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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26206
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NORLAND MEDICAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1387931
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
106 Corporate Park Drive, Suite 106
WHITE PLAINS, NEW YORK 10604
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(Address of principal executive offices)
(Zip Code)
(914) 694-2285
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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
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As of November 6, 2000, 27,045,166 shares of the registrant's Common Stock,
$0.0005 par value, were outstanding.
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NORLAND MEDICAL SYSTEMS, INC.
TABLE OF CONTENTS FOR FORM 10-Q
PAGE
Title Page................................................................. 1
Document Table of Contents................................................. 2
Introduction............................................................... 3
PART I FINANCIAL INFORMATION......................................... 4
Item 1. Consolidated Financial Statements............................. 4
Consolidated Balance Sheets................................... 4
Consolidated Statements of Operations......................... 5
Consolidated Statements of Cash Flows......................... 6
Notes to Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risks... 13
PART II OTHER INFORMATION............................................. 14
Item 1. Legal Proceedings............................................. 14
Item 2. Changes in Securities......................................... 14
Item 3. Defaults Upon Senior Securities............................... 14
Item 4. Submission of Matters to a Vote of Security Holders........... 14
Item 5. Other Information............................................. 14
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signatures................................................................. 16
Exhibit Index.............................................................. 17
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
I N T R O D U C T I O N
THE STATEMENTS INCLUDED IN THIS REPORT REGARDING FUTURE FINANCIAL PERFORMANCE
AND RESULTS AND THE OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVES," "INTENDS," "EXPECTS,"
"ANTICIPATES," "PROJECTS," "ESTIMATES," "PREDICTS," AND SIMILAR EXPRESSIONS ARE
ALSO INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY CAUTIONS THE READER THAT
ACTUAL RESULTS OR EVENTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH OR IMPLIED
BY THE FORWARD-LOOKING STATEMENTS AND RELATED ASSUMPTIONS DUE TO CERTAIN
IMPORTANT FACTORS, INCLUDING, WITHOUT LIMITATION, THE FOLLOWING: (I) THE
CONTINUED DEVELOPMENT OF NEW PRODUCTS AND PRODUCT ENHANCEMENTS THAT CAN BE
MARKETED BY THE COMPANY; (II) THE IMPORTANCE TO THE COMPANY'S SALES GROWTH THAT
THE EFFICACY OF NEW THERAPIES FOR THE TREATMENT OF OSTEOPOROSIS AND OTHER BONE
DISORDERS BE DEMONSTRATED AND THAT REGULATORY APPROVAL OF SUCH THERAPIES BE
GRANTED, PARTICULARLY IN THE UNITED STATES; (III) THE ACCEPTANCE AND ADOPTION BY
PRIMARY CARE PROVIDERS OF NEW OSTEOPOROSIS THERAPIES AND THE COMPANY'S ABILITY
TO EXPAND SALES OF ITS PRODUCTS TO THESE PHYSICIANS; (IV) THE COMPANY MAY BE
ADVERSELY AFFECTED BY CHANGES IN THE REIMBURSEMENT POLICIES OF GOVERNMENTAL
PROGRAMS (E.G., MEDICARE AND MEDICAID) AND PRIVATE THIRD PARTY PAYORS, INCLUDING
PRIVATE INSURANCE PLANS AND MANAGED CARE PLANS; (V) THE HIGH LEVEL OF
COMPETITION IN THE BONE DENSITOMETRY MARKET; (VI) CHANGES IN BONE DENSITOMETRY
TECHNOLOGY; (VII) THE COMPANY'S ABILITY TO CONTINUE TO MAINTAIN AND EXPAND
ACCEPTABLE RELATIONSHIPS WITH THIRD PARTY DEALERS AND DISTRIBUTORS; (VIII) THE
COMPANY'S ABILITY TO PROVIDE ATTRACTIVE FINANCING OPTIONS TO ITS CUSTOMERS AND
TO PROVIDE CUSTOMERS WITH FAST AND EFFICIENT SERVICE FOR THE COMPANY'S PRODUCTS;
(IX) CHANGES THAT MAY RESULT FROM HEALTH CARE REFORM IN THE UNITED STATES MAY
ADVERSELY AFFECT THE COMPANY; (X) THE COMPANY'S CASH FLOW AND THE RESULTS OF ITS
ONGOING FINANCING EFFORTS; (XI) THE EFFECT OF REGULATION BY THE UNITED STATES
FOOD AND DRUG ADMINISTRATION AND OTHER AGENCIES; (XII) THE EFFECT OF THE
COMPANY'S ACCOUNTING POLICIES; (XIII) THE OUTCOME OF PENDING LITIGATION; (XIV)
THE COMPANY'S EFFORTS TO DIVERSIFY ITS PRODUCT LINE AND (XV) OTHER RISKS
DESCRIBED ELSEWHERE IN THIS REPORT AND IN OTHER DOCUMENTS FILED BY THE COMPANY
WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY IS ALSO SUBJECT TO
GENERAL BUSINESS RISKS, INCLUDING ADVERSE STATE, FEDERAL OR FOREIGN LEGISLATION
AND REGULATION, ADVERSE PUBLICITY OR NEWS COVERAGE, CHANGES IN GENERAL ECONOMIC
FACTORS AND THE COMPANY'S ABILITY TO RETAIN AND ATTRACT KEY EMPLOYEES. NOTHING
CONTAINED IN THE REPORT SHOULD BE VIEWED AS SUGGESTING THE EXISTENCE OF A TREND
OR PROTECTION OF ANY FUTURE TREND WITH RESPECT TO ANY MATTER. ANY
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE MADE AS OF THE DATE
HEREOF, BASED ON INFORMATION AVAILABLE TO THE COMPANY AS OF THE DATE HEREOF, AND
THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 82,886 $ 67,666
Accounts receivable--trade, less allowance for
doubtful accounts of $301,000 and $351,000,
respectively 1,560,941 2,517,583
Inventories, net 2,558,327 2,244,317
Prepaid expenses and other current assets 136,534 201,370
Deferred income taxes -- 1,690,755
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Total current assets 4,338,688 6,721,691
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Property and equipment, net 1,014,730 1,175,947
Deferred income taxes, net -- 2,279,086
Goodwill, net -- 7,555,564
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Total assets $5,353,418 $17,732,288
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LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Bank borrowings $ -- $ 311,816
Accounts payable--related parties 1,047,607 372,244
Accounts payable--trade 1,826,202 2,218,639
Accrued expenses 1,729,209 1,633,641
Accrued warranty expenses 445,000 530,000
Unearned service revenue 493,346 387,598
Interest payable 133,807 143,720
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Total current liabilities 5,675,171 5,597,658
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Note payable, net of discount 1,146,405 1,106,562
Stockholders' (deficit) equity:
Common stock--par value $.0005 per share,
45,000,000 shares authorized, 27,045,166
and 25,956,278 shares issued and
outstanding, respectively 13,521 12,977
Additional paid-in capital 38,167,235 37,542,279
Accumulated deficit (39,648,914) (26,527,188)
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Total stockholders' (deficit) equity (1,468,158) 11,028,068
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Total liabilities and stockholders'
(deficit) equity $5,353,418 $17,732,288
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
2000 1999 2000 1999
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue $2,824,507 $ 4,383,712 $10,650,378 $ 13,566,647
Cost of revenue 1,580,102 2,480,280 5,903,544 7,018,118
---------- ----------- ----------- ------------
Gross profit 1,244,405 1,903,432 4,746,834 6,548,529
Sales and marketing
expense 1,079,394 1,298,470 3,493,385 4,214,044
General and
administrative expense 627,710 627,976 2,299,653 2,445,892
Research and development
expense 137,732 306,507 517,202 1,073,436
Unusual charge -- -- 7,258,036 --
---------- ----------- ----------- ------------
Operating loss (600,431) (329,521) (8,821,442) (1,184,843)
Interest expense (50,289) (45,083) (187,447) (229,739)
Interest income 1,381 11,451 5,670 30,173
---------- ----------- ----------- ------------
Loss before income taxes (649,339) (363,153) (9,003,219) (1,384,409)
Income tax expense 8,668 -- 4,118,507 --
---------- ----------- ----------- ------------
Net loss $(658,007) $ (363,153) $(13,121,726) $(1,384,409)
========== =========== =========== ============
Basic and diluted
weighted average shares 27,045,166 25,735,887 26,676,505 20,153,367
========== =========== =========== ============
Basic and diluted loss
per share $ (0.02) $ (0.01) $ (0.49) $ (0.07)
========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (13,121,726) $ (1,384,409)
-------------- --------------
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Amortization expense 346,244 534,145
Depreciation expense 403,430 412,496
Unusual Charge 7,258,036 --
Inventory obsolescence credit -- (791,780)
Provision for doubtful accounts (50,000) 3,647
Deferred income taxes 3,969,841 (340,000)
Other (8,871) 23,723
Changes in assets and liabilities:
Accounts receivable 1,006,641 (693,141)
Inventories 185,990 238,151
Prepaid expenses and other current assets 64,835 319,510
Accounts payable (392,437) 1,225,302
Accrued expenses 781,766 (563,411)
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Total adjustments 13,565,475 368,642
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Net cash provided by operating
activities 443,749 (1,015,767)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (242,213) (315,826)
Other -- (3,590)
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Net cash used in investing activities (242,213) (319,416)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 3,669,000 160,326
Payments on bank borrowings (3,980,816) --
Issuance of common stock 125,500 500,002
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Net cash used in financing activities (186,316) 660,328
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Net increase (decrease) in cash 15,220 (674,855)
Cash and cash equivalents at beginning of period 67,666 1,105,140
-------------- --------------
Cash and cash equivalents at end of period $ 82,886 $ 430,285
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements of Norland Medical Systems, Inc. and
Subsidiaries (the "Company") presented herein, have been prepared pursuant to
the rules of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and footnote disclosures
required by generally accepted accounting principles. These statements should be
read in conjunction with the audited financial statements and notes thereto for
the year ended December 31, 1999, and included in the Company's Report on Form
10-K as filed with the Securities and Exchange Commission on March 30, 2000. In
the opinion of management, the accompanying interim unaudited consolidated
financial statements contain all adjustments (consisting of normal, recurring
accruals) necessary for a fair presentation of the consolidated financial
position, results of operations and cash flows for these interim periods.
The results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 2000.
(2) BANK BORROWINGS
On August10, 1999, the Company entered into a $2 million bank line of credit in
which the Company made borrowings according to an accounts receivable based
formula. Interest on the borrowings accrued at a variable rate based on the
prime rate plus 1.25%. Borrowings under the agreement were collateralized by the
Company's assets. In connection with such agreement, the Company granted to the
bank warrants to purchase 20,000 shares of the Company's Common Stock at a price
of $0.01 per share. As of September 30, 2000 and December 31, 1999, the Company
had outstanding borrowings of $0 and $311,816 with interest accruing at 0% and
9.75% respectively. The line expired on August 11, 2000 and was repaid in full
prior to its termination.
(3) INVENTORIES
As of September 30, 2000 and December 31, 1999 inventories consisted of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30,2000 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Raw materials, product kits,
spare parts and Sub-assemblies $1,478,844 $2,093,351
Work in progress 282,439 380,511
Finished goods 1,447,044 420,455
Inventory reserve (650,000) (650,000)
----------------- -----------------
$2,558,327 $2,244,317
================= =================
</TABLE>
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued):
(Unaudited)
(4) CASH FLOWS
In March 1999, income taxes receivable of $340,000 were reclassified to deferred
income taxes and the Company elected to pay $4,310,000 of Note principal by the
issuance of 11,122,580 shares of its Common Stock. During the first quarter of
fiscal 2000, $200,000 of current deferred income taxes was reclassified to long
term. On February 17, 2000, the Company exchanged 888,888 shares of its common
stock (fair market value of $500,000) for a marketing credit of $500,000. The
credit was utilized by the Company to purchase inventory through an affiliate,
Bionix LLC
(5) UNUSUAL CHARGE
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred operating
losses for eleven consecutive quarters. Although the losses have declined
substantially as a result of cost containment measures taken by the Company,
gross revenues have continued to decline. Sales of new products associated with
the Company's diversification program have not met Company expectations and have
not offset the decline in the Company's bone densitometry equipment lines.
Further, sales of the Company's Orbasone product (less than 10% of gross sales)
have been impacted by FDA review of the product.
As a result of the above noted factors, Company's management evaluated its
financial position and determined that it would be appropriate to charge to
operations the remaining unamortized costs of goodwill, and fully reserve
against its deferred tax assets due to impairment. Such second quarter charges
aggregated $11,367,877; $7,258,036 for goodwill and $4,109,841 for deferred
taxes. The impairment was based on the excess of the carrying value of the
assets over the assets' fair value. The fair value of the assets was generally
determined as the estimates of future discounted cash flows from operations
necessary to realize those assets.
(6) ACCOUNTING PRONOUNCEMENT
In September 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which will be effective for the Company for fiscal
years beginning January 1, 2001. The Company does not anticipate that the
adoption of this statement will have a material effect on the Company's
financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2000.
The Company anticipates that the adoption of SAB 101 will have an insignificant
impact on the Company's financial statements.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED IN ITEM 1 OF THIS REPORT. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES, SOME OF WHICH ARE DESCRIBED IN THE INTRODUCTION TO THIS REPORT.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
DISCUSSED IN THE INTRODUCTION.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash of $67,666. At September 30, 2000,
the Company had cash of $82,886. The Company's current cash position is not
sufficient to sustain the Company's current operating activities. If revenues do
not increase the Company will become insolvent without additional funding.
The Company has experienced declining revenue for the last five consecutive
quarters and operating losses for the last eleven quarters. As a result, the
Company's operations have been negatively impacted. The Company initiated two
efforts to return to profitability. One, a product diversification program was
launched during the first quarter of 2000. Two, during fiscal 1999 substantial
efforts were made to reduce the Company's cost structure. Costs have been
reduced but not to a level that would allow the Company to achieve profitability
at the current revenue level. Sales of new products during the first nine months
ended September 30, 2000 have been below targeted levels and have not offset the
decline in sales in the other product lines offered.
If sales volumes during the next six-month period continue at current levels the
Company will sustain additional losses and require additional financing to
remain a going concern. The Company is exploring financing alternatives, which
may include additional equity issuances, a merger, sale or other divestiture of
one or more of the Company's assets or product lines. The Company makes no
representation that it will be successful in obtaining such financing.
The nature of the Company's business is such that it is subject to changes in
technology, government approval and regulation, and changes in third-party
reimbursement in the United States and numerous foreign markets. Significant
changes in one or more of these factors in a major market for the Company's
products could significantly affect the Company's cash needs.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred operating
losses for eleven consecutive quarters. Although the losses have declined as a
result of cost containment measures taken by the Company, gross revenues have
continued to decline. Sales of new products associated with the Company's
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diversification program have not met Company expectations and have not offset
the decline in the Company's bone densitometry equipment lines. Further, sales
of the Company's Orbasone product (less than 10% of gross sales) have been
negatively impacted due to FDA review of the product.
As a result of the above noted factors, Company's management evaluated its
financial position and determined that it would be appropriate to charge to
operations the remaining unamortized costs of goodwill, and fully reserve
against its deferred tax assets due to impairment. Such second quarter charges
aggregated $11,367,877; $7,258,036 for goodwill and $4,109,841 for deferred
taxes. The impairment was based on the excess of the carrying value of the
assets over the assets' fair value. The fair value of the assets was generally
determined as the estimates of future discounted cash flows from operations
necessary to realize those assets.
Revenue for the nine months ended September 30, 2000 decreased $2,916,269
(21.5%) to $10,650,378 from $13,566,647 from the comparable period of 1999. The
decrease in revenue was the result of significantly decreased sales of the
Company's DXA-based bone densitometry systems in the United States. Sales of
complete bone densitometry systems represented 83% and 89% of total revenue for
the nine months ended September 30, 2000 and 1999, respectively. Sales of parts
and services and rental income comprised the balance of revenues for such
periods.
Sales in the United States have been adversely affected by changes in the
Medicare reimbursement rates for bone densitometry tests. Revenues and the mix
of products sold are expected to continue to be influenced by the relative
degree of difference in reimbursement rate levels for peripheral and central
systems. They will also be influenced by the Company's ability to bring to the
market systems that can be operated more profitably by end users at the
applicable reimbursement levels.
With the osteoporosis market having remained flat for the past twelve months,
especially in the U.S., and management's expectation that conditions in the
osteoporosis market may not change in the short-term, the Company announced in
November 1999 a product diversification program into musculoskeletal therapy
systems. The Company launched the distribution of new lines of products in
several musculoskeletal market segments, including sports medicine, pain
management and rehabilitation. The Company is exploring other opportunities to
distribute new products as part of its sales diversification program. There can
be no assurance that the Company will be able to successfully distribute such
products or any other new products and in fact, has had limited success to date.
Norland's new musculoskeletal products include three models of the GALILEO, a
patent-pending exercise system designed for use in sports medicine to improve
muscle strength and in rehabilitation to improve mobility through the rebuilding
of muscles. The Company's diversification program includes another
musculoskeletal product, the ORBASONE, a therapeutic device designed for use in
pain management to treat muscles, tendons and ligaments. Sales of the Orbasone
have been suspended pending FDA review of the product. The Company further
expanded its product diversification program into urology by signing an
agreement that provides Norland the exclusive U.S. distribution rights to a
Lithotripsor the GENESTONE 190. Sales of the new products have not met
Company objectives during the nine months ended September 30, 2000.
Cost of revenue as a percentage of revenue was 55.4% and 51.7% for the nine
months ended September 30, 2000 and 1999, respectively, resulting in a gross
margin of 44.6% for the nine months ended September 30, 2000 compared to 48.3%
for the comparable period of 1999. The gross margin for the third quarter of
1999 benefited from a $791,780 inventory obsolescence credit and by
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$339,000 in sales of refurbished demonstration systems, which had been carried
at relatively low costs. In addition, because the Company has certain fixed
manufacturing costs each quarter, to the extent that revenues are lower in any
given quarter, such fixed costs have a more negative impact on gross margins.
Sales and marketing expense decreased $720,659 (17.1%) to $3,493,385 for the
nine months ended September 30, 2000 from $4,214,044 for the nine months ended
September 30, 1999, and increased as a percentage of revenue to 32.8% from
31.1%. The dollar decrease was primarily due to a reduction in personnel and
decreased advertising, marketing, promotion and travel related expenses incurred
by sales and customer service personnel.
General and administrative expense decreased $146,239 (6%) to $2,299,653 for the
nine months ended September 30, 2000 from $2,445,892 for the nine months ended
September 30, 1999 and increased as a percentage of revenue to 21.6% from 18%.
The decrease was principally attributable to a reduction in professional fees.
Research and development expense decreased $556,234 (51.8%) to $517,202 for the
nine months ended September 30, 2000 from $1,073,436 for the nine months ended
September 30, 1999, and also decreased as a percentage of revenue to 4.9% from
7.9%. The decrease was primarily attributable to a reduction in personnel.
Interest expense decreased $42,292 (18.4%) to $187,447 for the nine months ended
September 30, 2000 from $229,739 for the nine months ended September 30, 1999.
Interest expense for both periods represents interest on a Note payable issued
by the Company in connection with the acquisition of Norland Corporation on
September 11, 1997. The decrease in interest expense reflects the reduced
outstanding principal balance of the Note payable. The decrease was offset by
borrowings under the Company's credit facility during the nine months ended
September 30, 2000. Interest income in the nine-month periods ended September
30, 2000 and 1999 consisted primarily of interest earned on the Company's cash
balances. The decrease in interest income in the nine-month period ended
September 30, 2000 as compared to September 30, 1999 reflects the Company's
reduced cash position.
The Company had a net loss of ($13,121,726) ($0.49) per share based on weighted
average shares for the nine months ended September 30, 2000 compared to a net
loss of ($1,384,409) ($0.07) per share based on 20,153,367 weighted average
shares for the nine months ended September 30, 1999. The increase in the loss
was principally attributable to the unusual charge previously described.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Revenue for the three months ended September 30, 2000 decreased $1,559,205
(35.6%) to $2,824,507 from $4,383,712 of the comparable period of 1999. The
decrease in revenue was the result of significantly decreased sales of the
Company's DXA-based bone densitometry systems in the United States. Sales of
complete bone densitometry systems represented 81% and 89% of total revenue for
the three months ended September 30, 2000 and 1999, respectively. Sales of parts
and services and rental income comprised the balance of revenues for such
periods.
Cost of revenue as a percentage of revenue was 56.0% and 56.6% for the three
months ended September 30, 2000 and 1999, respectively, resulting in a gross
margin of 44.0% for the three months ended September 30, 2000 compared to 43.4%
for the comparable period of 1999.
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<PAGE>
Sales and marketing expense decreased $219,076 (16.9%) to $1,079,394 for the
three months ended September 30, 2000 from $1,298,470 for the three months ended
September 30, 1999, and increased as a percentage of revenue to 38.2% from
29.6%. The dollar decrease was primarily due to a reduction in sales volume.
General and administrative expense remained approximately the same decreasing
$266 to $627,710 for the three months ended September 30, 2000 from $627,976 for
the three months ended September 30, 1999 and increasing as a percentage of
revenue to 22% from 14.3%.
Research and development expense decreased $168,775 (55.1%) to $137,732 for the
three months ended September 30, 2000 from $306,507 for the three months ended
September 30, 1999, and also decreased as a percentage of revenue to 4.9% from
7.0%. The decrease was primarily attributable to a reduction in personnel.
Interest expense increased $5,206 (11.5%) to $50,289 for the three months ended
September 30, 2000 from $45,083 for the three months ended September 30, 1999.
Interest expense for both periods represents interest on a Note payable issued
by the Company in connection with the acquisition of Norland Corporation on
September 11, 1997. The increase in interest expense reflects the reduced
outstanding principal balance of the Note payable offset by borrowings under the
Company's credit facility during the three months ended September 30, 2000.
Interest income in the three-month periods ended September 30, 2000 and 1999
consisted primarily of interest earned on the Company's cash balances. The
decrease in interest income in the three-month period ended September 30, 2000
as compared to September 30, 1999 reflects the Company's reduced cash position.
The Company had a net loss of $(658,007) ($0.02) per share based on 27,045,166
weighted average shares for the three months ended September 30, 2000 compared
to a net loss of $(363,153) ($0.01) per share based on 25,735,887 weighted
average shares for the three months ended September 30, 1999.
FORWARD-LOOKING STATEMENTS
As indicated in the Introduction to this Report, forward-looking statements,
including those contained in this Management's Discussion and Analysis section,
are subject to risks and uncertainties. This section includes forward-looking
statements with respect to the effect of reimbursement rates on future sales and
product mix, the Company's ability to realize deferred tax assets as recorded,
future capital expenditures and the Company's plans for funding its ongoing
operations. Such forward-looking statements are subject to the factors cited in
the Introduction.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement". The
Company's major financial market risk exposure is changing interest rates,
primarily in the Unites States. The Company's policy has been to manage its
interest rate risks through use of a fixed rate debt. All items described are
non-trading and are stated in U.S. dollars.
<TABLE>
<CAPTION>
FAIR VALUE
Expected Maturity Dates ------------
---------------------------------------------------------- SEPTEMBER
2000 2001 2002 2003 THEREAFTER TOTAL 30, 2000
---------- ---------- ----------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Bank deposits-non interest bearing $82,886 $ 82,886 $ 82,886
NOTE PAYABLE
Fixed interest rate--6.5% $1,250,000 $1,250,000 $1,146,405
</TABLE>
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<PAGE>
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The shareholders' class action settlement agreement (previously disclosed in the
Company's annual report on Form 10-K, December 31, 1999) was approved by the
U.S. District Court, as submitted, on March 30, 2000.
On March 31, 2000 the Company received a summons alleging patent infringement
regarding the distribution of one of the Company's product lines. The Company is
a distributor of the product and does not manufacture or assemble the product.
The Company's distribution agreement with the manufacturer of the product
provides indemnification to the Company from any claim of a third party arising
from patent infringement. At this time the Company is unable to determine the
merits of the summons and any possible outcome or impact on the Company, if any.
The manufacturer has informed the Company that it intends to vigorously defend
the claim. Sales of the product accounted for approximately 2.6% of the
Company's revenue for the six months ended September 30, 2000.
On October 11, 2000 the Company received a "Warning Letter" from the Food and
Drug Administration "FDA" concerning the labeling and marketing of the Company's
Orbasone product. The Company formally responded to the FDA on October 18,
2000. Sales of the Orbasone (less than 10% of gross sales) have been suspended
pending resolution of the matter.
In the normal course of business, the Company is a party to lawsuits in which
claims are asserted against the Company. In the opinion of management, the
liabilities, if any, which may ultimately result from such lawsuits are not
expected to have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
Item 2. CHANGE IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
-14-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits furnished:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
-15-
<PAGE>
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORLAND MEDICAL SYSTEMS, INC.
(Registrant)
Date: November 10, 2000 /S/ REYNALD G. BONMATI
------------------------
Reynald G. Bonmati
President
Date: November 10, 2000 /S/ ROBERT J. LARSON
----------------------
Robert J. Larson
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE>
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
27 Financial Data Schedule
-17-
