UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission File No. 0-26206
NORLAND MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1387931
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.0005 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|
The aggregate market value of the registrant's Common Stock, par value
$0.0005 per share, held by non-affiliates of the registrant as of March 21, 1997
was $23,555,584 based on the price of the last reported sale on the NASDAQ
National Market.
As of March 21, 1997 there were 7,148,531 shares of the registrant's
Common Stock, par value $0.0005 per share, outstanding.
<PAGE>
This Form 10-K/A Report amends the Form 10-K Report filed by the
Registrant with the Securities and Exchange Commission on March 31, 1997, as
amended by Forms 10-K/A filed on April 30, 1997, May 6, 1997, June 18, 1997 and
July 10, 1997, respectively (as so amended, the "Original Report"). Items 6 and
8 of the Original Report are amended and restated in their entirety to read as
set forth below. This amendment also amends Exhibit 27, the Financial Data
Schedule, to conform the information contained therein to the other amendments
made by this Form 10-K/A Report.
2
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The Company was formed in December 1993 to market, sell and service a range of
diagnostic products that address selected needs in women's healthcare. It began
operations in January 1994 as the exclusive distributor throughout much of the
world for the bone densitometry products developed and manufactured by the
Manufacturers. Both Manufacturers are subsidiaries of NMS BV. Certain of the
Company's stockholders control NMS BV. The Company has no ownership interest in
NMS BV. Under the Distribution Agreement with the Manufacturers, the Company (i)
has rights to exclusive worldwide distribution of all medical diagnostic
products manufactured or developed by Norland Corp. or Stratec (subject, at the
present time, to Stratec's right to distribute its own products in Germany until
the Company elects to take over such distribution) and (ii) with certain
exceptions, may not distribute products manufactured by any non-affiliate of the
Company that directly compete with their products. The Distribution Agreement
has an initial term ending December 31, 2015, with rights to extend for
successive five-year periods.
During 1992 and 1993, Ostech B.V. ("OBV"), a subsidiary of NMS BV, served as
exclusive distributor of Norland Corp.'s products for all locations outside the
U.S., Canada and Switzerland and of Stratec's products for all locations outside
Germany and Switzerland. Some of the former officers and employees of OBV are
officers and employees of the Company. OBV's financial information for the
periods ended December 31, 1992 and 1993 is presented for comparative purposes.
OBV ceased all business activities at the end of 1993.
The following financial data as of and for the periods ended December 31, 1992,
1993, 1994, 1995 and 1996 were derived from (i) the Company's financial
statements for the years 1994, 1995 and 1996, which were audited by Coopers &
Lybrand L.L.P., (ii) the financial statements of OBV for the year 1993, which
were audited by Schweizerische Treuhandgesellschaft-Coopers & Lybrand AG, and
(iii) the financial statements of OBV for the period from April 1, 1992 (date of
commencement of operations) through December 31, 1992, which were audited by
Deloitte & Touche Registeraccountants. The financial data should be read in
conjunction with the audited financial statements of the Company and notes
thereto, which are included at Item 8 of this Report, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" at
Item 7 of this Report.
3
<PAGE>
<TABLE>
<CAPTION>
Ostech B.V. Norland Medical Systems, Inc.
----------------------------------------------------------------------------------
Period from Year Ended December 31,
April 1, 1992 -----------------------------------------------------------------
to December 31,
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------- ------------
Statement of Income (Loss) Data:
<S> <C> <C> <C> <C> <C>
Revenue ..................................... $ 4,094,964 $ 5,488,095 $ 10,041,548 $ 18,243,808 $ 25,309,977
Cost of revenue ............................. 3,118,925 4,066,539 6,517,701 12,508,809 16,248,469
One-time distribution
agreement costs ........................... 0 0 1,922,247 0 0
------------ ------------ ------------ ------------ ------------
Gross profit .............................. 976,039 1,421,556 1,601,600 5,734,999 9,061,508
Sales and marketing expense ................. 747,292 1,068,197 973,208 1,651,125 3,605,666
General and administrative
expense ................................... 183,219 399,449 526,364 960,368 2,570,212
------------ ------------ ------------ ------------ ------------
Income (loss) from operations ............. 45,528 (46,090) 102,028 3,123,506 2,985,630
Liquidation loss - net ...................... 0 (326,007) 0 0 0
Other income (expense) ...................... 47,105 (13,760) (6,984) 412,983 703,744
------------ ------------ ------------ ------------ ------------
Income (loss) before taxes ................ 92,633 (385,857) 95,044 3,536,489 3,689,374
Provision for taxes ......................... 9,629 60 27,000 1,436,000 1,498,000
------------ ------------ ------------ ------------ ------------
Net income (loss) ......................... $ 83,004 $ (385,917) $ 68,044 $ 2,100,489 $ 2,191,374
============ ============ ============ ============ ============
Earnings per share(1) ....................... -- -- $ 0.02 $ 0.40 $ 0.31
============ ============ ============
Weighted average number of
s common shares outstanding(1) .............. -- -- 4,002,000 5,248,184 7,168,871
<CAPTION>
As of December 31,
------------ ------------- ------------
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital.......................... $ 68,044 $ 20,326,055 $ 17,935,923
Total assets............................. 2,751,929 24,706,377 30,243,378
Long-term debt........................... 0 0 0
Stockholders' equity..................... 68,044 20,520,846 26,520,865
</TABLE>
- ----------
(1) Reflects the 2,000-for-1 split of the Common Stock in June 1995 and a
restatement for a three-for-two stock split of the Common Stock in June 1996.
4
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
-------
Page
----
Report of Independent Accountants 6
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995 7
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 8
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 9
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 10
Notes to Consolidated Financial Statements 12-24
Financial Statement Schedule:
Valuation and Qualifying Accounts 25
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of
Norland Medical Systems, Inc.:
We have audited the accompanying consolidated financial statements and the
financial statement schedule of Norland Medical Systems, Inc. (formerly Ostech,
Inc.) listed in the index on page 29 of this Form 10-K. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company, as disclosed in the financial statements, has extensive
transactions and relationships with related parties. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Norland Medical Systems, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 5, 1997
6
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
------
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,133,468 $ 19,218,865
Investment (Note 3) 1,949,039 --
Accounts receivable, net (Note 4) 9,182,488 4,571,520
Income taxes recoverable 794,285 --
Inventories (Note 5) 616,865 652,212
Officers' loans receivable (Note 6) 581,704 --
Current portion of product development loan
receivable-- affiliate (Note 7) 38,685 --
Prepaid expenses and other current assets 361,902 68,989
------------ ------------
Total current assets 21,658,436 24,511,586
------------ ------------
Demonstration systems inventory, net (Note 8) 1,234,848 146,272
Investment in Vitel, Inc. (Note 1) 260,000 --
Property and equipment, net (Note 9) 406,375 --
Product development loan receivable - affiliate (Note 7) 251,100 48,519
Goodwill, net (Notes 10 and 11) 3,183,961 --
Other intangible assets, net (Notes 10 and 11) 3,248,658 --
------------ ------------
Total assets $ 30,243,378 $ 24,706,377
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - Norland (Note 12) $ 2,220,816 $ 493,424
Accounts payable - Stratec (Note 12) 714,127 1,959,403
Accounts payable - trade 81,416 32,000
Accrued expenses 658,304 361,003
Income taxes payable -- 1,305,037
Customer deposits 47,850 34,664
------------ ------------
Total current liabilities 3,722,513 4,185,531
------------ ------------
Stockholders' equity (Note 13):
Common stock, par value of $0.0005 per share -
10,000,000 shares authorized, 6,904,781
shares issued and outstanding 3,452 3,000
Additional paid-in capital 22,158,170 18,349,813
Retained earnings 4,359,243 2,168,033
------------ ------------
Total stockholders' equity 26,520,865 20,520,846
------------ ------------
Total liabilities and stockholders' equity $ 30,243,378 $ 24,706,377
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue (including sales to affiliates
of $562,108, $889,982 and $631,523 in 1996, 1995 and 1994,
respectively) $ 25,309,977 $ 18,243,808 $ 10,041,548
Cost of revenue 16,248,469 12,508,809 6,517,701
One-time distribution agreement costs
(Note 2) -- -- 1,922,247
------------ ------------ ------------
Gross profit 9,061,508 5,734,999 1,601,600
Sales and marketing expense 3,505,666 1,651,125 973,208
General and administrative expense
(including an overhead charge from an affiliate of $33,136, 2,570,212 960,368 526,364
$22,360 and $150,000 in 1996, 1995 and 1994, respectively) ------------ ------------ ------------
Operating income 2,985,630 3,123,506 102,028
Other income (expense):
Interest income 720,851 443,653 --
Other expense (17,107) (30,670) (6,984)
------------ ------------ ------------
703,744 412,983 (6,984)
------------ ------------ ------------
Income before income taxes 3,689,374 3,536,489 95,044
Provision for income taxes (Note 15) 1,498,000 1,436,000 27,000
------------ ------------ ------------
Net income $ 2,191,374 $ 2,100,489 $ 68,044
============ ============ ============
Net income per common share $ 0.31 $ 0.40 $ 0.02
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
Common Paid-In
Total Shares Stock Capital
----- ------ ----- -------
<S> <C> <C> <C> <C>
Issuance of 1,000 shares of common stock $ - 1,000 $ 10 $ 990
2,000-for -1 stock split on June 2, 1995 (Note 13) - 1,999,000 990 (990)
3-for-2 stock split on June 14, 1996 (Note 13) - 1,000,000 500 -
Net income 68,044 - - -
------------ ------------ ------------ ------------
Balance as of December 31, 1994 68,044 3,000,000 1,500 -
Proceeds from common stock subscription 1,000 - - -
Issuance of 2,000,000 shares of common stock
on August 2, 1995, net of cost
and expenses directly related
to the offering (Note 13) 18,351,313 2,000,000 1,000 18,350,313
3-for-2 stock split on June 14, 1996 (Note 13) - 1,000,000 500 (500)
Net income 2,100,489 - - -
------------ ------------ ------------ ------------
Balance as of December 31, 1995 $ 20,520,846 6,000,000 $ 3,000 $ 18,349,813
Issuance of shares for stock options exercised 292 743,250 371 (79)
Issuance of shares to acquire Dove Medical Systems 3,311,519 161,538 81 3,311,438
Cost and expenses directly related to stock offering (3,002) - - (3,002)
Cash paid in lieu of fractional shares on 3-for-2
split on June 14, 1996 (164) (7) - -
Tax benefit related to stock options (Note 1) 500,000 - - 500,000
Net income 2,191,374 - - -
------------ ------------ ------------ ------------
Balance as of December 31, 1996 $ 26,520,865 6,904,781 $ 3,452 $ 22,158,170
============ ============ ============ ============
<CAPTION>
Stock Retained
Subscriptions Earnings
------------- --------
<S> <C> <C>
Issuance of 1,000 shares of common stock $ (1,000) $ -
2,000-for -1 stock split on June 2, 1995 (Note 13) - -
3-for-2 stock split on June 14, 1996 (Note 13) - (500)
Net income - 68,044
------------ ------------
Balance as of December 31, 1994 (1,000) 67,544
Proceeds from common stock subscription 1,000 -
Issuance of 2,000,000 shares of common stock
on August 2, 1995, net of cost
and expenses directly related
to the offering (Note 13) - -
3-for-2 stock split on June 14, 1996 (Note 13) - -
Net income - 2,100,489
------------ ------------
Balance as of December 31, 1995 $ - $ 2,168,033
Issuance of shares for stock options exercised - -
Issuance of shares to acquire Dove Medical Systems - -
Cost and expenses directly related to stock offering - -
Cash paid in lieu of fractional shares on 3-for-2
split on June 14, 1996 - (164)
Tax benefit related to stock options (Note 1) - -
Net income - 2,191,374
------------ ------------
Balance as of December 31, 1996 $ - $ 4,359,243
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
-----
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,191,374 $ 2,100,489 $ 68,044
------------ ------------ ------------
Adjustments to reconcile net income to net cash used
in operating activities:
Provision for doubtful accounts 70,000 150,000 -
Amortization expense 343,666 17,415 -
Depreciation expense 59,276 - -
Changes in:
Accounts receivable (4,546,794) (2,849,826) (1,872,494)
Inventories (946,088) (815,899) -
Prepaid expenses and other current assets (275,699) (47,639) (21,350)
Accounts payable 373,589 1,096,022 1,388,805
Accrued expenses 148,968 314,276 46,727
Income taxes (1,599,322) 1,278,037 27,000
Customer deposits (6,314) (83,336) 118,000
------------ ------------ ------------
Total adjustments (6,378,718) (940,150) (313,312)
------------ ------------ ------------
Net cash (used in) provided by
operating activities (4,187,344) 1,160,339 (245,268)
------------ ------------ ------------
Cash flows from investing activities:
Payment for purchase of stock and certain intangible assets
of Dove Medical Systems, net of cash acquired (3,432,937) - -
Investment in Vitel, Inc. (260,000) - -
Purchases of property and equipment (430,233) - -
Loans to officers (1,099,211) - -
Repayment of loans to officers 517,507 - -
Purchase of investment (1,949,039) - -
Product development loan to affiliate (241,266) (48,519) -
------------ ------------ ------------
Net cash used in investing activities (6,895,179) (48,519) -
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from stock options exercised 292 - -
Costs and expenses of issuing common stock (3,002) - -
Cash paid for fractional shares (164) - -
Proceeds from issuance of common stock, net - 18,351,313 -
Proceeds from common stock subscriptions - 1,000 -
Notes payable to stockholders - (750,000) 750,000
Stockholder advances - (50,000) 50,000
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,874) 17,552,313 800,000
------------ ------------ ------------
Net (decrease) increase in cash (11,085,397) 18,664,133 554,732
Cash and cash equivalents at beginning of year 19,218,865 554,732 -
------------ ------------ ------------
Cash and cash equivalents at end of year $ 8,133,468 $ 19,218,865 $ 554,732
============ ============ ============
</TABLE>
10
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
-----
Noncash investing and financing activities:
The $18,351,313 net proceeds of the initial public offering in 1995 represents
the $21,000,000 of gross proceeds less the costs and expenses directly related
to the offering of $2,648,687.
During 1994, the Company issued common stock having an aggregate par value of
$1,000 in return for stock subscriptions receivable of $1,000.
Cash paid for:
1996 1995 1994
---------- ---------- ----------
Income taxes $3,097,322 $ 157,963 $ 0
========== ========== ==========
Interest $ 0 $ 10,342 $ 0
========== ========== ==========
The Company purchased all of the outstanding shares of Dove Medical Systems and
certain intangible assets for $3,600,000 in cash and 161,538 shares of Company
Common Stock valued at $3,311,529. In conjunction with the acquisition, the
Company assumed $325,774 in liabilities.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. Summary of Significant Accounting Policies:
Company's Activities
Norland Medical Systems, Inc. ("NMS" or the "Company") distributes devices which
aid in the detection and monitoring of bone diseases, and in the assessment of
the effect of existing and potential therapies for the treatment of such
diseases throughout the world to hospitals, clinics, research institutions,
pharmaceutical companies and individual practitioners. The Company primarily
sells through medical product distributors.
Corporate Structure
NMS was incorporated on December 21, 1993 as Ostech, Inc. and commenced
operations January 1, 1994 as the exclusive marketer and distributor of certain
medical products and technologies of Norland Corporation (U.S.) ("Norland
Corp.") and Stratec Medizintechnik GmbH (Germany) ("Stratec"). On April 2, 1996,
the Company acquired Dove Medical Systems (U.S.) ("Dove"), a manufacturer of
low-cost bone densitometry systems. Dove is a wholly-owned subsidiary, and as a
result, all intercompany activities have been eliminated in consolidation.
Both Norland Corp. and Stratec are wholly-owned subsidiaries of Norland Medical
Systems B.V. (Netherlands). Certain shareholders of NMS are shareholders of
Norland Medical Systems B.V. and own 91.2% of that company. Nissho Iwai
Corporation ("Nissho Iwai"), a major customer of NMS, and its affiliate own the
remaining 8.8% of Norland Medical Systems B.V.
Revenue and Cost Recognition
NMS purchases merchandise and services from Norland Corp. and Stratec (the
"manufacturers") on the basis of sales orders in hand. NMS invoices customers
and is invoiced by the manufacturers when the product is shipped. Revenue is
recognized at the time of shipment. Management believes the gross profit
recognized by NMS materially approximates that which would have been realized
had the Company used unaffiliated suppliers.
Costs for returns and exchanges are borne by the respective manufacturer. The
manufacturers offer one-year warranties on both the hardware and software
included in their systems. The Company provides warranty services on behalf of
Norland Corp. and Stratec. The Company invoices Norland Corp. and Stratec for
the costs of performing such warranty services.
The Company has no obligations to provide any other services to any of its
sub-distributors or their customers.
12
<PAGE>
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less at the
date of purchase to be cash equivalents. The Company had no such instruments at
year end and the cash balances reflect only cash in the Company's bank accounts,
a short-term time deposit and investments in money market mutual funds.
Investments
Investments consist of a debt security issued by the U.S. Treasury Department.
The Company classifies such debt security as held-to-maturity. Held-to-maturity
securities are those securities in which the Company has the ability and intent
to hold the security until maturity.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization of accretion of premiums or discounts. Premiums and discounts are
amortized or accredited over the life of the related security as an adjustment
to yield using the straight-line method, which approximates the effective
interest method. Interest income is recognized when earned.
The Company has a minority interest in Vitel, Inc. (Texas) that is accounted for
according to the cost method.
Inventory
Systems used in the Company's short-term rental program are carried in inventory
at the lower of cost or net realizable value until the time of sale.
Inventories are stated at the lower of cost or market; cost is determined
principally by the first-in, first-out method.
Demonstration Systems Inventory
The Company maintains an inventory of demonstration systems used for marketing
and customer service purposes. Such systems are carried at the lower of cost or
net realizable value until the time of sale. From time to time, the Company may
judge it desirable for marketing purposes to provide a device to a prominent
scientist or research institution specializing in the study of bone disease. In
such cases, the Company will carry the device in demonstration systems inventory
at cost less amortization expense calculated on a straight-line basis over
thirty-six months.
Property and Equipment
Machinery, equipment, furniture and fixtures are recorded at cost and are
depreciated using the straight-line method over three to five years. Leasehold
improvements are amortized over the lesser of the remaining life of the lease or
ten years.
13
<PAGE>
Intangible Assets
Intangible assets consist of a patent and the excess of cost over the fair value
of net assets acquired in connection with the purchase of Dove and certain
assets that were licensed to Dove. The patent is being amortized using the
straight-line method over the remaining patent period which is ten years as of
the date of its acquisition. The excess of cost over the fair value of net
assets acquired and other intangible assets are being amortized using the
straight-line method over twenty years.
Management evaluates on an ongoing basis whether events or changes in
circumstances exist that would indicate the carrying value of the Company's
intangible assets may not be recoverable. Should there be an indication
of impairment in the value of its intangible assets, management would estimate
the future cash flows expected to result from the use of the assets and their
eventual disposition and recognize a specific provision against such assets
if the aggregate nominal estimated future cash flows are less than the
carrying value of the assets. In considering whether events or changes in
circumstances exit, management assesses several factors, including a
significant change in the extent or manner in which the assets are used, a
significant adverse change in legal factors or in the business climate that
could affect the value of the assets, an adverse action or assessment of a
regulator, and a current period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with such assets.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109. Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. The effect of a change in tax rates on deferred taxes is
recognized in income in the period that includes the enactment date. The Company
realizes an income tax benefit from the exercise of certain stock options or the
early disposition of stock acquired upon exercise of certain options. This
benefit results in an increase in income taxes recoverable and an increase in
additional paid in capital.
Net Income Per Common Share
Primary income per share is calculated by dividing net income by the average
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are stock options, which have been included
using the treasury stock method only when their effect is dilutive. Fully
diluted income per share is not presented as it is not materially different from
primary income per share.
The average common and common equivalent shares issued and under option was
7,168,871 shares, 5,248,184 shares and 4,002,000 shares for the years ended
December 31, 1996, 1995 and 1994, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which
is effective for the Company's year ending December 31, 1997. The Company is
currently evaluating the expected impact of this statement on its financial
statements.
Concentration of Credit Risk
The Company generally sells on either sixty day terms or against irrevocable
letters of credit. Any financing of the end user is the decision of, and
dependent on, the distributor in each country. At December 31, 1996, 1995 and
1994, the largest balance, 18%, 58% and 42%, respectively, of the total
outstanding trade receivables, was owed by a single distributor.
14
<PAGE>
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 financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Foreign Exchange Exposure
All of the Company's purchases and sales of products and services are made in
U.S. dollars. As a result, the Company has minimal exposure to foreign exchange
risk in the short-term. However, a significant portion of the Company's products
are supplied by Stratec and sold along with Norland Corp. products into foreign
markets. Any significant and lasting change in the exchange rates between the
U.S. dollar and the currencies of those countries could have a material effect
on both the costs and sales of those products and services.
2. Distribution Agreement:
In 1994, the Company entered into exclusive distribution agreements with Norland
Corp. and Stratec. The invoice prices from Norland Corp. and Stratec to NMS were
determined by using a pricing formula whereby the margin retained by NMS was
equal to one-half of the difference between the price at which the product was
sold to the distributor or end user and the direct cost of material, parts and
labor of Norland Corp. or Stratec.
The agreement with Norland Corp. provided that in 1994 the Company would
purchase a minimum of $5,200,000 of products and services during the first year
of the agreement, irrespective of the pricing formula described above. If the
minimum purchase requirement had not been in effect for the first year of this
distribution agreement, the total purchases by the Company of products and
services from Norland Corp. would have been $3,277,753. The excess of $1,922,247
paid by the Company over the pricing formula was, based on its materiality,
charged to operations as a separate line item for fiscal 1994.
Effective April 1, 1995, the Company entered into a new distribution agreement
with Norland Corp. and Stratec which expires December 31, 2015. The pricing
formula in the new agreement was essentially the same as in the 1994 agreement.
This agreement may be renewed for an indefinite number of successive five-year
terms and contains no purchase obligation on the part of NMS. Under this
agreement, the Company may not distribute devices manufactured by any
non-affiliate of the Company which compete directly with the devices obtained
from the manufacturers (except for devices using ultrasound technology).
The distribution agreement was amended in 1996 to change the pricing formula.
The amended pricing formula became effective as of October 1, 1996 with respect
to Norland Corp. products and as of December 1, 1996 with respect to Stratec
products. Under the amended pricing formula, NMS pays Norland Corp. and Stratec
an amount for each system equal to the aggregate costs of the components and
parts used in the system plus the actual labor costs plus an agreed upon markup
on the costs of all non-computer components. The manufacturers are also entitled
to receive royalties equal to 5% of the price for which NMS sells certain
devices. In the case of Norland Corp., the royalty will apply to all new systems
manufactured by Norland Corp. (i.e., any system other than the pDEXA, the
Eclipse and the XR-36). In the case of Stratec, the royalty applies to any
system manufactured by Stratec which uses pQCT technology. If the aggregate
amount payable by NMS to the manufacturers for a year under the amended pricing
formula would exceed the aggregate amount payable under the original pricing
formula, then the original pricing formula will apply. The amended pricing
formula will be in effect until December 31, 1997. It will be automatically
renewed
15
<PAGE>
with respect to each manufacturer for successive one year periods, unless such
manufacturer elects to terminate the amended pricing formula effective on
December 31 of any year by notice given to NMS not less than 90 nor more than
180 days prior to the end of such year.
3. Investment:
At December 31, 1996, the Company's investment in a U.S. Treasury bill, which
matures on June 19, 1997, had an amortized cost of $1,949,039 and a fair value
of $1,952,727, with a resulting unrealized gain of $3,688.
4. Accounts Receivable:
Accounts receivable at December 31 were as follows:
1996 1995
---- ----
Accounts receivable $9,403,488 $4,721,520
Less allowance for
doubtful accounts 221,000 150,000
------------ -----------
$9,182,488 $4,571,520
========== ==========
NMS does not currently distribute Stratec products in Germany. Those products
are distributed directly by Stratec through its own sales organization. Prior to
June 1, 1996, Stratec acted as NMS' subdistributor for Norland Corp. products in
Europe and the Middle East. The amounts owed by Stratec to NMS for Norland Corp.
products at December 31, 1996 and 1995 were $62,689 and $180,253, respectively
(See Note 11).
During 1996, 1995 and 1994, the Company sold $210,785, $889,982 and $631,523,
respectively, of products and services to Stratec and $351,323, $0 and $0,
respectively, of products and services to Norland Corp.
5. Inventories:
Inventories consist of the following as of December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials, product kits,
spare parts and sub-assemblies $377,373 $583,264
Work in progress 18,044 -
Rental systems 155,174 68,948
Finished goods 108,169 -
Obsolescence reserve (41,895) -
--------- --------
$ 616,865 $652,212
========== ========
</TABLE>
16
<PAGE>
6. Officers' Loans Receivable:
In September 1996, the Company loaned $80,000 to its Chief Financial Officer
(CFO) to assist with relocation of his residence. The loan to the CFO is payable
in full in September 1997, including interest which accrues at 6% per annum. The
balance of the loan, including interest, was $81,704 at December 31, 1996.
In August 1996, the Company agreed to lend up to $2,500,000 to its President
until December 31, 1997 at an annual interest rate of 6% to assist with tax
liabilities in connection with stock option exercises. In September of 1996, the
Company loaned $1,000,000 to the President which was reduced by principal and
interest payments to a balance of $500,000 at December 31, 1996. The borrowings
are payable on demand.
7. Product Development Loan Receivable - Affiliate:
In accordance with the terms of a Product Development Loan Agreement dated June
1, 1995 between NMS and the manufacturers, the Company advanced $289,785 and
$48,519 to Norland Corp. as of December 31, 1996 and 1995, respectively. The
loan accrues interest at 10% per annum payable quarterly. Principal payments are
due in twenty equal quarterly installments beginning September 30, 1997, with
the current portion of the loan consisting of principal payments due in 1997
plus accrued interest as of December 31, 1996.
8. Demonstration Systems Inventory:
Demonstration systems inventory consisted of the following as of December 31:
1996 1995
---- ----
Demonstration systems inventory $1,318,687 $163,687
Less accumulated depreciation (83,839) (17,415)
---------- --------
$1,234,848 $146,272
========== ========
9. Property and Equipment:
At December 31, 1996, property and equipment consisted of the following:
1996
----
Machinery and equipment $303,087
Furniture and fixtures 130,773
Leasehold improvements 47,561
Less accumulated depreciation
and amortization (75,046)
--------
$406,375
========
10. Acquisition of Dove Medical Systems:
On April 2, 1996, the Company acquired all of the outstanding shares of Dove and
a certain patent and other intangible assets owned by the Dove majority
shareholder and certain other investors. The Company paid consideration of
$6,911,529, consisting of $3,600,000 in cash and 161,538 shares of the Company
Common Stock valued at $3,311,529.
17
<PAGE>
The acquisition has been accounted for using the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based on the fair values at the date of acquisition.
The excess purchase price over the fair values of the net assets was $3,308,011
and has been recorded as goodwill.
The net purchase price was allocated as follows:
Working capital $ 170,169
Property and equipment 35,418
Other non-current assets 6,196
Patent 407,200
Other intangible assets 2,984,535
Goodwill 3,308,011
----------
Purchase price $6,911,529
==========
The operating results of Dove have been included in the accompanying 1996
consolidated statement of income from the date of acquisition. Pro forma
unaudited consolidated operating results of the Company and Dove for the years
ended December 31, 1996 and 1995, assuming the acquisition had been made as of
January 1, 1995, are summarized below:
1996 1995
----------- -----------
(unaudited) (unaudited)
Net sales $25,982,668 $20,104,737
Net income 2,177,620 2,177,545
Earnings per share 0.30 0.40
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments to give effect to amortization of the
goodwill, patent and other intangible assets and certain other adjustments,
together with related income tax effects. The unaudited pro forma information is
not necessarily indicative of either the results of operations that would have
occurred had the acquisition been made on January 1, 1995 or that may occur in
the future.
18
<PAGE>
11. Goodwill and Other Intangible Assets:
At December 31, 1996, intangible assets consisted of the following:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Accumulated
Gross Amortization Net
---------- ------------ ----------
<S> <C> <C> <C>
Goodwill $3,308,011 $124,050 $3,183,961
========== ======== ==========
Other intangible assets 2,984,535 112,537 2,871,998
Patent 407,200 30,540 376,660
---------- -------- ----------
$3,391,735 $143,077 $3,248,658
========== ======== ==========
</TABLE>
12. Trade Accounts Payable:
During 1996, 1995 and 1994, the Company purchased $13,138,280, $4,012,468 and
$5,200,000, respectively, of products and services from Norland Corp. and
$3,163,964, $9,294,825 and $3,239,948, respectively, from Stratec. The amounts
owed at December 31, 1996 and 1995 by NMS to these two companies for such
purchases were $2,220,816 and $493,424 and $714,127 and $1,959,403,
respectively. The amounts payable to Stratec at December 31, 1996 and 1995 are
net of receivables from Stratec in the amounts of $62,689 and $180,253,
respectively.
13. Stockholders' Equity:
On August 2, 1995, NMS sold 3,000,000 shares of common stock, having an
aggregate par value of $1,000, at the initial public offering price of $7.00 per
share. Deducted from the resulting gross proceeds of $21,000,000 are $2,651,689
in costs and expenses directly related to the offering, resulting in net
proceeds of $18,348,311.
On June 2, 1995, the Board authorized a 2,000-for-1 stock split which decreased
par value to $0.0005 per share and increased authorized and issued shares to
10,000,000 and 2,000,000, respectively.
The Board subsequently authorized a 3-for-2 stock split (in the nature of a
stock dividend) effective June 14, 1996 which increased the issued and
outstanding shares accordingly.
The financial statements and net income per common share for all periods
presented reflect the stock splits described above.
19
<PAGE>
14. Compensation Programs:
Stock Option Plan
The Company has a Stock Option Plan covering officers, key employees and
consultants of the Company. The Company has authorized 1,800,000 shares for
options under the plan.
The outstanding options at December 31, 1995 have an exercise price not less
than the market value on January 3, 1994, the date on which such options were
granted. Fifty percent of the options became exercisable in 1995. On January 1,
1996, an additional twenty-five percent became exercisable and the remaining
twenty-five percent became exercisable on January 1, 1997. Of the 258,750 of
remaining unexercised options granted in 1994, the term for 71,250 options is
ten years and the term for 187,500 options is five years. Options granted in
1996 and 1995 vest over a four year period and expire ten years from the
granting date, or upon termination of employment except for 7,500 options which
became fully vested in 1996. The option price was based on 100% of market value
of the Company's Common Stock on the dates the options were granted.
The following is a summary of options related to the plan as of December
31:
<TABLE>
<CAPTION>
Option Price Option price Option price
1996 per share 1995 per share 1994 per share
---- --------- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 1,117,500 $0.0005-13.83 1,002,000 $0.0005-0.0006 - -
Granted 300,000 $15.00-22.17 115,500 $10.67-13.83 1,002,000 $0.0005-0.0006
Exercised (743,250) $0.0005-0.0006 - - -
--------- --------- ---------
Options outstanding at
end of year 674,250 $0.0005-22.17 1,117,500 $0.0005-13.83 1,002,000 $0.0005-0.0006
========= ========= =========
Options Exercise Contractual Options
Range of Exercise Prices Outstanding Price Life in Years Exercisable Price Life in Years
Options exercisable at
end of year 46,125 501,000 -
========= ========= =========
Options available for 382,500 82,500 198,000
grant at end of year ========= ========= =========
</TABLE>
The following table summarizes information about significant groups of stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ----------------------------------------
Weighted Weighted
Weighted Average Weighted Average
Average Remaining Average Remaining
Options Exercise Contractual Options Exercise Contractual
Range of Exercise Prices Outstanding Price Life in Years Exercisable Price Life in Years
- ------------------------ ----------- ----- ------------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
$0.0005 to 0.0006 258,750 $0.0006 3 9,750 $0.0005 7
10.00 to 15.00 243,000 13.67 9 36,375 12.77 9
18.00 to 22.17 172,500 19.84 9 0 0 0
------- ------
674,250 46,125
======= ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
plan and did not recognize compensation expense. Had compensation expense been
recognized based on the fair value of the options at their grant dates, as
prescribed in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123), the Company's net income and earnings
per share for the years ended December 31, 1996 and 1995 would have been as
follows:
20
<PAGE>
1996 1995
---- ----
Net income:
As reported $2,191,374 $2,100,489
Pro forma under SFAS 123 1,209,853 2,063,901
Earnings per share:
As reported $0.31 $0.40
Pro forma under SFAS 123 0.17 0.39
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants during the applicable periods: dividend yield of 0% for both periods,
risk-free weighted average interest rate of 5.7% during both periods, expected
volatility factor of 89% for both periods, and an expected option term of 4
years for both periods. The weighted average fair value at date of grant for
options granted during 1996 and 1995 was $11.85 and $8.12 per option,
respectively.
401(k) Plan
Pursuant to the Norland Medical Systems, Inc. Retirement Savings Plan, eligible
employees may elect to contribute a portion of their salary on a pre-tax basis.
With respect to employee contributions of up to 7% of salary, the Company makes
a contribution at the rate of 25 cents on the dollar. The Company may also make
additional discretionary contributions for any year. Contributions are subject
to applicable limitations contained in the Internal Revenue Code. Employees are
at all times vested in their own contributions; Company matching contributions
vest gradually over six years of service. The Company's policy is to fund plan
contributions as they accrue. Contribution expense was $13,342, $1,776 and $0
for the years ended December 31, 1996, 1995 and 1994, respectively.
15. Income Tax:
The components of the provision for income taxes as of December 31 were as
follows:
1996 1995 1994
---- ---- ----
Current
Federal $1,254,387 $1,202,406 $17,500
State 243,613 233,594 9,500
------------ ------------ ---------
$1,498,000 $1,436,000 $27,000
============ ============ =========
As of December 31, 1996, 1995 and 1994, the Company did not have any significant
temporary differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities.
21
<PAGE>
A reconciliation of the difference between the statutory federal income tax rate
and the effective income tax rate for the years ended December 31 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax effect 6.6 6.6 6.6
Impact of graduated federal income tax rates - - (12.2)
---- ---- -----
Effective income tax rate 40.6% 40.6% 28.4%
==== ==== =====
</TABLE>
16. Lease Commitments:
In 1996, the Company entered into operating leases for its manufacturing and
office facilities and established subleases for portions of certain facilities
with Norland Corp. and another company in which certain stockholders of NMS are
also stockholders. Rent is prorated on a square footage basis. For the year
ended December 31, 1996, lease expense was approximately $93,258 and sublease
income was $29,688 and $37,638 with respect to Norland Corp. and the other
company.
The following is a schedule of future minimum lease payments and future sublease
receipts as of December 31, 1996:
Rental Payments Sublease Receipts
--------------- -----------------
1997 $ 196,356 $134,184
1998 173,784 134,184
1999 171,732 134,184
2000 139,866 109,092
2001 108,000 84,000
Thereafter 504,000 392,000
---------- --------
$1,293,738 $987,644
========== ========
17. Other Related Party Transactions:
The Company also rents space and purchases administrative support services on a
month to month basis from another company in which certain beneficial
stockholders of NMS are also stockholders. The cost of the space and services to
NMS for the years ended December 31, 1996, 1995 and 1994 was $33,136, $22,360
and $150,000, respectively.
As of December 31, 1996, 1995 and 1994, no amount was due by the Company for
these costs.
22
<PAGE>
18. Supplemental Sales and Customer Information:
The Company's largest customers are medical distributors in countries with high
incidence of bone disease, available therapies and significant third party
reimbursement. Two such distributors accounted for 22% and 6%, 68% and 9%, and
34% and 30% of revenues, respectively, for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company's sales consisted of domestic sales to customers and export
sales to customers in the following geographic territories:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Pacific Rim $10,338,350 40.8% $15,998,238 87.7% $ 7,737,897 77.0%
Latin America 747,498 3.0 203,542 1.1 921,389 9.2
Europe/Middle East 578,081 2.3 889,982 4.9 631,523 6.3
----------- ------ ----------- ------ ----------- ------
Export sales 11,663,929 46.1 17,091,762 93.7 9,290,809 92.5
Domestic sales 13,646,048 53.9 1,152,046 6.3 750,739 7.5
----------- ------ ----------- ------ ----------- ------
$25,309,977 100.0% $18,243,808 100.0% $10,041,548 100.0%
=========== ====== =========== ====== =========== ======
</TABLE>
Certain products sold to customers in the United States were purchased
from Stratec and are included in domestic sales.
19. Quarterly Financial Data: (Unaudited)
<TABLE>
<CAPTION>
1995 Quarters
-------------------------------------------------------------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenue $3,895,921 $4,003,310 $5,230,527 $5,114,050 $18,243,808
Gross profit 1,295,390 1,254,162 1,519,420 1,666,027 5,734,999
Operating income 735,384 796,134 719,811 872,177 3,123,506
Net income 438,312 475,666 505,364 681,148 2,100,490
Net income per Common share $0.11 $0.12 $0.08 $0.10 $0.40
<CAPTION>
1996 Quarters
-------------------------------------------------------------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
Revenue $5,218,290 $6,949,116 $8,066,882 $5,075,689 $25,309,977
Gross profit 1,802,379 2,568,986 2,652,295 2,037,848 9,061,508
Operating income 921,315 1,091,758 720,553 252,004 2,985,630
Net income 691,256 750,057 515,335 234,726 2,191,374
Net income per Common share $0.10 $0.10 $0.07 $0.03 $0.31
</TABLE>
The net income per Common share for all periods presented reflects the stock
splits described in Note 13.
23
<PAGE>
20. Subsequent Events:
On February 26, 1997, the Company signed an agreement to acquire all of the
issued and outstanding stock of Norland Corp. for $17.5 million with a possible
additional purchase price of up to $2.5 million based on the level of the
Company's 1997 revenues. For each full $1,000,000 of 1997 revenues above
$32,000,000, the purchase price will be increased by $312,500 (up to the maximum
increase of $2.5 million). The $17.5 million will be payable at closing as
follows: $1,250,000 in cash and a $16,250,000 note. The note will bear interest
at the rate of 7% per annum. A $1,250,000 portion of the principal will be
payable six months after closing, and the remaining principal will be due and
payable on the fifth anniversary of the closing. The Company may prepay the note
at any time. The amount of any additional purchase price will be determined
following the completion of the audit of the Company's financial statements for
the year ending December 31, 1997. This amount will be paid by another 7% note
due five years after the closing. The transaction is subject to approval by the
Company's stockholders at its Annual Meeting.
24
<PAGE>
NORLAND MEDICAL SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Balance at Charged to Costs Other Balance at End
Beginning of and Expenses Accounts(A) Deductions(B) of Period
------------ ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
1996
- ----
Allowance for Doubtful Accounts $150,000 $70,000 $1,000 $0 $221,000
======== ======= ====== == ========
Obsolescence reserve $0 $0 $50,000 $(8,105) $41,895
== == ======= ======== =======
1995
- ----
Allowance for Doubtful Accounts $0 $150,000 $0 $0 $150,000
== ======== == == ========
1994
- ----
Allowance for Doubtful Accounts $0 $0 $0 $0 $0
== == == == ==
</TABLE>
(A) Assumed in acquisition.
(B) Amounts written off against the reserve.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(b) Exhibits. Exhibit 27 filed with the Original Report is replaced by
Exhibit 27 filed herewith.
Exhibits
Number Description
- -------- -----------
27 Financial Data Schedule
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to its
Annual Report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of White Plains, New York, on the 22nd day of July,
1997.
NORLAND MEDICAL SYSTEMS, INC.
By: /s/ Reynald G. Bonmati
--------------------------
Name: Reynald G. Bonmati
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment to Annual Report has been signed below by the following persons on
behalf of the Registrant, Norland Medical Systems, Inc., in the capacities and
on the dates indicated.
Capacity In
Signature Which Signed Date
- --------- ------------ ----
/s/ Reynald G. Bonmati Chairman of the Board and July 22, 1997
- ---------------------- President (Principal Executive
Reynald G. Bonmati Officer); and Director
/s/ Kurt W. Streams Vice President, Finance July 22, 1997
- ---------------------- (Principal Financial Officer and
Kurt W. Streams Principal Accounting Officer)
* Director July 22, 1997
- ----------------------
James J. Baker
* Director July 22, 1997
- ----------------------
Michael W. Huber
* Director July 22, 1997
- ----------------------
Robert L. Piccioni
* Director July 22, 1997
- ----------------------
Albert S. Waxman
* By: /s/ Kurt W. Streams
----------------------
Kurt W. Streams
Attorney-in-Fact
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,133,468
<SECURITIES> 1,949,039
<RECEIVABLES> 10,779,477
<ALLOWANCES> 221,000
<INVENTORY> 616,865
<CURRENT-ASSETS> 21,658,436
<PP&E> 481,421
<DEPRECIATION> 75,048
<TOTAL-ASSETS> 30,243,378
<CURRENT-LIABILITIES> 3,722,513
<BONDS> 0
0
0
<COMMON> 3,452
<OTHER-SE> 26,517,413
<TOTAL-LIABILITY-AND-EQUITY> 30,243,378
<SALES> 24,648,928
<TOTAL-REVENUES> 25,309,977
<CGS> 16,248,469
<TOTAL-COSTS> 16,248,469
<OTHER-EXPENSES> 6,075,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,689,374
<INCOME-TAX> 1,498,000
<INCOME-CONTINUING> 2,191,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,191,374
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
