<PAGE>
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): April 2, 1996
-------------------
NORLAND MEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-26206 06-1387931
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
106 Corporate Park Drive, Suite 106, White Plains, NY 10604
- --------------------------------------------------------------------------------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (914) 694-2285
-------------------
This Form 8-K/A Report amends the Form 8-K Report filed by the Registrant
with the Securities and Exchange Commission on April 16, 1996 (the "Original
Report") with respect to the merger of Dove Medical Systems, a California
corporation, into a wholly-owned subsidiary of the Registrant (the "Merger").
Item 7 of the Original Report is amended and restated to read as set forth
below. The per share information in the pro forma financial statements referred
to in Item 7 gives effect to the 3-for-2 stock split declared by the Registrant
on May 30, 1996, which stock split will be effective June 13, 1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of Dove.
Included in the financial statements attached hereto and made a part
hereof are the audited financial statements of Dove for the years ended
December 31, 1995 and 1994 and the unaudited financial statements of Dove for
the three months ended March 31, 1996 and 1995.
-1-
<PAGE>
(b) Pro forma financial statements.
Included in the financial statements attached hereto and made apart hereof
are unaudited pro forma combined condensed financial statements giving effect to
the Merger.
(c) Exhibits.
2.1 Agreement and Plan of Merger among Registrant, New Dove and Dove.*/
2.2 Purchase Agreement among Registrant, Robert L. Piccioni and Joan
Piccioni, CHC, Inc. and Mirella Monti Belshe.*/
99.1 Press Release relating to Merger.*/
- --------------------------------
*/ Filed with the Original Report.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORLAND MEDICAL SYSTEMS, INC.
Date: June 5, 1996 By:
--------------------------------
Kurt W. Streams
Vice President, Finance and Secretary
-3-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
------------
AUDITED FINANCIAL STATEMENTS:
DOVE MEDICAL SYSTEMS PAGE
----
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994. . . . . . . . . . . . . . F-3
Statements of Income for the years ended December 31, 1995 and 1994. . . . F-4
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the years ended December 31, 1995 and 1994. . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-7
UNAUDITED FINANCIAL STATEMENTS:
DOVE MEDICAL SYSTEMS
Condensed Balance Sheets as of March 31, 1996 and 1995 . . . . . . . . . .F-11
Condensed Statements of Income for the three months ended March 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-12
Condensed Statements of Changes in Stockholders' Equity for the three
months ended March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . .F-13
Condensed Statements of Cash Flow for the three months ended
March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . .F-14
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . .F-15
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS:
NORLAND MEDICAL SYSTEMS, INC.
Unaudited Pro Forma Combined Condensed Financial Statements. . . . . . . .F-16
Pro Forma Combined Condensed Balance Sheet as of March 31, 1996. . . . . .F-17
Pro Forma Combined Condensed Income Statement for the year ended
December 31, 1995 and for the three months ended March 31, 1996. . . . .F-18
Notes to the Pro Forma Combined Condensed Financial Statements . . . . . .F-19
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Dove Medical Systems:
We have audited the accompanying balance sheets of Dove Medical Systems as
of December 31, 1995 and 1994, and the related statements of income, changes in
stockholders' equity and cash flows, for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dove Medical Systems as of
December 31, 1995 and 1994, and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Hurley & Company
Granada Hills, California
May 10, 1996
F-2
<PAGE>
DOVE MEDICAL SYSTEMS
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 195,122 $ 158,696
Accounts receivable, net of allowance for doubtful accounts of $1,000 and $0 at December
31, 1995 and 1994, respectively........................................................ 160,366 19,396
Inventories............................................................................. 219,886 211,082
Prepaid expenses........................................................................ 3,487 3,338
---------- ----------
Total current assets.................................................................. 578,861 392,512
---------- ----------
Property and equipment:
Equipment, furniture and fixtures....................................................... 39,364 23,914
Less accumulated depreciation........................................................... 13,498 7,536
---------- ----------
25,866 16,378
Other assets:
Organization costs, net of accumulated amortization of $1,637 and $1,086 at December 31,
1995 and 1994, respectively............................................................ 1,118 1,669
Deposits................................................................................ 7,546 5,011
---------- ----------
Total assets.......................................................................... $ 613,391 $ 415,570
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................................... $ 69,313 $ 71,859
Profit sharing contribution payable..................................................... 52,000 --
Accrued employee personal time.......................................................... 10,113 8,127
Product warranty reserve................................................................ 10,000 5,000
Service deposits........................................................................ 13,000 --
Income tax payable...................................................................... 1,374 2,534
---------- ----------
Total current liabilities............................................................. 155,800 87,520
---------- ----------
Commitments and contingencies............................................................. -- --
Stockholders' equity:
Common Stock, no par value, authorized 100,000 shares, issued and outstanding 35,000
shares................................................................................. 35,000 35,000
Retained earnings....................................................................... 422,591 293,050
---------- ----------
Total Stockholders' equity............................................................ 457,591 328,050
---------- ----------
Total liabilities and stockholders' equity............................................ $ 613,391 $ 415,570
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
DOVE MEDICAL SYSTEMS
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenue, net of discounts and allowances.............................................. $ 1,860,929 $ 1,903,034
Cost of revenue....................................................................... 854,693 1,145,807
------------ ------------
Gross profit...................................................................... 1,006,236 757,227
Sales and marketing expense........................................................... 150,761 33,569
General and administrative expense.................................................... 419,814 396,645
------------ ------------
Operating income.................................................................. 435,661 327,013
Other income:
Interest income..................................................................... 3,120 3,022
Other Income, net................................................................... 244 997
------------ ------------
Income before income tax.......................................................... 439,025 331,032
Income tax............................................................................ 6,094 4,694
------------ ------------
Net income........................................................................ $ 432,931 $ 326,338
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
DOVE MEDICAL SYSTEMS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
SHARES ISSUED TOTAL
AND COMMON RETAINED STOCKHOLDERS'
OUTSTANDING STOCK EARNINGS EQUITY
------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1994............................... 35,000 $ 35,000 $ 96,722 $ 131,722
Net Income.................................................. -- -- 326,328 326,328
Stockholder Distributions................................... -- -- (130,000) (130,000)
------ --------- ----------- ------------
Balance as of December 31, 1994............................. 35,000 35,000 293,050 328,050
Net Income.................................................. -- -- 432,931 432,931
Stockholder Distributions................................... -- -- (303,390) (303,390)
------ --------- ----------- ------------
Balance as of December 31, 1995............................. 35,000 $ 35,000 $ 422,591 $ 457,591
------ --------- ----------- ------------
------ --------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
DOVE MEDICAL SYSTEMS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income............................................................................ $ 432,931 $ 326,328
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 6,513 4,764
Product warranty reserve............................................................ 5,000 5,000
Changes in:
Accounts receivable............................................................... (140,970) (7,796)
Inventories....................................................................... (8,804) (148,214)
Prepaid expenses.................................................................. (149) (1,386)
Deposits.......................................................................... (2,535) (1,785)
Accounts payable and other accrued expenses....................................... 51,440 (55,415)
Service deposits.................................................................. 13,000 --
Income tax payable................................................................ (1,160) 1,188
----------- -----------
Total adjustments............................................................... (77,665) (203,644)
----------- -----------
Net cash provided by operating activities....................................... 355,266 122,684
----------- -----------
Cash flows from investing activities:
Furniture and equipment expenditures................................................ (15,450) (2,245)
----------- -----------
Net cash used by investing activities:.......................................... (15,450) (2,245)
----------- -----------
Cash flows from financing activities:
Distributions to stockholders......................................................... (303,390) (30,000)
----------- -----------
Net cash used by financing activities........................................... (303,390) (30,000)
----------- -----------
Net increase in cash and cash equivalents............................................... 36,426 90,439
Cash and cash equivalents at beginning of year.......................................... 158,696 68,257
----------- -----------
Cash and cash equivalents at end of year................................................ $ 195,122 $ 158,696
----------- -----------
----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1994, the Company distributed to its stockholder a
$100,000 note receivable from a debtor.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Income taxes paid....................................................................... $ 7,254 $ 3,506
----------- -----------
----------- -----------
Interest paid........................................................................... $ 0 $ 3
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
DOVE MEDICAL SYSTEMS
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS ACTIVITY:
Dove Medical Systems (the "Company") manufactures medical scanning devices
(bone densitometers, known as the "OsteoAnalyzer") that are utilized by
hospitals, medical clinics, research institutions, and individual practitioners
throughout the world to help in the diagnosis of osteoporosis and other bone
disorders.
2. ORGANIZATION AND BASIS OF PRESENTATION:
The Company was incorporated in California on December 9, 1992. Through
December 31, 1995, all the issued and outstanding common shares of the Company
(totaling 35,000 shares) were owned by a single stockholder (a husband and wife)
as community property. In April 1996, Norland Medical Systems, Inc. ("Norland"),
a publicly held company, acquired all the outstanding common shares of the
Company (including exercised stock options issued to other individuals) through
an exchange of common stock. The financial statements of the Company as of
December 31, 1995 and 1994 and for the years then ended do not reflect any
amounts or valuations arising from this transaction.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and on deposit and highly
liquid debt instruments with original maturities of three months or less.
Substantially all funds are on deposit with one financial institution.
INVENTORIES
Inventories represent raw material (parts and components), work-in-process
(assemblies) and finished goods. Inventories are valued at the lower of cost
(first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives of
the assets. The estimated useful lives range from five to seven years.
ORGANIZATION COSTS
Organization costs are amortized over sixty months using the straight-line
method.
REVENUE RECOGNITION
Revenues are considered earned when all work on an inventoried system or
replacement part intended for customer use has been completed and the unit has
been shipped.
INCOME TAXES
Differences between financial statement and taxable income exist, due
primarily to timing differences pertaining to depreciation. These differences
are not material. The Company's stockholder has elected to be taxed as an S
Corporation and pay taxes primarily at the shareholder level. As such, income
taxes reflect only the 1.5% rate due California for S Corporations. In April
1996, the Company's S Corporation status was terminated prior to its merger with
Norland.
F-7
<PAGE>
DOVE MEDICAL SYSTEMS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Raw materials and component parts................................ $ 125,082 $ 106,163
Assemblies in process............................................ 33,534 76,616
Finished goods................................................... 65,270 32,303
------------ ------------
223,886 215,082
Less obsolescence reserve........................................ 4,000 4,000
------------ ------------
$ 219,886 $ 211,082
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Furniture and fixtures........................................... $ 4,243 $ 4,243
Equipment........................................................ 35,121 19,671
------------ ------------
39,364 23,914
Less accumulated depreciation.................................... 13,498 7,536
------------ ------------
$ 25,866 $ 16,378
------------ ------------
------------ ------------
</TABLE>
6. PROFIT SHARING PLAN:
During the years ended December 31, 1995 and 1994, the Company had a defined
contribution pension plan covering substantially all of its employees. The plan
utilized an age weighted allocation, whereby the current year's contribution was
allocated proportional to the participants' present value of a benefit payable
at normal retirement date equal to 1% of pay, using annual pre-retirement
interest of 8.00%. The Company contributed at approximately 15% of covered
payroll (the maximum rate) during both of these years, resulting in pension plan
costs of $52,000 and $34,391, respectively. The plan was subsequently terminated
and vesting requirements waived (with employee accumulated benefit amounts
transferred to individual IRA accounts) prior to the acquisition of 100% of the
Company's common stock by Norland in April 1996.
7. RELATED PARTY TRANSACTIONS:
(a) The Company was granted an exclusive worldwide license by the owners of
intellectual property purchased from the bankruptcy estate of Osteon, Inc.
pertaining to a U.S. patent employed in the manufacture and calibration of the
Company's scanning devices, along with other software and technology.
Approximately 83% of this intellectual property was owned by the Company's
chairman and principal stockholder, 10% by his mother, and another 7% by an
unrelated S corporation.
As consideration for this license during the period January 1, 1994 through
June 30, 1994, the Company paid its chairman $27,500 and issued a total of
17,700 options to the three intellectual property owners (15,000, 2,000, and 700
options, respectively) to purchase the Company's common stock at $6.00 per share
over a term of five years. Another $100,000 was paid to the intellectual
property owners as a use fee for the period July 1, 1994 through December 31,
1994. Extended agreements covering the 1995 calendar year and subsequent period
dictated a use fee of $2,000 for every OsteoAnalyzer sold. Total use fees
incurred, based upon shipment of 65 OsteoAnalyzers, amounted to $130,000 for the
year ended December 31, 1995.
F-8
<PAGE>
DOVE MEDICAL SYSTEMS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS: (CONTINUED)
(b) The Company's president (and wife of the chairman) was paid a salary of
$150,000 during each of the years ended December 31, 1995 and 1994,
respectively. Under California's community property laws, she beneficially held
100% of the Company's outstanding stock throughout these periods.
8. COMMITMENTS AND CONTINGENCIES:
(a) The Company has a two-year lease to rent warehouse and office space in
Newbury Park, California. The lease expires in January 1998. Monthly payments
are currently $2,052, with a 3% to 6% rent adjustment to be made in February
1997. From inception, the Company previously leased smaller facilities in its
Newbury Business Park location, and for part of 1994, rented additional office
space in Los Angeles.
Future minimum lease payments required under its operating lease(s) are as
follows:
<TABLE>
<S> <C>
Year ended December 31:
1996..................................................... $ 23,634
1997..................................................... 25,312
1998..................................................... 2,115
---------
$ 51,061
---------
---------
</TABLE>
Rental expense for the years ended December 31, 1995 and 1994 was $12,744
and $23,423, respectively.
(b) The Company warrants its products for a full year from date of sale,
including all parts and on-site labor. The Company limits its risk by having
similar arrangements in place with its primary component manufacturers and
suppliers. A warranty liability reserve in the amount of $10,000 and $5,000 was
recognized at December 31, 1995 and 1994, respectively, to cover estimated
repair and replacement costs to be incurred after the balance sheet date
related, respectively, to revenues generated during the respective annual
periods.
9. STOCK OPTIONS:
The following stock option computations are reflective of a 100:1 common
stock split, which occurred in December, 1993:
At December 31, 1995, there were 2,100 options outstanding to purchase the
Company's common stock at a price of $1.00 per share. These stock options had
been issued under the Company's 1992 Incentive Stock Option Plan. Additionally,
there were another 2,500 stock options exercisable at $6.00 per share which had
been issued to a consultant, as well as 17,700 more stock options issued to
intellectual property owners, also exercisable at $6.00 per share, as described
in Note 7(a) above. The total number of options outstanding at December 31, 1995
was therefore 22,300.
In April 1996, prior to the consummation of the acquisition of 100% of the
Company's common stock by Norland, 5,600 of the above stock options were
exercised, bringing the total number of common shares outstanding to 40,600,
including 35,000 shares of stock owned as community property by the Company's
chairman and president, and representing 100% of previously issued common stock.
The balance of 16,700 stock options, namely, 15,000 held by the Company's
chairman, 1,000 hold by his mother, and 700 held by an unrelated intellectual
property owner, were not exercised and were voided. The chairman did sell 4,000
of his personal shares to the unrelated intellectual property owner at a price
of $6.00 each.
10. EXPORT SALES AND MAJOR CUSTOMERS/SUPPLIERS:
During the years ended December 31, 1995 and 1994, export sales,
predominantly to Japan, China (both Taiwan and the mainland), and Korea,
accounted for greater than 90% of the Company's total revenues. These sales were
transacted in U.S. dollars, so revenues were not affected by currency
translations. One customer accounted for approximately 67% of sales during
calendar 1995 and approximately 83% of sales
F-9
<PAGE>
DOVE MEDICAL SYSTEMS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EXPORT SALES AND MAJOR CUSTOMERS/SUPPLIERS: (CONTINUED)
during the 1994 year. Another customer accounted for approximately 17% of sales
during 1995. No other customer accounted for 10% or more of sales during the
years ended December 31, 1995 and 1994, respectively.
While the Company believes it can develop alternate sources for all parts,
there are currently three vendors that are the sole source for the items
provided. During each of the years ended December 31, 1995 and 1994,
respectively, these suppliers collectively accounted for approximately 60% of
the Company's net purchases of parts and materials.
11. SUBSEQUENT EVENT:
In April 1996, Norland acquired all the outstanding common stock of Dove
Medical Systems (totalling 40,600 shares as detailed in Note 9 above), in a
stock swap valued at approximately $3,311,000.
F-10
<PAGE>
DOVE MEDICAL SYSTEMS
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 167,063 $ 296,027
Accounts receivable, net of allowance for doubtful accounts of $1,000 and $0 at March
31, 1996 and 1995, respectively........................................................ 139,174 149,825
Inventories............................................................................. 233,688 211,915
Prepaid expenses........................................................................ 9,668 3,214
---------- ----------
Total current assets.................................................................. 549,593 660,981
---------- ----------
Property and equipment:
Equipment, furniture and fixtures....................................................... 51,188 24,772
Less accumulated depreciation........................................................... 15,770 9,027
---------- ----------
35,418 15,745
Other assets:
Organization costs, net of accumulated amortization of $1,774 and $1,224 at March 31,
1996 and 1995, respectively............................................................ 981 1,531
Deposits................................................................................ 7,546 4,576
---------- ----------
Total assets.......................................................................... $ 593,538 $ 682,833
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................................... $ 158,934 $ 122,062
Accrued employee personal time.......................................................... 12,400 8,127
Product warranty reserve................................................................ 10,000 5,000
Service deposits........................................................................ 24,500 50
Income tax payable...................................................................... 710 676
---------- ----------
Total current liabilities............................................................. 206,544 135,915
---------- ----------
Commitments and contingencies............................................................. -- --
Stockholders' equity:
Common stock, no par value, authorized 100,000 shares, issued and outstanding 40,600
shares and 35,000 shares at March 31, 1996 and 1995, respectively...................... 58,100 35,000
Retained earnings....................................................................... 328,894 511,918
---------- ----------
Stockholders' equity.................................................................. 386,994 546,918
---------- ----------
Total liabilities and stockholders' equity............................................ $ 593,538 $ 682,833
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-11
<PAGE>
DOVE MEDICAL SYSTEMS
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue, net of discounts and allowances.................................................. $ 672,691 $ 594,705
Cost of revenue........................................................................... 329,221 269,427
---------- ----------
Gross profit.......................................................................... 343,470 325,278
Sales and marketing expense............................................................... 95,821 15,647
General and administrative expense........................................................ 138,396 88,365
Staff service bonus....................................................................... 68,000 --
---------- ----------
Operating Income...................................................................... 41,253 221,266
Other income:
Interest income......................................................................... 790 902
---------- ----------
Income before income tax.............................................................. 42,043 222,168
Income tax................................................................................ 2,240 3,300
---------- ----------
Net income............................................................................ $ 39,803 $ 218,868
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-12
<PAGE>
DOVE MEDICAL SYSTEMS
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES ISSUED TOTAL
AND COMMON RETAINED STOCKHOLDERS'
OUTSTANDING STOCK EARNINGS EQUITY
------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1995............................. 35,000 $ 35,000 $ 422,591 $ 457,591
Net Income.................................................. -- -- 39,803 39,803
Common Stock Issued Upon Exercise of Stock Options.......... 5,600 23,100 -- 23,100
Stockholder Distributions................................... -- -- (133,500) (133,500)
------ --------- ----------- ------------
Balance as of March 31, 1996................................ 40,600 $ 58,100 $ 328,894 $ 386,994
------ --------- ----------- ------------
------ --------- ----------- ------------
Balance as of December 31, 1994............................. 35,000 $ 35,000 $ 293,050 $ 328,050
Net Income.................................................. -- -- 218,868 218,868
------ --------- ----------- ------------
Balance as of March 31, 1995................................ 35,000 $ 35,000 $ 511,918 $ 546,918
------ --------- ----------- ------------
------ --------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-13
<PAGE>
DOVE MEDICAL SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
UNAUDITED
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows for operating activities:
Net income............................................................................ $ 39,803 $ 218,868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... 2,409 1,629
Changes in:
Accounts receivable............................................................... (7,308) (130,429)
Inventories....................................................................... (13,802) (833)
Prepaid expenses.................................................................. (6,181) 124
Deposits.......................................................................... -- 435
Accounts payable and other accrued expenses....................................... 39,908 50,203
Service deposits.................................................................. 11,500 50
Income tax payable................................................................ (664) (1,858)
----------- -----------
Total adjustments............................................................... 25,862 (80,679)
----------- -----------
Net cash provided by operating activities:...................................... 65,665 138,189
----------- -----------
Cash flows from investing activities:
Furniture and equipment expenditures.................................................. (11,824) (858)
----------- -----------
Net cash used by investing activities:.......................................... (11,824) (858)
----------- -----------
Cash flows from financing activities:
Issuance of common stock.............................................................. 23,100 --
Stockholder distributions............................................................. (105,000) --
----------- -----------
Net cash used by financing activities........................................... (81,900) --
----------- -----------
Net decrease in cash and cash equivalents............................................... (28,059) 137,331
Cash and cash equivalents at beginning of period........................................ 195,122 158,696
----------- -----------
Cash and cash equivalents at end of period.............................................. $ 167,063 $ 296,027
----------- -----------
----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1996, the Company distributed to its principal
stockholder a $28,500 account receivable from a major customer.
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
F-14
<PAGE>
DOVE MEDICAL SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information included herein has been prepared by management
without audit by independent certified public accountants who do not express an
opinion thereon. The information furnished herein includes all adjustments which
are, in the opinion of management, necessary for a fair statement of financial
position and the results of operations as of and for the three months ended
March 31, 1996 and 1995, and all such adjustments are of a normal recurring
nature. Management recommends the accompanying financial information be read in
conjunction with the Company's audited financial statements and related notes
set forth elsewhere herein.
The results for the three-month period ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year
ending December 31, 1996.
2. COMMITMENTS AND CONTINGENCIES
(a) The Company has a two-year lease to rent warehouse and office space in
Newbury Park, California. The lease expires in January 1998. Monthly payments
are currently $2,052, with a 3% to 6% rent adjustment to be made in February
1997.
Future minimum lease payments required under its operating lease are as
follows:
<TABLE>
<S> <C>
Twelve months ended March 31:
1997................................................................... $24,749
1998................................................................... 21,146
---------
$45,895
---------
---------
</TABLE>
Rental expense for the three month periods ended March 31, 1996 and 1995 was
$5,166 and $3,186, respectively.
(b) The Company warrants its products for a full year from date of sale,
including all parts and on-site labor. The Company limits its risk by having
similar arrangements in place with its primary component manufacturers and
suppliers. A warranty liability reserve in the amount of $10,000 and $5,000, was
recognized at March 31, 1996 and 1995, respectively, to cover estimated repair
and replacement costs to be incurred after the balance sheet dates.
F-15
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the merger of Norland Medical Systems, Inc. (the "Company") and
Dove Medical Systems ("Dove") under the purchase method of accounting. These pro
forma financial statements are presented for illustrative purposes only, and
therefore, are not necessarily indicative of the operating results and financial
position that might have been achieved had the merger occurred as of an earlier
date, nor are they necessarily indicative of operating results and financial
position which may occur in the future.
A pro forma combined condensed balance sheet is provided as of March 31,
1996, giving effect to the merger as though it had been consummated on that
date. Pro forma combined condensed income statements are provided for the three
month period ended March 31, 1996, and the year ended December 31, 1995, giving
effect to the merger as though it had occurred on January 1, 1995.
The pro forma combined condensed financial statements are derived from the
historical audited financial statements of the Company and Dove, and should be
read in conjunction with the Company's separate 1995 Annual Report on Form 10-K
and separate Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
as filed, incorporated herein by reference, and with Dove's audited financial
statements for 1995 and 1994, included herein.
F-16
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------
NORLAND MEDICAL DOVE MEDICAL PRO FORMA PRO FORMA
SYSTEMS, INC. SYSTEMS ADJUSTMENTS NOTE REF. COMBINED
--------------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash.................................... $ 17,639,970 $ 167,063 $ (3,600,000) (a) $ 14,207,033
Accounts receivable..................... 5,851,325 139,174 0 5,990,499
Inventories............................. 879,132 233,688 0 1,112,820
Other................................... 157,415 9,668 0 167,083
--------------- ------------ ------------- -------------
Total current assets.................. 24,527,842 549,593 (3,600,000) 21,477,435
Other Assets:
Fixed assets, net......................... 84,013 35,418 0 119,431
Other non current assets................ 75,906 8,527 0 84,433
Patent, net............................. 0 0 407,200 (a)(i) 407,200
Other intangible assets, net............ 0 0 3,257,800 (a)(i) 3,257,800
Goodwill, net........................... 0 0 2,984,535 (d)(i) 2,984,535
--------------- ------------ ------------- -------------
Total other assets.................... 159,919 43,945 6,649,535 6,853,399
--------------- ------------ ------------- -------------
Total Assets.............................. $ 24,687,761 $ 593,538 $ 3,049,535 $ 28,330,834
--------------- ------------ ------------- -------------
--------------- ------------ ------------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts payable........................ $ 2,578,326 158,934 0 $ 2,737,260
Accrued expenses........................ 374,156 22,400 125,000 (i) 521,556
Income taxes payable.................... 485,837 710 0 486,547
Other current liabilities............... 40,072 24,500 64,572
--------------- ------------ ------------- -------------
Total current liabilities............. 3,478,391 206,544 125,000 3,809,935
--------------- ------------ ------------- -------------
Common stock............................ 3,349 58,100 (58,019) (b)(c) 3,430
Additional paid-in capital.............. 18,346,732 0 3,311,448 (b) 21,658,180
Retained earnings....................... 2,859,289 328,894 (328,894) (b)(c) 2,859,289
--------------- ------------ ------------- -------------
Total stockholder's equity............ 21,209,370 386,994 2,924,535 24,520,899
--------------- ------------ ------------- -------------
Total Liabilities & Stockholders'
Equity............................... $ 24,687,761 $ 593,538 $ 3,049,535 $ 28,330,834
--------------- ------------ ------------- -------------
--------------- ------------ ------------- -------------
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-17
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, 1995 MARCH 31, 1996
----------------------------------------------------------------- ---------------
HISTORICAL HISTORICAL
----------------------------- ---------------
NORLAND MEDICAL DOVE MEDICAL PRO FORMA PRO FORMA NORLAND MEDICAL
SYSTEMS, INC. SYSTEMS ADJUSTMENTS NOTE REF. COMBINED SYSTEMS, INC.
--------------- ------------ ----------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues....................... $18,243,808 $1,860,929 $ 0 $20,104,737 $ 5,218,290
--------------- ------------ ----------- ---------- ---------------
Expense (Income):
Cost of revenue.................... 12,508,809 854,693 $(128,000) (e) 13,235,502 3,415,911
Sales and marketing expense........ 1,651,125 150,761 0 1,801,886 575,348
General and administrative
expense........................... 960,368 419,814 352,837 (f) 1,733,019 305,716
Other (income) expense............. (412,983) (3,364) 0 (416,347) (242,941)
--------------- ------------ ----------- ---------- ---------------
Total Expenses................... 14,707,319 1,421,904 224,837 16,354,060 4,054,034
--------------- ------------ ----------- ---------- ---------------
Earnings from continuing operations
before income taxes................. 3,536,489 439,025 (224,837) 3,750,677 1,164,256
Provision for income taxes........... (1,436,000) (6,094) (128,538) (g) (1,570,632) (473,000)
--------------- ------------ ----------- ---------- ---------------
Earnings from continuing
operations.......................... $ 2,100,489 $ 432,931 $(353,375) $2,180,045 $ 691,256
--------------- ------------ ----------- ---------- ---------------
--------------- ------------ ----------- ---------- ---------------
Earnings from continuing operations
per common and common equivalent.... 0.40 0.40 0.10
Weighted average common and common
equivalent shares outstanding....... 5,245,235 161,538 (h) 5,406,773 7,057,010
<CAPTION>
DOVE MEDICAL PRO FORMA PRO FORMA
SYSTEMS ADJUSTMENTS NOTE REF. COMBINED
------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Total revenues....................... $ 672,691 $ 0 $5,890,981
------------- ----------- -----------
Expense (Income):
Cost of revenue.................... 329,221 $ (48,000) (e) 3,697,132
Sales and marketing expense........ 95,821 0 671,169
General and administrative
expense........................... 206,396 88,209 (f) 600,321
Other (income) expense............. (790) 0 (243,731)
------------- ----------- -----------
Total Expenses................... 630,648 40,209 4,724,891
------------- ----------- -----------
Earnings from continuing operations
before income taxes................. 42,043 (40,209) 1,166,090
Provision for income taxes........... (2,240) (10,848) (g) (486,088)
------------- ----------- -----------
Earnings from continuing
operations.......................... $ 39,803 $ (51,057) $ 680,002
------------- ----------- -----------
------------- ----------- -----------
Earnings from continuing operations
per common and common equivalent.... 0.09
Weighted average common and common
equivalent shares outstanding....... 161,538 (h) 7,218,548
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-18
<PAGE>
NORLAND MEDICAL SYSTEMS, INC. AND DOVE MEDICAL SYSTEMS
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION:
The unaudited pro forma combined condensed balance sheet reflects the
issuance of 161,538 shares of the Company Common Stock, after giving effect to
the Stock Split, in exchange for 40,600 shares of Dove Common Stock, based on
the number of shares of Dove Common Stock outstanding as of April 2, 1996. In
addition, the statement reflects a payment by the Company of $3,600,000 in
exchange for certain patent and other intangible assets owned by the Dove
majority shareholder and certain other investors. The purchase price also
includes approximately $125,000 of direct costs related to the transaction. The
acquisitions are accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, and are presented in
the pro forma condensed combined balance sheet as though they had occurred on
March 31, 1996.
Earnings per share for each period is based on the weighted average number
of shares of the Company's Common Stock outstanding, including common stock
equivalents, and is presented on a combined basis giving effect to the issuance
of the Company's shares in accordance with the terms of the merger as if the
merger had occurred on January 1, 1995.
NOTES TO PRO FORMA ADJUSTMENTS:
Pro forma adjustments have been made to reflect the following:
(a) Adjustment to reflect payment of $3,600,000 in cash in exchange for a patent
and other intangible assets.
(b) Adjustment to reflect the issuance of 161,538 shares of the Company's Common
Stock after giving effect to the Stock Split, having an aggregate par value
of $81 and a market value of $3,311,529 on April 2, 1996.
(c) Adjustment to reflect the elimination of Dove's equity accounts.
(d) Adjustment to record goodwill resulting from the transactions.
(e) Adjustment to eliminate fees incurred by Dove according to various licensing
arrangements acquired by NMS as part of the transaction.
(f) Adjustment to reflect amortization expense related to goodwill, patent and
other intangible assets, based on useful lives of 20, 10 and 20 years,
respectively.
(g) The tax provision calculated based on Dove's pretax earnings from continuing
operations, giving effect on the pro forma adjustments, at the combined
effective federal and state tax rate of 41%.
(h) The number of new shares of common stock issued by the Company to owners of
Dove, giving effect to the transaction on January 1, 1995 and after giving
effect to the Stock Split.
(i) Adjustment to reflect capitalization of acquisition costs.
F-19
