<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
October 15, 1999
ZOLL MEDICAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Massachusetts 000-20225 04-2711626
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
32 Second Avenue, Northwest Park, Burlington, Massachusetts 01803
(Address of principal executive offices and zip code)
(781) 229-0020
(Registrant's telephone number, including area code)
<PAGE> 2
This Form 8-K/A amends Item 7 of the Current Report on Form 8-K of Zoll
Medical Corporation previously filed with the Securities and Exchange Commission
on October 29, 1999, solely for the purpose of filing the financial information
set forth below.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) PRO FORMA FINANCIAL INFORMATION
The pro forma financial information required to be filed by Regulation S-X
promulgated by the Securities Exchange Commission is set forth in the
exhibits to this Form 8-K/A.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule - September 26, 1998
27.2 Financial Data Schedule - September 27, 1997
27.3 Financial Data Schedule - September 28, 1996
27.4 Financial Data Schedule - July 3, 1999
27.5 Financial Data Schedule - June 27, 1998
99.1 ZOLL Medical Corporation Supplemental Combined Financial
Statements - Three Years Ended September 26, 1998
99.2 ZOLL Medical Corporation Supplemental Condensed Combined
Financial Statements - Nine Months Ended July 3, 1999 and
June 27, 1998 (unaudited)
99.3 Pinpoint Technologies, Inc. Financial Statements - Year
Ended September 30, 1998
99.4 Pinpoint Technologies, Inc. Condensed Financial Statements
- Nine Months Ended June 30, 1999 and June 30, 1998
(unaudited)
</TABLE>
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 28, 1999 ZOLL MEDICAL CORPORATION
By: /s/ A. Ernest Whiton
------------------------------
Name: A. Ernest Whiton
Title: Vice President and
Chief Financial Officer
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-9107) and related Prospectus of ZOLL
Medical Corporation for the registration of 218,059 shares of its common stock
and to the incorporation by reference therein of our reports dated November 12,
1999, with respect to the supplemental combined financial statements and
schedules of ZOLL Medical Corporation for the year ended September 26, 1998 and
the financial statements of Pinpoint Technologies, Inc. for the year ended
September 30, 1998, included in the Current Report of ZOLL Medical Corporation
on Form 8-K/A dated December 28, 1999, filed with the Securities and Exchange
Commission.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-68403, Form S-8 No. 33-90764, Form S-8 No. 33-56244)
pertaining to the ZOLL Medical Corporation 1992 Stock Option Plan and the
Registration Statement (Form S-8 No. 333-68401) pertaining to the Non-Employee
Directors' Stock Option Plan of ZOLL Medical Corporation of our reports dated
November 12, 1999, with respect to the supplemental combined financial
statements and schedules of ZOLL Medical Corporation for the year ended
September 26, 1998 and the financial statements of Pinpoint Technologies, Inc.
for the year ended September 30, 1998, included in the Current Report on Form
8-K/A of ZOLL Medical Corporation dated December 28, 1999, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Boston, Massachusetts
December 27, 1999
<PAGE> 1
EXHIBIT 99.1
ZOLL Medical Corporation
Supplemental Combined Financial Statements
September 26, 1998
CONTENTS
<TABLE>
<S> <C>
Five Year Financial Summary.................................................
Management's Discussion and Analysis........................................
Report of Independent Auditors..............................................
Supplemental Combined Balance Sheets........................................
Supplemental Combined Income Statements.....................................
Supplemental Combined Statements of Stockholders' Equity....................
Supplemental Combined Statements of Cash Flows..............................
Notes to Supplemental Combined Financial Statements.........................
Schedule II Valuation and Qualifying Accounts...............................
</TABLE>
<PAGE> 2
ZOLL MEDICAL CORPORATION
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1,
(000's omitted, except in per share data) 1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $57,520 $57,833 $55,700 $45,884 $47,533
Cost of goods sold 24,268 25,372 24,545 20,421 19,943
------- ------- ------- ------- -------
Gross profit 33,252 32,461 31,155 25,463 27,590
EXPENSES:
Selling and marketing 20,152 18,484 16,773 15,575 12,876
General and administrative 6,239 6,749 4,809 4,313 4,075
Research and development 6,583 6,430 4,464 4,360 5,253
------- ------- ------- ------- -------
Total expenses 32,974 31,663 26,046 24,248 22,204
------- ------- ------- ------- -------
Income from operations 278 798 5,109 1,215 5,386
Net investment income 413 355 278 243 289
------- ------- ------- ------- -------
Income before income taxes 691 1,153 5,387 1,458 5,675
Provision for income taxes 18 266 1,758 496 2,043
------- ------- ------- ------- -------
Net income $ 673 $ 887 $ 3,629 $ 962 $ 3,632
------- ------- ------- ------- -------
Basic earnings per share $ .10 $ .13 $ .55 $ .15 $ .60
Weighted average common shares
outstanding 6,602 6,602 6,562 6,519 6,069
------- ------- ------- ------- -------
Diluted earnings per share $ .10 $ .13 $ .55 $ .15 $ .58
Weighted average common and equivalent
shares outstanding 6,647 6,650 6,635 6,613 6,249
------- ------- ------- ------- -------
Balance Sheet Data:
Working capital $21,678 $24,361 $25,303 $24,223 $23,295
Total assets $46,656 $45,013 $42,507 $36,263 $35,621
Total long-term debt, excluding current
portion $ 446 $ 565 $ 713 $ 864 $ 894
Stockholders' equity $34,787 $34,463 $33,614 $29,596 $28,337
</TABLE>
*During the year ended September 27,1997, excluding a one-time charge taken in
Q1 aggregating $2.3 million, net income would have been $2,405 and earnings per
common and equivalent share would have been $0.36.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Basis of Presentation: On October 15, 1999, the Company acquired Pinpoint
Technologies, Inc. (Pinpoint) in a business combination accounted for as a
pooling of interests. Pinpoint, which creates, develops and manufactures
advanced information technology software, exclusively focused on the emergency
medical services (EMS)market, became a wholly owned subsidiary of the Company
through the exchange of approximately 410,000 shares of the Company's common
stock for all of the outstanding stock of Pinpoint. The accompanying
supplemental combined financial statements are based on the assumption that the
companies were combined for all periods presented, and financial statements of
prior years have been restated to give effect to the combination. Prior to the
combination, Pinpoint had a December 31 fiscal year end. Subsequent to the
pooling Pinpoint Technologies, Inc changed its year-end to the Saturday closest
to September 30, to conform with that of the Company. The accompanying
supplemental combined financial statements reflect the combined historical
results of ZOLL Medical Corporation for the period ended September 26, 1998,
September 27, 1997 and September 28, 1996 and the results of Pinpoint for
September 26, 1998, December 31, 1997, and 1996. An adjustment for $140,000 was
reflected in the Combined Statements of Stockholders' Equity to eliminate the
effect of including Pinpoint's results of operations for the three months ended
December 31, 1997, in both the years ended September 26, 1998 and September 27,
1997. These supplemental financial statements are supplemental to, rather than
in place of, the historical financial statements. The supplemental financial
statements will become the historical financial statements upon issuance of the
interim financial statements of ZOLL Medical Corporation for the quarter ended
January 1, 2000.
1998 COMPARED TO 1997
The Company's net sales decreased by 1/2 of 1% to $57,520,000 for the year ended
September 26, 1998 from $57,833,000 for the year ended September 27, 1997. The
decrease was primarily attributed to the net effect of an increase in sales of
disposable electrodes and Westech management data software and hardware and a
decrease in equipment sales. The Company believes that the decrease in equipment
sales in North America was primarily the result of customers holding back on
purchases while waiting for the release of the M Series, which was not shipped
until the end of the fourth quarter of 1998. In addition, the decrease in sales
in the international market was primarily a result of depressed foreign markets.
The M Series did not have any significant impact on the sales to the
international markets in 1998 as the roll out to international distributors
continued into 1999.
Gross profit increased as a percentage of sales to 58% from 56%. This increase
is primarily a result of the improved business mix.
Selling and marketing expenses increased as a percentage of sales to 35% from
32%. Selling and marketing expenses increased 9% to $20,152,000 from
$18,484,000. Of this increase, $1,419,000 was due to higher payroll related cost
and travel expenditures reflecting the reorganization of the North American
sales force. This mid-year reorganization increased the size of and split the
sales force to focus on two distinct markets: hospital and pre-hospital. The
increase in selling and marketing expenses was due also to $85,000 in higher
international selling expenditures and a $325,000 increase in expenditures for
promotion, advertising and other selling activities related to the introduction
of the M Series offset by a $392,000 decrease in product services and support.
General and administrative expenses slightly decreased as a percentage of sales
from 12% to 11%. General and administrative expenses decreased 8% to
$6,239,000 from $6,749,000. This decrease was due primarily to the occurrence of
a one-time charge recognized in 1997 of $1,300,000 related to the estimated cost
of proceeding to trial in a class action shareholder lawsuit. This decrease was
partially offset by an increase in 1998 of $413,000 for payroll related costs
and professional services.
Research and development expenses remained consistent as a percentage of sales.
Research and development expenses decreased to $6,583,000 from $6,430,000. In
1997, a charge of $1,000,000 was made to account for the value of in-process
research and development acquired in the purchase of assets from Westech.
Excluding this charge, research and development expenses increased by 21%, or
$998,000. This increase was due primarily to an increase of $665,000 in
prototype and testing expenses for new technology and start-up costs for the M
Series and an increase of $179,000 in payroll related costs.
Net investment income increased from the prior year due primarily to higher
average cash balances.
At September 26, 1998, the Company has available tax loss carryforwards of
approximately $1,603,000, of which $786,000 expire at various dates through 2003
and $817,000 has an indefinite life. Approximately $1,427,000 of the tax loss
carryforwards is attributable to the Company's foreign operations and is not
available to offset domestic taxable income.
1997 COMPARED TO 1996
The Company's net sales increased 4% to $57,833,000 for the year ended September
27, 1997 from $55,700,000 for the year ended September 28, 1996. The increase
was primarily attributable to a 12% increase in sales of disposable electrodes
and a 5% increase in sales to international markets.
Gross profit as a percentage of sales remained at 56%.
Selling and marketing expenses increased as a percentage of sales to 32% from
30%. Selling and marketing expenses increased 10% to $18,484,000 from
$16,773,000. Of this increase, $734,000 was due to higher payroll related costs
and travel expenditures due to higher staffing levels in North America, $350,000
was due to higher international selling expenditures, $295,000 was due to
increased product services and support, and $349,000 was due to increased
expenditures for promotion and advertising activities.
<PAGE> 4
General and administrative expenses increased as a percentage of sales to 12%
from 9%. General and administrative expenses increased 40% to $6,749,000 from
$4,809,000. Of this increase, $1,300,000 was related to the estimated cost of
proceeding to trial in a class action shareholder lawsuit that was initiated in
1994 and $591,000 was due to increased payroll related costs and travel
expenditures because of higher staffing levels and the acquisition of the mobile
computing business of Westech Information Systems, Inc. (Westech).
Research and development expenses increased as a percentage of sales to 11% from
8%. Research and development expenses increased 44% to $6,430,000 from
$4,464,000. Of this increase, $1,000,000 is applicable to the value of
in-process research and development acquired in the purchase of assets from
Westech, and $885,000 is due to increased staffing related to new product
development.
Net investment income increased to $355,000 from $278,000. The increase was due
primarily to higher average cash balances.
At September 27, 1997, the Company has available tax loss carryforwards of
approximately $1,267,000 of which $720,000 expire at various dates through 2002
and $547,000 has an indefinite life. Approximately $1,157,000 of the tax loss
carryforwards is attributable to the Company's foreign operations and is not
available to offset domestic taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments at September 26, 1998 was $5,521,000 compared
to $10,236,000 at September 27, 1997, a decrease of $4,715,000. Cash used for
operating activities for the year ended September 26, 1998 increased $5,617,000
over the same period in 1997. This decrease was primarily due to an increase in
inventories related to production of the M Series and an increase in prepaid
expenses and other current assets.
The amount of cash required to fund investing activities was $3,442,000 higher
for the year ended September 26, 1998 compared to the same period in 1997. The
increase was primarily due to an increase in property, plant and equipment
amounting to $4,493,000.
The Company maintains a working capital line of credit with its bank. Under this
working capital line, the Company may borrow up to $3,000,000 on a demand basis.
Borrowings under this line bear interest at the bank's base rate (8.5% at
September 26, 1998). The full amount of the line was available to the Company at
September 26, 1998.
The Company expects that the combination of existing funds, cash generated from
operations and its existing line of credit will be adequate to meet its
liquidity and capital requirements for the foreseeable future.
YEAR 2000
Introduction: Many computer and software systems in use today are not designed
to process date information after 1999. This deficiency results from the
inability of most computer programs that perform arithmetic and logic
operations after this date to use only the last two digits of the year when
they make their calculations. If not corrected, this year 2000 problem could
cause computer applications and other equipment used and manufactured by the
Company, its suppliers and its customers to fail to operate properly.
Year 2000 Project: In early 1998, the Company began a project to assess its
potential vulnerability to the year 2000 problem and to minimize the effect of
the problem on its operations. The project addresses five major areas of the
business at each of its locations: business systems, including management
information systems; factory and facilities equipment, including equipment
that uses a computer to control its operation either for producing end product
or to supply services; products, including equipment and software supplied to
customers; suppliers, including businesses that provide services and raw
materials to the Company; and customers.
The Company has completed a review of its business systems with regard to year
2000 compliance and will either replace or correct through programming
modifications those critical computer systems that have been found to have date
related deficiencies. The Company's information technology systems were
upgraded with vendor supplied year 2000 software packages. Although the Company
is testing these systems, there can be no assurance that these systems will
function properly in an operational environment. The Company expects to
complete testing of these systems by December 31, 1999. The Company is also
assessing factory, facility and telecommunication systems and equipment used to
support manufacturing processes. The Company has assessed the year 2000
readiness of the equipment used in the
<PAGE> 5
manufacturing and testing of its products and believes this equipment to be
year 2000 compliant, but there can be no assurance that the tests performed
adequately ensure that such equipment will not experience year 2000 failure. In
addition, the Company is assessing the readiness of third parties (vendors,
customers, etc.) that interact with the Company's systems. The Company has
tested its products and has found them to be year 2000 compliant. It is
possible that this testing did not identify problems that might still occur in
an operational environment.
Year 2000 Costs: External and internal costs specifically associated with
modifying internal use software for year 2000 compliance are expensed as
incurred. To date, those costs have totaled less than $600,000. Based on
currently available information, the Company expects the total cost of
addressing the potential year 2000 issues to be less than $750,000. The Company
does not expect the costs of addressing potential year 2000 problems to have a
material adverse effect on the Company's financial position, results of
operations or liquidity in future periods.
Risks and Contingency Plan: The Company relies on a variety of either single or
critical source vendors in the production of its products. The Company
anticipates a reasonably worst case scenario to be the failure of a single or
critical source vendor to be year 2000 compliant. Such failure might cause the
third party vendor to be unable to supply critical components or other resources
that would have a material adverse effect on the Company.
If not remediated, year 2000 issues have the potential to severely disrupt the
Company's operations and to adversely affect its financial condition. While the
Company may monitor the readiness for the year 2000 of its suppliers and its
customers, it has very limited ability to assure year 2000 readiness by such
parties. The failure of any supplier or customer to ensure its own year 2000
readiness could have a material adverse impact on the Company. There can be no
assurance that third party suppliers will not experience unforseen difficulties
and be unable to supply components of the Company's products or that third
party providers of the hardware upon which its software runs will not be
materially harmed by year 2000 problems and be unable to continue to provide
such hardware to the Company. Year 2000 problems could cause the Company's
banks to experience disruption, which could adversely affect operations. Year
2000 problems could also adversely affect customers and their ability to pay
the Company, which would adversely affect operation results. The Company could
also be affected by the failure of government agencies on which the Company
depends to maintain services essential to operations and the failure of the
airline industry on which the Company relies to support the activities of the
sales force. The Company could also be harmed materially by any significant
enconomic, financial market or infrastructure disruption attributable to year
2000 problems. The Company is finalizing contingency plans to cover situations
in which year 2000 problems arise despite its efforts. These plans are expected
to be substantially ready by December 31, 1999.
SAFE HARBOR STATEMENTS
Except for the historical information contained herein, the matters set forth
herein are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that are subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in the
forward looking statements. Such risks and uncertainties include, but are not
limited to: product demand and market acceptance risks, the effect of economic
conditions, results of pending or future litigation, the impact of competitive
products and pricing, product development and commercialization, technological
difficulties, the government regulatory environment and actions, trade
environment, capacity and supply constraints or difficulties, the results of
financing efforts, actual purchases under agreements, year 2000 issues,
including expectations of readiness, and the effect of the Company's accounting
policies.
<PAGE> 6
Report of Independent Auditors
Board of Directors and Stockholders
ZOLL Medical Corporation
We have audited the supplemental combined balance sheets of ZOLL Medical
Corporation (formed as a result of the combination of ZOLL Medical Corporation
and Pinpoint Technologies, Inc.) as of September 26, 1998 and September 27, 1997
and the related supplemental combined statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended September
26, 1998. The supplemental combined financial statements give retroactive effect
to the merger of ZOLL Medical Corporation and Pinpoint Technologies, Inc. on
October 15, 1999, which has been accounted for using the pooling of interests
method as described in the notes to the supplemental combined financial
statements. These supplemental financial statements are the responsibility of
the management of ZOLL Medical Corporation. Our responsibility is to express an
opinion on these supplemental financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the supplemental financial statements
referred to above present fairly, in all material respects, the combined
financial position of ZOLL Medical Corporation at September 26, 1998 and
September 27, 1997, and the combined results of its operations and its cash
flows for each of the three years in the period ended September 26, 1998, after
giving retroactive effect to the merger of Pinpoint Technologies, Inc., as
described in the notes to the supplemental combined financial statements, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Boston Massachusetts
November 12, 1999
<PAGE> 7
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
(000's omitted, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 5,521 $ 9,958
Investments -- 278
Accounts receivable, less allowance of $940 at September 26, 1998 and
$1,244 at September 27, 1997 14,630 14,988
Inventories:
Raw materials 3,990 2,632
Work-in-process 1,735 840
Finished goods 3,680 4,004
------- -------
9,405 7,476
Prepaid expenses and other current assets 3,257 1,543
------- -------
Total current assets 32,813 34,243
Property and equipment at cost:
Land and building 1,032 1,023
Machinery and equipment 12,791 8,921
Construction in progress 1,162 1,329
Tooling 2,225 1,646
Furniture and fixtures 712 674
Leasehold improvements 737 737
------- -------
18,659 14,330
Less accumulated depreciation 8,187 6,810
------- -------
Net property and equipment 10,472 7,520
Other assets, net of accumulated amortization of $496 at September 26, 1998
and $402 at September 27, 1997 3,371 3,250
------- -------
$46,656 $45,013
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,902 $ 2,096
Accrued expenses and other liabilities 7,724 7,474
Current maturities of long-term debt 116 119
Deferred revenue 393 193
------- -------
Total current liabilities 11,135 9,882
Deferred income taxes 288 103
Long-term debt 446 565
Stockholder's equity:
Commitments and contingencies
Preferred Stock, $.01 par value, authorized 1,000 shares, none issued
and outstanding -- --
Common stock, $.02 par value, authorized 19,000 shares, 6,602 and 6,561
issued and outstanding at September 26, 1998 and September 27, 1997,
respectively 132 131
Capital in excess of par value 20,683 20,635
Retained earnings 13,972 13,697
------- -------
Total stockholders' equity 34,787 34,463
------- -------
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
$46,656 $45,013
======= =======
</TABLE>
See notes to supplemental combined financial statements.
<PAGE> 9
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1996
------------- ------------- -------------
(000's omitted, except per share data)
<S> <C> <C> <C>
Net sales $57,520 $57,833 $55,700
Cost of goods sold 24,268 25,372 24,545
------- ------- -------
Gross profit 33,252 32,461 31,155
Expenses:
Selling and marketing 20,152 18,484 16,773
General and administrative 6,239 6,749 4,809
Research and development 6,583 6,430 4,464
------- ------- -------
Total expenses 32,974 31,663 26,046
------- ------- -------
Income from operations 278 798 5,109
Investment income 487 432 382
Interest expense 74 77 104
------- ------- -------
Income before income taxes 691 1,153 5,387
Provision for income taxes 18 266 1,758
------- ------- -------
Net income $ 673 $ 887 $ 3,629
======= ======= =======
Basic earnings per common share $ 0.10 $ 0.13 $ 0.55
Weighted average common shares outstanding 6,602 6,602 6,562
Diluted earnings per common and equivalent share $ 0.10 $ 0.13 $ 0.55
Weighted average common and equivalent shares
outstanding 6,647 6,650 6,635
</TABLE>
See notes to supplemental combined financial statements.
<PAGE> 10
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------ ------ ---------- -------- -------------
(000's omitted)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 6,117 $122 $20,123 $ 9,345 $29,590
Exercise of stock options 57 2 344 346
Tax benefit realized upon exercise of 73 73
stock options
Pooling of interest with Pinpoint, Inc.
(see Note A) 369 7 (7) 6 6
Distributions by Pinpoint Technologies, Inc. (30) (30)
Net income 3,629 3,629
----- ---- ------- ------- -------
Balance at September 28, 1996 6,543 131 20,533 12,950 33,614
Exercise of stock options 18 59 59
Tax benefit realized upon exercise of 43 43
stock options
Distributions by Pinpoint Technologies, Inc. (140) (140)
Net income 887 887
----- ---- ------- ------- -------
Balance at September 27, 1997 6,561 131 20,635 13,697 34,463
Issuance of common stock by Pinpoint
Technologies, Inc. (see Note A) 41 1 48 49
Adjustments to conform with pooled
companies fiscal year-ends (140) (140)
Distributions by Pinpoint Technologies, Inc. (258) (258)
Net income 673 673
----- ---- ------- ------- -------
Balance at September 26, 1998 6,602 $132 $20,683 $13,972 $34,787
===== ==== ======= ======= =======
</TABLE>
See notes to supplemental combined financial statements.
<PAGE> 11
ZOLL MEDICAL CORPORATION
SUPPLEMENTAL COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
(000's omitted)
Operating activities:
Net income $ 673 $ 887 $ 3,629
Charges not affecting cash:
Depreciation and amortization 1,478 1,418 1,554
Issuance of common stock for services 49 0 0
Accounts receivable allowances 243 361 143
Inventory reserve 53 318 33
Provision for warranty expense (43) 275 121
Deferred income taxes 188 (898) 133
In-process research and development 1,000
Changes in current assets and liabilities:
Accounts receivable 114 1,102 (2,556)
Inventories (1,982) (408) (71)
Prepaid expenses and other current assets (1,715) (23) 119
Accounts payable and accrued expenses 1,133 1,739 2,176
Deferred revenue 79 116 77
------- ------- -------
Cash provided by operating activities 270 5,887 5,358
Investing activities:
Additions to property and equipment (4,493) (1,801) (1,942)
Investment in marketable securities (2,675) (2,575) (4,674)
Redemption of marketable securities 2,953 5,262 2,759
Other assets (62) (166) (320)
Acquisition of assets from Westech Information Systems,
Inc. (3) (1,558)
Investment in common stock of Lifecor, Inc. (2,000)
------- ------- -------
Cash used for investing activities (4,280) (838) (6,177)
Financing activities:
Exercise of stock options, including income tax benefits 102 419
Distributions to stockholders (258) (140) (30)
Proceeds from loans 0 0 96
Repayment of long-term debt (127) (160) (200)
------- ------- -------
Cash provided by (used for) financing activities (385) (198) 285
------- ------- -------
Net increase (decrease) in cash (4,395) 4,851 (534)
Cash and cash equivalents at beginning of year* 9,916 5,107 5,641
------- ------- -------
Cash and cash equivalents at end of year $ 5,521 $ 9,958 $ 5,107
======= ======= =======
</TABLE>
* Pinpoint Technologies, Inc.'s year-end was changed from December 31 to match
ZOLL Medical Corporation's September 26, 1998 year-end (see note A)
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C> <C>
Cash paid during the year:
Income taxes $1,002 $ 551 $1,556
Interest 74 77 104
Non-cash transaction:
Issuance of common stock for services $ 49
</TABLE>
<PAGE> 12
See notes to supplemental combined financial statements.
<PAGE> 13
ZOLL MEDICAL CORPORATION
NOTES TO SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Description of Business: ZOLL Medical Corporation (the Company) designs,
manufactures and markets an integrated line of proprietary, non-invasive cardiac
resuscitation devices and disposable electrodes. The Company's products are used
for the emergency resuscitation of cardiac arrest victims. The Company also
designs and markets software, which automates collection and management of both
clinical and non-clinical data for emergency medical service providers.
Basis of Presentation: On October 15, 1999, the Company acquired Pinpoint
Technologies, Inc. (Pinpoint) in a business combination accounted for as a
pooling of interests. Pinpoint, which creates, develops and manufactures
advanced information technology software, exclusively focused on the emergency
medical services (EMS)market, became a wholly owned subsidiary of the Company
through the exchange of approximately 410,000 shares of the Company's common
stock for all of the outstanding stock of Pinpoint. The accompanying
supplemental combined financial statements are based on the assumption that the
companies were combined for all periods presented, and financial statements of
prior years have been restated to give effect to the combination. Prior to the
combination, Pinpoint had a December 31 fiscal year end. Subsequent to the
pooling Pinpoint Technologies, Inc changed its year-end to the Saturday closest
to September 30, to conform with that of the Company. The accompanying
supplemental combined financial statements reflect the combined historical
results of ZOLL Medical Corporation for the period ended September 26, 1998,
September 27, 1997 and September 28, 1996 and the results of Pinpoint for
September 26, 1998, December 31, 1997, and 1996. An adjustment for $140,000 was
reflected in the Combined Statements of Stockholders' Equity to eliminate the
effect of including Pinpoint's results of operations for the three months ended
December 31, 1997, in both the years ended September 26, 1998 and September 27,
1997. These supplemental financial statements are supplemental to, rather than
in place of the historical financial statements. The supplemental financial
statements will become the historical financial statements upon issuance of the
interim financial statements of Zoll Medical Corporation for the quarter ended
January 1, 2000.
Principles of Consolidation: The combined financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Fiscal Year: The Company's fiscal year ends on the Saturday closest to September
30. The years ended September 26, 1998, September 27, 1997 and September 28,
1996 all included 52 weeks.
Cash and Cash Equivalents: The Company considers all highly liquid instruments
with an original maturity of three months or less to be cash equivalents.
Substantially all cash and cash equivalents are invested in a money market
investment account. These amounts are stated at cost which approximates market.
Inventories: Inventories, principally purchased parts, are valued at the lower
of first-in, first-out (FIFO) cost or market. Market is replacement value for
raw materials and net realizable value, after allowance for estimated costs of
completion and disposal, for work-in-process and finished goods.
Intangible Assets: Patents and software are stated at cost and amortized using
the straight-line method over five years. The excess of cost over fair value of
the net assets acquired is amortized on a straight-line basis over 15 years.
Property and Equipment: Property and equipment are stated at cost and are
depreciated using the straight-line method over the estimated economic useful
lives of the assets (forty years for buildings, three to ten years for machinery
and equipment, and five to seven years for tooling and furniture and fixtures).
Leasehold improvements and equipment under capital leases are being amortized
over the life of the lease.
<PAGE> 14
NOTE A-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition: The Company licenses software under the non-cancelable
license agreements and provides services including training, installation,
consulting and maintenance, consisting of product support services and periodic
updates. Revenue from the sale of software is recognized in accordance with the
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 97-2, Software Revenue Recognition. License fee revenues are generally
recognized when a non-cancelable license agreement has been signed, the software
product has been shipped, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable, and collection is considered
probable. For customer license agreements, which meet these recognition
criteria, the portion of the fees related to software licenses will generally be
recognized in the current period, while the portion of the fees related to
services is recognized as the services are performed. The Company allocates a
portion of contractual license fees to post-contract support activities covered
under the contract including first year maintenance, installation assistance and
limited training services. In addition, the Company also allocates a portion of
the contractual license fees to future unspecified upgrade rights. Revenues from
maintenance agreements and upgrade rights are recognized ratably over a three
month period, and a one year period, respectively.
Advertising Costs: Advertising costs are expensed as incurred and totaled
$409,000, $381,000 and $260,000 in 1998, 1997 and 1996, respectively.
Product Warranty: Expected future product warranty costs, included in accrued
expenses and other liabilities, are recognized at the time of sale for all
products covered under warranty. Warranty periods range from one to five years.
Earnings Per Share: In 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which requires the
presentation of basic and diluted earnings per share amounts. All periods
presented have been restated to reflect adoption of this statement.
The shares used for basic earnings per common share and diluted earnings per
common share are reconciled as follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Average shares outstanding for basic
earnings per share 6,602 6,602 6,562
Dilutive effect of stock options 45 48 73
----- ----- -----
Average shares outstanding for diluted
earnings per share 6,647 6,650 6,635
===== ===== =====
</TABLE>
Reclassifications: Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the 1998 presentation.
Use of Estimates: The preparation of the 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.
Stock Option Plans: The Company accounts for its stock compensation awards under
the provisions of APB No. 25, "Accounting for Stock Issued to Employees," and
will continue to do so in the future.
<PAGE> 15
NOTE A-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Newly Issued Pronouncements: In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," and Statement No. 131 (SFAS 131), "Disclosures About Segments of an
Enterprise and Related Information." SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components. SFAS 131
establishes standards for the way that public companies report information about
operating segments in financial statements. This Statement supersedes Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirements to report information about major customers. The Statements are
effective for fiscal years beginning after December 15, 1997. The Company does
not believe that the adoption of these Statements will have a material effect on
the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative
Financial Instruments and for Hedging Activities", which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for years beginning
after June 15, 2000 and is not anticipated to have a material effect on the
Company's financial statements when adopted.
NOTE B- MERGER:
Summarized results of operations of the separate companies for the preceding
years are as follows (000's omitted):
<TABLE>
<CAPTION>
ZOLL PINPOINT COMBINED
---- -------- --------
<S> <C> <C> <C>
Year ended 1998
Net sales $55,080 $ 2,440 $57,520
Net income 43 630 673
------- ------- -------
Year ended 1997
Net sales 56,336 1,497 57,833
Net income 515 372 887
------- ------- -------
Year ended 1996
Net sales 54,762 938 55,700
Net income 3,413 216 3,629
------- ------- -------
</TABLE>
Sales and net income of $579 and $140, respectively, for the quarter ended
December 31, 1997 were included in the years ended September 26, 1998 and
September 27, 1997.
The following unaudited pro forma information has been prepared assuming
Pinpoint had been acquired as of the beginning of the periods presented. The pro
forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisition had been
made as of those dates. In addition, the pro forma information is not intended
to be a projection of future results and does not reflect synergies expected to
result from the integration of Pinpoint and the Company's Westech business.
The pro-forma tax adjustment assumes Pinpoint was a taxable entity subject to
tax at ZOLL's incremental tax rate for the periods presented.
<TABLE>
<CAPTION>
(000's omitted)
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Combined net income $ 673 $ 887 $3,629
Income tax adjustment
on Pinpoint's net income 248 149 86
----- ----- ------
Pro forma combined net income $ 425 $ 738 $3,543
===== ===== ======
</TABLE>
NOTE C-INVESTMENTS
Investments in equity and debt securities are classified as available for sale.
There were no investments in equity or debt securities at September 26, 1998.
Available for sale securities consisted of $278,000 of corporate obligations at
September 27, 1997. The securities are carried at fair value, with unrealized
gain and losses, net of tax, reported in a separate component of stockholders'
equity. At September 27, 1997, there was no difference between the cost basis
and the estimated market value of the security portfolio. The maturity periods
of the securities held were due within one year.
<PAGE> 16
The cost of securities sold is based on the specific identification method.
Realized gains and losses and declines in value judged to be other than
temporary are included in investment income.
<PAGE> 17
NOTE C-INVESTMENTS (CONTINUED)
During 1996, the Company invested $2 million in the common stock of Lifecor,
Inc., which represents approximately 6% of Lifecor's outstanding common stock.
The Company accounts for this investment at cost, which approximates market.
This investment is included in other assets on the balance sheet.
NOTE D-PREPAID EXPENSES AND OTHER CURRENT ASSETS
Current assets consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
(000's omitted)
Deferred income taxes $1,124 $1,127
Insurance proceeds receivable -- Note M 1,674 --
Other 459 416
------ ------
Total prepaid expenses and other current assets $3,257 $1,543
====== ======
</TABLE>
NOTE E-STOCKHOLDERS' EQUITY
Preferred Stock: The Board of Directors is authorized to fix the designations,
relative rights, preferences and limitations on the Preferred Stock at the time
of issuance.
On June 8, 1998, the Company's Board of Directors adopted a Shareholder Rights
Plan. In connection with the Shareholder Rights Plan, the Board of Directors
declared a dividend distribution of one Preferred Stock purchase right for each
outstanding share of Common Stock to stockholders of record as of the close of
business day on June 9, 1998. Initially, these rights will not be exercisable
and will trade with the shares of ZOLL's Common Stock. Under the Shareholder
Rights Plan, the rights generally become exercisable if a person becomes an
"acquiring person" by acquiring 15% or more of the Common Stock of ZOLL, if a
person who owns 10% or more of the Common Stock of ZOLL is determined to be an
"adverse person" by the Board of Directors or if a person commences a tender
offer that would result in that person owning 15% or more of the Common Stock of
ZOLL. Under the Shareholder Rights Plan, a shareholder of ZOLL who beneficially
owns 15% or more of the Company's Common Stock as of June 9, 1998 generally will
be deemed an "acquiring person" if such shareholder acquires additional shares
of the Company's Common Stock. In the event that a person becomes an "acquiring
person" or is declared an "adverse person" by the Board, each holder of a right
(other than the acquiring person or the adverse person) would be entitled to
acquire such number of shares of Preferred Stock which are equivalent to ZOLL
Common Stock having a value of twice the then-current exercise price of the
right. If ZOLL is acquired in a merger or other business combination transaction
after any such event, each holder of a right would then be entitled to purchase,
at the then-current exercise price, shares of the acquiring company's Common
Stock having a value twice the exercise price of the right.
Stock Purchase Rights: On September 25, 1995, Pinpoint granted an employee stock
purchase rights which entitled the employee to obtain 3% of the then existing
shares at a nominal price. The stock purchase rights vest 25% at the end of one
year of employment, another 25% vesting over the next three years, and the
remaining 50% vesting over the next six years. The options have an accelerated
vesting provision should there be a change in control. As of September 30, 1998,
none of the stock purchase rights had been exercised.
Stock Option Plans: The Company's 1983 and 1992 stock option plans provide for
the granting of options to officers and other key employees to purchase the
Company's Common Stock at a purchase price, in the case of incentive stock
options, at least equal to the fair market value per share of the outstanding
Common Stock of the Company at the time the option is granted, as determined by
the Compensation Committee of the Board of Directors. Options are no longer
granted under the 1983 plan. The options become exercisable ratably over two or
four years and have maximum duration of 10 years. The Company's Non-employee
Director Stock Option Plan provides for the granting of options to purchase
shares of Common Stock to Directors of the Company who are not also employees of
the Company or any subsidiary of the Company. The options vest in four equal
annual installments over a four year period. The options may be exercised at a
price equal to the fair market value of the Common Stock on the date the option
is granted.
The number of shares authorized for these plans was 1,910,000. Approximately
1,054,000 shares of Common Stock are reserved for issuance under the Company's
stock option plans as of September 26, 1998.
<PAGE> 18
NOTE E-STOCKHOLDERS' EQUITY (CONTINUED)
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized with
respect to the Company's stock option grants. Had compensation cost for this
plan been determined based on the fair value methodology prescribed by FAS 123,
the Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
(000's omitted, except per share data)
Net income -- as reported $ 673 $ 887
Net income (loss) -- pro forma 313 641
Basic and diluted earnings per common and equivalent share-as reported $ 0.10 $ 0.13
Basic and diluted earnings per common and equivalent share-pro forma $ 0.05 $ 0.10
</TABLE>
The above pro forma amounts may not be representative of the effects on reported
net earnings for future years. The fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 6.48% 4.84%
Risk-free interest rate 4.53% 5.98%
Expected lives 5 years 5 years
</TABLE>
Activity as to stock options under the two plans is as follows:
<TABLE>
<CAPTION>
(000's omitted, except per share data) 1998 1997 1996
------------------------------ ------------------------------ ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ --------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning of
the year 793 $11.02 731 $11.19 623 $10.60
Granted during the year 214 7.08 86 9.76 230 12.22
Exercised during the year -- -- (18) 3.43 (57) 6.05
Cancelled during the year (98) 9.05 (6) 12.55 (65) 14.58
------------ ------ ------------ ------ ----------- ------
Outstanding at the end of the year 909 $ 7.23 793 $11.02 731 $11.19
------------ ------ ------------ ------ ----------- ------
Price range per share of
outstanding options $3.687-10.75 $3.687-14.75 $ .50-14.75
Average price per share of
outstanding options $ 7.23 $ 11.08 $ 11.31
Price range per share of
exercised options $ 0.50-8.75 $0.31-14.00
Exercisable at the end of the year
177 277 129
Available for grant at he end of
the year 145 161 41
------------ ------ ------------ ------ ----------- ------
Weighted-average fair value of
options granted during the year $ 4.12 $ 4.48 $ 5.55
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Weighted-average exercise price
of options exercisable at the
end of the year $ 7.20 $10.08 $ 6.82
</TABLE>
<PAGE> 20
NOTE E-STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding at
September 26, 1998.
<TABLE>
<CAPTION>
(000's omitted, except
per share data) OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
Range of Exercise OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
price 9/26/98 LIFE PRICE AT 9/26/98 PRICE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.687-$6.875 615 8.81 years $6.57 61 $3.93
$7.63 64 9.75 years 7.63 -- --
$8.75 194 7.17 years 8.75 97 8.75
$9.00-$10.75 36 7.15 years 9.74 19 9.87
- --------------------------------------------------------------------------------------------------------------------
$3.687-$10.75 909 177
====================================================================================================================
</TABLE>
Under the Company's 1992 stock option plan, 417,850 options ranging in option
price from $10.00 to $14.75 per share were repriced to $6.88 per share during
1998. In 1996, 227,750 options ranging from $14.00 to $14.50 were repriced to
$8.75 per share and 227,750 options ranging in price from $21.75 to $38.25 were
repriced to $14.50 per share. The repricings were accomplished by canceling the
existing options and issuing new options at new prices with vesting schedules
recommencing as of the date of reprices. The purpose of these transactions was
to restore the incentive effect of such options. In all other respects, the Plan
remained unchanged.
NOTE F-ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
(000's omitted)
Accrued salaries and wages $2,703 $2,384
Accrued benefits and payroll taxes 644 458
Accrued professional services 433 1,003
Accrued warranty expense 953 996
Accrued income taxes -- 963
Accrued shareholder litigation settlement cost-Note M 1,400 --
Other accrued expenses 1,591 1,670
------ ------
Total accrued expenses and other liabilities $7,724 $7,474
====== ======
</TABLE>
NOTE G-INDEBTEDNESS
The Company maintains an unsecured working capital line of credit with its bank.
Under this working capital line, the Company may borrow up to $3,000,000 on a
demand basis. This line of credit bears interest at the bank's base rate (8.5%
at September 26, 1998 and September 27, 1997), and requires a compensating
balance of $275,000. The full amount of the line was available to the Company at
September 26, 1998. The Company increased its borrowing capacity under its line
of credit to $12,000,000 on November 5, 1999.
In 1994, the Company purchased land and building, which replaced leased
operating facilities, for $900,000. The land and building are mortgaged under a
$900,000 bank note bearing interest at 8.2%. The carrying value of the land and
building at September 26, 1998 and September 27, 1997 amounted to $948,000 and
$958,000, respectively. The mortgage requires equal monthly principal payments
of $7,500 plus interest over seven years, with a final payment of $270,000 due
in July 2001. The carrying amount of the long-term debt approximates the fair
value. The mortgage contains various covenants including minimum levels of net
worth, working capital and pre-tax earnings. The Company is in compliance with
all covenants of the agreement.
<PAGE> 21
NOTE G-INDEBTEDNESS (CONTINUED)
Long-term debt consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
(000's omitted)
Mortgage note payable $533 $623
Capital lease obligations -- Note J 29 62
---- ----
Total long-term debt $562 $685
Less current portion 116 120
---- ----
$446 $565
==== ====
</TABLE>
The schedule of principal payments on long term debt is as follows:
<TABLE>
<S> <C>
1999 $116
2000 94
2001 352
----
$562
====
</TABLE>
NOTE H- LICENSING AGREEMENTS
On October 11, 1996, the Company entered into a development, licensing, and
marketing agreement with a distributor. Pursuant to the agreement, the Company
was granted the right to use and copy the distributor's own software for use in
its products. Each license under the agreement was for a term of five years. On
June 15, 1998, the Company terminated the development, licensing, and marketing
agreement with this previous distributor.
NOTE I-INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(000's omitted) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Federal:
Current $ (277) $ 942 $ 1,288
Deferred 194 (722) 144
------- ------- -------
(83) 220 1,432
State:
Current 107 222 337
Deferred (6) (176) (11)
------- ------- -------
101 46 326
------- ------- -------
$ 18 $ 266 $ 1,758
======= ======= =======
</TABLE>
The following table shows income before taxes:
<TABLE>
<CAPTION>
(000's omitted) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Domestic $ 821 $ 1,137 $ 5,554
Foreign (130) 16 (167)
------- ------- -------
$ 691 $ 1,153 $ 5,387
======= ======= =======
</TABLE>
<PAGE> 22
NOTE I-INCOME TAXES (CONTINUED)
The income taxes recorded differed from the statutory federal income tax rate
due to:
<TABLE>
<CAPTION>
(000's omitted) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Statutory income taxes $ 21 $ 265 $ 1,758
Tax credits, federal and state -- -- (132)
State income taxes, net of federal benefit 32 31 215
Unbenefited foreign losses -- 13 55
Permanent differences 35 (20) (99)
Other (70) (23) (39)
------- ------- -------
$ 18 $ 266 $ 1,758
======= ======= =======
</TABLE>
At September 26, 1998, the Company has available tax loss carryforwards of
approximately $1,603,000 of which $786,000 expire at various dates through 2003
and $817,000 has an indefinite life. Approximately $1,427,000 of the tax loss
carryforwards is attributable to the Company's foreign operations and is not
available to offset domestic taxable income.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The valuation allowance
increased $89,000 as a result of foreign losses incurred in 1998.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
(000's omitted) 1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory $ 625 $ 718
Net operating loss carryforwards 576 420
Product warranty accruals 373 389
Purchased research and development 336 365
Shareholder litigation accrual -- 288
Other liabilities 379 206
Valuation allowance for deferred tax assets (473) (384)
------- -------
Total deferred tax assets 1,816 2,002
Deferred tax liabilities:
Accelerated tax depreciation 731 700
Prepaid expenses 248 277
------- -------
Total deferred tax liabilities 979 977
------- -------
Net deferred tax asset $ 837 $ 1,025
======= =======
</TABLE>
Prior to the merger Pinpoint elected to be taxed under the Subchapter S
provisions of the Internal Revenue Code. Accordingly, the Company's income or
loss is included in the stockholders' individual income tax returns.
<PAGE> 23
NOTE J-LEASES
The Company leases certain office and manufacturing space and equipment under
capital and under operating leases. Listed below are the future minimum rental
payments required under capital leases and operating leases with non-cancelable
terms in excess of one year at September 26, 1998, together with present value
of net minimum lease payments.
<TABLE>
<CAPTION>
CAPITAL OPERATING
(000's omitted) LEASES LEASES TOTAL
------- --------- -------
<S> <C> <C> <C>
1999 $ 28 $ 645 $ 673
2000 4 799 803
2001 -- 715 715
2002 -- 708 708
2003 -- 641 641
Thereafter -- 150 150
------- ------- -------
32 $ 3,658 $ 3,690
======= =======
Less interest payments (3)
-------
Present value of minimum lease payments $ 29
=======
</TABLE>
The Company is obligated under a lease agreement for formerly occupied
facilities under a lease which expires February 1, 2000. The lease provides for
the Company to pay an annual base rent plus expenses, totaling approximately
$43,000, which increases each year as determined by the Consumer Price Index.
Effective March 11, 1999, the Company subleased this space to an unrelated
company on a full-cost pass-through basis, whereby the sublease tenant pays the
landlord directly. The Company remains obligated on the lease payments to the
extent that the sublease tenant defaults on its payments.
Included in machinery and equipment at September 26, 1998 and September 27, 1997
are certain items recorded as capital leases with a book value of $179,000 and
related accumulated depreciation of $133,000 and $102,000 at September 26, 1998
and September 27, 1997, respectively.
The Company's office leases are subject to adjustments based on actual floor
space occupied. The leases also require payment of real estate taxes and
operating costs. Total rental expense under operating leases for 1998, 1997 and
1996 was approximately $728,000, $625,000 and $551,000, respectively.
NOTE K-EMPLOYEE BENEFIT PLAN
Defined contribution retirement plan- Zoll has a defined contribution retirement
plan which contains a "401(k)" program for all employees with six months of
service who have attained 21 years of age. The Company may make a discretionary
contribution and an additional discretionary profit sharing contribution. The
Company made a $100,000 contribution to the plan in fiscal 1999, 1998 and 1997.
401(k) Salary Deferral Plan- Beginning in 1998, Pinpoint has maintained a
retirement savings plan (the Plan) pursuant to which eligible employees may
defer compensation for income tax purposes under section 401(k) of the Internal
Revenue Code of 1986. Participants in the Plan may contribute up to 15% of their
eligible compensation which are matched by the Company at 50% of the employee
contribution up to 6% of eligible compensation. The Company may make
discretionary matching contributions to the Plan in an amount determined by its
Board of Directors. The Company recorded expense related to the Plan of
approximately $11,000 for the year ended September 30, 1998.
NOTE L-CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to hospitals and universities. The
Company performs periodic credit evaluations of its customers' financial
condition and does not require collateral. Credit losses associated with these
customers historically have been small, which is consistent with management's
expectations. The Company entered
<PAGE> 24
the pre-hospital market segment recently, and as a result the Company believes
it will face a greater degree of credit risk as sales to this market segment
expand.
<PAGE> 25
NOTE L-CONCENTRATION OF CREDIT RISK (CONTINUED)
The Company had export sales of approximately $10,574,000, $12,322,000, and
$11,649,000 in 1998, 1997 and 1996, respectively.
NOTE M-CONTINGENCIES
In the course of normal operations, the Company is involved in litigation
arising from commercial disputes and claims of former employees which management
believes will not have a material impact on the Company's financial position or
its results of operations.
During the quarter ended December 28, 1996, the Company incurred a charge of
approximately $1,300,000 to cover the litigation costs to defend itself in a
shareholder lawsuit initiated in 1994. On July 9, 1998, the Company announced an
agreement in principle concerning the settlement of the lawsuit against it and
certain officers. The settlement, amounting to $1,500,000, was approved by the
court on October 5, 1998. There was no financial impact as a result of the
settlement. Included in accrued expenses is the unpaid settlement cost and
remaining accrued legal fees related to the litigation. A similar amount due
from the insurance company is included in other current assets. In November
1998, the Company received the insurance reimbursements for the claim and legal
costs and paid the remaining settlement due to the shareholders.
On August 3, 1998, two shareholders filed a complaint against the Company and
each of its directors which primarily seeks an order by the court barring the
Company from declaring the plaintiffs "adverse persons" under the Shareholder
Rights Plan adopted on June 8, 1998 by the Company, barring the Company from
advancing the date of its 1999 annual meeting and requiring the Company to
provide the plaintiffs with a list of the Company's stockholders. The Company
believes it has meritorious defenses to the lawsuit and therefore will prevail
in trial. Management believes that this complaint will not have a material
impact on the Company's financial position or its results of operations.
NOTE N-ACQUISITION
On November 6, 1996, the Company acquired the assets of the mobile computing
business of Westech Information Systems, Inc. for approximately $1,500,000 in
cash. The acquisition was accounted for as a purchase and the purchase price was
allocated to the assets acquired and liabilities assumed based on their
respective fair values at the date of acquisition. The excess of the cost over
the fair value of net assets acquired is being amortized over fifteen years. In
connection with the acquisition, the Company incurred a non-recurring charge of
$1,000,000 for acquired in-process research and development which was charged to
operations because in management's opinion, technological feasibility for the
acquired research and development had not been established. The Company's
consolidated results of operations include the operations of the mobile
computing business of Westech Information Systems, Inc. from November 1996.
The following unaudited pro forma information shows the results of operations as
if the transaction occurred at the beginning the year of acquisition (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 57,935 $ 56,689
Net income 876 3,203
Basic earnings per common share $ 0.13 $ 0.49
Diluted earnings per common and equivalent share $ 0.13 $ 0.48
</TABLE>
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the purchase actually been
made at the beginning of the respective periods and is not necessarily
indicative of results that may be obtained in the future.
NOTE O -SUBSEQUENT EVENT
<PAGE> 26
In December 1998, Pinpoint Technologies, Inc. signed a purchase and sales
agreement to acquire an office building for approximately $2,400,000, of which
approximately $1,800,000 was financed through its bank.
<PAGE> 27
NOTE P-QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
(000's omitted, except per share data) DECEMBER 27 MARCH 28 JUNE 27 SEPTEMBER 26
1997 1998 1998 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales $ 13,019 $ 14,354 $ 13,326 $ 16,821
Gross profit 7,447 8,450 7,706 9,649
Income (loss) from operations 273 734 (1,148) 419
Net income (loss) 305 743 (730) 355
Basic earnings (loss) per common and
equivalent share $ 0.05 $ 0.12 $ (0.12) $ 0.06
Diluted earnings (loss) per common and
equivalent share $ 0.05 $ 0.11 $ (0.11) $ 0.05
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 28 MARCH 29 JUNE 28 SEPTEMBER 27
1996 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $ 14,382 $ 14,495 $ 12,693 $ 16,263
Gross profit 8,228 8,224 7,540 8,469
Income (loss) from operations (1,274) 1,445 51 576
Net income (loss) (776) 1,066 94 503
Basic earnings (loss) per common and
equivalent share $ (0.13) $ 0.18 $ 0.02 $ 0.09
Diluted earnings (loss) per common and
equivalent share $ (0.12) $ 0.17 $ 0.08
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 28
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Charged
Balance Beginning to Costs and Balance At End of
Classifications of Period Expenses Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended September 26, 1998
Allowance for doubtful accounts Total $1,209,000 $244,000 $513,000 $ 940,000
========== ======== ======== ==========
Year Ended September 27, 1997
Allowance for doubtful accounts Total $ 888,000 $361,000 $ 5,000 $1,244,000
========== ======== ======== ==========
Year Ended September 28, 1996
Allowance for doubtful accounts Total $ 786,000 $143,000 $ 41,000 $ 888,000
========== ======== ======== ==========
</TABLE>
<PAGE> 1
EXHIBIT 99.2
ZOLL Medical Corporation
Supplemental Condensed Combined Financial Statements
Nine Months Ended July 3, 1999 and June 27, 1998
(unaudited)
CONTENTS
<TABLE>
<S> <C>
Supplemental Condensed Combined Balance Sheets (unaudited)................ 28
Supplemental Condensed Combined Income Statements (unaudited)............. 29
Supplemental Condensed Combined Statement of Cash Flows (unaudited)....... 30
Notes to Unaudited Supplemental Condensed Combined Financial Statements... 31
Management's Discussion and Analysis...................................... 32
</TABLE>
<PAGE> 2
ZOLL Medical Corporation
Supplemental Condensed Combined Balance Sheets
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
JULY 3 SEPT 26
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,012 $ 5,521
Accounts receivable, less allowance of $1,197 at July 3, 1999
and $940 at September 26, 1998 22,029 14,630
Inventories:
Raw materials 5,006 3,990
Work-in-process 2,418 1,735
Finished goods 3,711 3,680
------- -------
11,135 9,405
Prepaid expenses and other current assets 2,041 3,257
------- -------
Total current assets 36,217 32,813
Property and equipment, as cost:
Land and building 3,432 1,032
Machinery and equipment 15,099 13,210
Construction in progress 805 1,315
Tooling 2,635 1,806
Furniture and fixtures 880 712
Leasehold improvements 737 737
------- -------
23,588 18,812
Less accumulated depreciation 10,134 8,187
------- -------
Net property and equipment 13,454 10,625
Other assets, net 3,467 3,218
------- -------
$53,138 $46,656
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line $ 836 $ 2,902
Accounts payable 5,265 7,724
Accrued expenses and other liabilities 6,357 --
Current maturities of long-term debt 324 116
Deferred revenue 261 393
------- -------
Total current liabilities 13,043 11,135
Deferred income taxes 288 288
Long-term debt 2,143 446
Commitments and contingencies -- --
Stockholders' equity
Preferred stock, $.01 par value, authorized 1,000 shares,
non issued and outstanding
Common stock, $.02 par value, authorized 19,000 shares, 6,640 and
6,602 issued and outstanding at July 3, 1999 and September 26,
1998, respectively 132 132
Capital in excess of par value 20,993 20,683
Retained earnings 16,539 13,972
------- -------
Total stockholders' equity 37,664 34,787
------- -------
$53,138 $46,656
======= =======
</TABLE>
<PAGE> 3
See notes to unaudited supplemental condensed combined financial statements.
<PAGE> 4
ZOLL Medical Corporation
Supplemental Condensed Combined Income Statements
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
JULY 3 JUNE 27
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 54,809 $ 40,699
Cost of goods sold 22,469 17,096
-------- --------
Gross profit 32,340 23,603
Expenses:
Selling and marketing 17,409 14,068
General and administrative 5,473 4,583
Research and development 5,226 5,093
-------- --------
Total expenses 28,108 23,744
-------- --------
Income (loss) from operations 4,232 (141)
Investment and other income 126 370
Interest expense 93 54
-------- --------
Income before income taxes 4,265 175
Provision (benefit) for income taxes 1,093 (143)
-------- --------
Net income $ 3,172 $ 318
======== ========
Basic earnings per common share $ .48 $ 0.05
Weighted average common shares outstanding 6,640 6,602
Diluted earnings per common and common equivalent share $ 0.46 $ 0.05
Weighted average common and common equivalent shares outstanding 6,825 6,614
</TABLE>
See notes to unaudited supplemental condensed combined financial statements.
<PAGE> 5
ZOLL Medical Corporation
Supplemental Condensed Combined Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
JULY 3 JUNE 27
1999 1998
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 3,172 $ 318
Charges not affecting cash:
Depreciation and amortization 2,153 1,185
Accounts receivable allowances 81 13
Issuance of common stock for services -- 49
Changes in assets and liabilities:
Accounts receivable (7,503) 3,554
Inventories (1,730) (1,052)
Prepaid expense and other current assets 1,239 120
Accounts payable and accrued expenses 997 (839)
Deferred revenue (133) 66
-------- --------
Cash provided by (used for) operating activities (1,724) 3,414
Investing activities:
Additions to property and equipment (3,076) (2,863)
Investment in marketable securities -- --
Redemption of marketable securities -- 278
Other assets (108) (63)
-------- --------
Cash used for investing activities (3,184) (2,648)
Financing activities:
Distributions to stockholders (1,154) (191)
Contributions from stockholders 550 --
Exercise of stock options, including income tax benefits 310 --
Proceeds from credit line 836 --
Repayment of long-term debt (143) (99)
-------- --------
Cash provided by (used for) financing activities 399 (290)
-------- --------
Net increase (decrease) in cash (4,509) 476
Cash and cash equivalents at beginning of year 5,521 9,916
-------- --------
Cash and cash equivalents at end of year $ 1,012 $ 10,392
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Income taxes $ 390 $ 1,002
Interest 93 54
</TABLE>
During 1999, Pinpoint acquired an office building for approximately $2,400,000
of which approximately $1,800,000 was financed through its bank.
See notes to unaudited supplemental condensed combined financial statements.
<PAGE> 6
ZOLL MEDICAL CORPORATION
NOTES TO UNAUDITED SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS
1. The Supplemental Condensed Combined Balance Sheet as of July 3, 1999, the
Supplemental Condensed Combined Income Statements for the nine months ended
July 3, 1999 and June 27, 1998, and the Supplemental Condensed Combined
Statements of Cash Flows for the nine months ended July 3, 1999 and June
27, 1998 are unaudited, but in the opinion of management include all
adjustments, consisting of normal recurring items, necessary for a fair
presentation of results for these interim periods. The results for the
interim periods are not necessarily indicative of results to be expected
for the entire year.
2. In June 1997, the FASB issued Statement No. 131 (FAS 131) "Disclosures
About Segments of an Enterprise and Related Information." FAS 131
establishes standards for the way that public companies report information
about operating segments in financial statements. This Statement supercedes
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirements to report information about major
customers. The Statement is effective for fiscal years beginning after
December 15, 1997. However, application to interim financial statements
during the initial year of adoption is not required. The Company does not
believe that the adoption of this Statement will have a material impact on
the Company's financial statements.
3. The shares used for calculating basic earnings per common share were the
average shares outstanding and the shares used for calculating diluted
earnings per share were the average shares outstanding and the dilutive
effect of stock options.
4. The information contained in the interim financial statements should be
read in conjunction with the Company's audited supplemental financial
statements, included in its Current Report on Form 8-K/A dated December 28,
1999 filed with the Securities and Exchange Commission.
5. On October 15, 1999, the Company acquired Pinpoint Technologies, Inc.
(Pinpoint) in a business combination accounted for as a pooling of
interests. Pinpoint, which creates, develops and manufactures advanced
information technology software, exclusively focused on the emergency
medical services (EMS) market, became a wholly owned subsidiary of the
Company through the exchange of approximately 410,000 shares of the
Company's common stock for all of the outstanding stock of Pinpoint. The
accompanying supplemental financial statements are based on the assumption
that the companies were combined for all periods presented, and financial
statements of prior years have been restated to give effect to the
combination. The accompanying supplemental condensed combined financial
statements reflect the combined historical results of ZOLL Medical
Corporation and Pinpoint for the nine months ended July 3, 1999 and June
27, 1998. These supplemental financial statements are supplemental to,
rather than in place of, the historical financial statements. The
supplemental financial statements will become the historical financial
statements upon issuance of the interim financial statements of Zoll
Medical Corporation for the quarter ended January 1, 2000.
6. The following unaudited pro forma information has been prepared assuming
Pinpoint had been acquired as of the beginning of the periods presented.
The pro forma information is presented for information purposes only and is
not necessarily indicative of what would have occurred if the acquisition
had been made as of those dates. In addition, the pro forma information is
not intended to be a projection of future results and does not reflect
synergies expected to result from the integration of Pinpoint and the
Company's Westech business.
The pro-forma tax adjustment assumes Pinpoint was a taxable entity subject
to tax at ZOLL's incremental tax rate for the periods presented.
July 3,
1999
-------
Combined net income $3,172
Income tax adjustment
on Pinpoint's net income 381
------
Pro forma combined net income $2,791
======
The pro-forma information for the nine-months ended June 27, 1998 was not
presented as the pro-forma information for the year ended September 26,
1998 disclosed in the audited supplemental combined financial statements
for the year ended September 26, 1998 is more meaningful.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
NINE MONTHS ENDED JULY 3, 1999 COMPARED TO NINE MONTHS ENDED JUNE 27, 1998
Basis of Presentation:
On October 15, 1999, the Company acquired Pinpoint Technologies, Inc. (Pinpoint)
in a business combination accounted for as a pooling of interests. Pinpoint,
which creates, develops and manufactures advanced information technology
software, exclusively focused on the emergency medical services (EMS) market,
became a wholly owned subsidiary of the Company through the exchange of
approximately 410,000 shares of the Company's common stock for all of the
outstanding stock of Pinpoint. The accompanying supplemental financial
statements are based on the assumption that the companies were combined for all
periods presented, and financial statements of prior years have been restated to
give effect to the combination. The accompanying supplemental condensed combined
financial statements reflect the combined historical results of ZOLL Medical
Corporation and Pinpoint for the nine months ended July 3, 1999 and June 27,
1998. These supplemental financial statements are supplemental to, rather than
in place of, the historical financial statements. The supplemental financial
statements will become the historical financial statements upon issuance of the
interim financial statements of Zoll Medical Corporation for the quarter ended
January 1, 2000.
The Company's net sales increased 35% to $54,809,000 for the nine months ended
July 3, 1999 from $40,699,000 for the nine months ended June 27, 1998. The
Company's sales growth was driven primarily by increasing demand for the
M-Series line of defibrillators/pacemakers. Sales growth also reflected
enlargement of the North American sales force. North American sales increased
36% to $45,019,000 from $33,159,000 for the comparable period last year.
Equipment sales to the North American hospital market increased 56% to
$20,295,000 while pre-hospital equipment sales increased 15% to $10,054,000.
International sales increased 30% to $9,791,000.
Gross margin for the period of 59% remained relatively consistent with the prior
year.
Selling and marketing expenses decreased as a percentage of sales to 32% from
35%. Selling and marketing expenses increased 24% to $17,409,000 due primarily
to the increased size of the North American sales force following its
reorganization during the second half of 1998
General and administrative expenses decreased as a percentage of net sales to
10% from 11%. General and administrative expenses increased 19% to $5,473,000.
The decrease in the general and administrative expenses as a percentage of sales
reflects the absorption of relatively fixed operating expenses by increased
sales volume and the continues emphasis on expense controls.
Research and development expenses decreased as a percentage of net sales to 9.5%
from 12.5%. Research and development expenses increased 3% to $5,226,000 from
$5,093,000 for the comparable prior year period. Expenditures in 1999 related to
planned spending on development of patented biphasic technology and new and
forthcoming releases of additional models of the M-Series were offset by a
decrease, as compared to the third quarter 1998, resulting from expenditures
preceding the release of the M-Series platform in the fourth quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at July 3, 1999 totaled $1,012,000
compared with $5,521,000 at September 26, 1998, a decrease of $4,509,000.
Cash used in operating activities for the nine months ended July 3, 1999 totaled
$1,724,000 while cash generated over the same period in 1998 totaled $3,414,000.
The increased cash usage was primarily attributable to an increase in accounts
receivable and an increase in inventories. The increase in accounts receivable
reflected both overall sales growth and significant shipments in the latter part
of the third quarter of 1999. The increase in inventory, which moderated during
the third quarter, reflected the recent introduction of the M-Series product
line. During this period of introduction, the Company's mix of product shipments
is shifting and the Company is carrying a broader mix of product in inventory to
meet its customer needs. The Company expects both accounts receivable and
inventory to moderate during the fourth quarter of 1999.
The amount of cash required to fund investing activities remained consistent in
the nine months ended July 3, 1999 compared to the same period in 1998.
Cash provided by financing activities increased by $689,000 during the nine
months ended July 3, 1999 compared to the same period in 1998. This increase
resulted from the temporary use of the credit line and the exercise of stock
options.
The Company maintains a working capital line of credit with its bank. Under this
working capital line, the Company may borrow on a demand basis. Currently, the
Company may borrow up to $6,000,000 at an interest rate equal to the bank's base
rate (currently 7.75%) or LIBOR plus 2%.
The Company expects that the combination of the existing cash balances, cash
generated from operations and its existing line of credit will be adequate to
meet its liquidity and capital requirements for the foreseeable future.
YEAR 2000
<PAGE> 8
Year 2000
Introduction: Many computer and software systems in use today are not designed
to process date information after 1999. This deficiency results from the
inability of most computer programs that perform arithmetic and logic operations
after this date to use only the last two digits of the year when they make their
calculations. If not corrected, this year 2000 problem could cause computer
applications and other equipment used and manufactured by the Company, its
suppliers and its customers to fail to operate properly.
Year 2000 Project: In early 1998, the Company began a project to assess its
potential vulnerability to the year 2000 problem and to minimize the effect of
the problem on its operations. The project addresses five major areas of the
business at each of its locations: business systems, including management
information systems; factory and facilities equipment, including equipment that
uses a computer to control its operation either for producing end product or to
supply services; products, including equipment and software supplied to
customers; suppliers, including businesses that provide service and raw
materials to the Company; and customers.
The Company has completed a review of its business systems with regard to year
2000 compliance and will either replace or correct through programming
modifications those official computer systems that have been found to have date
related deficiencies. The Company's information technology systems were upgraded
with vendor supplied year 2000 software packages. Although the Company is
testing these systems, there can be no assurance that these systems will
function properly in an operational environment. The Company expects to complete
testing of these systems by December 31, 1999. The Company is also assessing
factory, facility and telecommunication systems and equipment used to support
manufacturing processes. The Company has assessed the year 2000 readiness of the
equipment used in the manufacturing and testing of its products and believes
this equipment to be year 2000 compliant, but there can be no assurances that
the tests performed adequately ensure that such equipment will not experience
year 2000 failure. In addition, the Company is assessing the readiness of third
parties (vendors, customers, etc.) that interact with the Company's systems. The
Company has tested its products and has found them to be year 2000 compliant. It
is possible that this testing did not identify problems that might still occur
in an operational environment.
Year 2000 Costs: External and internal costs specifically associated with
modifying internal use software for year 2000 compliance are expensed as
incurred. To date, those costs have totaled less than $600,000. Based upon
currently available information, the Company expects the total costs of
addressing the potential year 2000 issues to be less than $750,000. The Company
does not expect the costs of addressing potential year 2000 problems to have a
material adverse effect on the Company's financial position, results of
operations or liquidity in future periods.
Risks and Contingency Plans: The Company relies on a variety of either single or
critical source vendors in the production of its products. The Company
anticipates a reasonably worst case scenario to be the failure of a single or
critical source vendor to be year 2000 compliant. Such failure might cause the
third party vendor to be unable to supply critical components or other resources
that would have a material adverse affect on the Company.
If not remediated, year 2000 issues have the potential to severely disrupt the
Company's operations and to adversely affect its financial condition. While the
Company may monitor the readiness for the year 2000 of its suppliers and its
customers, it has very limited ability to assure year 2000 readiness by such
parties. The failure of any supplier or customer to ensure its own year 2000
readiness could have a material adverse impact on the Company. There can be no
assurance that third party suppliers will not experience unforeseen difficulties
and be unable to supply components of the Company's products or that third party
providers of the hardware upon which its software runs will not be materially
harmed by year 2000 problems and be unable to continue to provide such hardware
to the Company. Year 2000 problems could cause the Company's banks to experience
disruptions, which could adversely affect operations. Year 2000 problems could
also adversely affect customers and their ability to pay the Company, which
would adversely affect operating results. The Company could also be affected by
the failure of government agencies on which the Company depends to maintain
services essential to operations and the failure of the airline industry on
which the Company relies to support the activities of the sales force. The
Company could also be harmed materially by any significant economic, financial
market or infrasturcture disruption attributable to year 2000 problems. The
Company is finalizing contingency plans to cover situations in which year 2000
problems arise despite its efforts. These plans are expected to be ready by
December 31, 1999.
LEGAL AND REGULATORY AFFAIRS
The Company is involved in the normal course of its business in various
litigation matters and regulatory issues, including product recalls. Although
the Company is unable to determine at the present time the exact amount of any
impact in any pending matters, the Company believes that none of the pending
matters will have an outcome material to the financial condition or business of
the Company.
<PAGE> 9
SAFE HARBOR STATEMENTS
Except for the historical information contained herein, the matters set forth
herein are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that are subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in the
forward looking statements. Such risks and uncertainties include, but are not
limited to: product demand and market acceptance risks, the effect of economic
conditions, results of pending or future litigation, the impact of competitive
products and pricing, product development and commercialization, technological
difficulties, the government regulatory environment and actions, trade
environment, capacity and supply constraints or difficulties, the results of
financing efforts, actual purchases under agreements, year 2000 issues,
including expectations of readiness, and the effect of the Company's accounting
policies.
<PAGE> 1
EXHIBIT 99.3
Pinpoint Technologies, Inc.
Financial Statements
Year ended September 30, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ................................... 36
Audited Financial Statements
Balance Sheet..................................................... 37
Statement of Income............................................... 38
Statement of Stockholders' Equity................................. 39
Statement of Cash Flows........................................... 40
Notes to Financial Statements..................................... 41
</TABLE>
<PAGE> 2
Report of Independent Auditors
The Board of Directors
Pinpoint Technologies, Inc.
We have audited the accompanying balance sheet of Pinpoint Technologies, Inc.
(the "Company") as of September 30, 1998, and the related statements of income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pinpoint Technologies, Inc. at
September 30, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Denver, Colorado
November 12, 1999
<PAGE> 3
Pinpoint Technologies, Inc.
Balance Sheet
September 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 696,836
Accounts receivable, less allowance for doubtful
accounts of $25,991 483,201
Prepaid and other current assets 3,671
-----------
Total current assets 1,183,708
Property and equipment:
Furniture and fixtures 37,775
Computer equipment 123,660
Software 41,884
Assets held under capital lease 44,810
-----------
248,129
Accumulated depreciation (64,736)
-----------
183,393
-----------
Total assets $ 1,367,101
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 125,575
Accrued compensation 89,056
Other accrued liabilities 39,561
Deferred revenue 393,437
Current portion of capital lease obligations 10,954
-----------
Total current liabilities 658,583
Capital lease obligations, net of current portion 3,701
Commitments and contingencies
Stockholders' equity:
Class A common stock, no par value,
1,000 shares authorized,
111 shares issued and outstanding 111
Additional paid-in capital 49,021
Retained earnings 655,685
-----------
Total stockholders' equity 704,817
-----------
Total liabilities and stockholders' equity $ 1,367,101
===========
</TABLE>
See accompanying notes.
<PAGE> 4
Pinpoint Technologies, Inc.
Statement of Income
Year ended September 30, 1998
<TABLE>
<S> <C>
Revenue:
Software license fees $ 1,880,671
Maintenance and support 269,824
Upgrade rights 154,224
Other revenue 135,529
-----------
Total revenue 2,440,248
Cost of revenue 454,500
-----------
Gross profit 1,985,748
Sales and marketing 106,798
Research and development 350,311
General and administrative 887,889
-----------
1,344,998
-----------
Operating income 640,750
Other income (expense):
Interest income 13,073
Interest expense (22,793)
-----------
Total other expense, net (9,720)
-----------
Net income $ 631,030
===========
</TABLE>
See accompanying notes.
<PAGE> 5
Pinpoint Technologies, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Class A Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
--------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1997 $ 100 $ -- $ 282,837 $ 282,937
Issuance of common stock for
services 11 49,021 -- 49,032
Distributions -- -- (258,182) (258,182)
Net income -- -- 631,030 631,030
--------- --------- --------- ---------
Balance, September 30, 1998 $ 111 $ 49,021 $ 655,685 $ 704,817
========= ========= ========= =========
</TABLE>
See accompanying notes.
<PAGE> 6
Pinpoint Technologies, Inc.
Statement of Cash Flows
Year ended September 30, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income $ 631,030
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 73,521
Depreciation and amortization 29,992
Issuance of common stock for services 49,032
Changes in operating assets and liabilities:
Accounts receivable (61,115)
Prepaid and other current assets (3,671)
Accounts payable 91,946
Accrued liabilities 32,765
Deferred revenue 78,599
---------
Net cash provided by operating activities 922,099
INVESTING ACTIVITIES
Purchase of property and equipment (110,913)
---------
Net cash used in investing activities (110,913)
FINANCING ACTIVITIES
Principal payments on capital leases (12,487)
Distributions to stockholders (258,182)
---------
Net cash used in financing activities (270,669)
---------
Net increase in cash and cash equivalents 540,517
Cash and cash equivalents at beginning of year 156,319
---------
Cash and cash equivalents at end of year $ 696,836
=========
Supplemental disclosure of cash flow information:
Interest paid for 1998 was approximately $23,000.
</TABLE>
See accompanying notes.
<PAGE> 7
Pinpoint Technologies, Inc.
Notes to Financial Statements
September 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PURPOSE
Pinpoint Technologies, Inc. (the Company) was incorporated in December 1993,
with operations beginning April 1995. Pinpoint creates, develops and
manufactures advanced information technology software, exclusively focused on
the emergency medical services (EMS) market. Its products are computer-aided
dispatch and billing software targeted at public and private ambulance
companies. The Company's operations are located in Boulder, Colorado.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to credit risk consist
principally of the Company's accounts receivable. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed by using the
straight-line method over the estimated useful lives of the assets, three to
five years for computer equipment, five years for other equipment, and seven
years for furniture and fixtures. The cost of normal maintenance and repairs is
charged to operating expenses as incurred.
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 at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
<PAGE> 8
Pinpoint Technologies, Inc.
Notes to Financial Statements (continued)
September 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company licenses software under noncancelable license agreements and
provides services including training, installation, consulting and maintenance,
consisting of product support services and periodic updates. Revenue from the
sale of software is recognized in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software
Revenue Recognition. License fee revenues are generally recognized when a
noncancelable license agreement has been signed, the software product has been
shipped, there are no uncertainties surrounding product acceptance, the fees are
fixed and determinable, and collection is considered probable. For customer
license agreements, which meet these recognition criteria, the portion of the
fees related to software licenses will generally be recognized in the current
period, while the portion of the fees related to services is recognized as the
services are performed. The Company allocates a portion of contractual license
fees to post-contract support activities covered under the contract including
first-year maintenance, installation assistance and limited training services.
In addition, the Company also allocates a portion of the contractual license
fees to future unspecified upgrade rights. Revenues from maintenance agreements
and upgrade rights are recognized ratably over a three-month period and a
one-year period, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Total advertising costs were
approximately $49,000 in fiscal 1998.
INCOME TAXES
The Company has elected to be taxed under the Subchapter S provisions of the
Internal Revenue Code. Accordingly, the Company's income or loss is included in
the stockholders' individual income tax returns.
<PAGE> 9
Pinpoint Technologies, Inc.
Notes to Financial Statements (continued)
September 30, 1998
2. COMMITMENTS AND CONTINGENCIES
LEASES
The Company is obligated under a lease agreement for formerly occupied
facilities under a lease which expires February 1, 2000. The lease provides for
the Company to pay an annual base rent plus expenses, totaling approximately
$43,000, which increases each year as determined by the Consumer Price Index.
Effective March 11, 1999, the Company subleased this space to an unrelated
company on a full-cost pass-through basis, whereby the sublease tenant pays the
landlord directly. The Company remains obligated on the lease payments to the
extent that the sublease tenant defaults on its payments.
In December 1998, the individual stockholders of the Company signed a purchase
and sale agreement to acquire an office building. In March 1999, the building
was acquired by Pinpoint Property Management LLC (PPM), which is owned by the
stockholders of the Company. The Company pays PPM what is believed to be fair
market value rent under a five-year lease. Monthly rental expense in the amount
of approximately $30,000 is due through 2004.
As of September 30, 1998, future minimum rental commitments, by year and in the
aggregate, for operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASE OPERATING
OBLIGATIONS LEASES
----------- ----------
<S> <C> <C>
1999 $ 12,785 $ 299,894
2000 3,966 433,654
2001 -- 360,000
2002 -- 360,000
2003 -- 360,000
Thereafter -- 150,000
---------- ----------
Total minimum lease payments 16,751 $1,963,548
==========
Amounts representing interest (2,096)
----------
Present value of net minimum lease payments $ 14,655
==========
</TABLE>
Rental expense was approximately $87,000 for the year ended September 30, 1998.
<PAGE> 10
Pinpoint Technologies, Inc.
Notes to Financial Statements (continued)
September 30, 1998
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
SETTLEMENT AND RELEASE AGREEMENT
On October 11, 1996, the Company entered into a development, licensing, and
marketing agreement with a distributor. Pursuant to the agreement, the Company
was granted the right to use and copy the distributor's own software for use in
its products. Each license under the agreement was for a term of five years. On
June 15, 1998, the Company terminated the development, licensing, and marketing
agreement with this previous distributor.
ROYALTY AGREEMENT
In January 1995, the Company entered into an agreement with an unrelated third
party whereby certain capital resources and software evaluation services were
provided in order to develop and market the Company's software products. In
consideration for these services, the Company is obligated for quarterly royalty
payments based on total gross receipts, as defined in the agreement. Quarterly
payments are due in arrears and are determined as two and one-half percent of
the first $5,000,000 of annual gross receipts, two percent of annual gross
receipts between $5,000,000 and $20,000,000, and one and one-half percent of the
annual gross receipts in excess of $20,000,000. The Company had accrued
approximately $23,000 as of September 30, 1998 related to this royalty
agreement.
3. STOCKHOLDERS' EQUITY
STOCK ISSUED FOR SERVICES
On January 1, 1998, the Company issued an employee a 10% ownership interest in
the Company for services previously rendered. As a result, 11 shares of Class A
common stock were issued. The Company valued those shares at approximately
$49,000.
STOCK PURCHASE RIGHTS
On September 25, 1995, the Company granted an employee stock purchase rights
which entitled the employee to obtain 3% of the then existing shares at a
nominal price. The stock purchase rights vest 25% at the end of one year of
employment, another 25% vesting over the next three years, and the remaining 50%
vesting over the next six years. The options have an accelerated vesting
provision should there be a change in control. As of September 30, 1998, none of
the stock purchase rights had been exercised.
4. 401(k) SALARY DEFERRAL PLAN
Beginning in 1998, the Company has maintained a retirement savings plan (the
Plan) pursuant to which eligible employees may defer compensation for income tax
purposes under section 401(k) of the Internal Revenue Code of 1986. Participants
in the Plan may contribute up to 15% of their eligible compensation, which is
matched by the Company at 50% of the employee contribution up to 6% of eligible
compensation. The Company may make discretionary matching contributions to the
Plan in an amount determined by its Board of Directors. The Company recorded
expense related to the Plan of approximately $11,000 for the year ended
September 30, 1998.
5. SUBSEQUENT EVENTS
During October 1999, the Company completed a business merger with Zoll Medical
Corporation, which is located in Burlington, Massachusetts. Zoll Medical merged
with both Pinpoint Technologies, Inc. and Pinpoint Property Management LLC, an
affiliate of the Company through virtue of common ownership.
<PAGE> 11
6. YEAR 2000 ISSUE (UNAUDITED)
The Company has developed a plan to make its information technology ready for
the year 2000 and believes the critical data processing systems are currently
ready for the year 2000. Although the Company has not initiated formal
communications with all of its significant suppliers and customers to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to remediate their own Year 2000 Issues, the Company does
not expect this project to have a significant effect on operations.
<PAGE> 1
EXHIBIT 99.4
Pinpoint Technologies, Inc.
Condensed Combined Financial Statements
Nine months ended June 30, 1998 and 1999
CONTENTS
<TABLE>
<S> <C>
Condensed Combined Balance Sheets (unaudited)
June 30, 1999 and September 30, 1998 ........................ 47
Condensed Combined Statements of Income (unaudited)
Nine Months Ended June 30, 1999 and June 30, 1998............ 48
Condensed Combined Statements of Cash Flows (unaudited)
Nine Months Ended June 30, 1999 and June 30, 1998............ 49
Notes to Condensed Combined Financial Statements (unaudited)........... 50
</TABLE>
<PAGE> 2
Pinpoint Technologies, Inc.
Condensed Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 152,512 $ 696,836
Accounts receivable, less allowance of $91,661 in
1999 and $25,991 in 1998 752,474 483,201
Related party receivable 23,340 --
Prepaid and other current assets -- 3,671
----------- -----------
Total current assets 928,326 1,183,708
Property and equipment:
Building 2,400,000 --
Furniture and fixtures 7,477 37,775
Computer equipment 233,001 123,660
Software 55,142 41,884
Assets held under capital lease 167,938 44,810
----------- -----------
2,863,558 248,129
Accumulated depreciation (194,674) (64,736)
----------- -----------
2,668,884 183,393
----------- -----------
Total assets $ 3,597,210 $ 1,367,101
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
1999 1998
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,162 $ 125,575
Accrued compensation 145,168 89,056
Other accrued liabilities 83,662 39,561
Deferred revenue 260,628 393,437
Current portion of long-term debt 69,283 --
Current portion of capital lease obligations 164,779 10,954
----------- -----------
Total current liabilities 769,682 658,583
Capital lease obligations, net of current portion -- 3,701
Long-term debt, net of current portion 1,774,989 --
Commitments and contingencies
Stockholders' equity:
Class A common stock, no par value,
1,000 shares authorized,
111 shares issued and outstanding 111 111
Additional paid-in capital 49,021 49,021
Retained earnings 1,003,407 655,685
----------- -----------
Total stockholders' equity 1,052,539 704,817
----------- -----------
Total liabilities and stockholders' equity $ 3,597,210 $ 1,367,101
=========== ===========
</TABLE>
<PAGE> 3
See notes to unaudited condensed combined financial statements.
<PAGE> 4
Pinpoint Technologies, Inc.
Condensed Combined Statements of Income
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Software license fees $ 2,458,484 $ 1,472,344
Maintenance and support 348,295 172,488
Upgrade rights 268,124 131,879
Other revenue 132,718 45,210
----------- -----------
Total revenue 3,207,621 1,821,921
Cost of revenue 282,886 349,777
----------- -----------
Gross profit 2,924,735 1,472,144
Sales and marketing 192,222 70,012
Research and development 425,134 193,729
General and administrative 1,327,940 549,023
----------- -----------
1,945,296 812,764
----------- -----------
Operating income 979,439 659,380
Other income (expense):
Interest income 15,412 6,851
Interest expense (42,882) (15,842)
----------- -----------
Total other expense, net (27,470) (8,991)
----------- -----------
Net income $ 951,969 $ 650,389
=========== ===========
</TABLE>
See notes to unaudited condensed combined financial statements.
<PAGE> 5
Pinpoint Technologies, Inc.
Condensed Combined Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 951,969 $ 650,389
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 81,455 12,867
Depreciation and amortization 129,938 21,300
Issuance of common stock for services -- 49,032
Changes in operating assets and liabilities:
Accounts receivable (350,728) (257,933)
Related party receivable (23,340) --
Prepaid expenses 3,671 --
Accounts payable (79,413) (6,023)
Accrued liabilities 100,213 (14,581)
Deferred revenue (132,809) 66,001
----------- -----------
Net cash provided by operating activities 680,956 521,052
INVESTING ACTIVITIES
Purchase of property and equipment (567,446) (69,623)
----------- -----------
Net cash used in investing activities (567,446) (69,623)
FINANCING ACTIVITIES
Principal payments on capital leases (17,859) (14,048)
Principal payments on long-term debt (35,728) --
Contributions from stockholders 550,000 --
Distributions to stockholders (1,154,247) (191,516)
----------- -----------
Net cash used in financing activities (657,834) (205,564)
----------- -----------
Net (decrease) increase in cash and cash equivalents (544,324) 245,865
Cash and cash equivalents at beginning of year 696,836 156,319
----------- -----------
Cash and cash equivalents at end of year $ 152,512 $ 402,184
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid for 1999 and 1998 was approximately $43,000 and $16,000,
respectively.
In 1999 the Company completed the purchase of an office building for
approximately $2,400,000, of which approximately $1,800,000 was financed through
its bank.
See notes to unaudited condensed combined financial statements.
<PAGE> 6
Pinpoint Technologies, Inc.
Notes to Unaudited Condensed Combined Financial Statements
(unaudited)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Pinpoint Technologies, Inc. was incorporated in December 1993, with operations
beginning April 1995. Pinpoint creates, develops and manufactures advanced
information technology software, exclusively focused on the emergency medical
services (EMS) market. Its products are computer-aided dispatch and billing
software targeted at public and private ambulance companies. The Company's
operations are located in Boulder, Colorado.
The Company is a Sub S Corporation and is owned by three individuals. In January
1999, the Company distributed cash to the stockholders of the Company. The
proceeds were contributed to newly formed Pinpoint Property Management LLC, and
used to fund the equity needed to acquire an office building described below.
The unaudited interim combined financial statements have been prepared by the
Company in accordance with generally accepted accounting principles for interim
financial reporting and the regulations of the Securities and Exchange
Commission in regard to quarterly reporting. Accordingly, they do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company, the
statements include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Operating results for the nine month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1999. For further information refer to the financial statements
and footnotes thereto included in the Company's audited financial statements for
the year ended September 30, 1998.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of Pinpoint
Technologies, Inc. and Pinpoint Properties Management, LLC. All significant
intercompany transactions have been eliminated.
<PAGE> 7
Pinpoint Technologies, Inc.
Notes to Condensed Combined Financial Statements (continued)
(unaudited)
2. ACQUISITION OF PROPERTY
In December 1998, the individual stockholders of the Company signed a purchase
and sale agreement to acquire an office building. In March 1999, the building
was acquired by Pinpoint Property Management LLC (PPM), which is owned by the
stockholders of the Company. The Company pays PPM rent under a five-year lease.
Monthly rental expense in the amount of approximately $30,000 is due through
2004.
3. SUBSEQUENT EVENTS
During October 1999, the Company completed a business merger with Zoll Medical
Corporation, which is located in Burlington, Massachusetts. Zoll Medical merged
with both Pinpoint Technologies, Inc. and Pinpoint Property Management LLC, an
affiliate of the Company through virtue of common ownership.
4. YEAR 2000 ISSUE
The Company has developed a plan to make its information technology ready for
the year 2000 and believes the critical data processing systems are currently
ready for the year 2000. Although the Company has not initiated formal
communications with all of its significant suppliers and customers to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to remediate their own Year 2000 Issues, the Company does
not expect this project to have a significant effect on operations.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> SEP-26-1998
<EXCHANGE-RATE> 1
<CASH> 5,521
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<RECEIVABLES> 15,570
<ALLOWANCES> 940
<INVENTORY> 9,405
<CURRENT-ASSETS> 32,813
<PP&E> 18,659
<DEPRECIATION> 8,187
<TOTAL-ASSETS> 46,656
<CURRENT-LIABILITIES> 11,135
<BONDS> 446
0
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<COMMON> 132
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<TOTAL-LIABILITY-AND-EQUITY> 46,656
<SALES> 57,520
<TOTAL-REVENUES> 57,520
<CGS> 24,268
<TOTAL-COSTS> 24,268
<OTHER-EXPENSES> 32,974
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 691
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<TABLE> <S> <C>
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> SEP-29-1995
<PERIOD-END> SEP-28-1996
<EXCHANGE-RATE> 1
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<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 55,700
<TOTAL-REVENUES> 55,700
<CGS> 24,545
<TOTAL-COSTS> 24,545
<OTHER-EXPENSES> 26,046
<LOSS-PROVISION> 143
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 5,387
<INCOME-TAX> 1,758
<INCOME-CONTINUING> 3,629
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<NET-INCOME> 3,269
<EPS-BASIC> .55
<EPS-DILUTED> .55
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<TABLE> <S> <C>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> JUL-03-1999
<EXCHANGE-RATE> 1
<CASH> 1,012
<SECURITIES> 0
<RECEIVABLES> 23,226
<ALLOWANCES> 1,197
<INVENTORY> 11,135
<CURRENT-ASSETS> 36,217
<PP&E> 23,588
<DEPRECIATION> 10,134
<TOTAL-ASSETS> 53,138
<CURRENT-LIABILITIES> 13,043
<BONDS> 2,143
0
0
<COMMON> 132
<OTHER-SE> 37,532
<TOTAL-LIABILITY-AND-EQUITY> 53,138
<SALES> 54,809
<TOTAL-REVENUES> 54,809
<CGS> 22,469
<TOTAL-COSTS> 22,469
<OTHER-EXPENSES> 28,108
<LOSS-PROVISION> 81
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 4,265
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<TABLE> <S> <C>
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<PERIOD-TYPE> 9-MOS
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<PERIOD-START> SEP-27-1997
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0
0
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<SALES> 40,699
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<CGS> 17,096
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<EPS-BASIC> .05
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</TABLE>
