<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------
Date of report (Date of earliest event reported): April 9, 1997
-------------
CARDIAC SCIENCE, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-19567 33-0465681
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) I.D. Number)
1176 MAIN STREET, SUITE C, IRVINE, CALIFORNIA 92614
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 587-0357
-----------------------------
8 HAMMOND DRIVE, SUITE 111, IRVINE, CALIFORNIA 92618
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 29
<PAGE>
This Amendment No. 1 to the Current Report on Form 8-K is filed by the
Registrant to supply financial statements and pro forma financial information
that was not available on the date of the initial filing.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
(a) Financial Statements of Business Acquired
Attached are the audited consolidated financial statements of
Innovative Physician Services, Inc. as of December 31, 1996 and
for each of the years in the two-year period ended December 31,
1996, and unaudited condensed interim consolidated financial
statements as of March 31, 1997 and for the quarters ended March
31, 1997 and 1996.
(b) Pro Forma Financial Information
Attached are pro forma financial statements of Cardiac Science,
Inc. as of March 31, 1997, for the three month period ended March
31, 1997 and for the year ended December 31, 1996.
Page 2 of 29
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARDIAC SCIENCE, INC.
By:/s/ Raymond W. Cohen
---------------------------------------
Raymond W. Cohen
President and Chief Executive Officer
Date: June 23, 1997
Page 3 of 29
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Innovative Physician Services, Inc.
dba Diagnostic Monitoring
Years Ended December 31, 1996 and 1995
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3 to F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in
Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-15
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Innovative Physician Services, Inc.
dba Diagnostic Monitoring
Irvine, California
We have audited the accompanying consolidated balance sheet of Innovative
Physician Services, Inc. dba Diagnostic Monitoring as of December 31, 1996 and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the two years then ended. The 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Innovative Physician Services, Inc. dba Diagnostic Monitoring as of December 31,
1996 and the consolidated results of their operations and their cash flows for
each of the two years then ended, in conformity with generally accepted
accounting principles.
RAIMONDO, PETTIT & GLASSMAN
Torrance, California
June 13, 1997
F-2
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Cash $ 43,223 $ -
Accounts receivable 129,575 107,683
Inventories 87,147 140,518
Income tax receivable 10,903 10,903
Deferred taxes 2,329 2,224
- --------------------------------------------------------------------------------
Total current assets 273,177 261,328
- --------------------------------------------------------------------------------
Property and equipment, net of
$6,612 in accumulated depre-
ciation at December 31, 1996 17,341 16,947
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 290,518 $ 278,275
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-3
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ - $ 9,275
Line of credit 18,903 -
Accounts payable and accrued expenses 272,902 247,183
Other accrued liabilities 5,735 10,787
Due to affiliate 2,000 -
- --------------------------------------------------------------------------------
Total current liabilities 299,540 267,245
- --------------------------------------------------------------------------------
COMMITMENTS (NOTE 4)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value,
2,500 shares authorized, 100
shares issued and outstanding 100 100
Additional paid-in capital 33,821 33,821
Accumulated deficit (42,943) (22,891)
- --------------------------------------------------------------------------------
Total stockholders' equity (deficit) (9,022) 11,030
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 290,518 $ 278,275
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-4
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES $ 356,684 $ 749,957 $1,747,262 $ 1,757,826
COST OF SALES 204,478 423,904 1,133,046 997,060
- ------------------------------------------------------------------------------------------
GROSS PROFIT 152,206 326,053 614,216 760,766
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES
Sales and marketing 58,064 39,824 237,252 235,119
General and administrative 114,494 170,707 469,383 395,033
- -----------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 172,558 210,531 706,635 630,152
- -----------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Loss on disposition
of equipment - (18,000) (18,000) -
Other income (expense) 1,673 2,624 (1,635) 938
- -----------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) 1,673 (15,376) (19,635) 938
- -----------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) (18,679) 100,146 (112,054) 131,552
INCOME TAX PROVISION (BENEFIT) 1,373 46,923 (21,437) 46,296
- -----------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (20,052) $ 53,223 $ (90,617) $ 85,256
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------------------------------------------
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
-------------------- PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 100 $ 100 $33,821 $(17,530) $16,391
Net income for the year
ended December 31, 1995 85,256 85,256
- --------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 100 100 33,821 67,726 101,647
Net loss for the year
ended December 31, 1996 (90,617) (90,617)
z--------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 100 $ 100 $33,821 $(22,891) $11,030
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
aCTIVITIES:
Net income (loss) $ (20,052) $ 53,223 $ (90,617) $ 85,256
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation 1,000 739 3,841 4,126
Deferred taxes (105) 117 (12,477) 24,505
Loss on disposition of equipment - 18,000 18,000 -
Changes in operating assets
and liabilities:
Accounts receivable (21,892) (27,630) 8,501 (116,184)
Inventories 53,371 (10,245) (79,826) (60,692)
Income tax receivable - - (10,903) -
Accounts payable and accrued
expenses 25,719 (16,623) 149,466 97,717
Other accrued liabilities (5,052) 41,239 (26,784) 28,149
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 32,989 58,820 (40,799) 62,877
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (1,394) - (6,178) (28,349)
Payments received from notes
receivable - - - 2,075
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,394) - (6,178) (26,274)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under line of credit $ 18,903 - $ - -
Payments made on bank
overdraft (9,275) - - -
Borrowings on bank overdraft - - 9,275 -
Advances from stockholder 2,000 - - -
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 11,628 - 9,275 -
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 43,223 $ 58,820 $(37,702) $ 36,603
Cash, beginning of period - 37,702 37,702 1,099
- --------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 43,223 $ 96,522 $ - $ 37,702
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
CASH PAID DURING THE
YEAR FOR:
Interest $ - $ - $ - $ -
Income taxes $ - $ - $ 16,666 $ 2,480
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-8
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE COMPANY
Innovative Physician Services, Inc. dba Diagnostic Monitoring (the "Company")
was incorporated in Nevada on August 4, 1993 to provide sales and marketing
consulting services, and market medical diagnostic equipment, particularly
Holter technology, and other cardiovascular products through a network of
domestic and international distributors. International sales, primarily to
Europe and South America, represented 63% and 57% of total sales in 1996 and
1995, respectively.
On April 11, 1997, the Company was sold to Cardiac Science, Inc., a Delaware
corporation (the "Sale"). The pro forma effect of this business combination is
presented elsewhere in this Form 8-K/A.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Spirosoft Northamerica, Inc., a Nevada corporation,
incorporated on March 7, 1994. All intercompany accounts and transactions have
been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers short-term investments with initial maturities of three
months or less to be cash equivalents.
INVENTORIES
Inventories consist of finished goods, including inventory in transit of $60,496
at December 31, 1996, and are valued at the lower of cost or market. Cost is
determined principally by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment, which consists primarily of office equipment, are
capitalized at original cost and depreciated on a straight-line basis over their
estimated useful lives of five to seven years.
F-9
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Maintenance and repairs are expensed as incurred while renewals or betterments
are capitalized. Upon the sale or retirement of property and equipment, the
accounts are relieved of the cost and the related accumulated depreciation, and
any resulting gain or loss is included in operations.
MANAGEMENT'S 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 period.
Actual results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires the 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 difference between the
financial statement and the tax basis of assets and liabilities using enacted
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.
CONCENTRATION OF SUPPLIERS
During 1995, the Company purchased approximately 42% of its products from a
supplier. During 1996, the Company replaced the supplier and purchased
approximately 47% of its products from two new suppliers.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete consolidated financial statements. In the
F-10
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS (CONTINUED)
opinion of management, all normal adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included. The
unaudited condensed consolidated financial statements include the condensed
consolidated balance sheet as of March 31, 1997, and the related condensed
consolidated statements of operations and cash flows for the three months ended
March 31, 1997 and 1996. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements. The results of operations for the three months ended March 31, 1997
and 1996 are not necessarily indicative of the operating results for the full
year.
3. RELATED PARTY TRANSACTIONS
STOCKHOLDER ADVANCE
During the year ended December 31, 1996, the Company advanced $20,000 to a
stockholder. The advance was due on demand, non-interest bearing, unsecured,
and was repaid to the Company before year end.
SELF EMPLOYMENT PENSION - INDIVIDUAL RETIREMENT ACCOUNT (SEP-IRA) PLAN
In 1995, the Company initiated a SEP-IRA plan ("the Plan"), covering
substantially all employees, in which the Company, at its discretion, may
contribute up to a maximum of 15% of an employee's annual gross wages into a
SEP-IRA account in the employee's name. The Plan is administered by Merrill
Lynch. During 1996 and 1995, the Company contributed $3,300 and $15,000.
4. COMMITMENTS
OPERATING LEASE
As of December 31, 1996, and through the period ended on April 11, 1997, the
date of the Sale, the Company leased office space under the terms of a month to
month operating lease agreement. In May 1997, the Company moved its operations
to a new facility located in Irvine, California. Total rent expense for the
years ended December 31, 1996 and 1995 was $10,920 and $17,092, respectively.
F-11
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. COMMITMENTS (CONTINUED)
LITIGATION SETTLEMENT
During 1996, the Company entered into a settlement agreement whereby the Company
was one of the defendants in a copyright infringement litigation. In accordance
with the settlement agreement, the Company paid the plaintiffs $50,000, which is
included in general and administrative expenses.
LINE OF CREDIT
On October 24, 1996, the Company entered into a line of credit agreement with a
bank. The agreement provides for advances of up to $50,000. The advances under
the agreement bear interest at the bank's reference rate (8.25% at December 31,
1996) plus 3% per annum, are unsecured and expire on October 24, 1997. At
December 31, 1996, the Company had made no advances against the line of credit.
5. INCOME TAXES
The composition of the provision for income taxes (benefit) for the years ended
December 31 is as follows:
1996 1995
------------- -------------
Current:
State $ 1,600 $ 8,074
Federal (10,903) 10,451
--------------------------------
Total current (9,303) 18,525
--------------------------------
Deferred:
State (5,686) 6,328
Federal (34,535) 21,443
Change in valuation allowance 28,087 -
--------------------------------
Total deferred (12,134) 27,771
--------------------------------
Income tax provision (benefit) $(21,437) $ 46,296
--------------------------------
--------------------------------
F-12
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. INCOME TAXES (CONTINUED)
The provision for income taxes (benefit) differs from the amount that would
result from applying the federal statutory rate as follows:
DECEMBER 31,
------------
1996 1995
---- ----
Statutory regular federal income tax rate (34.0%) 34.0%
State income taxes, net of federal benefit (1.0%) 10.9%
Refund from net operating loss carryback (9.7%) -
Graduated tax rates - (8.9%)
Valuation allowance 22.5% -
Other 3.1% (0.8%)
---- -----
Effective Tax Rate (19.1%) 35.2%
----- -----
----- -----
At December 31, 1996, the Company has net operating loss carryforwards
available to offset future federal and California taxable income, of
approximately $9,000 and $32,000, respectively. The federal carryforwards
expire in 2011 and the California carryforwards expire in 2001. As a result
of the change of ownership subsequent to year end, the utilization of net
operating loss carryforwards may be limited under the provisions of Internal
Revenue Code Section 382.
The components of the deferred income tax assets and liabilities at
December 31, 1996 are as follows:
1996
--------------
Deferred tax assets:
Net operating loss carryforward $ 28,087
Inventory reserve 5,233
--------------
$ 33,320
--------------
Deferred tax liabilities:
Depreciation (3,009)
Valuation allowance (28,087)
--------------
Net deferred tax assets $ 2,224
--------------
--------------
The valuation allowance on deferred tax assets increased by $28,087 and $0
during 1996 and 1995, respectively.
F-13
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company's
customers are not concentrated in any specific geographic region, but are
concentrated in the medical equipment and supply business. Four customers
accounted for approximately 28% of sales and 55% of accounts receivable in
1996, and four customers accounted for approximately 27% of sales and 86% of
accounts receivable in 1995. The Company reviews a customer's credit history
before extending credit. The Company does not require collateral to secure
accounts receivable balances. The Company establishes allowances for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends, and other information. The accounting loss,
should a customer be unable to meet its obligations to the Company, would be
equal to the recorded account receivable.
7. SUBSEQUENT EVENTS
On April 11, 1997, the Company was acquired by Cardiac Science, Inc. ("CSI").
The acquisition was effected pursuant to an Agreement and Plan of Merger dated
April 9, 1997, by and among CSI, the Company, the stockholder, and CSI Merging
Corporation, a newly-formed, wholly-owned subsidiary of CSI ("Merging Corp."),
pursuant to which (a) Merging Corp. was merged with and into the Company (the
"Merger"), with the Company being the surviving corporation (the "Surviving
Corporation"), and (b) the Company became a wholly-owned subsidiary of CSI by
virtue of (i) the Merger, (ii) the conversion of the issued and outstanding
shares of common stock of Merging Corp. into shares of common stock of the
Surviving Corporation, and (iii) the conversion of the issued and outstanding
shares of common stock of the Company into 5,714.285 shares of CSI's Series A
Convertible Preferred Stock (the "Series A Preferred Stock") plus a non-interest
bearing promissory note in the principal amount of $100,000, payable in eighteen
equal consecutive monthly installments commencing upon the earlier of April 9,
1999 or the completion of an equity financing by CSI of not less than $2,000,000
of gross proceeds.
Each share of CSI Series A Preferred Stock (i) is entitled to 1,000 votes per
share; (ii) is convertible into 1,000 shares of CSI's common stock, par value
$0.001 per share (the "Common Stock"), at any time, and from time to time, at
the holder's option, without the payment of any additional consideration;
(iii) has a preference on liquidation or dissolution of $175.00 per share;
(iv) entitles the holder thereof to demand redemption of the CSI Series A
Preferred Stock by CSI after two years from the date of issuance, at a price of
$175.00 per share of CSI Series A Preferred Stock, if there are an insufficient
number of authorized but unissued shares of CSI Common Stock to allow the CSI
Series A Preferred Stock to be converted into shares of CSI Common Stock; and
(v) automatically shall convert into 1,000 shares of CSI Common Stock (subject
to adjustment for any reverse stock split, etc.) upon there being a sufficient
number of authorized but unissued shares of CSI Common
F-14
<PAGE>
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. SUBSEQUENT EVENTS (CONTINUED)
Stock to allow such conversion. A complete description and terms of the CSI
Series A Preferred Stock are set forth in the Certificate of Designation filed
with the State of Delaware on April 1, 1997.
F-15
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Cardiac Science, Inc. and
Innovative Physician Services, Inc.
dba Diagnostic Monitoring
As of March 31, 1997, for the Three Month Period Ended March 31, 1997
and for the Year Ended December 31, 1996
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
INDEX TO
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Pro Forma Condensed Consolidated Financial Statements F-16 to F-19
Notes to Pro Forma Condensed Consolidated Financial Statements F-20 to F-23
</TABLE>
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1997, FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
To Reflect the Acquisition of
Innovative Physician Services, Inc.
dba Diagnostic Monitoring
------------------
The following pro forma condensed consolidated balance sheet (unaudited) as of
March 31, 1997, and the pro forma condensed consolidated statements of
operations (unaudited), for the three month period ended March 31, 1997, and the
year ended December 31, 1996, give effect to the acquisition of all the
outstanding shares of Innovative Physician Services, Inc. dba Diagnostic
Monitoring ("IPS"), by Cardiac Science, Inc. ("Cardiac Science" or "the
Company") which acquisition was completed on April 9, 1997 and accounted for
under the purchase method. The pro forma consolidated information is based on
the historical financial statements of Cardiac Science and IPS and includes
assumptions and adjustments set forth in the accompanying notes to the pro forma
condensed consolidated financial statements. The pro forma unaudited
consolidated balance sheet and the pro forma unaudited condensed consolidated
statements of operations present the financial position of Cardiac Science and
its results of operations as if Cardiac Science had acquired IPS as of March 31,
1997 and January 1, 1996, respectively.
The pro forma condensed consolidated balance sheet (unaudited) as of March 31,
1997 and the pro forma condensed consolidated statements of operations
(unaudited) for the three month period ended March 31, 1997 and the year ended
December 31, 1996 may not be indicative of the results that actually would have
occurred if the acquisition had been in effect on the dates indicated or which
may be obtained in the future. These pro forma consolidated financial
statements (unaudited) should be read in conjunction with the Cardiac Science
audited financial statements and notes for the year ended December 31, 1996 and
the unaudited financial statements for the three month period ended March 31,
1997 included in Cardiac Science's Annual Report on Form 10K and quarterly
report on Form 10Q-SB, respectively, and the Innovative Physician Services, Inc.
dba Diagnostic Monitoring consolidated financial statements and notes thereto
contained elsewhere herein.
F-16
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
---------------
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CARDIAC ----------- ----------
SCIENCE IPS ADJUSTMENTS TOTALS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 232,930 $ 43,223 $ - $ 276,153
Trade accounts receivable - 129,575 - 129,575
Inventories - 87,147 (1) 34,859 122,006
Other current assets 12,128 13,232 - 25,360
- ------------------------------------------------------------------------------------------------------
Total current assets 245,058 273,177 34,859 553,094
- ------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 21,628 17,341 - 38,969
OTHER ASSETS 4,012 - - 4,012
GOODWILL - - (1) 657,138 657,138
- ------------------------------------------------------------------------------------------------------
Total assets 270,698 290,518 691,997 1,253,213
- ------------------------------------------------------------------------------------------------------
LIABILITIES
Bank line of credit - 18,903 - 18,903
Accounts payable and accrued expenses 169,981 280,637 - 450,618
Note payable - - (1) 82,975 82,975
- ------------------------------------------------------------------------------------------------------
Total current liabilities 169,981 299,540 82,975 552,496
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock - - (1) 600,000 600,000
Common stock 287,423 100 (100) 287,423
Additional paid-in capital 4,936,824 33,821 (1) (33,821) 4,936,824
Accumulated deficit (5,123,530) (42,943) (1) 42,943 (5,123,530)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 100,717 (9,022) 609,022 700,717
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 270,698 290,518 691,997 1,253,213
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
F-17
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
---------------
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CARDIAC ---------- ---------
SCIENCE IPS ADJUSTMENTS TOTALS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ - $356,684 $ - $ 356,684
Cost of sales - 204,478 - 204,478
- -----------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 152,206 - 152,206
OPERATING EXPENSES
Research and development 78,536 - - 78,536
Selling expenses - 58,064 - 58,064
General and administrative 93,476 114,494 (2) 8,380 216,350
- -----------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (172,012) (20,352) (8,380) (200,744)
- -----------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income, net 3,537 - (2) (2,334) 1,203
Other expense - 1,673 - 1,673
- -----------------------------------------------------------------------------------------------------------------
Loss before provision for income taxes (168,475) (18,679) (10,714) (197,868)
Provision for income taxes - 1,373 - 1,373
- -----------------------------------------------------------------------------------------------------------------
Pro forma net loss (168,475) (20,052) (10,714) (199,241)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Pro forma net loss per share (.00) N/A N/A (.00)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Pro forma weighted average common shares 39,137,844 N/A (4) 5,714,285 44,852,129
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
F-18
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
---------------
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CARDIAC --------- ---------
SCIENCE IPS ADJUSTMENTS TOTALS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ - $1,747,262 $ $1,747,262
Cost of sales - 1,133,046 (3) 34,859 1,167,905
- ------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 614,216 (34,859) 579,357
OPERATING EXPENSES
Research and development 422,360 - - 422,360
Selling expenses - 237,252 - 237,252
General and administrative 404,480 469,383 (2) 32,857 906,720
- ------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (826,840) (92,419) (67,716) (986,975)
OTHER INCOME (EXPENSE)
Interest income, net 35,883 - (2) (9,335) 26,548
Other - (19,635) - (19,635)
- ------------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (BENEFIT) (790,957) (112,054) (77,050) (980,061)
Provision for income taxes (benefit) 988 (21,437) - 20,449
- ------------------------------------------------------------------------------------------------------------
Pro forma net loss (791,945) (90,617) (77,050) (959,612)
- ------------------------------------------------------------------------------------------------------------
Pro forma net loss per share (.02) N/A N/A (.02)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Pro forma weighted average common shares 38,805,344 N/A (4)5,714,285 44,519,629
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to pro forma condensed consolidated financial statements.
</TABLE>
F-19
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 1997, FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
---------------
1. BASIS OF PRESENTATION
The pro forma condensed consolidated balance sheet (unaudited) as of March 31,
1997 and the pro forma condensed consolidated statements of operations
(unaudited) for the three month period ended March 31, 1997 and for the year
ended December 31, 1996 reflect the following transaction (the "Acquisition").
On April 9, 1997, the Company acquired IPS from Raymond Cohen, the President and
Chief Executive Officer of the Company for 5,714.285 shares of the Company's
Series A Convertible Preferred Stock (the "Preferred Stock"), plus a
non-interest bearing promissory note (the "Note") in the principal amount of
$100,000, payable in eighteen equal consecutive monthly installments commencing
upon the earlier of April 9, 1999 or the completion of an equity financing by
the Company of not less than $2,000,000 of gross proceeds. Each share of Series
A Preferred Stock (i) is entitled to 1,000 votes per share, (ii) is convertible
into 1,000 shares of the Company's common stock, par value $0.001 per share (the
"Common Stock"), at any time, and from time to time, at the holder's option,
without the payment of any additional consideration, (iii) a preference on
liquidation or dissolution of $175.00 per share of Series A Preferred Stock;
(iv) the right of the holders of the Series A Preferred Stock to demand
redemption thereof by the Company after two years from the date of issuance at a
price of $175.00 per share of Preferred Stock in the event there are
insufficient authorized and unissued shares of the Company's Common Stock to
allow the Series A Preferred Stock to be converted into shares of the Company's
Common Stock; and (v) automatically shall convert into 1,000 shares of Common
stock (subject to adjustment for any reverse stock split, etc.) upon there being
a sufficient number of authorized but unissued shares of Common Stock to allow
such conversion.
These pro forma condensed consolidated financial statements (unaudited)
represent the consolidated financial position and operations of Cardiac Science
and IPS as if the Acquisition had occurred March 1, 1997 and January 1, 1996,
respectively.
These pro forma consolidated financial statements (unaudited) do not purport to
be indicative of the results that actually would have been obtained if the
operations were combined for the year ended December 31, 1996, or the three
month period ended March 31, 1997, and this presentation is not intended to be a
projection of future results or trends.
F-20
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 1997, FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
---------------
2. DESCRIPTION OF PRO FORMA ADJUSTMENTS
(1) Adjustment to reflect the acquisition of IPS for the issuance of
5,714.285 shares of preferred stock and a $100,000 note payable and
the elimination of IPS' capital stock and retained earnings.
The total purchase price was estimated to be as follows:
Fair market value of preferred stock issued $ 600,000
Fair market value of note payable $ 82,975
The fair market value of the preferred stock issued was estimated
based on the trading value of the Company's common stock less a 30%
discount to take into consideration the lack of the ability to trade
and other features of the preferred stock. The fair market value of
the note payable represents the discounted value (at 11.25%) of the
note over 20 months (based on financing obtained in June 1997).
At March 31, 1997, the purchase price is allocated to the fair market
value of assets and liabilities as follows:
Cash $ 43,223
Accounts receivable 129,575
Inventory 122,006
Other assets 13,232
Property and equipment 17,341
Goodwill 657,138
Bank line of credit (18,903)
Accounts payable and accrued expenses (280,637)
Note payable (82,975)
---------
Preferred Stock Consideration $ 600,000
---------
---------
F-21
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 1997, FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
---------------
2. DESCRIPTION OF PRO FORMA ADJUSTMENTS (CONTINUED)
(1) The resulting adjustment to the historical financial statements is as
follows:
Inventory $ 34,859 To increase historical cost
to fair market value
Goodwill 657,138 To recognize goodwill
resulting from purchase
accounting
Common Stock 100 To eliminate the common stock
of IPS
Additional Paid-In Capital 33,821 To eliminate the common stock
of IPS
Preferred Stock (600,000) To account for the issuance of
pre- ferred stock
Note Payable (82,975) To account for the issuance of
the note payable
Accumulated Deficit (42,943) To eliminate the accumulated
deficit of IPS
The $657,138 goodwill resulting from the purchase price allocation is
being amor-tized over 20 years using the straight line method.
(2) Recognition of goodwill amortization and interest expense on the note
payable for the three month period ended March 31, 1997 and for the
year ended December 31, 1996, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
--------------- -----------------
<S> <C> <C>
Goodwill amortization 8,380 32,857 Included in general
and administrative
expenses
Interest expense 2,334 9,335 Included in interest
expense
</TABLE>
F-22
<PAGE>
CARDIAC SCIENCE, INC. AND
INNOVATIVE PHYSICIAN SERVICES, INC. DBA DIAGNOSTIC MONITORING
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 1997, FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
---------------
2. DESCRIPTION OF PRO FORMA ADJUSTMENTS (CONTINUED)
(3) Adjustment to reflect the replacement of inventory at fair market
value with inventory at cost, using the first-in first-out (FIFO)
method.
(4) Pro forma loss per share is computed using the weighted average number
of shares assuming that all the shares issued in connection with the
Acquisition were outstanding for the entire year. This proforma
adjustment assumes that the preferred stock issued is converted into
common stock at the beginning of the period. Common stock equivalents
were not considered in the loss per share calculation as the effect
would have been anti-dilutive.
F-23
