the
Registrant's acquisition, through a newly formed subsidiary, of the digital
imaging business of Perceptive Scientific Instruments, Inc. ("PSI"), is being
filed to include in the report the historical and pro forma financial
information required pursuant to Item 7 of this report which was omitted from
the original filing pursuant to Items 7(a)(4) and 7(b)(2) of the Current Report
on Form 8-K. Such historical and pro forma financial information should be
read in conjunction with the Registrant's financial statements and other
financial information as reported herein.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
See Exhibit 99.1.
(b) Pro Forma Financial Information.
See Exhibit 99.2.
(c) Exhibits.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of KPMG Peat Marwick LLP
99.1 Financial Statements of IRIS.
A. Financial Statements of IRIS as of
December 31, 1994 and 1995 and for the
years ended December 31, 1993, 1994 and
1995 with report of Independent
Accountants.
B. Unaudited Financial Statements of IRIS
as of June 30, 1996 and for the
six-month periods ended June 30, 1995
and 1996.
99.2 Financial statements of business acquired as
required by Item 7(a)(4) of the Current Report
on Form 8-K.
A. Financial Statements of PSI as of
December 31, 1994 and 1995 and for the
years ended December 31, 1993, 1994 and
1995 with report of Independent
Accountants.
B. Unaudited Financial Statements of PSI as
of June 30, 1996 for the six-month
periods ended June 30, 1995 and 1996.
99.3 Pro forma financial information required by
Item 7(b)(2) of the Current Report on Form 8-K.
A. IRIS and Subsidiaries Unaudited Pro
Forma Condensed Combined Balance Sheet
as of June 30, 1996.
B. IRIS and Subsidiaries Unaudited Pro Forma
Condensed Combined Statement of
Operations for the year ended December
31, 1995 and for the six-month period
ended June 30, 1996.
-2-
<PAGE> 3
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.
INTERNATIONAL REMOTE IMAGING
SYSTEMS, INC.
Date: September 30, 1996 By: /s/ E. Eduardo Benmaor
---------------------------------
E. Eduardo Benmaor
Controller, Principal Accounting
Officer and Secretary
<PAGE> 4
Exhibit Index
No. Document
--- --------
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of KPMG Peat Marwick LLP
99.1 Financial Statements of IRIS.
A. Financial Statements of IRIS as of
December 31, 1994 and 1995 and for the
years ended December 31, 1993, 1994 and
1995 with report of Independent
Accountants.
B. Unaudited Financial Statements of IRIS
as of June 30, 1996 and for the
six-month periods ended June 30, 1995
and 1996.
99.2 Financial statements of business acquired as
required by Item 7(a)(4) of the Current Report on
Form 8-K.
A. Financial Statements of PSI as of December
31, 1994 and 1995 and for the years ended
December 31, 1993, 1994 and 1995 with
report of Independent Accountants.
B. Unaudited Financial Statements of PSI as of
June 30, 1996 and for the six-month period
ended June 30, 1996.
99.3 Pro forma financial information required by Item
7(b)(2) of the Current Report on Form 8-K.
A. IRIS and Subsidiaries Unaudited Pro Forma
Condensed Combined Balance Sheet as of June
30, 1996.
B. IRIS and Subsidiaries Unaudited Pro Forma
Condensed Combined Statement of Operations
for the year ended December 31, 1995 and for
the six-month period ended June 30, 1996.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements of International Remote Imaging Systems, Inc. on Forms S-8 (File
Nos. 2-77496 and 33-10631) and on Form S-3 (File No. 333-02001) of our report
dated September 13, 1996, on our audits of the consolidated balance sheets of
Perceptive Scientific Instruments, Inc. as of December 31, 1995 and 1994, and
the related combined and consolidated statements of operations, stockholder's
equity and cash flows for the years ended December 31, 1995, 1994 and 1993,
which report is included in this Current Report on Form 8-K/A.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Houston, Texas
October 1, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements of International Remote Imaging Systems, Inc. on Forms S-8 (File
Nos. 2-77496 and 33-10631) and on Form S-3 (File No. 333-02001) of our report
dated March 20, 1996 (except as to Note 1 which date is April 24, 1996) on our
audits of the consolidated balance sheets of International Remote Imaging
Systems, Inc. as of December 31, 1995 and 1994, and the related combined and
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1995, 1994 and 1993, which report is included in
this Current Report on Form 8-K/A.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
October 9, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated May 26, 1995, with
respect to the balance sheet of StatSpin, Inc. as of March 31, 1995, and the
related statements of income and accumulated deficit and cash flows for each of
the two years in the period ended March 31, 1995, which report is included in
this Current Report on Form 8-K/A of International Remote Imaging Systems,
Inc., and to its incorporation by reference in the registration statement of
International Remote Imaging Systems, Inc. on Forms S-8 (File Nos. 2-77496 and
33-10631) and on Form S-33 (File No. 333-02001).
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 9, 1996
<PAGE> 1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of International Remote Imaging
Systems, Inc.
We have audited the consolidated financial statements of International
Remote Imaging Systems, Inc. and subsidiary, as listed in the index on page F-1
of this Form S-1. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We did not audit
the financial statements of StatSpin, Inc., a wholly owned subsidiary, for the
years ended March 31, 1995 and 1994. The financial statements of StatSpin, Inc.
reflect total assets constituting 9% in 1994 and total revenues of 22% and 27%
in 1994 and 1993, respectively, of the related consolidated totals. The
financial statements of StatSpin, Inc. for the years ended March 31, 1995 and
1994 were audited by other auditors whose reports were furnished to us, and our
opinion, insofar as it relates to the amounts included for StatSpin, Inc. as of
December 31, 1994 and for the years ended December 31, 1994 and 1993, is based
solely on the reports of the other auditors.
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 of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The consolidated financial statements give retroactive effect to the merger
of International Remote Imaging Systems, Inc. and StatSpin, Inc. on February 1,
1996, which has been accounted for as a pooling of interests as described in
Note 1 to the consolidated financial statements.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of International Remote Imaging Systems,
Inc. and subsidiary at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 20, 1996 (except as to Note 1
which date is April 24, 1996)
1
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
StatSpin, Inc.:
We have audited the balance sheet of StatSpin, Inc. as of March 31, 1995, and
the related statements of income and accumulated deficit, and cash flows for
each of the two years in the period ended March 31, 1995. These financial
statements, which are not presented separately herein, are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of StatSpin, Inc. at March 31,
1995, and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
May 26, 1995
2
<PAGE> 3
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1994 1995
------------ ------------ JUNE 30, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 2,573,384 $ 1,511,395 $ 1,228,504
Short-term investments....................................... 2,256,062 4,736,727 2,635,900
Accounts receivable-trade, net of allowance for doubtful
accounts of $89,685 in 1994 and $87,759 in 1995 and 1996... 2,431,638 3,402,007 4,696,226
Accounts receivable -- service contracts..................... 313,144 481,367 621,860
Accounts receivable -- other................................. 575,657 407,245 244,321
Inventories.................................................. 2,179,663 2,869,813 3,954,626
Prepaid expenses and other current assets.................... 190,293 238,683 341,866
Deferred tax asset........................................... -- 800,900 800,900
----------- ----------- -----------
Total current assets.................................. 10,519,841 14,448,137 14,524,203
Property and equipment, at cost, net of accumulated
depreciation............................................... 598,891 995,044 1,387,921
Software development costs, net of accumulated amortization
of $625,816 in 1994, $667,425 in 1995 and $694,628 in
1996....................................................... 40,623 298,030 558,440
Long-term investments........................................ 1,200,000 100,000 --
Deferred warrant costs....................................... 503,145 1,574,780 1,493,740
Deferred tax asset........................................... -- 3,594,100 3,594,100
Other assets................................................. 419,687 1,460,157 2,117,819
----------- ----------- -----------
Total assets.......................................... $ 13,282,187 $ 22,470,248 $ 23,676,223
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................ $ 105,877 $ 185,633 $ --
Accounts payable............................................. 921,478 810,819 1,469,542
Accrued expenses............................................. 1,030,472 1,276,099 901,566
Deferred income -- service contracts......................... 683,402 710,907 722,490
----------- ----------- -----------
Total current liabilities............................. 2,741,229 2,983,458 3,093,598
Deferred income -- service contracts........................... 119,913 190,045 216,601
Notes payable, long-term portion............................... 261,107 125,000 --
----------- ----------- -----------
Total liabilities..................................... 3,122,249 3,298,503 3,310,199
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value
Authorized: 3,000,000 shares
None issued and outstanding
Common stock, $.01 par value
Authorized: 15,600,000 shares
Shares issued and outstanding:
1994 -- 5,330,327, 1995 -- 6,292,408, 1996 -- 6,377,805.... 53,304 62,924 63,778
Additional paid-in capital................................... 27,418,271 34,154,116 34,469,313
Treasury stock, at cost (96,473 shares in 1994 and 1995,
84,462 in 1996)............................................ (453,386) (453,386) (377,980)
Unearned compensation........................................ (93,130) (95,884) (160,531)
Accumulated deficit.......................................... (16,765,121) (14,496,025) (13,628,556)
----------- ----------- -----------
Total stockholders' equity............................ 10,159,938 19,171,745 20,366,024
----------- ----------- -----------
Total liabilities and stockholders' equity............ $ 13,282,187 $ 22,470,248 $ 23,676,223
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales of IVD imaging systems.... $ 5,029,398 $ 4,559,044 $ 4,870,127 $ 2,150,323 $ 2,593,090
Sales of IVD imaging system
supplies and service.......... 3,994,896 5,024,521 6,737,444 3,167,241 4,166,294
Sales of small instruments and
supplies...................... 3,368,480 2,885,712 3,414,087 1,565,596 2,369,632
----------- ----------- ----------- ----------- ----------
Net sales....................... 12,392,774 12,469,277 15,021,658 6,883,160 9,129,016
----------- ----------- ----------- ----------- ----------
Cost of goods -- IVD imaging
systems....................... 2,365,907 2,178,318 2,248,581 957,386 1,200,268
Cost of goods -- IVD imaging
system supplies and service... 1,937,489 2,495,797 3,174,290 1,567,088 2,095,949
Cost of goods -- small
instruments and supplies...... 2,038,342 1,824,913 1,937,653 914,014 1,198,435
----------- ----------- ----------- ----------- ----------
Cost of goods sold.............. 6,341,738 6,499,028 7,360,524 3,438,488 4,494,652
----------- ----------- ----------- ----------- ----------
Gross margin.................... 6,051,036 5,970,249 7,661,134 3,444,672 4,634,364
Marketing and selling........... 2,115,435 2,085,022 2,921,442 1,354,069 1,674,364
General and administrative...... 1,742,813 1,726,902 2,168,423 947,008 1,489,308
Research and development, net... 879,360 663,231 1,220,028 663,990 591,224
Acquisition of in-process
research and development...... -- -- 2,900,430 3,175,645 --
----------- ----------- ----------- ----------- ----------
Operating income (loss)......... 1,313,428 1,495,094 (1,549,189) (2,696,040) 879,468
Other income (expense):
Interest income............... 110,456 167,924 309,929 175,014 136,640
Interest expense.............. (81,899) (73,238) (42,699) (36,619) (5,366)
Other income.................. 38,558 111,240 110,530 66,949 31,727
----------- ----------- ----------- ----------- ----------
Income (loss) before provision
for income taxes.............. 1,380,543 1,701,020 (1,171,429) (2,490,696) 1,042,469
Provision (benefit) for income
taxes......................... 57,906 79,456 (3,528,044) 28,300 175,000
----------- ----------- ----------- ----------- ----------
Net income (loss)............... $ 1,322,637 $ 1,621,564 $ 2,356,615 $(2,518,996) $ 867,469
=========== =========== =========== =========== ==========
Net income (loss) per share..... $ 0.25 $ 0.28 $ 0.37 $ (0.46) $ 0.13
=========== =========== =========== =========== ==========
Weighted average number of
common shares and common share
equivalents outstanding for
the period.................... 5,355,297 5,698,620 6,418,518 5,485,933 6,915,143
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDERS' UNEARNED
------------------- PAID-IN TREASURY NOTES COMPEN- ACCUMULATED
SHARES AMOUNT CAPITAL STOCK RECEIVABLE SATION DEFICIT TOTAL
---------- ------- ----------- ----------- ------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992, as previously
reported............. 4,740,011 $47,400 $25,255,612 $ -- $ (28,306) $(57,816 ) $(19,177,497) $ 6,039,393
Adjustment for StatSpin
Technologies pooling
of interest.......... 340,260 3,403 798,579 -- -- -- (531,825 ) 270,157
---------- ------- ----------- ----------- ------------- --------- ------------ -----------
Balance, December 31,
1992, as restated.... 5,080,271 50,803 26,054,191 (28,306) (57,816 ) (19,709,322 ) 6,309,550
Repurchase of common
stock................ (26,200) (262) 262 (142,016) -- -- -- (142,016)
Common stock issued on
exercise of stock
options.............. 46,533 465 101,282 -- -- -- -- 101,747
Common stock issued
under Employee Stock
Purchase Plan:
for Cash............. 13,971 140 67,336 -- -- -- -- 67,476
for Services......... 13,971 140 67,336 -- -- (67,476 ) -- --
Common stock issued for
cash on exercise of
warrants............. 9,800 98 36,652 -- -- -- -- 36,750
Principal payments
received on
stockholders' notes
receivable........... -- -- -- -- 21,639 -- -- 21,639
Amortization of
unearned
compensation......... -- -- -- -- -- 48,489 -- 48,489
Net income............. -- -- -- -- -- -- 1,322,637 1,322,637
---------- ------- ----------- ----------- ------------- --------- ------------ -----------
Balance, December 31,
1993................. 5,138,346 51,384 26,327,059 (142,016) (6,667) (76,803 ) (18,386,685 ) 7,766,272
Common stock issued on
exercise of stock
options.............. 200,832 2,008 445,015 -- -- -- -- 447,023
Common stock issued
under Employee Stock
Purchase Plan:
for Cash............. 22,811 228 100,559 -- -- -- -- 100,787
for Services......... 22,811 228 100,559 -- -- (100,787 ) -- --
Common stock issued for
cash on exercise of
warrants............. 15,800 158 59,092 -- -- -- -- 59,250
Issuance of warrants... -- -- 385,285 -- -- -- -- 385,285
Principal payments
received on
stockholders' notes
receivable........... -- -- -- -- 6,667 -- -- 6,667
Amortization of
unearned
compensation......... -- -- -- -- -- 84,460 -- 84,460
Repurchase of common
stock................ (70,273) (702) 702 (311,370) -- -- -- (311,370)
Net income............. -- -- -- -- -- -- 1,621,564 1,621,564
---------- ------- ----------- ----------- ------------- --------- ------------ -----------
Balance, December 31,
1994................. 5,330,327 53,304 27,418,271 (453,386) -- (93,130 ) (16,765,121 ) 10,159,938
</TABLE>
5
<PAGE> 6
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDERS' UNEARNED
-------------------- PAID-IN TREASURY NOTES COMPEN- ACCUMULATED
SHARES AMOUNT CAPITAL STOCK RECEIVABLE SATION DEFICIT TOTAL
---------- -------- ------------ ----------- ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued
on exercise of
stock options.... 21,900 219 44,231 -- -- -- -- 44,450
Common stock issued
under Employee
Stock Purchase
Plan:
for Cash......... 9,997 100 67,141 -- -- -- -- 67,241
for Services..... 16,976 170 112,219 -- -- (89,915) -- 22,474
Common stock issued
for cash on
exercise of
warrants......... 414,749 4,147 1,551,161 -- -- -- -- 1,555,308
Issuance of
warrants......... -- -- 1,774,733 -- -- -- -- 1,774,733
Common stock issued
in exchange for
LDA Systems, Inc.
callable common
stock............ 498,459 4,984 2,972,360 -- -- -- -- 2,977,344
Amortization of
unearned
compensation..... -- -- -- -- -- 87,161 -- 87,161
Income tax benefit
related to
exercise of
nonqualified
stock options.... -- -- 214,000 -- -- -- -- 214,000
Adjustment to
reflect change in
StatSpin, Inc.'s
fiscal year...... -- -- -- -- -- -- (87,519) (87,519)
Net income......... -- -- -- -- -- -- 2,356,615 2,356,615
---------- -------- ------------ ----------- ------------- ---------- ------------- ------------
Balance, December
31, 1995......... 6,292,408 62,924 34,154,116 (453,386) -- (95,884) (14,496,025) 19,171,745
Common stock issued
for cash on
exercise of stock
options
(unaudited)...... 55,423 554 163,849 -- -- -- -- 164,403
Common stock issued
under Employee
Stock Purchase
Plan:
for Cash
(unaudited).... 14,987 150 113,377 -- -- -- -- 113,527
for Services
(unaudited).... 14,987 150 113,377 -- -- (113,527) -- --
Amortization of
unearned
compensation
(unaudited)...... -- -- -- -- -- 48,880 -- 48,880
Shares issued from
treasury
(unaudited)...... -- -- (75,406) 75,406 -- -- -- --
Net income
(unaudited)...... -- -- -- -- -- -- 867,469 867,469
---------- -------- ------------ ----------- ------------- ---------- ------------- ------------
Balance, June 30,
1996
(unaudited)...... 6,377,805 $ 63,778 $ 34,469,313 $ (377,980) $ -- $ (160,531) $ (13,628,556) $ 20,366,024
======== ======== =========== ========== ============ ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 1,322,637 $ 1,621,564 $ 2,356,615 $(2,518,996) $ 867,469
Adjustments to reconcile net income to net cash provided
(used) by operations:
Deferred tax benefit................................... -- -- (3,587,000) -- --
Acquisition of in-process research and development..... -- -- 2,882,858 3,175,645 --
Depreciation and amortization.......................... 533,187 548,420 635,048 235,480 389,318
Common stock compensation.............................. 48,489 84,460 109,635 19,781 48,880
Other.................................................. (4,500) -- -- -- --
Changes in assets and liabilities:
Accounts receivable -- trade........................... (189,507) (569,317) (1,029,651) (273,341) (1,294,219)
Account receivable -- other............................ -- -- 168,412 -- 162,924
Notes receivable -- trade.............................. 36,000 13,731 -- -- --
Service contracts...................................... 68,991 23,715 (95,586) (17,070) (102,354)
Inventories............................................ (69,694) 390,479 (804,087) (284,967) (897,813)
Prepaid expenses and other current assets.............. 89,299 (79,561) (33,230) (141,407) (103,183)
Other assets........................................... (138,152) (106,270) 47,239 278,692 (244,662)
Accounts payable....................................... 240,014 266,325 (87,673) (219,781) 658,723
Accrued expenses....................................... 69,868 (151,224) 237,235 (47,677) (436,530)
---------- ----------- ----------- ----------- -----------
Net cash provided (used) by operating activities....... 2,006,632 2,042,322 799,815 206,359 (951,447)
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment.................. (438,684) (266,360) (820,838) (275,959) (423,955)
Acquisition of product line............................ -- -- (886,800) (850,000) (788,000)
Software development costs............................. (81,034) (25,411) (299,016) (77,719) (287,613)
Maturities of certificates of deposit.................. 625,000 210,000 215,000 900,000 800,000
Purchases of certificates of deposit................... (625,000) (100,000) -- (900,000) (800,000)
Maturities of held-to-maturity debt securities......... -- 1,000,000 2,700,000 800,000 3,068,000
Purchases of held-to-maturity debt securities.......... -- (3,441,062) (4,295,664) (1,262,937) (867,173)
---------- ----------- ----------- ----------- -----------
Net cash provided (used) by investing activities....... (519,718) (2,622,833) (3,387,318) (1,666,615) 701,259
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock for cash...................... 138,497 254,823 1,599,758 362,293 164,403
Repurchase of common stock............................. (142,016) (59,920) -- -- --
Principal payments received on stockholders' notes
receivable........................................... (1,439) 4,569 -- -- --
Increase (decrease) in line of credit borrowings....... 65,046 (160,000) -- -- --
Repayments of notes payable............................ (76,395) (373,605) (256,351) (382,646) (310,633)
Proceeds from notes payable............................ -- 166,660 -- 166,660 --
Issuance of common stock for cash under Employee Stock
Purchase Plan........................................ 67,476 100,787 67,241 22,473 113,527
---------- ----------- ----------- ----------- -----------
Net cash provided (used) by financing activities....... 51,169 (66,686) 1,410,648 168,780 (32,703)
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... 1,538,083 (647,197) (1,176,855) (1,291,476) 282,891
Cash and cash equivalents at beginning of year......... 1,682,498 3,220,581 2,573,384 2,573,384 1,511,395
Adjustment to cash to reflect change in StatSpin Inc.'s
fiscal year.......................................... -- -- 114,866 114,866 --
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............. $ 3,220,581 $ 2,573,384 $ 1,511,395 $ 1,396,774 $ 1,228,504
========== =========== =========== =========== ===========
Supplemental schedule of non-cash financing activities:
Issuance of common stock in exchange for services...... $ 67,476 $ 100,787 $ 109,635 $ 22,473 $ 113,428
Issuance of common stock under a stock for stock
exercise............................................. -- 251,450 -- -- --
Issuance of warrants................................... -- 385,285 1,774,733 468,000 --
Issuance of common stock to acquire shares of LDA...... -- -- 2,977,344 2,977,344 --
Tax benefit related to exercise of nonqualified stock
options.............................................. -- -- 214,000 -- --
Supplemental disclosure of cash flow information:
Cash paid for income taxes............................. 54,490 112,921 21,456 62,379 192,167
Cash paid for interest................................. 76,384 118,379 42,698 25,213 5,366
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)
1. FORMATION AND BUSINESS OF THE COMPANY
International Remote Imaging Systems, Inc. (IRIS) was incorporated in
California in 1979 and reincorporated during 1987 in Delaware. IRIS engages in
the business of developing, manufacturing and selling in vitro diagnostic (IVD)
imaging systems and other laboratory instruments based on proprietary
technology.
On February 1, 1996, a newly formed subsidiary of IRIS completed its merger
with StatSpin, Inc., (StatSpin) which became a wholly owned subsidiary of IRIS.
StatSpin manufactures special purpose centrifuges and other small instruments
widely used in clinical, veterinary, physicians' offices and research
laboratories. StatSpin sells its products primarily through leading distributors
to the physician office and veterinary laboratory markets. IRIS issued
approximately 340,000 shares of common stock for all of the outstanding common
stock and appreciation rights of StatSpin and assumed options and warrants to
purchase an additional 126,000 shares of IRIS common stock. This represented an
exchange ratio of 4.095 shares of IRIS common stock for each common share and
stock appreciation right of StatSpin. This transaction was accounted for as a
pooling-of-interests. Accordingly, the consolidated financial statements have
been retroactively restated for all periods presented to include the financial
position, results of operations and cash flows of StatSpin.
StatSpin previously used the fiscal year ended March 31 for its financial
reporting. To conform to the Company's December 31 fiscal year end, StatSpin's
operating results for the period January 1, 1995 through March 31, 1995 have
been included in the operating results of the Company for the fiscal years ended
December 31, 1995 and 1994. The resulting duplication of revenue and net income
of StatSpin for the period from January 1, 1995 through March 31, 1995 amounted
to $710,000 and $87,519, respectively, which has been adjusted by a $87,519
charge to accumulated deficit during the year ended December 31, 1995.
Combined and separate results of IRIS and StatSpin are as follows:
<TABLE>
<CAPTION>
IRIS STATSPIN COMBINED
----------- ----------- ------------
<S> <C> <C> <C>
Year ended December 31, 1993 (StatSpin year
ended March 31, 1994)
Net sales................................ $ 9,024,294 $ 3,368,480 $ 12,392,774
Net income............................... 1,280,562 42,075 1,322,637
Year ended December 31 1994 (StatSpin year
ended March 31, 1995)
Net sales................................ 9,583,565 2,885,712 12,469,277
Net income............................... 1,472,886 148,678 1,621,564
Year ended December 31, 1995
Net sales................................ 11,922,059 3,099,599 15,021,658
Net income............................... 2,091,431 265,184 2,356,615
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of IRIS, the accompanying unaudited consolidated financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of IRIS and subsidiary as of June 30, 1996 and the
results of their operations and cash flows for the six months ended June 30,
1995 and 1996. Interim results are not necessarily indicative of results for a
full year.
8
<PAGE> 9
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of IRIS and StatSpin, a
wholly-owned subsidiary acquired on February 1, 1996. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, AND LONG-TERM INVESTMENTS
Short-term investments principally include certificates of deposit and debt
instruments of the United States Government with maturities greater than three
months and less than one year. Long-term investments represent certificates of
deposit and debt instruments of the United States Government with maturities
greater than one year. For purposes of the statement of cash flows, IRIS
considers all highly liquid debt instruments purchased with a remaining maturity
of three months or less when purchased to be cash equivalents. IRIS places its
cash and investments with high credit quality financial institutions. At times,
these deposits may be in excess of the federally insured limit.
ACCOUNTS RECEIVABLE
IRIS sells predominantly to entities in the healthcare industry. IRIS
grants uncollateralized credit to its customers, primarily domestic hospitals,
clinical and research laboratories. IRIS performs ongoing credit evaluations of
its customers before granting uncollateralized credit and, to date, has not
experienced any material credit related losses.
At December 31, 1995, the Company had accounts receivable from one customer
representing 13% of total trade accounts receivable. For the year ended December
31, 1995, the Company has sales to three customers representing 13% of net
sales.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
generally over three to five years, the estimated useful lives of the assets.
Leasehold improvements are amortized over the lesser of their useful life or the
remaining term of the lease.
Costs of maintenance and repairs are charged to expense when incurred;
costs of renewals and betterments are capitalized. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the respective
accounts, and the resulting gain or loss is included in current income.
SOFTWARE DEVELOPMENT COSTS
IRIS capitalizes certain software development costs in accordance with
Statement of Financial Accounting Standards No. 86 -- "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed," for new
products and product enhancements once technological feasibility has been
established. IRIS amortizes capitalized software costs using the greater of the
straight line method over the estimated product life of generally one to three
years, or a percentage of total units sold over the projected unit sales.
9
<PAGE> 10
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization expense of software development costs was approximately $132,000,
$108,000 and $41,600 for 1993, 1994, and 1995, respectively, and $20,100 and
$27,200 for the six months ended June 30, 1995 and 1996 (unaudited),
respectively.
DEFERRED WARRANT COSTS
Deferred warrant costs result from the issuance of warrants in conjunction
with various development, distribution and technology license agreements. These
costs are being amortized over the term of the related agreements, or with
respect to perpetual technology license agreements, over the expected life of
the related technology of, generally, ten years.
REVENUE RECOGNITION
IRIS derives revenue from the sale of IVD imaging systems, sales of
supplies and service for its IVD imaging systems and sales of small laboratory
instruments and related supplies. IRIS generally recognizes product revenues
once all of the following conditions have been met: a) an authorized purchase
order has been received in writing, b) customer credit worthiness has been
established, and c) shipment of the product to the customer designated location
has occurred. Estimated installation expense is recognized as part of the
accrual for warranty expense at the time of shipment.
IRIS recognizes service revenues ratably over the term of the service
period, which typically ranges from twelve to sixty months. Payments for service
contracts are generally made in advance. Deferred revenue represents the
revenues to be recognized over the remaining term of the service contracts.
WARRANTIES
IRIS recognizes the full estimated cost of warranty expense, including
installation costs, at the time of product shipment.
RESEARCH AND DEVELOPMENT EXPENDITURES
Except for certain software development costs required to be capitalized as
described above (see Software Development Costs), research and development
expenditures are charged to operations as incurred. Net research and development
expense includes total research and development costs incurred, including costs
incurred under research and development contracts, less costs reimbursed under
research and development contracts (See Note 18).
INCOME TAXES
IRIS accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial statement
and the tax bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense represents the tax payable
for the period and the change during the period in deferred tax assets and
liabilities.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1993, 1994, and 1995
financial statements to conform with the 1996 presentation.
10
<PAGE> 11
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock Based Compensation." In accordance with SFAS No. 123, IRIS will adopt the
disclosure method as provided for in the statement.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of ("Statement 121").
Statement 121 addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used. Statement 121 also addresses the accounting for long-lived assets
and certain identifiable intangibles to be disposed of, establishes guidance for
recognizing and measuring impairment losses and requires that the carrying
amount of impaired assets be reduced to fair value. Statement 121 was effective
for fiscal years beginning after December 15, 1995. The impact of the adoption
of Statement 121 was not material to the Company's June 30, 1996 financial
statements.
3. MARKETABLE DEBT SECURITIES
On January 1, 1994, IRIS adopted Statement of Financial Accounting
Standards No. 115, ("SFAS 115") "Accounting for Certain Investments in Debt and
Equity Securities" and determined that all its debt securities should be
classified as "held-to-maturity" based on the Company's intent and ability to
hold those securities to maturity. Under SFAS 115, debt securities classified as
"held-to-maturity" are carried at amortized cost.
At December 31, 1994 and 1995 and June 30, 1996, the carrying value of
marketable debt securities approximates fair value and is included in short-term
and long-term investments:
<TABLE>
<CAPTION>
EXPECTED MATURITY VALUE AND DATE
-------------------------------------
AMORTIZED COST WITHIN ONE YEAR ONE TO FIVE YEARS
-------------- --------------- -----------------
<S> <C> <C> <C>
December 31, 1994
U.S. Treasury Bills.................. $ 1,641,062 $ 1,700,000 $ --
U.S. Treasury Notes.................. 802,028 -- 800,000
December 31, 1995
U.S. Treasury Bills.................. 3,236,725 3,318,000 --
U.S. Treasury Notes.................. 803,376 800,000 --
June 30, 1996 (unaudited)
U.S. Treasury Bills.................. 1,435,900 1,470,000 --
U.S. Treasury Notes.................. 400,000 400,000 --
</TABLE>
4. INVENTORIES
Inventories are carried at the lower of cost or market on a first-in,
first-out basis and are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
-----------
<S> <C> <C> <C>
Finished goods............................ $ 520,445 $ 350,907 $ 224,000
Work-in-process........................... 466,182 276,115 431,332
Consumables and related hardware.......... 394,070 603,848 532,404
Raw materials, parts and sub-assemblies... 798,966 1,638,943 2,766,890
---------- ---------- ----------
$ 2,179,663 $ 2,869,813 $ 3,954,626
========== ========== ==========
</TABLE>
11
<PAGE> 12
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment is composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Leasehold improvements...................... $ 257,534 $ 327,178 $ 352,254
Furniture and fixtures...................... 88,058 115,544 116,531
Machinery and equipment..................... 1,935,129 2,422,835 2,791,934
Tooling, dies and molds..................... 417,908 532,070 785,553
Rental units................................ 56,084 166,268 191,578
----------- ----------- -----------
2,754,713 3,563,895 4,237,850
Less accumulated depreciation............... (2,155,822) (2,568,851) (2,849,929)
----------- ----------- -----------
$ 598,891 $ 995,044 $ 1,387,921
=========== =========== ===========
</TABLE>
Property and equipment includes $1,270,363, $1,284,488 and $1,348,448,
respectively, at December 31, 1994 and 1995 and June 30, 1996 (unaudited) of
fully depreciated assets which remain in service. Depreciation expense was
$272,401, $327,293 and $449,653 for 1993, 1994, and 1995, respectively, and
$164,169 and $281,078 for the six months ended June 30, 1995 and 1996
(unaudited), respectively. Maintenance and repairs expense for 1993, 1994 and
1995 was $41,629, $64,870, and $55,250, respectively, and for the six months
ended June 30, 1995 and 1996 was $36,019 and $26,406 (unaudited), respectively.
Rental units are carried at cost less accumulated depreciation ($136,136
and $163,952 at December 31, 1994 and 1995 and $187,060 at June 30, 1996
(unaudited)). Future minimum rental revenue on noncancellable leases as of
December 31, 1995 is approximately $306,000, due during 1996.
6. ACCRUED EXPENSES
Accrued expenses are composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Accrued bonuses.............................. $ 206,451 $ 366,372 $ 198,519
Accrued commissions.......................... 55,133 76,079 --
Accrued payroll.............................. 87,298 88,228 55,122
Accrued vacation............................. 109,999 135,832 137,104
Accrued taxes and other...................... 22,773 70,642 140,331
Accrued professional fees.................... 117,388 155,552 12,389
Accrued warranty expense..................... 344,822 307,323 279,198
Accrued -- other............................. 86,608 76,071 78,903
----------- ----------- --------
$ 1,030,472 $ 1,276,099 $ 901,566
=========== =========== ========
</TABLE>
7. NOTES PAYABLE
StatSpin had notes payable to stockholders with outstanding balances of
$200,324 and $185,638 at December 31, 1994 and 1995, respectively. The notes
bore interest at 11% to 12% per year and were due in 1996 through 1997.
12
<PAGE> 13
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, StatSpin had a note payable to the Massachusetts Technology
Development Corporation with outstanding balances of $166,660 and $124,995 at
December 31, 1994 and 1995, respectively. The note bore interest at 9% per year
and was due in 1998.
Following consummation of the merger with StatSpin, all note obligations
were paid off in full by IRIS.
8. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- ------------
<S> <C> <C> <C>
Currently payable:
Federal..................................... $ 26,000 $ 30,000 $ 26,000
State....................................... 31,906 49,456 32,956
------- ------- -----------
57,906 79,456 58,956
------- ------- -----------
Deferred:
Federal..................................... -- -- (3,537,000)
State....................................... -- -- (50,000)
------- ------- -----------
-- -- (3,587,000)
------- ------- -----------
$ 57,906 $ 79,456 $ (3,528,044)
======= ======= ===========
</TABLE>
The provision (benefit) for income taxes differs from the amount obtained
by applying the federal statutory income tax rate to income before income taxes
for the years ended December 31, 1993, 1994 and 1995 as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- -----------
<S> <C> <C> <C>
Tax provision (benefit) computed at Federal
statutory rate............................... $ 469,385 $ 578,347 $ (398,286)
Increase (decrease) in taxes due to:
Reinstatement of fully reserved deferred tax
assets.................................... -- -- (3,587,000)
Utilization of net operating loss
carryforward.............................. (521,993) (583,316) (662,819)
Write-off of in-process research and
development............................... -- -- 1,089,962
State taxes, net of federal benefit.......... 18,643 36,979 26,156
Nondeductible expenses....................... 37,214 21,952 (22,057)
Other........................................ 54,657 25,494 26,000
--------- --------- -----------
$ 57,906 $ 79,456 $(3,528,044)
========= ========= ===========
</TABLE>
In 1995, IRIS recognized a deferred tax benefit of $3,587,000 through a
reduction in the Company's deferred tax asset valuation allowance. This
reduction in the valuation allowance resulted principally from the Company's
assessment of the realizability of its net operating loss carryforwards based on
recent operating history as well as an assessment that operations will continue
to generate taxable income. Realization of the deferred tax assets are dependent
upon continued generation of sufficient taxable income prior to expiration of
the loss carryforwards. Although realization is not assured, management believes
it is more likely than not that the remaining net deferred tax assets will be
realized. The amount of the deferred tax assets considered realizable, however,
could be reduced in the future if estimates of future taxable income during the
carryforward period are reduced.
At December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $14.2 million and state net operating loss
carryforwards of approximately $740,000 which expire in fiscal years
13
<PAGE> 14
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ending in 1999 through 2010. As of December 31, 1995, IRIS had investment tax
and R&D credit carryforwards of $71,719 expiring in fiscal years through 2003.
The primary components of temporary differences which give rise to the
Company's net deferred tax asset at December 31, 1993, 1994 and 1995 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Depreciation and amortization............... $ 115,598 $ 129,162 $ 146,200
Allowance for doubtful accounts............. 34,012 32,619 12,900
Accrued liabilities......................... 234,718 189,129 213,100
Deferred revenue -- service contracts....... 186,582 202,164 145,800
Deferred research and development........... -- -- 537,000
Net operating loss carryforwards............ 5,768,479 5,135,843 4,840,000
Other....................................... 74,963 98,281 --
Valuation allowance......................... (6,414,352) (5,787,198) (1,500,000)
------- ------- -------
$ 0 $ 0 $ 4,395,000
======= ======= =======
</TABLE>
9. LDA AND WARRANTS
In October, 1992 LDA Systems, Inc. ("LDA"), completed an initial public
offering of 107,750 units, each unit consisting of one share of callable LDA
Common Stock and ten IRIS Warrants, each five warrants entitling the holder to
purchase one share of IRIS Common Stock for $3.75, exercisable at any time from
November 16, 1992 through July 31, 1995. LDA received net proceeds of $774,000
from the unit offering. These funds were used throughout 1993 to engage IRIS to
conduct research and development, clinical evaluations and pre-market testing of
The White IRIS(R), a proposed new product, in accordance with a research and
development contract. In addition, IRIS committed to fund $500,000 of the
development costs at a rate of $15,000 per month during this period.
On April 25, 1994, LDA completed the sale of additional units to Corange
Limited consisting of 85,714 shares of callable LDA common stock and warrants to
purchase an aggregate of 248,571 shares of IRIS common stock at an exercise
price of $3.75 per share. As part of the investment agreement, Corange was
granted the option to participate with LDA in the joint development,
manufacture, and marketing of certain future hematology instruments. This option
expired October 30, 1995.
IRIS had the option to purchase for cash or shares of IRIS common stock all
of the outstanding shares of LDA common stock at $20 per share. The option
expired 121 days after termination of the research and development agreement,
which was to conclude no later than July 31, 1995. In June 1995, IRIS completed
the acquisition of LDA for approximately 498,000 shares of IRIS Common Stock.
IRIS acquired LDA pursuant to the exercise of its call option under the LDA
Restated Certificate of Incorporation to purchase all the outstanding shares of
LDA Common Stock. Accordingly, IRIS tendered 2.5765 shares of IRIS Common Stock
for each share of LDA Common Stock. As a result of the acquisition, IRIS
incurred a non-recurring charge of approximately $2.9 million against earnings
for 1995 for the acquisition of in-process research and development (i.e. work
in process not yet cleared for interstate commerce by the Food and Drug
Administration).
The following unaudited pro forma combined financial information gives
effect to the acquisition of LDA by IRIS under the purchase method of accounting
as though the acquisition had occurred on January 1, 1994. Substantially all of
the purchase price for the acquisition of LDA by IRIS has been allocated to
in-process research and development. Under the purchase method of accounting,
the purchased in-process research and development has been written off as of the
purchase date. The one time write-off of in-process research and
14
<PAGE> 15
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development of approximately $2.9 million is excluded from the pro forma
information as it represents a non-recurring item.
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Net revenues.................................... $ 12,469,277 $ 15,021,658
Net income...................................... 480,445 5,077,187
Primary and fully diluted earnings per share.... $ 0.08 $ 0.76
</TABLE>
The pro forma combined financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the merger been consummated as of the above dates. In
addition, the pro forma results are not intended to be a projection of future
results.
On May 13, 1996, IRIS obtained clearance from the FDA to commence marketing
The White IRIS(R) leukocyte differential analyzer, its newly developed
workstation for white blood cell classification. The FDA cleared The White
IRIS(R) for commercial use in the classification of normal as well as immature
and other abnormal types of white blood cells.
10. POLY DEVELOPMENT AGREEMENT
On September 29, 1995, Poly U/A Systems, Inc. ("Poly") engaged IRIS to
develop several new products based on IRIS and other technology to further
enhance automation in the urinalysis field. Under the terms of the project, Poly
will have the right to use the IRIS technology and any newly developed
technology for developing, manufacturing and marketing the new products as
stand-alone devices, and IRIS will have the right to use any newly developed
technology for any other purpose and to incorporate the new products into The
Yellow IRIS(R). Poly has retained IRIS to conduct the research, development,
clinical evaluation and pre-market testing of the proposed new products. IRIS
will fund the first $15,000 per month (up to a maximum of $500,000) of the cost
of the project, and Poly will reimburse IRIS for the excess. IRIS has an option
until 121 days after termination of the project (which terminates no later than
July 31, 1998) to acquire all of the Common Stock of Poly at an aggregate price
increasing August 1, 1997 from $4.4 million to $5.1 million. IRIS may pay the
option exercise price in cash or with shares of IRIS Common Stock. IRIS is also
providing financial and administrative services to Poly at cost.
Poly, a privately-held company based in Los Angeles, California, was
organized in June 1995 to undertake the commercial development of several
potential products based on technology developed or licensed by IRIS. In order
to fund its share of the project, Poly, in 1995, raised net proceeds of $2.0
million through the sale of 128 units at a price of $20,000 per unit. Each unit
consists of 2,000 shares of Poly's Callable Common Stock and a warrant to
purchase 4,000 shares of IRIS Common Stock. In the aggregate, investors
purchased 256,000 shares of Poly's callable Common Stock and warrants to
purchase 512,000 shares of IRIS Common Stock. The IRIS warrants are exercisable
at $6.50 per share during the last two years of their three-year duration. In
connection with Poly's sale of units, IRIS also issued warrants to the placement
agent and finder to purchase an aggregate of 150,000 shares of IRIS Common
Stock. These warrants are exercisable at $7.80 per share for a five year period
and include certain registration rights.
11. REFERENCE LAB AGREEMENT
During the first quarter of 1995, IRIS and Boehringer Mannheim Corporation
("BMC") and Boehringer Mannheim GmbH ("BMG"), BMC's German affiliate, announced
a joint project to develop a high capacity automated urinalysis system primarily
for reference laboratories based on the proprietary technologies of both
companies. The program is jointly funded by both companies. In addition to
designing specific components of the new system, BMG has agreed to pay IRIS a
fixed amount of $640,000 for its research and development of the project. In
connection with this project and certain distribution considerations, IRIS
issued Corange International Limited ("Corange") (an affiliate of BMG) warrants
to purchase 250,000 shares of IRIS
15
<PAGE> 16
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock at an exercise price of $7.375 per share and granted Corange
certain registration rights with respect to the shares of IRIS Common Stock
issuable upon exercise of these warrants.
12. PRODUCT LINE ACQUISITION
During the first quarter of 1995, IRIS acquired the digital refractometer
product line of Biovation, Inc. for $850,000 in cash and warrants to purchase
75,000 shares of IRIS Common Stock at an exercise price of $8.125 per share.
IRIS granted Biovation certain registration rights with respect to the shares of
IRIS Common Stock issuable upon exercise of these warrants. The product line
consists of a patented device known as a digital refractometer and the related
consumables used in the operation and maintenance of the refractometer.
In March 1996, IRIS acquired the CenSlide and FloStar urinalysis devices
product line of UroHealth Sciences, Inc., for $788,000 in cash and the
assumption of certain liabilities.
13. CAPITAL STOCK
STOCK ISSUANCES
During 1990, the IRIS Board of Directors adopted a key Employee Stock
Purchase Plan designed to allow selected senior employees of the Company to buy
its shares at 50% of the then current market price, provided that the employee
agrees to hold the shares purchased for a minimum of 2 years. Payment for the
50% portion may be made at the option of the employee either by payroll
deduction or by lump sum payment, but in no event may it exceed more than 15% of
the employee's salary during any year. The remaining 50% portion is recorded as
deferred compensation and amortized over the vesting period. The shares
purchased pursuant to the Plan may not be transferred, except following the
death of the employee or a change in control, for a period of 2 years following
the date of purchase. During the period of the limitation on transfer, the
Company has the option to repurchase the shares at the employee's purchase price
if the employee terminates employment with the Company either voluntarily or as
a result of termination for cause. During 1993, 1994 and 1995, IRIS issued
27,942, 45,622, and 26,973 shares of common stock, respectively, in exchange for
$134,952, $201,574, and $179,630 in cash and services, respectively, under the
Plan. During the six months ended June 1996 (unaudited), IRIS issued 29,974
shares of common stock in exchange for $227,054 in cash and services under the
Plan.
STOCK OPTION PLANS
The following tables set forth information on the Company's five stock
option plans as of December 31, 1995:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OPTIONS OPTIONS AVAILABLE
PLAN AUTHORIZED EXERCISED OUTSTANDING FOR GRANT
-------------------------------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
1980............................ 200,000 174,468 0 0
1982............................ 84,000 75,034 4,000 0
1983............................ 100,000 74,035 17,400 0
1986............................ 360,000 135,932 223,801 267
1994............................ 700,000 0 368,600 331,400
--------- ------- ------- -------
1,444,000 459,469 613,801 331,667
========= ======= ======= =======
</TABLE>
16
<PAGE> 17
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EXERCISE PRICE
----------------------------
SHARES $ PER SHARE TOTAL
-------- ------------- -----------
<S> <C> <C> <C>
Balance outstanding at December 31, 1992.............. 443,300 1.10 to 4.25 $ 1,004,478
Options issued........................................ 91,000 4.00 to 4.04 364,525
Options canceled...................................... (15,400) 2.59 to 4.00 (59,814)
Options exercised..................................... (46,533) 1.10 to 3.75 (101,746)
------ --------
Balance outstanding at December 31, 1993.............. 472,367 1.10 to 4.25 1,207,443
Options issued........................................ 192,600 3.72 to 5.42 797,028
Options canceled...................................... (28,234) 1.55 to 4.25 (67,470)
Options exercised..................................... (200,832) 1.10 to 3.75 (447,022)
------ --------
Balances outstanding at December 31, 1994............. 435,901 1.10 to 5.42 1,489,979
Options issued........................................ 209,500 4.25 to 7.37 1,195,530
Options canceled...................................... (9,700) 1.57 to 4.00 (26,782)
Options exercised..................................... (21,900) 1.10 to 4.00 (44,450)
------ --------
Balances outstanding at December 31, 1995............. 613,801 1.10 to 7.37 2,614,277
Options issued (unaudited)............................ 229,000 5.63 to 8.50 1,420,958
Options canceled (unaudited).......................... (12,567) 2.90 to 6.27 (56,110)
Options exercised (unaudited)......................... (35,633) 1.75 to 5.00 (91,548)
------ --------
Balance outstanding at June 30, 1996 (unaudited)...... 794,601 $ 3,887,577
====== ========
Options exercisable at December 31, 1995.............. 406,443 1.10 to 7.37 $ 1,428,694
====== ========
Options exercisable at June 30, 1996 (unaudited)...... 390,534 1.10 to 8.50 $ 1,552,332
====== ========
</TABLE>
In connection with the merger with StatSpin, each outstanding option and
warrant of StatSpin was converted into an option to purchase IRIS common stock
at a ratio of 4.095 shares of IRIS common stock for each share of StatSpin
common stock covered by such option or warrant, resulting in options to purchase
an aggregate of 126,000 shares of IRIS common stock. The exercise price per
share for the StatSpin options and warrants have been adjusted by dividing the
initial exercise price by 4.095. During the six months ended June 30, 1996
(unaudited), options to purchase 19,791 shares were exercised at an aggregate
exercise price of $72,495.
WARRANTS
At December 31, 1995 and June 30, 1996 (unaudited), there were warrants
outstanding and exercisable to purchase 250,000 shares of common stock at $7.375
per share until February 6, 1998, 75,000 shares at $8.125 per share until March
30, 1998, 512,000 shares at $6.50 per share until September 29, 1998 and 150,000
shares at $7.80 per share until September 28, 2000.
PREFERRED STOCK
IRIS is authorized to issue 3,000,000 shares of preferred stock in one or
more series with such terms as may be designated by the Board of Directors.
There are no issued and outstanding preferred shares at December 31, 1995.
17
<PAGE> 18
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS
LEASES
IRIS leases its business locations at a monthly aggregate rent of $20,700,
subject to increases based on the Consumer Price Index. IRIS has the option to
renew one lease for two additional three-year periods commencing July 31, 1997.
At December 31, 1995, the minimum lease payments due over the remaining
life of the facilities leases and other operating leases were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ---------
<S> <C>
1996........................................... $ 258,960
1997........................................... 186,069
1998........................................... 85,932
1999........................................... 85,932
2000........................................... 21,483
---------
$ 638,376
=========
</TABLE>
Rent expense under all operating leases during 1993, 1994 and 1995 was
$304,208, $290,294, and $453,762 respectively, and for the six months ended June
30, 1995 and 1996 (unaudited) was $134,457 and $149,844, respectively.
OTHER
Effective September 1, 1988, IRIS entered into consulting and licensing
agreements with Cytocolor, Inc. relating to the use of its patented cytoprobe
for The White IRIS(R). Under the terms of the agreements, IRIS is subject to the
following future minimum royalty payments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- ---------
<S> <C>
1996........................................... $ 20,000
1997........................................... 20,000
1998........................................... 20,000
1999........................................... 20,000
Years thereafter............................... 280,000
---------
$ 360,000
=========
</TABLE>
In connection with the development agreement with Poly, IRIS has agreed to
fund $15,000 per month (up to a maximum of $500,000) of the cost of the
development project for several new products to enhance automation in the
urinalysis field (see Note 10).
15. EARNINGS PER SHARE
The computation of per share amounts for 1993, 1994 and 1995 and for the
six months ended June 30, 1996, is based on the weighted average number of
common shares and common share equivalents outstanding for the period. Fully
diluted and primary earnings per share were $0.25, $0.28, and $0.37 for the
years ended December 31, 1993, 1994 and 1995, respectively, and $0.13 for the
six months ended June 30, 1996 (unaudited).
The computation of loss per share for the six months ended June 30, 1995 is
based on the weighted average number of common shares outstanding for the
period. Common share equivalents have not been
18
<PAGE> 19
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
included in the computation as their inclusion would have been antidilutive.
Loss per share was $0.46 for the six months ended June 30, 1995 (unaudited).
16. LICENSE
Pursuant to earlier payments and certain agreements with TOA Medical
Electronics Co., Ltd. (TOA), TOA has developed a urine sediment analyzer under
license from IRIS using pre-1989 IRIS technology. IRIS received royalties of
$35,000, $111,000, and $98,000 in 1993, 1994, and 1995, and $67,000 and $32,000
for the six months ended June 30, 1995 and 1996 (unaudited), respectively.
17. EXPORT SALES
During 1993, 1994 and 1995, IRIS had export equipment sales of $253,000,
$474,000 and $342,000 respectively, and $139,000 and $143,000 for the six months
ended June 30, 1995 and 1996 (unaudited), respectively.
18. RESEARCH AND DEVELOPMENT CONTRACTS
Reimbursements are recognized under research and development contracts in
amounts equivalent to reimbursable research and development costs incurred on
the related project plus, where contractually provided for, an amount to cover
general and administrative costs of the project.
Reimbursements and costs connected with the research and development
agreements entered into with LDA, Poly and BMG were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Reimbursements..... $ 538,931 $ 1,110,878 $ 842,663 $ 638,150 $ 944,249
Costs.............. 637,552 1,258,405 1,494,873 1,066,055 964,137
---------- ---------- ---------- ---------- --------
Net
costs... $ 98,621 $ 147,527 $ 652,210 $ 427,905 $ 19,888
========== ========== ========== ========== ========
</TABLE>
Net costs incurred under research and development contracts have been
included in research and development expense in the statements of operations.
19. SUBSEQUENT EVENTS (UNAUDITED)
On July 31, 1996, IRIS acquired the IVD imaging business of Perceptive
Scientific Instruments, Inc. (PSI) for $9.1 million in cash, a $7.0 million
subordinated debenture due seller and a five year warrant to purchase 875,000
shares of IRIS common stock at $8.00 per share. IRIS paid the cash portion of
the purchase price with funds obtained from a bank under a $7.8 million term
loan and a new $1.5 million revolving line of credit.
PSI's IVD imaging business includes providing genetic analysis
instrumentation and related services through worldwide sales of its proprietary
PowerGene(TM) product line. The PowerGene product line is used in various
procedures for chromosome analysis, including karyotyping, DNA probe analysis
and comparative genomic hybridization analysis.
On September 25, 1996, IRIS entered into an agreement to purchase 469,413
shares of IRIS Common Stock and a warrant to purchase 250,000 shares of IRIS
Common Stock from Corange for $2.1 million on or before December 31, 1996.
19
<PAGE> 20
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes certain financial information by quarter for
1994 and 1995:
<TABLE>
<CAPTION>
1994
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net revenues....................... $ 2,485,373 $ 3,134,915 $ 3,338,746 $ 3,510,243
Gross margin on net revenues....... 1,090,176 1,423,514 1,570,411 1,886,148
Interest and other income, net..... 72,648 34,426 54,318 44,534
Net income......................... 85,943 375,702 491,993 667,926
Net income per share............... $ 0.02 $ 0.07 $ 0.09 $ 0.12
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net revenues....................... $ 3,167,277 $ 3,716,881 $ 3,743,641 $ 4,393,859
Gross margin on net revenues....... 1,535,807 1,909,883 1,931,539 2,283,905
Interest and other income, net..... 118,042 87,207 65,598 107,913
Net income (loss).................. 397,494 (2,916,490) 563,798 4,311,813
Net income (loss) per share........ $ 0.07 $ (0.53) $ 0.09 $ 0.64
</TABLE>
20
<PAGE> 1
EXHIBIT 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
International Remote Imaging Systems, Inc.
Board of Directors
Perceptive Scientific Instruments, Inc.:
We have audited the accompanying consolidated balance sheets of Perceptive
Scientific Instruments, Inc. (a wholly-owned subsidiary of Digital Imaging
Technologies, Inc.) and subsidiary as of December 31, 1995 and 1994, the related
combined and consolidated statements of operations, stockholder's deficit and
cash flows for each of the years in the three-year period ended December 31,
1995. These combined and consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined and consolidated 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 our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Perceptive
Scientific Instruments, Inc. and Subsidiary as of December 31, 1995 and 1994,
and the combined and consolidated results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As more fully described in Note 10, substantially all of the net assets of
the Company were sold to International Remote Imaging Systems, Inc. on July
31, 1996.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
September 13, 1996
1
<PAGE> 2
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- ----------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 90,843 $ 354,421 $ 97,039
Receivables:
Trade.......................................... 702,741 1,868,620 1,740,365
Other.......................................... 26,848 39,522 143,911
Inventories....................................... 595,548 344,166 431,147
Prepaid expenses and other current assets......... 22,710 23,958 34,644
----------- ----------- -----------
Total current assets...................... 1,438,690 2,630,687 2,447,106
Property and equipment, at cost, net................ 525,380 568,186 629,068
Capitalized software costs, net..................... 528,348 655,727 610,488
Other assets........................................ 62,528 23,852 25,262
----------- ----------- -----------
Total assets.............................. $ 2,554,946 $ 3,878,452 $ 3,711,924
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Notes payable..................................... $ -- $ 90,733 $ --
Current maturities of capital lease obligations... 4,600 5,644 5,644
Accounts payable.................................. 342,772 548,727 873,070
Accrued expenses.................................. 216,779 647,611 688,936
Billings in excess of cost and gross profit on
fixed grants................................... -- -- 26,156
Deferred maintenance revenue...................... 174,075 175,738 253,138
Customer deposits................................. -- 82,823 70,548
----------- ----------- -----------
Total current liabilities................. 738,226 1,551,276 1,917,492
Payable to parent company........................... 6,324,249 7,874,989 7,705,611
Capital lease obligations, net of current
maturities........................................ 18,470 13,046 10,923
----------- ----------- -----------
Total liabilities......................... 7,080,945 9,439,311 9,634,026
Commitments and contingencies
Stockholder's deficit:
Preferred stock, no par value, 1,000,000 shares
authorized, no shares issued or outstanding
Common stock, $.01 par value, 1,000,000 shares
authorized, 10 shares issued and outstanding,
and additional paid-in capital................. 1,000 1,000 1,000
Accumulated deficit............................... (4,537,856) (5,569,850) (5,928,015)
Cumulative foreign currency translation
adjustment..................................... 10,857 7,991 4,913
----------- ----------- -----------
Total stockholder's deficit............... (4,525,999) (5,560,859) (5,922,102)
----------- ----------- -----------
Total liabilities and stockholder's
deficit................................. $ 2,554,946 $ 3,878,452 $ 3,711,924
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined and consolidated
financial statements.
2
<PAGE> 3
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
System sales.................. $ 2,257,017 $ 3,611,992 $ 4,655,242 $ 2,027,269 $ 3,236,977
Service and supply............ 693,924 674,827 728,198 321,303 329,128
Other......................... 18,856 44,234 10,600 36,315 85,608
----------- ----------- ---------- ---------- ----------
Total revenues........ 2,969,797 4,331,053 5,394,040 2,384,887 3,651,713
Costs of sales:
System sales.................. 1,209,408 1,994,143 2,067,008 870,922 1,308,998
Service and supply............ 248,189 271,570 286,326 82,984 60,405
Other......................... 2,912 9,190 -- 43,093 89,415
----------- ----------- ---------- ---------- ----------
Total costs of
sales............... 1,460,509 2,274,903 2,353,334 996,999 1,458,818
----------- ----------- ---------- ---------- ----------
Gross margin.......... 1,509,288 2,056,150 3,040,706 1,387,888 2,192,895
Operating expenses:
Selling, general and
administrative............. 3,193,185 2,572,061 3,223,388 1,308,180 1,652,178
Research and development, net
of grants.................. 86,450 92,806 308,460 132,289 560,044
Bad debt...................... 6,661 35,034 11,273 5,667 --
----------- ----------- ---------- ---------- ----------
Total operating
expenses............ 3,286,296 2,699,901 3,543,121 1,446,136 2,212,222
----------- ----------- ---------- ---------- ----------
Income (loss) from
operations.......... (1,777,008) (643,751) (502,415) (58,248) (19,327)
Other income (expense):
Interest income............... 94,936 115,148 -- -- --
Interest expense.............. (363,272) (506,816) (538,518) (267,141) (309,244)
Foreign currency transaction
gain (loss)................ -- (14,256) 1,957 10,070 (25,887)
Other......................... (1,290) (11,515) 6,982 2,625 (3,707)
----------- ----------- ---------- ---------- ----------
Total other income
(expense)........... (269,626) (417,439) (529,579) (254,446) (338,838)
----------- ----------- ---------- ---------- ----------
Loss before income
taxes............... (2,046,634) (1,061,190) (1,031,994) (312,694) (358,165)
Provision for income taxes...... -- -- -- -- --
----------- ----------- ---------- ---------- ----------
Net loss.............. $(2,046,634) $(1,061,190) $(1,031,994) $ (312,694) $ (358,165)
=========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined and consolidated
financial statements.
3
<PAGE> 4
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK AND CUMULATIVE
ADDITIONAL FOREIGN
PAID-IN CAPITAL EXCHANGE
------------------ ACCUMULATED TRANSLATION
SHARES VALUE DEFICIT ADJUSTMENTS TOTAL
------ ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Stockholder's equity, January 1, 1993....... 10 $ 1,000 $(1,430,032) $ -- $(1,429,032)
Net loss.................................. -- (2,046,634) -- (2,046,634)
Foreign currency translation
adjustments............................ -- -- (1,378) (1,378)
-- ------ ----------- ------- -----------
Stockholder's equity, December 31, 1993..... 10 1,000 (3,476,666) (1,378) (3,477,044)
Net loss.................................. -- (1,061,190) (1,061,190)
Foreign currency translation
adjustments............................ -- -- 12,235 12,235
-- ------ ----------- ------- -----------
Stockholder's equity, December 31, 1994..... 10 1,000 (4,537,856) 10,857 (4,525,999)
Net loss.................................. -- (1,031,994) -- (1,031,994)
Foreign currency translation
adjustments............................ -- -- (2,866) (2,866)
-- ------ ----------- ------- -----------
Stockholder's equity, December 31, 1995..... 10 1,000 (5,569,850) 7,991 (5,560,859)
Net loss (unaudited)...................... -- (358,165) -- (358,165)
Foreign currency translation adjustments
(unaudited)............................ -- -- (3,078) (3,078)
-- ------ ----------- ------- -----------
Stockholder's equity, June 30, 1996
(unaudited)............................... $ 1,000 $(5,928,015) $ 4,913 $(5,922,102)
10
== ====== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these combined and consolidated
financial statements.
4
<PAGE> 5
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------- -----------------------
1993 1994 1995 1995 1996
------------ ------------ ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $ (2,046,634) $ (1,061,190) $(1,031,994) $ (312,694) $ (358,165)
Adjustments to reconcile net loss to
net cash provided from operating
activities:
Depreciation and amortization....... 98,856 254,768 501,271 259,649 288,373
Changes in operating assets and
liabilities:
Receivables -- trade.............. (349,016) (185,150) (1,165,879) (585,583) 128,255
Inventories....................... (40,784) 162,757 251,382 (6,644) (86,981)
Prepaid expenses and other current
assets......................... (32,404) 153,607 (1,247) 5,932 (10,686)
Accounts payable and accrued
expenses....................... 352,160 (236,208) 636,787 451,097 365,668
Deferred maintenance revenue...... 3,176 (41,810) 1,663 4,888 77,400
Other............................. -- -- 38,676 (10,436) 24,746
----------- ----------- ----------- --------- ---------
Net cash provided by (used in)
operating activities......... (2,014,646) (953,226) (769,341) (193,791) 428,610
Cash flows from investing activities:
Additions to property and equipment.... (33,573) (225,440) (277,817) (86,141) (201,427)
Additions to capitalized software
costs............................... (284,874) (91,088) (393,640) (471,233) (102,589)
Change in receivables -- other......... (14,590) (27,275) (12,674) (194,065) (104,389)
----------- ----------- ----------- --------- ---------
Net cash used in investing
activities................... (333,037) (343,803) (684,131) (751,439) (408,405)
Cash flows from financing activities:
Increase (decrease) in payable to
parent company...................... 2,155,468 1,702,212 1,550,740 716,326 (169,378)
Principal borrowings (payments) on
notes payable....................... -- -- 90,733 -- (90,733)
Principal reductions of capital lease
obligations......................... -- (128,250) (4,380) (2,092) (2,123)
Increase (decrease) in customer
deposits............................ 260,616 (266,616) 82,823 5,432 (12,275)
----------- ----------- ----------- --------- ---------
Net cash provided by (used in)
financing activities......... 2,416,084 1,307,346 1,719,916 719,666 (274,509)
Effect of exchange rate changes on
cash................................... (1,378) 12,234 (2,866) 23,696 (3,078)
----------- ----------- ----------- --------- ---------
Increase (decrease) in cash.............. 67,023 22,551 263,578 (201,868) (257,382)
Cash, beginning of year.................. 1,269 68,292 90,843 90,843 354,421
----------- ----------- ----------- --------- ---------
Cash, end of period...................... $ 68,292 $ 90,843 $ 354,421 $ (111,025) $ 97,039
=========== =========== =========== ========= =========
Supplemental cash flow information:
Cash paid for interest................... $ 363,272 $ 506,816 $ 538,518 $ 267,141 $ 294,457
=========== =========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined and consolidated
financial statements.
5
<PAGE> 6
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 IS UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Perceptive Scientific Instruments, Inc. (the "Company") is engaged in the
development, supply, and servicing of digital imaging systems for biological,
clinical and research applications. The Company owns approximately 99% of the
common stock of Perceptive Scientific International Limited ("PSI Ltd."), a
United Kingdom company. The Company was formed in June 1994 as a wholly-owned
subsidiary of Digital Imaging Technologies, Inc. ("DITI"). Upon formation, the
net assets applicable to the Company's operations, including the investment in
PSI Ltd., were transferred from DITI to the Company. The accompanying financial
statements represent the consolidated financial condition, results of operations
and cash flows of the Company from the date of formation and the combined
results of operations and cash flows of the net assets applicable to the
Company's operations prior to the formation of the Company. All significant
intercompany transactions have been eliminated.
Unaudited Interim Financial Statements
The consolidated financial statements for the six months ended June 30,
1995 and 1996, have been prepared from the Company's books and records without
audit. In the opinion of management, all adjustments, consisting only of normal
recurring items necessary for a fair presentation for the periods indicated,
have been included. Interim results are not necessarily indicative of results
for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Revenue from the sale of digital imaging systems is recognized when the
system is delivered for installation.
The Company provides service under the terms of maintenance contracts which
are generally for a term of one to two years. Service revenue is recognized as
services are provided. Maintenance contract payments received in advance are
deferred and amortized to income ratably over the contract term.
From time to time the Company is awarded grants from agencies of the United
States to conduct research and development. The Company retains all rights to
products developed as a result of the grant projects. The funding available
under a grant is based on qualifying costs incurred, up to a maximum amount, or
a fixed amount. Grant funding on a cost reimbursement basis is recorded as a
reduction of costs incurred. Grant funding on a fixed basis is recorded as a
reduction of costs incurred and the excess of the grant over total estimated
costs, if any, is recognized as income under the percentage-of-completion method
based on costs incurred to total estimated costs.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits.
The Company sells products and provides service to customers primarily in
the health care industry throughout the United States and various foreign
countries. Sales in foreign countries are made through PSI
6
<PAGE> 7
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Ltd. The Company's normal credit terms for trade receivables are 30 days. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. Reserves are maintained for potential credit losses. No
allowance was considered necessary at December 31, 1994 and 1995, and June 30,
1996.
Inventory
Inventory is stated using the first-in, first-out method, at the lower of
actual cost, based on specific identification, or market.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation of fixed assets is provided using the
straight-line method over the estimated useful lives of the asset ranging
primarily from 3 to 5 years. Amortization of assets under capital lease is
provided on a straight-line basis over the term of the related lease agreement.
Costs of maintenance and repairs are charged to expense when incurred;
costs of renewals and betterments are capitalized. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated form the respective
accounts, and the resulting gain or loss is included in current income.
Computer Software Costs -- Research and Development and Product Development
Costs
The Company develops computer software for use in the digital imaging
systems. Computer software research and development costs are expensed as
incurred. Computer software product development costs are capitalized beginning
when a product's technological feasibility has been established and ending when
a product is ready for general release to customers. Product development costs
are amortized over a period of three to five years based on the product's
estimated economic life. Unamortized software development costs are evaluated
for impairment on a product-by-product basis at each balance sheet date by
comparing the unamortized costs with the estimated net realizable value.
Estimated net realizable value is the estimated future gross revenues from a
product reduced by the estimated future costs of completing and disposing of a
product, including the costs of performing maintenance and customer support
required to satisfy the Company's responsibility set forth at the time of sale.
To the extent that unamortized costs exceed net realizable value, the excess is
included in current amortization expense. It is at least reasonably possible
that the estimated net realizable value of the Company's products will change in
the near term and such changes will impact the timing of amortization expense of
future periods.
Amortization of capitalized software development costs amounted to $64,724,
$138,070, $266,261 and $147,828 for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996, respectively.
Income Taxes
The Company, excluding PSI Ltd., is included in the consolidated U.S.
income tax return of DITI. PSI Ltd. files a separate income tax return in the
United Kingdom. U.S. income taxes are determined as if the Company filed a
separate income tax return.
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under the liability method, deferred taxes are based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax expense represents the change
in the deferred tax asset/liability balances. The Company provides a valuation
allowance, if necessary, to reduce deferred tax assets to their estimated
realizable value.
7
<PAGE> 8
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Product Warranties
The Company sells products under warranties generally ranging from 1 year
to 2 years. The estimated future cost under existing warranties has been
provided for in the accompanying combined and consolidated financial statements.
Foreign Currency Translation
The assets and liabilities of PSI Ltd. have been translated to U.S. dollars
using the exchange rate in effect at the balance sheet date. Results of
operations have been translated using the average exchange rate during the year.
Resulting translation adjustments have been recorded as a separate component of
stockholder's equity as "Cumulative Foreign Currency Translation Adjustments."
Foreign currency transaction gains and losses are included in the combined and
consolidated statement of operations as they occur.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of ("Statement 121").
Statement 121 addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used. Statement 121 also addresses the accounting for long-lived assets
and certain identifiable intangibles to be disposed of, establishes guidance for
recognizing and measuring impairment losses and requires that the carrying
amount of impaired assets be reduced to fair value. Statement 121 was effective
for fiscal years beginning after December 15, 1995. The impact of the adoption
of Statement 121 was not material to the Company's June 30, 1996 financial
statements.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
System components............................... $ 435,799 $ 227,890 $ 279,981
Customer service................................ 159,749 116,276 151,166
-------- -------- --------
$ 595,548 $ 344,166 $ 431,147
======== ======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Office equipment and furniture................. $ 403,024 $ 537,800 $ 809,847
Demonstration equipment........................ 250,866 335,719 298,701
Marketing equipment............................ 72,010 74,941 74,941
Leasehold improvements......................... -- 55,257 21,655
-------- ---------- ----------
725,900 1,003,717 1,205,144
Less accumulated depreciation and
amortization................................. 200,520 435,531 576,076
-------- ---------- ----------
$ 525,380 $ 568,186 $ 629,068
======== ========== ==========
</TABLE>
8
<PAGE> 9
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
Deferred income taxes under the liability method reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred income tax were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,849,667 $ 2,180,925
Research credit carryforwards........................... 70,700 82,000
----------- -----------
1,920,367 2,262,925
Deferred tax liabilities -- Software development costs and
other................................................... 187,798 235,132
----------- -----------
Net deferred tax assets, before valuation allowance....... 1,732,569 2,027,793
Valuation allowance....................................... (1,732,569) (2,027,793)
----------- -----------
Net deferred tax assets................................... $ -- $ --
=========== ===========
</TABLE>
Under the liability method, a valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Based on the Company's historical taxable loss record,
management has evaluated that it is more likely than not that the Company's net
deferred tax assets will not be utilized and, accordingly, a valuation allowance
has been provided against the entire balance.
The difference between the benefit for income taxes at the statutory rate
and the recorded income tax provision is primarily the result of the increase in
the valuation allowance against net deferred tax assets.
At December 31, 1995, the Company has available net operating loss
carryforwards attributable to the United States and United Kingdom operations of
approximately $6,200,000 and $55,000, respectively, which, if not utilized, will
expire during the years 2006 through 2010. At December 31, 1995, the Company has
available qualified research credit carryforwards of approximately $82,000
which, if not utilized, expire at various dates through 2010.
5. RELATED PARTY TRANSACTIONS
Substantially all financing requirements of the Company is provided by DITI
and its predecessor. DITI and its predecessor allocates interest expense and
certain salary and overhead costs to the Company under informal arrangements.
Activity between the Company and DITI and its predecessor is recorded in the
9
<PAGE> 10
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payable to parent account. There are no formal arrangements for repayment of the
outstanding balance. Following is an analysis of activity in the payable to
parent account:
<TABLE>
<S> <C>
Payable to Parent, January 1, 1993.............................. $ 2,375,000
Net borrowings................................................ 966,311
Allocated interest expense.................................... 363,272
----------
Payable to Parent, December 31, 1993............................ 3,704,583
Net borrowings................................................ 2,246,677
Allocated interest expense.................................... 308,899
Allocated salaries and overhead............................... 64,090
----------
Payable to Parent, December 31, 1994............................ 6,324,249
Net borrowings................................................ 682,566
Allocated interest expense.................................... 537,163
Allocated salaries and overhead............................... 331,011
----------
Payable to Parent, December 31, 1995............................ 7,874,989
Net payments.................................................. (746,255)
Allocated interest expense.................................... 286,501
Allocated salaries and overhead............................... 290,376
----------
Payable to Parent, June 30, 1996 (unaudited).................... $ 7,705,611
==========
</TABLE>
Allocated interest, salaries and overhead have been charged to operations
during the periods indicated.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space with minimal monthly lease rentals of
$11,462 through December 2001. Rent expense was $208,613, $164,115, $137,615,
and $78,854 for the years ended December 31, 1993, 1994 and 1995, and the six
months ended June 30, 1996, respectively.
Litigation
The Company was a defendant in a lawsuit related to the purchase of assets
from the Company's predecessor. The Company was released as a defendant in April
1994. The Company executed a guarantee for the payment of legal fees for all
defendants of the lawsuit. Legal fees payable at December 31, 1995, and included
in accrued expenses were approximately $256,000. Legal fees incurred during 1995
and charged to expense subsequent to the Company's release from the lawsuit were
approximately $100,000. Management believes that the Company will not incur any
future liabilities with respect to this lawsuit.
Indebtedness of Parent
The Company is co-maker of a $1,000,000 line of credit with a bank, bearing
interest at the prime rate plus 3%, with an original maturity date of March 1,
1996. The line of credit is collateralized by the Company's accounts receivable,
inventories, and property and equipment. All proceeds from the line of credit
have been utilized by DITI and the obligation for unpaid principal is not
reflected in the Company's balance sheet. Subsequent to December 31, 1995, the
line of credit was extended to December 1, 1996, and the amount available was
increased to $1,500,000. The unpaid principal balance on the line of credit was
$1,000,000 and $1,500,000 at December 31, 1995 and June 30, 1996, respectively.
The line of credit was retired on July 31, 1996, with proceeds from the sale of
the Company (see Note 10).
10
<PAGE> 11
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FOREIGN OPERATIONS
Summary financial information of PSI Ltd. is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- JUNE 30,
1993 1994 1995 1996
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total assets.................... $ 553,183 $ 673,022 $ 1,493,736 $ 1,317,258
Total liabilities............... 234,520 309,059 1,087,071 817,018
Total stockholder's equity...... 318,663 363,963 406,665 500,240
Total revenue................... 1,068,214 2,019,045 3,081,071 1,995,603
Total income (loss)............. (289,227) 33,492 46,334 96,646
</TABLE>
8. EMPLOYEE RETIREMENT PLAN
All employees of PSI Ltd. are covered by a defined contribution plan
whereby PSI Ltd. provides matching contributions of up to 4.5% of an employee's
salary. Total contributions charged to expense for the years ended December 31,
1993, 1994 and 1995, and the six months ended June 30, 1996, were $26,717,
$34,189, $33,161, and $23,515 respectively.
9. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued warranty costs.................. $ 71,075 $ 109,991 $ 146,458
Commissions............................. 43,841 353,302 262,637
Other................................... 101,863 184,318 279,841
-------- -------- --------
$ 216,779 $ 647,611 $ 688,936
======== ======== ========
</TABLE>
10. SUBSEQUENT EVENT
On July 31, 1996, substantially all of the net assets of the Company, with
the exception of cash, intercompany liabilities, and other defined obligations,
and substantially all of the net assets of an affiliated company were acquired
by International Remote Imaging Systems, Inc. ("IRIS") for a purchase price
consisting of $9.1 million in cash, an 8.5% subordinated note payable due 2001
in the amount of $7.0 million, and a warrant to purchase 875,000 shares of
IRIS's common stock at an exercise price of $8 per share. The purchase agreement
excludes any future obligations that may arise with respect to the litigation
described in Note 6 from the liabilities assumed by IRIS. Furthermore, net
operating and research tax credit carryforwards described in Note 4 are not
available to IRIS as a result of the net asset purchase.
11
<PAGE> 1
EXHIBIT 99.3
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet as of
June 30, 1996 and the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1995 and the six months ended June
30, 1996 give effect to the acquisition, which occurred in July 1996, of the IVD
imaging business of Perceptive Scientific Instruments, Inc. ("PSI Acquisition")
by International Remote Imaging Systems, Inc. ("IRIS"). The total purchase
price of PSI is estimated to be $17.03 million, consisting of $9.1 million in
cash, a $7.0 million subordinated debenture and a warrant to purchase 875,000
shares of IRIS common stock at $8.00 per share (warrant valued at $927,000).
IRIS paid the cash portion of the purchase price with funds obtained from a
bank under a $7.8 million term loan and a new $1.5 million revolving line of
credit. The total purchase price is subject to adjustment based on the final
closing financial statements of PSI as of June 30, 1996.
The unaudited pro forma condensed combined balance sheet assumes the PSI
Acquisition and the related financing were consummated on June 30, 1996 and the
unaudited pro forma condensed combined statements of operations assume that each
of these transactions occurred at the beginning of the periods presented. The
PSI Acquisition will be accounted for as a purchase, with the assets acquired
and the liabilities assumed being recorded at estimated fair value. A
substantial portion of the purchase price, currently estimated to be $7.25
million ($4.57 million net of deferred tax benefit) will be allocated to
in-process research and development. Under the purchase method of accounting,
the amount allocated to in-process research and development will be charged to
operations as of the purchase date. The write-off of in-process research and
development from the PSI Acquisition is excluded from the pro forma statements
of operations as it represents a non-recurring item. The adjustments included in
the unaudited pro forma condensed combined financial statements represent the
Company's preliminary determination of the purchase price allocation based upon
available information and there can be no assurance that the actual adjustments
will not differ significantly from the pro forma adjustments reflected in the
pro forma financial information.
The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the results that would have occurred if the foregoing
transactions had been consummated as of the indicated dates or which may occur
in the future. The unaudited pro forma condensed combined financial statements
should be read in conjunction with the historical financial statements of IRIS
and PSI, together with the related notes thereto, included elsewhere in this
Form 8-K/A.
1
<PAGE> 2
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
AND PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET -- UNAUDITED
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION PRO
HISTORICAL HISTORICAL PRO FORMA FORMA
IRIS PSI ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents.... $ 1,229 $ 97 $ (97)(1) $ 1,229
Short-term investments....... 2,636 -- 2,636
Accounts
receivable -- trade........ 5,562 1,884 7,446
Inventories.................. 3,955 431 4,386
Prepaid expenses and other... 342 35 377
Deferred tax asset........... 801 -- 801
------- ------- -------
Total current
assets........... 14,525 2,447 16,875
Property and equipment,
net........................ 1,388 629 2,017
Software development costs,
net........................ 558 610 1,168
Deferred tax asset........... 3,594 -- 2,683 (2) 6,277
Other assets................. 3,611 26 8,090 (1) 11,727
------- ------- -------
Total assets....... $ 23,676 $ 3,712 $ 38,064
======= ======= =======
Notes payable................ $ -- $ 6 3,700 (3) $ 3,706
Accounts payable............. 1,470 873 2,343
Accrued expenses............. 902 785 1,687
Service contracts -- deferred
income..................... 722 253 975
------- ------- -------
Total current
liabilities...... 3,094 1,917 8,711
Payable to parent company.... -- 7,706 (7,706)(1) --
Notes payable................ -- 11 12,400 (3) 12,411
Service contracts -- deferred
income..................... 216 -- 216
------- ------- -------
Total
liabilities...... 3,310 9,634 21,338
------- ------- -------
Common stock................. 64 1 (1)(1) 64
Additional paid in capital... 33,931 -- 927 (1) 34,858
Accumulated deficit.......... (13,629) (5,923) 5,923 (1) (18,196)
(4,567)(2)
------- ------- -------
Total stockholders'
equity........... 20,366 (5,922) 16,726
------- ------- -------
Total liabilities
and stockholders'
equity........... $ 23,676 $ 3,712 $ 38,064
======= ======= =======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
2
<PAGE> 3
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
AND PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS -- UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
IRIS PSI ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales.................... $ 9,129 $ 3,652 $ 12,781
Cost of goods sold........... 4,495 1,459 5,954
------ ------ -------
Gross margin................. 4,634 2,193 6,827
Selling, general and
administrative expenses.... 3,164 1,652 356 (6) 5,172
Research and development
expenses................... 591 560 1,151
------ ------ -------
Operating income (loss)...... 879 (19) 504
Other income (expense):
Interest and other
income.................. 168 (30) 138
Interest expense........... (5) (309) (674)(4) (679)
309 (5)
------ ------ -------
Income (loss) before
provision for income
taxes...................... 1,042 (358) (37)
Provision (benefit) for
income taxes............... 175 -- (199)(7) (24)
------ ------ -------
Net income (loss)............ $ 867 $ (358) $ (13)
====== ====== =======
Net income (loss) per
share...................... $ 0.13 $ (0.01)
====== =======
Weighted average number of
common shares and common
share equivalents
outstanding for the
period..................... 6,915 (595)(8) 6,320
====== ==== =======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
3
<PAGE> 4
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
AND PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS -- UNAUDITED
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
IRIS PSI ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................... $ 15,022 $ 5,394 $ 20,416
Cost of goods sold............ 7,361 2,353 9,714
------- ------ -------
Gross margin.................. 7,661 3,041 10,702
Selling, general and
administrative expenses..... 5,090 3,235 724 (6) 9,049
Research and development
expenses.................... 1,220 308 1,528
Acquisition of in-process
research and development.... 2,900 -- 2,900
------- ------ -------
Operating income (loss)....... (1,549) (502) (2,775)
Other income (expense):
Interest and other income... 420 9 429
Interest expense............ (42) (538) (1,356)(4) (1,398)
538 (5)
------- ------ -------
Income (loss) before provision
for income taxes............ (1,171) (1,031) (3,744)
Provision (benefit) for income
taxes....................... (3,528) -- (84)(7) (3,612)
------- ------ -------
Net income (loss)............. $ 2,357 $ (1,031) $ (132)
======= ====== =======
Net income (loss) per share... $ 0.37 $ (0.02)
======= =======
Weighted average number of
common shares and common
share equivalents
outstanding for the
period...................... 6,419 (424)(8) 5,995
======= ===== =======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
4
<PAGE> 5
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. The Company purchased substantially all the net assets of PSI (excluding
cash and the advances payable to PSI's parent) for total consideration of
$17,027, consisting of the following:
<TABLE>
<S> <C>
Cash paid at closing....................................... $ 9,100
Subordinated debenture due seller.......................... 7,000
Warrant to purchase 875,000 shares of common stock......... 927
-------
Total consideration.............................. $ 17,027
=======
</TABLE>
The actual allocation of the purchase price will be based on the estimated
fair value of PSI's net tangible assets and intangible assets at the date of
purchase. For purposes of the pro forma condensed combined balance sheet,
the preliminary allocation has been estimated as follows:
<TABLE>
<S> <C>
Net deficit at June 30, 1996............................... $ (5,922)
Less cash not purchased.................................... (97)
Add payable to parent company not assumed.................. 7,706
Net tangible assets as recorded by PSI..................... 1,687
Excess cost over net assets acquired....................... 15,340
Total............................................ $ 17,027
</TABLE>
The excess cost over net assets acquired has preliminarily been allocated as
follows:
<TABLE>
<S> <C>
International distribution channel......................... $ 4,910
Acquired technology and know how........................... 3,180
-------
8,090
In-process research and development........................ 7,250
-------
$ 15,340
=======
</TABLE>
2. The in-process research and development of $7,250 ($4,567 net of deferred
tax benefit of $2,683) will be written off at the PSI Acquisition date and
has been reflected as a pro-forma adjustment to accumulated deficit.
3. The cash paid at closing of $9,100 was paid from funds obtained from a bank
under a $7,800 term loan and a new $1,500 revolving line of credit, of which
$1,300 was drawn down for the PSI Acquisition. Pro forma adjustments to
notes payable consist of short-term bank debt of $3,700 and long-term bank
debt and subordinated note payable to seller of $5,400 and $7,000,
respectively.
5
<PAGE> 6
4. Represents interest expense on subordinated note to seller and bank debt
incurred upon the PSI Acquisition.
5. Represents the elimination of the interest expense on PSI's borrowings from
its parent company not assumed by IRIS.
6. Represents amortization of the intangibles over the following estimated
useful lives: acquired technology and know how -- six years; and
international distribution channel -- twenty-five years.
7. To adjust the tax provision to the Company's historical effective tax rate.
The tax benefit in 1995 includes a deferred tax benefit of $3,587 from
reduction in the Company's deferred tax asset valuation allowance.
8. Common share equivalents are not included in the calculation of pro forma
net loss per share because the effect of including the common share
equivalents would be anti-dilutive.
6
