<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): JULY 1, 2000
CARDIAC SCIENCE, INC.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-19567 33-0465681
--------------------------------------------------------------------------------
(State or Other Juris- (Commission File No.) (IRS Employer
diction of Incorporation) Identification No.)
16931 MILLIKAN AVENUE, IRVINE, CA 92606
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 587-0357
N/A
--------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report.)
<PAGE>
This Amendment No. 1 to the Current Report on Form 8-K is filed by Cardiac
Science, Inc. to supply financial statements and pro forma financial information
that were not available on the date of the initial filing.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 1, 2000, Cardiac Science, Inc. (the "Company"), through a newly
formed wholly-owned subsidiary, Cardiac Acquisition Corp. (the "Acquisition
Subsidiary"), acquired Cadent Medical Corporation ("Cadent"), a
privately-held company that has developed a cell phone size defibrillator
designed to be worn by mobile cardiac patients.
The acquisition was effected pursuant to a Merger Agreement and Plan of
Reorganization (the "Merger Agreement"), dated as of June 22, 2000, by and
among the Company, Cadent, and the Acquisition Subsidiary. Pursuant to the
Merger Agreement, the Acquisition Subsidiary was merged with and into Cadent
(the "Merger"), with Cadent being the surviving corporation and a
wholly-owned subsidiary of the Company. As consideration, the Cadent
shareholders received an aggregate of 4.5 million shares of restricted common
stock of the Company, 420,000 shares of which are being held in escrow
pursuant to an escrow agreement, and 300,000 share of which either shall be
issued to certain employees of Cadent on or before January 2, 2001 (upon to
the satisfaction of certain conditions) or shall be added to the shares held
in escrow.
The Company intends to continue to utilize Cadent's assets in the manner
in which they were used prior to the Merger.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Attached are the audited financial statements of Cadent as of
December 31, 1998 and 1999, and for the years ended 1997, 1998 and 1999. Also
attached are unaudited financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and March 31, 1999.
(b) Pro Forma Financial Information
Attached are unaudited pro forma financial statements of Cardiac
Science, Inc. as of March 31, 2000, for the quarter ended March 31, 2000, and
for the year ended December 31, 1999.
(c) Exhibits:
The following exhibits are filed as part of this Current Report:
Exhibit
Number Description
------ -----------
23 Consent of PricewaterhouseCoopers LLP
<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: August 10, 2000
<PAGE>
(a) Audited Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cadent Medical Corporation:
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in redeemable preferred stock and stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Cadent Medical Corporation (a development stage
enterprise) at December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years ended December 31, 1999, 1998 and 1997 and for the
period from inception (July 2, 1996) through December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has incurred losses from operations since
its inception and has negative working capital and a net stockholders'
deficit. These circumstances raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note A. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
March 24, 2000, except for Notes K and L as to
which the date is June 5, 2000
<PAGE>
CADENT MEDICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,439,404 $ 113,737
Prepaid expenses and other current assets 19,244 29,293
------------ ------------
Total current assets 2,458,648 143,030
Property and equipment, net (Note C) 266,269 302,221
Organization costs, net of accumulated amortization of $30,000 and $14,486
at December 31,1999 and 1998, respectively -- 15,514
Other assets 22,672 28,315
------------ ------------
Total assets $ 2,747,589 $ 489,080
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 206,382 $ 506,687
Accrued expenses 83,136 41,234
Accrued litigation costs 3,377,421 158,496
Convertible promissory notes payable and accrued interest -- 1,493,668
Equipment loan payable 201,675 267,245
------------ ------------
Total current liabilities 3,868,614 2,467,330
Commitments and contingencies (Notes F, I and K)
Redeemable preferred stock:
Redeemable Preferred Stock, Class A Cumulative Convertible, $0.01 par value,
800,000 shares authorized; 799,999 issued and outstanding at December 31,
1999 and 1998 (liquidation preference of $4,944,653 at December 31, 1999) 4,944,653 4,624,653
Redeemable Preferred Stock, Class B Cumulative Convertible, $0.01 par value,
560,000 shares authorized; 554,657 shares issued and outstanding at
December 31, 1999 and 1998 (liquidation preference of $4,854,703
at December 31, 1999) 4,854,703 4,521,904
Redeemable Preferred Stock, Class C Cumulative Convertible, $0.01 par value,
860,000 shares authorized; 859,462 shares issued and outstanding
at December 31, 1999 (liquidation preference of $1,584,824) 1,584,824 --
Redeemable Preferred Stock, Class D Cumulative Convertible, $0.01 par value,
2,797,000 shares authorized; 2,638,086 shares issued and outstanding
at December 31, 1999 (liquidation preference of $9,459,115) 4,842,466 --
Redeemable Preferred Stock, Class E Cumulative Convertible, $0.01 par value,
1,993,000 shares authorized; 1,754,152 shares issued and outstanding
at December 31, 1999 (liquidation preference of $3,211,105) 3,211,105 --
------------ ------------
Total redeemable preferred stock 19,437,751 9,146,557
Stockholders' deficit (Notes G and H):
Common stock, $0.01 par value, 9,684,000 shares authorized; 516,627 and
514,600 shares issued and outstanding at December 31,1999 and 1998,
respectively 5,166 5,146
Deficit accumulated during the development stage (20,563,942) (11,129,953)
------------ ------------
Total stockholders' deficit (20,558,776) (11,124,807)
------------ ------------
Total liabilities, redeemable preferred stock and stockholders' deficit $ 2,747,589 $ 489,080
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CADENT MEDICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 2, 1996)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
<S> <C> <C> <C> <C>
Operating expenses:
Research and development costs $ 3,344,234 $ 3,803,691 $ 4,380,219 $ 12,048,873
General and administrative 437,177 255,324 236,238 1,116,169
Litigation costs 4,601,618 316,120 504,218 5,421,956
------------ ------------ ------------ ------------
Total operating expenses 8,383,029 4,375,135 5,120,675 18,586,998
------------ ------------ ------------ ------------
Interest income 191,386 49,448 111,980 380,039
Interest expense (45,142) (60,186) (600) (107,007)
------------ ------------ ------------ ------------
Net loss $ 8,236,785 $ 4,385,873 $ 5,009,295 $ 18,313,966
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CADENT MEDICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
FOR THE PERIOD FROM INCEPTION (JULY 2, 1996) THROUGH DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization, July 2, 1996 -- $ -- -- $ -- -- $ --
Redeemable preferred stock, Class A
convertible, issuance costs of $49,477, issued
at $5.00 per share (Note G) October, 1996 799,999 3,999,995
Common stock issued to founders, $0.05 per
share (Note G)
Net loss
------- ------------ ------- ------------ ------- ------------
Balance at December 31, 1996 799,999 3,999,995
Redeemable preferred stock, Class B
convertible, issuance costs of $37,245, issued
at $7.50 per share (Note G) August, 1997 554,657 4,159,928
Accretion of dividends for preferred stock 304,658 29,177
Common stock issued to investor
Net loss
------- ------------ ------- ------------ ------- ------------
Balance at December 31, 1997 799,999 4,304,653 554,657 4,189,105
Accretion of dividends for preferred stock 320,000 332,799
Net loss
------- ------------ ------- ------------ ------- ------------
Balance at December 31, 1998 799,999 4,624,653 554,657 4,521,904
Redeemable preferred stock, Class C
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) January, 1999 859,462 1,504,058
Redeemable preferred stock, Class D
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) April, 1999
Redeemable preferred stock, Class E
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) April, 1999
Accretion of dividends for preferred stock 320,000 332,799 80,766
Exercise of stock options
Net loss
------- ------------ ------- ------------ ------- ------------
Balance at December 31, 1999 799,999 $ 4,944,653 554,657 $ 4,854,703 859,462 $ 1,584,824
======= ============ ======= ============ ======= ============
</TABLE>
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
------------------------------------------------------
CLASS D CLASS E
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
<S> <C> <C> <C> <C>
Initial capitalization, July 2, 1996 -- $ -- -- $ --
Redeemable preferred stock, Class A
convertible, issuance costs of $49,477, issued
at $5.00 per share (Note G) October, 1996
Common stock issued to founders, $0.05 per
share (Note G)
Net loss
--------- ------------ --------- ------------
Balance at December 31, 1996
Redeemable preferred stock, Class B
convertible, issuance costs of $37,245, issued
at $7.50 per share (Note G) August, 1997
Accretion of dividends for preferred stock
Common stock issued to investor
Net loss
--------- ------------ --------- ------------
Balance at December 31, 1997
Accretion of dividends for preferred stock
Net loss
--------- ------------ --------- ------------
Balance at December 31, 1998
Redeemable preferred stock, Class C
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) January, 1999
Redeemable preferred stock, Class D
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) April, 1999 2,638,086 4,616,652
Redeemable preferred stock, Class E
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) April, 1999 1,754,152 3,069,766
Accretion of dividends for preferred stock 225,814 141,339
Exercise of stock options
Net loss
--------- ------------ --------- ------------
Balance at December 31, 1999 2,638,086 $ 4,842,466 1,754,152 $ 3,211,105
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK DURING THE STOCKHOLDERS'
NUMBER DEVELOPMENT EQUITY
OF SHARES AMOUNT STAGE (DEFICIT)
<S> <C> <C> <C> <C>
Initial capitalization, July 2, 1996 200,000 $ 2,000 $ 8,000 $ 10,000
Redeemable preferred stock, Class A
convertible, issuance costs of $49,477, issued
at $5.00 per share (Note G) October, 1996 (49,477) (49,477)
Common stock issued to founders, $0.05 per
share (Note G) 314,000 3,140 12,560 15,700
Net loss (682,013) (682,013)
------- -------- ------------ ------------
Balance at December 31, 1996 514,000 5,140 (710,930) (705,790)
Redeemable preferred stock, Class B
convertible, issuance costs of $37,245, issued
at $7.50 per share (Note G) August, 1997 (37,245) (37,245)
Accretion of dividends for preferred stock (333,835) (333,835)
Common stock issued to investor 600 6 24 30
Net loss (5,009,295) (5,009,295)
------- -------- ------------ ------------
Balance at December 31, 1997 514,600 5,146 (6,091,281) (6,086,135)
Accretion of dividends for preferred stock (652,799) (652,799)
Net loss (4,385,873) (4,385,873)
------- -------- ------------ ------------
Balance at December 31, 1998 514,600 5,146 (11,129,953) (11,124,807)
Redeemable preferred stock, Class C
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) January, 1999 (32,329) (32,329)
Redeemable preferred stock, Class D
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) April, 1999 (32,329) (32,329)
Redeemable preferred stock, Class E
convertible, issuance costs of $32,329, issued
at $1.75 per share (Note G) April, 1999 (32,329) (32,329)
Accretion of dividends for preferred stock (1,100,718) (1,100,718)
Exercise of stock options 2,027 20 501 521
Net loss (8,236,785) (8,236,785)
------- -------- ------------ ------------
Balance at December 31, 1999 516,627 $ 5,166 $(20,563,942) $(20,558,776)
======= ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CADENT MEDICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 2, 1996)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
<S> <C> <C> <C> <C>
Cash flows for operating activities:
Net loss $ (8,236,785) $ (4,385,873) $ (5,009,295) $(18,313,966)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 165,813 89,251 47,060 305,740
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 10,049 2,903 (16,563) (19,244)
Other assets 5,643 5,587 (29,952) (22,672)
Accounts payable and accrued litigation costs 2,918,620 390,510 156,473 3,583,803
Accrued expenses 41,976 38,931 (21,843) 121,377
------------ ------------ ------------ ------------
Net cash used by operating activities (5,094,684) (3,858,691) (4,874,120) (14,344,962)
------------ ------------ ------------ ------------
Cash flows for investing activities:
Purchase of property and equipment (114,347) (80,845) (319,335) (542,009)
Payment of organization costs -- -- -- (30,000)
Purchase of short-term investment -- -- (486,277) (486,277)
Maturity of short-term investment -- 500,000 -- 500,000
Amortization of discount on short-term investment -- (13,723) -- (13,723)
------------ ------------ ------------ ------------
Net cash (used in) provided by investing activities (114,347) 405,432 (805,612) (572,009)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs 7,599,745 -- 4,122,683 15,673,020
Proceeds from issuance of convertible promissory notes payable -- 1,455,427 -- 1,455,427
Proceeds from equipment loan -- 300,199 -- 300,199
Payments of principal on equipment loan (65,570) (32,954) -- (98,524)
Proceeds from issuance of common stock 523 -- 30 26,253
------------ ------------ ------------ ------------
Net cash provided by financing activities 7,534,698 1,722,672 4,122,713 17,356,375
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,325,667 (1,730,587) (1,557,019) 2,439,404
Cash and cash equivalents at beginning of period 113,737 1,844,324 3,401,343 --
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,439,404 $ 113,737 $ 1,844,324 $ 2,439,404
============ ============ ============ ============
Cash paid during the period for:
Interest $ 45,142 $ 28,609 $ -- $ 74,830
============ ============ ============ ============
Disclosure of non-cash financing activities:
Conversion of promissory notes into Class C preferred stock $ 1,493,744 $ -- $ -- $ 1,493,744
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A. NATURE OF BUSINESS
Cadent Medical Corporation (the "Company") was established on July 2,
1996 for the purpose of developing, manufacturing and selling a
noninvasive, externally wearable cardiac defibrillator. The Company's
prototype device is currently under development. Since its inception,
the Company has devoted substantially all of its efforts to business
planning, research and development, recruiting management and technical
staff, acquiring operating assets and raising capital. Accordingly, the
Company is considered to be in the development stage as defined in
Statement of Financial Accounting Standards ("SFAS") No 7. Management
anticipates that substantially all future revenues will be derived from
products under development or those developed in the future.
The Company is subject to a number of risks similar to other companies
in the industry, including rapid technological change, uncertainty of
market acceptance of products, uncertainty of regulatory approval,
competition from substitute products and larger companies, customers'
reliance on third-party reimbursement, the need to obtain additional
financing, compliance with government regulations, protection of
proprietary technology, dependence on third-parties, product liability,
and dependence on key individuals.
The accompanying financial statements have been prepared on a basis
which assumes that the Company will continue as a going concern and
which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The
Company has a limited operating history, has incurred losses from
operations since its inception and has a net stockholders' deficit.
These circumstances raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans with regard to these
matters include continued development, marketing and licensing of its
products as well as seeking additional financing arrangements, sale of
the Company or other alternative methods. Although, management
continues to pursue these plans, there is no assurance that the Company
will be successful in obtaining financing on terms acceptable to the
Company or the sale of the Company will be consummated. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to
be cash equivalents. Cash equivalents are stated at amortized cost plus
accrued interest, which approximates fair value. Cash equivalents
consist of money market instruments.
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which
include cash equivalents, accounts payable and accrued expenses
approximate their fair values due to their short maturities. Based on
borrowing rates currently available to the Company for loans with
similar terms, the carrying value of equipment loan payable obligation
approximates fair value.
CONCENTRATION OF CREDIT RISK
Cash and cash equivalents are financial instruments which potentially
subject the Company to concentrations of credit risk. At December 31,
1999, the Company's cash was substantially invested in money market
funds and repurchase agreements with one financial institution.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Repairs and maintenance
costs are charged to operations when incurred, while betterments are
capitalized. Depreciation is computed using the straight-line method
based on the estimated useful lives of the various assets which range
from three to seven years. Upon retirement or disposal, the cost of the
asset disposed of and the related accumulated depreciation are removed
from the accounts and any gain or loss is reflected in the statement
of operations.
ORGANIZATION COSTS
Costs related to the formation of the Company have been capitalized and
are being amortized using the straight-line method over five years.
In April 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position ("SoP") 98-5, "Reporting on the
Costs of Start-Up Activities." Under SoP 98-5 organizational costs
should be expensed. Accordingly, Cadent expensed its remaining
unamortized organizational costs of $15,514 in fiscal 1999.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Employee stock awards under the Company's compensation plans are
accounted for in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations. The Company provides the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), and related
interpretations. Stock-based awards to nonemployees are accounted for
under the provisions of SFAS No. 123.
INCOME TAXES
Deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse. Valuation allowances are provided if, based upon
the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
<PAGE>
C. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31,
(YEARS) 1999 1998
<S> <C> <C> <C>
Computer equipment 5 $154,457 $120,721
Office and manufacturing equipment 5 187,785 135,823
Furniture 7 87,747 83,213
Software 3 112,020 87,905
-------- --------
542,009 427,662
Less accumulated depreciation and amortization 275,740 125,441
-------- --------
$266,269 $302,221
======== ========
</TABLE>
Depreciation and amortization expense totaled $150,299, $83,251,
$41,060 and $275,740 for the years ended December 31, 1999, 1998 and
1997 and for the period from inception (July 2, 1996) to December
31, 1999, respectively.
D. ACCOUNTS PAYABLE - RELATED PARTY
At December 31, 1998, included in accounts payable is $23,000 owed for
consulting services provided by a nonemployee investor and board member
of the Company. Related party expense totaled $261,000, (includes costs
paid to the nonemployee investor and board member who also was interim
CEO of the Company during the year) $94,000, $0 and $355,000 for the
years ended December 31, 1999, 1998 and 1997, and for the period from
inception (July 2, 1996) to December 31, 1999, respectively.
E. NOTES PAYABLE
In July 1998, the Company entered into an equipment loan agreement
under which the Company borrowed $300,199 to finance previously
purchased property and equipment. Borrowings under the loan are
collateralized by the financed property and equipment with a net book
value of $267,340. The loan is to be repaid over a 48-month period
commencing on July 10, 1998 and bears interest at a rate of 9.8%. The
loan agreement contains a subjective acceleration clause and,
accordingly, the balance outstanding at December 31, 1999 and 1998 of
$201,675 and $267,245, respectively, has been classified as a current
liability.
In connection with the equipment loan, the Company granted warrants to
purchase 6,861 shares of common stock at an exercise price of $0.75 per
share and are immediately exercisable on the date of issue and expire
after six years. The fair value of the warrants on the date of issue
was immaterial, and therefore not recorded in stockholders' equity
(deficit) and as a discount on the equipment loan.
<PAGE>
During August 1998, the Company entered into a series of Convertible
Promissory Notes ("Promissory Notes") with some of its current
investors totaling $1,455,427. The Promissory Notes accrue interest at
a rate of 9.0% per annum and are due and payable on the earlier of
demand by the holders of 80% of the aggregate principal amount or
February 28, 1999. Borrowings under the Promissory Notes are
collateralized by all of the tangible and intangible personal property
and fixtures of the Company. Contemporaneously with the closing date of
the Company's Class D Preferred Stock Purchase Agreement, dated January
28, 1999, the outstanding principal plus accrued interest of $48,631 of
the Promissory Notes automatically converted into 859,462 shares of the
Company Class C Preferred Stock.
In connection with these Promissory Notes, the Company granted 207,918
warrants to purchase common stock to participating investors. The
warrants have an exercise price of $0.75. The warrants are immediately
exercisable on the date of issue and expire in August 2003. The fair
value of the warrants on the date of issue was immaterial, and
therefore not recorded in stockholders' equity (deficit) and as an
allocation of the proceeds on the principal amounts of the Promissory
Notes.
F. LEASE COMMITMENTS
On January 2, 1997, the Company entered into a three-year lease
agreement. Minimum future rental payments will be $8,826 in 2000 under
this facility lease as well as other noncancelable operating leases.
Rent expense for leased facilities was $95,464, $88,210, $83,895 and
$291,147 for the years ended December 31, 1999, 1998 and 1997, and for
the period from inception (July 2, 1996) to December 31, 1999,
respectively.
G. REDEEMABLE PREFERRED STOCK AND CAPITAL TRANSACTIONS
Pursuant to Stock Subscription Agreements in early 1996, the Company
sold 200,000 shares of common stock ($0.01 par value) for $0.05 per
share. Additionally, pursuant to Vesting Stock Subscription Agreements
dated as of October 4, 1996, the Company was authorized to issue and
subsequently sold 314,000 shares of its common stock ($0.01 par value),
for a purchase price of $0.05 per share. These shares vest over four
years.
Pursuant to Class A Preferred Stock Purchase Agreements dated October
4, 1996 and October 31, 1996, (the "Agreements"), the Company
authorized the issue and sale of up to 1,600,000 shares of its common
stock ($0.01 par value), for a purchase price of $0.05 per share and up
to 800,000 shares of Class A redeemable convertible preferred stock
("Class A Preferred") ($0.01 par value) for a purchase price of $5.00
per share.
In October 1996, the Company sold 799,999 shares of Class A redeemable
convertible preferred stock at a price of $5.00 per share. Shares of
the Class A Preferred are convertible into common stock at the option
of the stockholder under a conversion formula which would currently
result in a one-for-one exchange, subject to antidilution provisions.
Mandatory conversion is required under certain circumstances, such as
an initial public offering with net proceeds to the Company of
$15,000,000 or more.
<PAGE>
Pursuant to Class B Preferred Stock Purchase Agreement, dated August
29, 1997, the Company authorized the issuance and sale of up to 560,000
shares of Class B redeemable convertible preferred stock ("Class B
Preferred") ($0.01 par value). Concurrently, the Company sold 554,657
shares of Class B Preferred at a price of $7.50 per share. Shares of
Class B Preferred are convertible into common stock at the option of
the stockholder under a conversion formula which would currently result
in a one-for-one exchange, subject to antidilution provisions.
Mandatory conversion is required under certain circumstances, such as
an initial public offering with net proceeds to the Company of
$15,000,000 or more.
Pursuant to an agreement dated January 28, 1999, the outstanding
balance of $1,455,427 plus accrued interest of $48,631 for Convertible
Promissory Notes (Note E) converted into 859,462 shares of the
Company's Class C Preferred Stock ("Class C Preferred"). The Company
authorized the issuance and sale of up to 860,000 shares of Class C
Preferred ($0.01 par value) of which 859,462 shares were converted at a
price of $1.75 per share. Shares of Class C Preferred are convertible
into common stock at the option of the stockholder under a conversion
formula which would currently result in a one-for-one exchange, subject
to antidilution provisions. Mandatory conversion is required under
certain circumstances, such as an initial public offering with net
proceeds to the Company of $15,000,000 or more.
Pursuant to the Class D Preferred Stock Purchase Agreement, dated
January 28, 1999, and Amended and Restated Class D Preferred Stock,
Class E Preferred Stock and Warrant Purchase Agreement, dated April 13,
1999, the Company authorized the issuance and sale of up to 2,797,000
shares of Class D Preferred Stock ("Class D Preferred") ($0.01 par
value) and 1,993,000 shares of Class E Preferred Stock ("Class E
Preferred") ($0.01 par value). Concurrently, the Company sold 2,638,087
shares of Class D Preferred at a price of $1.75 per share, and issued
warrants for common stock in the amount of 25% of the Class D Preferred
shares (659,522) to investors at an exercise price of $0.75. The
warrants are immediately exercisable on the date of issue and expire in
July 2004. Additionally, the Company sold 1,754,152 shares of Class E
Preferred at a price of $1.75 per share.
Stockholders of Class A, B, C, D and E Preferred are entitled to one
vote for each share of common stock into which their shares can be
converted and vote together with the common stockholders. The
stockholders of Class A, B, C, D and E Preferred shall be entitled to
receive annual dividends equal to $0.40, $0.60, $0.14, $0.14 and $0.14
per share, respectively. The dividends accrue semiannually each March
31 and September 30.
In the event of a liquidation, (a sale of all or substantially all its
assets by the Company or a merger by the Company with or into another
entity in which fifty percent or more of the voting control is
transferred) dissolution, or winding up of the Company, the
stockholders of the Class A and B Preferred are entitled to receive a
liquidation preference equal to $5.00 and $7.50 per share,
respectively, including all accrued but unpaid dividends. Accordingly,
the Company has recorded these dividends as an accretion for preferred
stock.
The Class D and Class E Preferred have a liquidation preference senior
to all other series and classes of the Company's stock in an amount
equal to $3.50 and $1.75 per share, respectively, plus any accrued but
unpaid dividends. The Class C Preferred has a liquidation preference
senior to the Series A Preferred, the Series B Preferred and all other
series and classes of the Company's common stock (other than the Class
D and Class E Preferred) in an amount equal to $1.75 per share plus any
accrued but unpaid interest.
<PAGE>
The Company will, unless waived in writing by the holders of a majority
of outstanding shares of each class of preferred stock, redeem one
third of the shares of preferred stock outstanding on September 30,
2003, 2004 and 2005. Redemption will be made pro rata with respect to
each holder of preferred stock. The redemption price will be $5.00 per
share of Class A Preferred then outstanding, $7.50 per share of Class B
Preferred then outstanding, $1.75 per share of Class C Preferred then
outstanding, $3.50 per share of Class D Preferred then outstanding and
$1.75 per share of Class E Preferred then outstanding, plus all accrued
and unpaid dividends, if any.
On June 30, 1999, the Company amended its Articles of Incorporation to
effect a one-for-five reverse stock split of its capital stock
including all of its common and preferred shares then outstanding and
increased the number of common shares authorized for issuance to
9,684,000. All share data in these financial statements has been
retroactively restated to reflect this reverse split.
H. STOCK OPTION PLAN
On December 19, 1996, the Company adopted the 1996 Stock Option Plan
(the "Plan"). The Plan allows for the granting of up to 85,400 shares
of stock appreciation rights ("SARs") or either statutory or
nonstatutory options as defined by section 422 of the Internal Revenue
Code.
All options are granted at a price set by the Board of Directors which
cannot be less than 100% of the fair market value at the date of the
grant as determined by the Board of Directors. The vesting period of
the SARs and options are at the discretion of the Board at a rate
generally not to exceed 25% per year beginning with the first
anniversary of the date of hire. The SARs and options expire ten years
after the date of grant.
On June 8, 1999, the Company adopted, subject to the approval of the
Board of Directors and the shareholders of the Company, the 1999 Stock
Option Plan (the "1999 Plan"). Concurrent with the adoption of the 1999
Plan, the 1996 Plan was terminated. All options granted under the 1996
Plan were exchanged for options with identical characteristics under
the 1999 Plan. The 1999 Plan has reserved 1,256,645 shares of the
Company's common stock for the granting of either statutory or
non-statutory options as defined by Section 422 of the Internal Revenue
Code and for the award of stock appreciation rights. Incentive options
shall not have an exercise price less than the fair market value of the
Company's common stock. The vesting period of the options and stock
appreciation rights is at the discretion of the Board of Directors at a
rate generally not to exceed 25% per year beginning six months
subsequent to date of hire. The options and stock appreciation rights
expire generally ten years after the date of grant. Following the
adoption of the 1999 plan, the Company intends to no longer make grants
from the 1996 Plan.
The Company adopted the disclosure only provisions of SFAS 123,
"Accounting for Stock-Based Compensation" and has applied APB Opinion
25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized in the Company's financial
statements for its stock option issuances at fair market value to
employees under SFAS 123. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value
at the grant dates as calculated in accordance with SFAS 123, the
Company's net loss for the year ended December 31, 1999 would not have
been materially affected.
<PAGE>
Each year's grants are expensed over a number of future years and
additional awards in future years are anticipated.
The fair value of each stock option is estimated on the date of grant
using the minimum value method with the following weighted-average
assumptions: an expected life of seven years, no volatility, no
dividends and a risk free interest rate of 5.25% for 1999 and 1998. A
summary of the status of the Company's stock option plan as of December
31, 1999 is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
<S> <C> <C>
Granted in 1997 24,100 $ 0.65
Exercised - -
Canceled -
--------- ------
Balance at December 31, 1997 24,100 0.65
Granted in 1998 61,300 0.75
Exercised -
Canceled (100) 0.75
--------- ------
Balance at December 31, 1998 85,300 0.71
Granted in 1999 1,231,159 0.175
Exercised (2,027) 0.26
Canceled (51,581) 0.30
--------- ------
Balance at December 31, 1999 1,262,851 $ 0.21
========= ======
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE NUMBER CONTRACT EXERCISE DECEMBER 31, EXERCISE
PRICES OUTSTANDING LIFE PRICE 1999 PRICE
<S> <C> <C> <C> <C> <C>
$ 0.50 12,000 7 $ 0.50 9,000 $ 0.50
$ 0.75 73,600 8 $ 0.75 23,689 $ 0.75
$0.175 1,177,251 9.5 $0.175 275,935 $0.175
--------- -------
1,262,851 308,624
========= =======
</TABLE>
<PAGE>
I. EMPLOYEE BENEFIT PLAN
In 1998, the Company established the Cadent Medical Corporation
401(k) Plan (the "Plan"). The Plan covers those employees who have
attained the age 21 and have completed one year of service (1,000
hour minimum). Eligible employees may contribute up to 15% of their
annual compensation up to a limit of $10,000. The Company, at its
discretion, may contribute to this plan. For the years ended
December 31, 1999, 1998 and 1997, the Company did not contribute to
the Plan. Employees are 100% vested in their contributions.
Employer contributions vest over a four-year period as follows:
Year 1: 0%, Year 2: 25%, Year 3: 60%, Year 4: 100%.
J. INCOME TAXES
No provision was provided for federal and state income tax purposes as
the Company has incurred net operating losses since inception. At
December 31, 1999, the Company has accumulated net operating loss
("NOL") carryforwards of approximately $18,300,000 for federal income
tax purposes and $18,030,000 for state income tax purposes which may be
used to reduce future taxable income . The federal and state NOL
carryforwards expire at various years through 2019 and 2004,
respectively. The Company has accumulated Research and Experimentation
(R&E) tax credit carryforwards of approximately $500,000 for federal
income tax purposes and $350,000 for state income tax purposes. The
federal and state R&E tax credit carryforwards expire at various years
through 2019.
Utilization of these net operating loss carryforwards could be subject
to an annual limitation based on certain changes in ownership of the
Company as defined by section 382 of the Internal Revenue Code.
At December 31, 1999, there were total deferred tax assets of
approximately $8,105,000 primarily from operating loss carryforwards
and R&E tax credit carryforwards. As required by Financial Accounting
Statement No. 109, management of the Company has evaluated the positive
and negative evidence bearing upon the realizability of its deferred
tax assets. Management has considered the Company's history of losses
and concluded, in accordance with the applicable accounting standards,
that it is more likely than not that the Company will not generate
future taxable income prior to the expiration of these net operating
losses. Accordingly, the Company recorded a full valuation allowance
against the net deferred tax asset.
K. LITIGATION
The Company and a key employee have been named in a lawsuit where the
plaintiff is seeking injunctive relief and unspecified damages
allegedly arising out of the key employee's alleged breach of an
employment agreement with the plaintiff and alleged misappropriation of
confidential and proprietary information belonging to the plaintiff as
well as various claims of tortuous interference with a contract and
unfair competition. On February 24, 2000, a verdict in favor of the
plaintiff was issued. On June 5, 2000, the Company and key employee
entered into a settlement agreement with the plaintiff in which the
Company agreed to pay $2,200,000 to the plaintiff and both parties
agreed to cease further action on all claims and counterclaims related
to this matter. Accordingly, $2,200,000 and related legal and other
costs have been recorded in the financial statements in accrued
litigation costs and litigation cost expense.
<PAGE>
L. SUBSEQUENT EVENTS
On May 25, 2000, the Company entered into a series of Promissory Notes
("Promissory Notes") with certain of its current investors totaling
$4,000,000. The Promissory Notes accrue interest at a rate of 8.0% per
annum and are due and payable on the earlier of demand by the holders
of 66.7% of the aggregate principal amount or May 25, 2001. Borrowings
under the Promissory Notes are collateralized by all of the tangible
and intangible personal property and fixtures of the Company. Upon a
subsequent equity financing, the Promissory Notes would be converted
into the same equity securities issued in the subsequent financing. The
note holders would receive either 125% or 115% of the principal amount
outstanding based on certain circumstances. All accrued interest on the
Promissory Notes would be paid in full by the Company. Upon a change of
control, defined in the agreement, the note holders would receive cash
or securities in the acquiror company equal to 125% or 115% of the
principal amount outstanding based on certain circumstances, plus all
accrued interest.
On June 1, 2000, the Company entered into a severance letter agreement
with a senior executive and director of the Company. The Company agreed
to vest all the outstanding options and no longer subject the options
and common stock held by the senior executive to forfeiture. Also, the
Company agreed to a severance payment of $120,000, to be paid over a
six-month period.
<PAGE>
CADENT MEDICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 2000
------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 468,423
Prepaid expenses 9,975
------------------
Total current assets 478,398
Equipment, net 243,142
Other assets 22,672
------------------
$ 744,212
==================
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 3,396,356
Loan payable 184,052
------------------
Total current liabilities 3,580,408
------------------
Redeemable preferred stock , Classes A-E
cumulative convertible, $.01 par value;
7,010,000 shares authorized, 6,606,356
issued and outstanding 20,131,765
Stockholders' (deficit):
Common stock - $.01 par value; 9,684,000 shares authorized,
516,627 issued and outstanding 5,166
Deficit accumulated during the development stage (22,973,127)
------------------
(22,967,961)
------------------
$ 744,212
==================
</TABLE>
<PAGE>
CADENT MEDICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONDENSED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 2000 March 31, 1999
-------------------- -------------------
<S> <C> <C>
Operating expenses:
Research and development $ 768,753 $ 619,274
General and administrative 69,452 125,123
Litigation costs 890,220 210,708
-------------------- -------------------
Loss from operations (1,728,425) (955,105)
Interest income, net 13,253 7,293
-------------------- -------------------
Net loss $ (1,715,172) $ (947,812)
==================== ===================
</TABLE>
<PAGE>
CADENT MEDICAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2000
A. NATURE OF BUSINESS
Cadent Medical Corporation (the "Company") was established on July 2,
1996 for the purpose of developing, manufacturing and selling a
noninvasive, externally wearable cardiac defibrillator. The Company's
prototype device is currently under development. Since its inception,
the Company has devoted substantially all of its efforts to business
planning, research and development, recruiting management and technical
staff, acquiring operating assets and raising capital. Accordingly, the
Company is considered to be in the development stage as defined in
Statement of Financial Accounting Standards ("SFAS") No 7. Management
anticipates that substantially all future revenues will be derived from
products under development or those developed in the future.
The Company is subject to a number of risks similar to other companies
in the industry, including rapid technological change, uncertainty of
market acceptance of products, uncertainty of regulatory approval,
competition from substitute products and larger companies, customers'
reliance on third-party reimbursement, the need to obtain additional
financing, compliance with government regulations, protection of
proprietary technology, dependence on third-parties, product liability,
and dependence on key individuals.
The accompanying financial statements have been prepared on a basis
which assumes that the Company will continue as a going concern and
which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The
Company has a limited operating history, has incurred losses from
operations since its inception and has a net stockholders' deficit.
These circumstances raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans with regard to these
matters include continued development, marketing and licensing of its
products as well as seeking additional financing arrangements, sale of
the Company or other alternative methods. Although, management
continues to pursue these plans, there is no assurance that the Company
will be successful in obtaining financing on terms acceptable to the
Company or the sale of the Company will be consummated. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of the Company's management, the accompanying condensed
unaudited financial statements include all adjustments (which consist
only of normal recurring adjustments) necessary for a fair presentation
of its financial position at March 31, 2000 and results of operations
for the periods presented. Although the Company believes that the
disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted and should be read in conjunction with the
Company's audited financial statements at December 31, 1999, included
herein. Results of operations for the three months ended March 31, 2000
are not necessarily indicative of results for the full year.
C. SUBSEQUENT EVENT
On July 1, 2000 the Company was acquired by Cardiac Science, Inc.
("Cardiac"), a publicly-held company that manufacuters and marked
software driven non-invasive (non-surgical) Automatic External
Cardioverter Defibrillator ("AECD") devices to treat persons
suffering from or at a high risk of life-threatening arrhythmias. As
consideration, the Cadent shareholders received an aggregate of 4.5
million shares of restriced common stock of Cardiac. This business
combination will be accounted for by the purchase method of
accounting. No adjustments have been included in these unaudited
condensed financial statements for this transaction.
<PAGE>
(b) Unaudited Pro Forma Financial Data
The following unaudited pro forma consolidated condensed financial
statements of Cardiac Science, Inc. give effect to the acquisition of Cadent
Medical Corporation as if it had occurred on January 1, 1999 for the
statement of operations and the balance sheet at March 31, 2000.
The unaudited pro forma consolidated condensed statements are
presented for illustrative purposes only, and do not purport to represent
what Cardiac Science's financial position or results of operations would have
been if the Cadent acquisition had occurred as of the dates indicated or what
such results will be as of any future date or for any future periods. The
unaudited pro forma financial data are based on the historical consolidated
financial statements of Cardiac Science, Cadent and the assumptions and
adjustments described in the accompanying notes.
The unaudited pro forma statement of operations of Cardiac Science
includes a non-recurring charge related to the Cadent transaction of
approximately $15.8 million for in process research and development.
Allocation of the purchase price for goodwill and in process research and
development are estimates and may change. The Company has engaged a valuation
consultant and is working with this consultant to determine a final
allocation of the purchase price.
The unaudited pro forma consolidated condensed financial statements
and accompanying notes should be read in conjunction with the historical
consolidated financial statements and the related notes thereto of Cardiac
Science and the historical financial statements and related notes thereto of
Cadent.
<PAGE>
CARDIAC SCIENCE, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(dollars in 000's, except share and per share data)
<TABLE>
<CAPTION>
Cardiac Science Cadent Medical Acquisition Pro Forma
Year Corporation Adjustments Combined
ended Year ended
December 31, 1999 December 31, 1999
------------------ ------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Sales $ 103 --- $ 103
Cost of goods sold 98 --- 98
------------------ ------------------- --------------- -----------------
Gross profit 5 5
Operating expenses:
Research and development 4,406 3,344 7,750
Selling expenses 1,370 --- 1,370
General and administrative 1,853 437 2,290
Amortization of goodwill --- --- 1,090 (a) 1,090
Litigation costs --- 4,602 4,602
------------------ ------------------- --------------- -----------------
Loss from operations (7,624) (8,383) (1,090) (17,097)
Interest income, net 21 146 167
Loss in unconsolidated affiliate (115) --- (115)
------------------ ------------------- --------------- -----------------
Loss before provision for income taxes (7,718) (8,237) (1,090) (17,045)
Provision for income taxes 2 --- 2
------------------ ------------------- --------------- -----------------
Net loss $(7,720) (8,237) (1,090) $ (17,047)
================== =================== =============== =================
Basic and diluted loss per share $ (1.25)
=================
Number of shares used in the computation of
loss per share 13,612,561
=================
</TABLE>
<PAGE>
CARDIAC SCIENCE, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(dollars in 000's, except share and per share data)
<TABLE>
<CAPTION>
Cardiac Science Cadent Medical Acquisition Pro Forma
Three months Corporation Adjustments Combined
ended Three months
March 31, 2000 ended
March 31, 2000
------------------ ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 625 --- $ 625
Cost of goods sold 575 --- 575
------------------ ------------------- --------------- ----------------
Gross profit 50 50
Operating expenses:
Research and development 1,138 769 1,907
Selling expenses 925 --- 925
General and administrative 717 69 786
Amortization of goodwill --- --- 272 (b) 272
Litigation costs --- 890 890
------------------ ------------------- --------------- ----------------
Loss from operations (2,730) (1,728) (272) (4,730)
Interest income, net 12 13 25
------------------ ------------------- --------------- ----------------
Loss before provision for income taxes (2,718) (1,715) (272) (4,705)
Provision for income taxes 2 --- 2
------------------ ------------------- --------------- ----------------
Net loss $ (2,720) (1,715) (272) $ (4,707)
================== =================== =============== ================
Basic and diluted loss per share $ (0.28)
================
Number of shares used in the computation of
loss per share 16,652,303
================
</TABLE>
<PAGE>
CARDIAC SCIENCE, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET
(dollars in 000's)
<TABLE>
<CAPTION>
Cardiac Cadent Medical Acquisition Pro Forma
Science Corporation Adjustments Combined
March 31, 2000 March 31, 2000
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,622 468 (468) (c) $ 2,622
Accounts receivable, net 391 --- 391
Inventory 886 --- 886
Prepaid expenses 100 10 110
--------------- ---------------- --------------- ---------------
Total current assets 3,999 478 (468) 4,009
Equipment, net 457 243 700
Goodwill --- --- 6,558 (c) 6,588
Other assets 79 23 102
--------------- ---------------- --------------- ---------------
$ 4,535 744 6,120 $ 11,399
=============== ================ =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 2,127 3,396 (3,396) (c) $ 2,127
Current portion of capital lease obligation 41 --- 41
Loan payable --- 184 184
--------------- ---------------- --------------- ---------------
Total current liabilities 2,168 3,580 (3,396) 2,352
--------------- ---------------- --------------- ---------------
Long term portion of capital lease obligation 175 --- 175
--------------- ---------------- --------------- ---------------
Redeemable preferred stock , Classes A-E
cumulative convertible, $.01 par value;
7,010,000 shares authorized, 6,606,356
issued and outstanding --- 20,132 (20,132) (c) ---
Stockholders' equity (deficit):
Preferred stock - $.001 par value;
1,000,000 shares authorized, none
issued or outstanding --- --- --- ---
Common stock - $.001 par value; 40,000,000
shares authorized, 12,320,627 issued and
outstanding at March 31, 2000 and 16,820,627
at March 31, 2000 on a pro forma basis 12 5 (1) (c) 16
Additional paid-in capital 23,838 --- 22,496 (c) 46,334
Accumulated deficit (21,658) (22,973) 7,153 (b,c) (37,478)
--------------- ---------------- --------------- ---------------
2,192 (22,968) 29,648 8,872
--------------- ---------------- --------------- ---------------
$ 4,535 744 6,120 $ 11,399
=============== ================ =============== ===============
</TABLE>
<PAGE>
CARDIAC SCIENCE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET AND STATEMENTS OF OPERATIONS
(a) Assumes the transaction was completed on January 1, 1999 and
reflects 12 months amortizaiont of goodwill of $1,089,773 beginning
January 1, 1999. The goodwill has been estimated to be 6 years.
(b) Reflects 3 months amortization of goodwill of $272,443 beginning
January 1, 2000.
(c) Under purchase accounting, the total purchase price will be
allocated to the acquired assets and liabilities of Cadent Medical
Corporation based on their relative fair values as of the closing
date of July 1, 2000 with the balance of the purchase price
allocated to goodwill and in process research and development. This
entry reflects an estimate of the allocation to the acquired assets,
liabilities, in process research and development and goodwill. The
estimated amount of in process research and development is excluded
from the pro forma statement of operations as it is a one time
non-recurring charge. The final allocations could be different from
the amounts reflected herein, and such differences may be
significant. The amount and components of the estimated purchase
price along with the allocation of the estimated purchase price to
assets purchased and liabilities assumed as though the transaction
had occurred on March 31, 2000 are as follows:
<TABLE>
<S> <C>
Prepaid expenses $ 9,975
Property & equipment, net 243,142
Other assets 22,672
Loan payable (184,052)
In process research & development 15,820,000
Goodwill 6,588,263
------------------
Total purchase price $ 22,500,000
==================
</TABLE>
This entry reflects the elimination of all stockholder equity accounts
of Cadent and assumes that Cadent's accounts payable and accrued
expenses in the amount of $3,396,356 will be retired on the closing
date by additional capital contributions of the Cadent shareholders and
any available cash.
