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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 18, 1995
Amendment Number 1 to Form 8-K filed October 21, 1995
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
New York 0-16093 16-0977505
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
310 Broad Street, Utica, New York 13501
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(Address of principal executive offices) (Zip Code)
(315) 797-8375
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changes since last report)
Item 5. Other Events
On October 18, 1995, CONMED Corporation and New Dimensions in
Medicine, Inc. (NDM) announced the signing of an asset purchase agreement in
which CONMED will acquire substantially all of the business and assets of NDM
except for NDM's international wound care business, for a cash purchase price of
approximately $32,000,000. The transaction is subject standard government
approvals and the approval of the shareholders of NDM. Subject to receiving such
approvals, the parties expect the transaction to close the first quarter in
1996.
Item 7. Financial Statements and Exhibits
(c) Exhibits
1. Consolidated Financial Statement of MEI Diversified Inc. and
Subsidiaries as of October 14, 1994 and December 31, 1993, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the period ended October 14, 1994 and for each of the two years in the
period ended December 31, 1993.
2. Consolidated Financial Statement of New Dimensions in Medicine,
Inc. and Subsidiaries as of December 31, 1994 and October 15, 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for the ten week period ended December 31, 1994.
3. Consolidated Financial Statement of New Dimensions in Medicine,
Inc. and Subsidiaries as of September 30, 1995, and the related consolidated
statements of income and cash flows for the nine months ended September 30,
1995.
SIGNATURE
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.
CONMED CORPORATION
By: /s/ Robert D. Shallish, Jr.
Vice President-Finance
Dated: December 21, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K (As Amended)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1994 Commission File No. 1-09156
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
NEW DIMENSIONS IN MEDICINE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
41-1549475
(I.R.S. Employer
Identification No.)
3040 East River Road, Dayton, Ohio 45439
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (513) 294-1767
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 the 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. [ ]
As of March 31, 1995, 4,311,977 shares of Common Stock of the registrant
were outstanding, approximately 1,690,833 shares of which are beneficially owned
by affiliates of the registrant. There is no established trading market.
Pursuant to a plan of reorganization, the registrant intends to submit an
application for inclusion of the Common Stock on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") System. See
"BUSINESS-Background." However, there can be no assurance that such application
will be approved, and until such time the registrant expects the Common Stock to
be traded on local over-the-counter markets.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [ X ] NO [ ]
PART I
Item 1. BUSINESS.
Background
New Dimensions In Medicine, Inc. (the "Company" or "NDM") designs,
develops, manufactures and markets a broad line of specialty medical products
through its Patient Care Division and its Critical Care Division. While the
substantial majority of the Company's revenues are currently generated by
critical care products, the Company expects sales of patient care products to
grow at a higher rate than critical care products. NDM's strategy for future
growth is to use its base of proprietary technology as a platform to develop
customer-driven, specialty medical products, primarily for the treatment of
chronic wounds and prevention of deep vein thrombosis. The Company initially
developed its proprietary hydrogel as a conductor for its electrodes and now
uses it in its ClearSite(R) hydrogel wound care dressings, as an occlusive
dressing to treat chronic wounds and ulcers.
NDM's Patient Care Division consists of ClearSite(R) hydrogel wound
care dressings and the Act One(TM) Foot Pump. ClearSite hydrogel wound dressings
are based on proprietary technology designed to treat chronic wounds and ulcers.
NDM produces ClearSite in a number of sizes and forms for use in a variety of
applications, depending on the type of wound, the location of the wound and the
patient. The Act One Foot Pump is a foot compression device consisting of a
slipper for the patient's foot and a pump which inflates the slipper. The Act
One is designed to treat chronic wound conditions, such as the prevention of
venous stasis, reduction of chronic leg ulcers and reduction of leg pain. The
Act One Foot Pump is also used as a prophylactic device to prevent deep vein
thrombosis. NDM's Critical Care Division consists of electrodes, cables and
wires and electrosurgical products. NDM sells various types of monitoring,
resting, stress and specialty electrodes, as well as cables and wires designed
to connect the patient to the monitor. NDM's electrosurgical products include
two types of electrosurgical grounding pads, pencils, the PowerPoint(TM)
generator and Endoflex(TM) flexible retractors for minimally invasive surgery.
One line of NDM's grounding pads uses the Company's proprietary hydrogel
technology.
As used in this Annual Report, the terms "Company" or "NDM" refer to
New Dimensions In Medicine, Inc., a Delaware corporation. The Company is the
surviving entity of the merger of NDM Acquisition Corp., a Minnesota corporation
("Old NDM"), into MEI Diversified Inc., a Delaware corporation ("MEI
Diversified"). In connection with the merger, MEI Diversified restated its
Certificate of Incorporation and changed its name to "New Dimensions In
Medicine, Inc." The merger was completed as part of the Amended Plan of
Reorganization of the Official Committee of Unsecured Creditors for MEI
Diversified, et. al., dated as of September 27, 1994 (the "Plan of
Reorganization"). On September 28, 1994, the U.S. Bankruptcy Court entered an
order confirming the Plan of Reorganization, and it became effective on October
14, 1994. Pursuant to the Plan of Reorganization (a) the executive officers and
Board of Directors of MEI Diversified were removed, (b) the executive officers
of Old NDM became the executive officers of NDM and (c) and new directors were
elected to the Company's Board of Directors. See "Directors and Executive
Officers." The Company has abandoned the strategy of being a diversified holding
company adopted by the former management of MEI Diversified. Instead, the
Company is continuing the medical products business, as discussed above, of Old
NDM, formerly operated as a subsidiary of MEI Diversified.
As of March 31, 1995, a total of 4,311,977 shares of Common Stock of
NDM have been issued to certain creditors of MEI Diversified, including the
holders of the 12-1/2% Senior Subordinated Notes of MEI Diversified due December
1, 1996 in the original principal amount of $75,000,000 and the 8% Convertible
Debentures of MEI Diversified due December 1, 2006 in the original principal
amount of $50,000,000 in partial satisfaction of their claims. The Company will
issue a total of 4,500,000 shares of Common Stock to such creditors initially.
As of March 31, 1995, 4,311,977 shares of Common Stock have been issued to such
creditors. A total of 500,000 shares of Common Stock will be reserved for
issuance to satisfy claims being made by certain former creditors of MEI
Diversified to which the trust administrator established under the Plan of
Reorganization is objecting. To the extent that these claims are denied,
additional shares of Common Stock will not be issued. The allowed claim of each
such creditor of MEI Diversified will be reduced by $7.60 for each share of
Common Stock of NDM distributed to such creditors. Effective October 14, 1994,
all assets and liabilities of MEI Diversified were distributed to certain
liquidating estates established under the Plan of Reorganization, except for
certain tax attributes of MEI Diversified, the capital stock of certain
nonoperating subsidiaries and the capital stock of Old NDM. Accordingly, NDM is
not responsible for any of the liabilities or obligations of MEI Diversified.
The tax attributes of MEI Diversified and its nonoperating subsidiaries were
retained by NDM in order to preserve certain net operating loss carryforwards
generated by MEI Diversified. As a result of the merger, all assets and
liabilities of Old NDM became assets and liabilities of the Company, except that
all liabilities of Old NDM to MEI Diversified or any of its affiliates
(including indebtedness of approximately $22,916,000 as of October 14, 1994)
were cancelled pursuant to the Plan of Reorganization.
Products
Patient Care Division
NDM's patient care division consists of ClearSite hydrogel wound care
dressings and the Act One Foot Pump. Management believes that the patient care
products are NDM's most important products for the future and represent
significant growth opportunities for NDM.
Specialty wound care dressings, such as ClearSite, are used to treat
chronic conditions, such as chronic venous ulcers, chronic pressure ulcers,
diabetic ulcers, stump sores and skin diseases, and acute conditions, such as
surgical incisions and burns. It is estimated that between 1.5 and 4 million
people suffer from chronic non-healing wounds in the United States. It is
estimated that the specialty wound care dressing market was approximately $350
million in 1992.
NDM has developed a proprietary hydrogel technology, which it currently
manufactures and markets under the name ClearSite. Hydrogels are prepared from
water insoluble polymers that can be formulated to produce water absorbent gel
matrices. Hydrogels are often used in medical applications because they
generally have excellent biocompatibility characteristics. NDM's hydrogel is
also cross-linked, which provides several significant advantages resulting from
the fact that cross- linked hydrogels can be manufactured in sheet form. In
sheet form, hydrogels, like ClearSite, are transparent, soft, conform to the
skin, provide a cushion to the skin and can be cut to shape. NDM initially
developed its proprietary hydrogel technology to improve its electrode products,
and NDM uses its hydrogel in its newest electrodes, as well as its grounding
pads.
ClearSite is a completely transparent wound dressing that consists of
hydrogel and a flexible, continuous polyurethane film covering. Because
ClearSite is transparent, the health care provider is able to monitor the course
of healing without removing the wound dressing. ClearSite absorbs wound exudate
and, as the gel begins to saturate, moisture vapor transpires into the
atmosphere. This cycle continues throughout the healing process to help maintain
balanced hydration. ClearSite is able to absorb 2-1/2 times its weight in wound
exudate and maintains its structural integrity and wound healing capabilities
for up to seven days. It provides a biocompatible, moist healing environment
that conforms to the skin, cushions and produces a cooling effect at the wound
site.
NDM first introduced ClearSite to the market in early 1992 and
currently produces ClearSite wound dressings in a number of sizes and forms for
use in a variety of applications, depending on the type of wound, the location
of the wound and the patient. ClearSite is available in several different sizes
of patches, with and without a foam adhesive border, in bandage rolls and island
dressings. In August 1994, NDM introduced its island dressing form of ClearSite.
The island dressing has a clear, breathable, pliable, adhesive polyurethane film
border, which is more conformable to certain parts of the human body.
The Company recently released a new wound care product called
HydrogauzeTM, which NDM developed as a bridge between traditional gauze bandages
and advanced occlusive wound dressings. Hydrogauze is a gauze-like material that
has been impregnated with dehydrated ClearSite that hydrates upon contact with
wound exudate. Hydrogauze combines the look and feel of gauze bandages with the
wound healing advantages of Clearsite hydrogel. NDM plans to develop several
different formulations of Hydrogauze for use in a variety of applications, such
as chronic and acute wounds, burns and donor sites for skin grafts.
NDM's Act One Foot Pump is designed to treat various circulatory
conditions, such as decubitus ulcers, venous stasis ulcers and related chronic
wounds. The pump is also used as prophylaxis against deep vein thrombosis
("DVT"). DVT fatally affects approximately 250,000 people per year with an
additional 1,700,000 affected by venous disorders. DVT is a blood clot formed in
the leg which can break loose, travel to the lungs and cause a pulmonary
embolism (the closure of a blood vessel in a lung caused by a blood clot)
resulting in death. Venous stasis ulcers affect approximately 850,000 people.
The Company believes that the U.S. market for compression products, such as the
Act One Foot Pump, used as a prophylaxis to treat DVT is at least $100 million.
Approximately 10 million Americans suffer from a combination of severe
ulcerations of the lower extremities, ischemic rest pain (pain resulting from
poor circulation) or painful varicose veins. NDM has received clearance from the
FDA to market the foot pump as a prophylaxis against DVT and for increased blood
flow and circulation.
The Act One Foot Pump consists of a pneumatic pump and a foot slipper
with dual bladders surrounding the foot that mechanically force venous blood to
return to the heart. The pressure of the impulse delivered to the foot, as well
as the length of time between pumping can be programmed into the Act One Foot
Pump. NDM believes that its proprietary dual bladder system has significant
advantages over single bladder systems used by its competitors, including a
better fit and improved blood flow velocity. The Act One foot slipper is also
very easy to use for clinical personnel or for in-home use. By pumping the
circumference of the foot, the Act One restores a more normal blood supply to
the leg. Once this process is achieved, other treatments can also be used to
enhance healing the patient's wounds. The benefits to patients of foot
compression pump treatment include reduced incidence of DVT, reduction of
post-operative pain and swelling, and healing of chronic ulcer wounds.
Patient care products generated revenues of approximately $1,380,000,
$3,312,000, and $3,850,000 in the fiscal years ended December 31, 1992, 1993 and
1994, respectively.
Critical Care Division
NDM's critical care division consists of electrodes, cable and lead
wires and electrosurgical products.
Electrocardiograph ("ECG") monitoring electrodes account for
approximately two-thirds of NDM's revenues. Electrodes are designed to provide
an interface with the patient which is capable of sensing low level
electrocardiographic signals from the heart and converting them to electronic
signals that can be interpreted by monitoring and recording equipment. Long-term
electrodes are used for continuous ECG monitoring for use in operating rooms,
emergency rooms, recovery rooms, and intensive care units. Diagnostic electrodes
are used for specific diagnostic tests of the heart, including ECG tests, stress
tests, Holter monitoring and echocardiography tests. Specialty electrodes are
used in hospital departments with specific needs, including neonatal units,
cardiac catheterization labs, and magnetic resonance imaging units.
The worldwide market for electrodes was estimated to be approximately
$200 million in 1992. NDM believes that the electrode market is a mature market
with only minimal growth potential. Purchase decisions are generally made on
acceptable level of product performance and cost-effectiveness to the buyer.
NDM believes that it is one of the most efficient manufacturers of
electrodes in the United States. NDM attributes its efficiency primarily to
three factors: (a) NDM coats its electrodes with its own proprietary adhesive;
(b) NDM manufactures its own hydrogel; and (c) NDM uses highly automated
production equipment which significantly reduces its cost of production. In
addition, the Company believes that its electrodes are as advanced as any
electrode currently on the market. NDM has used its ClearSite technology to
enhance its electrodes, and most NDM electrodes have ClearSite gel bonded
directly onto the active portion of the electrode patch. In addition to the
characteristics discussed above, ClearSite is an excellent conductor of
electricity. By bonding ClearSite onto the electrode patch, NDM has provided a
dry gel conductor for adult monitoring electrodes. As a result, NDM's electrodes
are comfortable to the patient, do not require the typical clean-up of a wet gel
and are convenient for the medical technician. The Company recently introduced
its Silvon(R) foam electrode and Plia-Cell(R) cloth electrode, both of which are
X-Ray translucent and are designed to provide a standard adult monitoring
electrode for use in a variety of applications.
NDM's line of disposable, pregelled electrodes include cloth and foam
monitoring electrodes, stress and diagnostic electrodes and specialty
electrodes, such as, peripheral nerve stimulation electrodes, X-Ray translucent
electrodes and pediatric and neonatal electrodes. NDM's research and development
activities and the development of ClearSite hydrogel has led to advancements in
NDM's electrodes. NDM's Silvon(R) foam electrode and Plia-Cell(R) cloth
electrode contain a carbon stud, rather than a metal stud, which makes these
electrodes X-Ray translucent. The Silvon diaphoretic and Plia-Cell diaphoretic
electrodes have a specially formulated adhesive to withstand the effects of
heavy perspiration. In order to contain costs, hospitals are reducing the number
of vendors from whom they purchase supplies and the number of products they
purchase. NDM developed the Silvon and Plia-Cell electrodes to provide a
standard adult monitoring electrode that could be used in a variety of hospital
applications. The Company has also recently introduced its Profile electrode
which has the same design as the Silvon and Plia-Cell electrodes, except that
the Profile electrode has a metal stud.
NDM also manufactures and markets ECG monitoring cables, reusable and
disposable lead wire products and accessories. ECG cables and lead wires are
reusable products designed to transmit ECG signals from the heart (converted
into electrical signals by an electrode) to an ECG monitor or recorder. Lead
wires connected directly to the electrodes are plugged into the patient end of
the cable. Cables are designed to accept from three to fifteen lead wires
depending on the level of monitoring required. The machine end of the cable
plugs directly into the receptacle of the monitoring equipment. NDM produces
radio translucent lead wires that are non-metallic and do not obstruct the view
under the X-Ray or fluoroscope.
NDM's electrosurgical products consist of electrosurgical grounding
pads, pencils and generators and Endoflex flexible retractors for minimally
invasive surgery. According to industry estimates, approximately 22 million
surgical procedures were performed in 1993, approximately 65% of which involved
electrosurgery. It is estimated that by 1995, 20% - 25% of all surgical
procedures will be performed laparoscopically (a minimally invasive technique in
which small incisions are made in the body and surgical procedures are performed
through small tubes inserted in the incisions). NDM expects the increase in
minimally invasive procedures to increase demand for its grounding pads,
generator and Endoflex products, but to reduce demand for its electrosurgical
pencils. According to industry estimates, the worldwide market for the
electrosurgical products offered by NDM was approximately $160 million in 1992
(including approximately $70 million in grounding pads, $40 million in
generators, and $50 million in electrosurgical pencils).
NDM manufactures and sells two disposable grounding pad products which
return the electric current from the patient to the generator: the Neoflex(R)
conductive grounding pad and the DiaTemp II(R) capacitively-coupled dispersive
grounding pad. The Neoflex incorporates NDM's ClearSite hydrogel technology
which enhances conductivity, optimizes patient skin contact and removes easily
without leaving residue. Both models can be used with most available generators.
The DiaTemp II pad has an adhesive dielectric membrane which disperses
electrical current evenly over the entire membrane surface for uniform heating,
reducing the risk of patient skin burns. NDM believes that the DiaTemp II is the
most cost-effective and safest grounding pad in the industry, and NDM has been
issued patents which cover various aspects of the dispersive technology.
NDM's PowerPoint electrosurgical pencils are hand-held surgical devices
used by the surgeon to apply the RF current to the surgical site. The pencil is
available in three configurations to accommodate surgeon preference (rocker
switch, push-button switch and foot switch).
NDM markets and sells an electrosurgical generator, the PowerPoint(TM)
1000, which is manufactured on an OEM basis for NDM by a third party. The
PowerPoint 1000, which is designed for general operating room use, has
adjustable power settings for cutting only, a combination of cutting and
coagulating, and pinpoint and spray fulguration. The PowerPoint 1000 operates in
the monopolar and bipolar modes and can be used with most electrosurgical
accessories and supplies, whether manufactured by NDM or other companies.
NDM also markets Endoflex flexible retractors for organ retraction and
manipulation in minimally invasive surgery. Endoflex is a surgical retractor
that consists of a straight shaft with an activation handle at the proximal end
and a flexible, segmented portion at the distal end. The segmented portion takes
a pre-formed shape when activated. This design allows the instrument to be
inserted into a cannula during a laparoscopic procedure, after which the surgeon
forms it into one of a series of hooks, angled hooks, triangular retractors and
mildly curved instruments. Each one of the instruments enables the surgeon to
hold tissues and retract or manipulate organs in much the same way as a
surgeon's hands and fingers would in an open procedure.
Critical care products generated revenues of approximately $31,386,000,
$29,969,000 and $28,430,000 in the fiscal years ended December 31, 1992, 1993
and 1994, respectively.
Marketing And Distribution
The principal United States market for NDM's products are hospitals and
alternate care sites, such as clinics, physician offices, ambulatory surgery
centers and nursing homes. NDM's sales activities are directed by its Vice
President of Sales who manages approximately 30 direct sales personnel. The
Company also maintains customer service and telemarketing functions at its
office in Dayton, Ohio to support the sales staff. NDM's Vice President of
Marketing manages the marketing department, which also includes a number of
product managers. The marketing department is responsible for marketing
activities for both the patient care and critical care divisions, including
clinical studies, advertising promotion and other related marketing functions.
The field sales force is trained in the technical aspects of NDM's
products and their uses. They provide hospital personnel with information
relating to the technical features and benefits of NDM's products. The field
sales force also coordinates sales efforts within geographic territories, works
with distributors and maintains relationships with the hospitals and alternate
care sites. While NDM's sales efforts are directed towards hospitals and
alternate care sites, NDM's products are generally purchased by hospitals
through distributors. NDM normally sells its products in the United States to
distributors which then resell the products to hospitals and alternate care
sites. The Company generally sells capital equipment, such as generators and
foot pumps, directly to hospitals and alternate care sites.
NDM's marketing programs include development of product literature,
attendance at major national and international medical conventions, sponsoring
clinical studies, direct mail advertising, telemarketing, promoting publication
of abstracts and journal articles demonstrating the effectiveness of NDM's
products and other various promotional and product support activities. For
example, several studies have been conducted demonstrating the effectiveness of
ClearSite hydrogel wound dressing products. NDM is committed to sponsoring
studies for its hydrogel wound dressings and its Act One Foot Pump.
In recent years, the distribution of medical products to hospitals in
the United States has been characterized by significant consolidation, primarily
to reduce inventory and purchasing costs. To increase efficiency, hospitals
generally purchase most of their medical products directly from a limited number
of large distributors. The largest distributors of medical products in the
United States are Baxter Healthcare, Owens & Minor and General Medical. In
addition, hospitals have been forming large national and regional buying groups
in order to purchase products at more favorable prices. Alternate care sites
generally purchase medical products through these large distributors, as well as
a larger number of smaller regional distributors.
In addition to the distribution agreement NDM has with Baxter, which is
discussed below, NDM has entered into non-exclusive distribution agreements for
hospital sales with Owens & Minor, General Medical, Colonial, Burrows and Medix.
NDM has also entered into oral agreements with over 50 independent,
non-exclusive distributors who sell NDM's products primarily to alternate care
sites. Some of these alternate care site distributors may eventually sell
products to some hospitals, as well. NDM has also entered into written
agreements with a number of national hospital buying groups.
NDM recently exercised its right to extend the distribution agreement
with Baxter through December 31, 1995; however, under the current terms of the
extension, Baxter's margins will increase, resulting in an expected additional
cost to NDM of approximately $700,000 in 1995. NDM and Baxter are currently
negotiating a new distribution agreement which, if consummated on proposed
terms, would produce generally comparable margins for NDM in 1995 as in 1994.
Under the current agreement, Baxter has the exclusive right to distribute the
Company's critical care products to approximately one thousand U.S. hospitals
that were customers of Baxter on January 1, 1992, and the Company has the
exclusive right to provide those products to Baxter. Baxter also has the
non-exclusive right to distribute the Company's critical care products to other
U.S. hospitals and the non-exclusive right to distribute the Company's patient
care products to U.S. hospitals. Virtually all sales of NDM's disposable
products to U.S. hospitals are made through major hospital distributors. Baxter
is by far the largest distributor of NDM's products, accounting for
approximately 95% of NDM's sales to U.S. hospitals. NDM has taken steps to
reduce its dependence on Baxter by selling its products through other
distributors and plans to continue to broaden its distribution network. NDM
estimates that Baxter currently controls approximately 30% of the market for
distribution of medical products to United States hospitals. There can be no
assurance that NDM will be able to negotiate a new agreement with Baxter on
terms favorable to NDM or that Baxter will continue to distribute the Company's
products. If NDM is unable to negotiate an agreement with Baxter satisfactory to
NDM, the Company would be materially adversely affected.
The Company's European sales consist primarily of patient care products
which are distributed through independent distributors. NDM's distributor in the
United Kingdom assists NDM in managing NDM's network of European distributors.
NDM currently has written agreements with international distributors covering
Japan, Germany, Austria, Belgium, Australia, Luxembourg, the United Kingdom, The
Netherlands, Denmark, and New Zealand and oral agreements with international
distributors covering various other countries. NDM also manufactures its
hydrogel wound dressing products on an OEM basis for some of its distributors
and competitors.
Competition
The medical device industry is intensely competitive in almost all
segments and tends to be dominated in large, more mature markets by a relatively
small group of large, well-financed companies. Most of NDM's competitors have
significantly greater financial, marketing and other resources than NDM. NDM
also competes with smaller, more entrepreneurial companies, some of which are
better financed than NDM and already have established positions in certain
markets. The Company believes that it competes favorably in its current markets
based on product quality, technology and pricing. Furthermore, the health care
industry is currently undergoing significant consolidation in part to control
health care costs. In particular, Conmed Corp. recently announced that it has
agreed to acquire Birtcher Medical Systems, Inc., both of which are competitors
of the Company.
Patient Care Division
NDM estimates that hydrocolloid products currently account for
approximately 95% of the absorbent occlusive dressing market, of which hydrogel
wound dressing products are a part. The dominant competitor in the occlusive
dressing market is Convatec Inc., a division of Bristol-Meyers Squibb Company,
which produces the hydrocolloid product Duoderm. NDM estimates that Duoderm
accounts for up to 75% of the hydrocolloid segment of this market and generates
annual revenues greater than $100 million. NDM believes that the remainder of
the hydrocolloid market is shared among a number of other manufacturers, none of
which has a significant market share. NDM's primary competition for moist wound
dressing products, which are gel-based technologies, include Vigilon Products
manufactured by Bard Home Health Inc., NuGel(R), manufactured by Johnson &
Johnson Medical Products, Inc., and Elastogel(R) manufactured by Southwest
Technology.
NDM estimates that The Kendall Company currently has approximately 80%
of the U.S. market for compression pumps. In addition, Kendall distributes in
the U.S. the foot pump manufactured by NovaMedix Ltd., which is the subject of a
patent infringement involving the Company. See Item 3 - Legal Proceedings. The
Company believes that its foot pump has superior technology and will be able to
compete effectively with the NovaMedix foot pump.
Critical Care Division
The principal competitors in the electrode market are 3M Corporation,
Conmed Corporation and Graphic Controls Inc., with 3M controlling approximately
30% of the market. NDM believes that it currently has the third largest market
share, with approximately 14% of the market. Electrodes have become a
"competitive" product, and the Company believes that cost will be an important
competitive factor in this market as a result of continuing cost control efforts
by hospitals. NDM has taken measures that it believes will improve its
competitive position by incorporating hydrogel technology into all of its
electrodes, lowering production costs, providing a standardized adult monitoring
electrode for use in a wide variety of applications and consolidating redundant
product lines. The installation of new automated production equipment in
December 1993 has reduced NDM's manufacturing cost significantly. NDM believes
that it is one of the most efficient manufacturers of electrodes.
NDM's principal competitor for cable and wire products is Tronomed
Inc., a subsidiary of Graphic Controls. NDM believes that competitive pricing
and new product features are critical to the success of its cable and wire
product products, as well as enhancing sales of its ECG electrodes.
NDM's principal competitors in the electrosurgical market are
ValleyLab, a division of Pfizer, Inc., Birtcher Medical Systems, Inc., Zimmer,
3M Corporation, and Conmed Corporation. NDM estimates that ValleyLab controls
approximately 55%-65% of the segments of the electrosurgical market in which NDM
competes. NDM does not have a significant market share in any of these segments.
Manufacturing And Supplies
NDM manufactures or assembles its products at its facility in Dayton,
Ohio. NDM's vertically integrated manufacturing process allows it to obtain cost
efficiencies by purchasing raw materials for its hydrogel and electrode products
in bulk and converting those materials into the parts and pieces used in final
assembly. NDM uses various manual, semi-automated and automated equipment for
fabrication and assembly of its products and is continuing to further automate
its facilities to remain competitive. In December 1993, NDM installed new
automated equipment for the production of its newest electrodes, which has
resulted in significant savings in production costs. As a result, the Company
believes that it is one of the most efficient manufacturers of electrodes in the
United States.
NDM purchases virtually all of the raw materials for its products from
domestic suppliers. Although the Company has multiple sources or has identified
second sources for most of these raw materials, it has only one source for
certain raw materials used in the production of some of its products. The
Company is seeking second sources for all of the single-sourced raw materials
used in its products, although there can be no assurance that NDM will be able
to obtain suitable second sources. To the Company's knowledge, other electrode
manufacturers, as well as NDM, are dependent on the same single sources for
certain components used in electrodes. NDM is also dependent on these suppliers
for certain components used in its grounding pads. In addition, certain
suppliers have recently indicated a reluctance to supply raw materials to the
medical industry due to the risk of liability to these suppliers. The failure of
any one of the Company's sole sources of critical raw materials to supply such
materials would have a material adverse effect on the Company.
Research And Development
NDM believes that its research and development capability is an asset
which will be critical to its future growth. NDM conducts research and
development primarily at its facility in Dayton, Ohio, although the various
clinical studies which it sponsors are generally conducted in laboratories and
clinics at universities and hospitals around the world. NDM's research and
development is focused on improving and expanding existing product lines and
developing new products. NDM has developed most of its products internally,
including the ClearSite hydrogel technology, which NDM initially developed to
improve its electrodes. NDM has also invested significant research and
development resources in its adhesive technology which is used in ClearSite
hydrogel, electrodes and electrosurgical grounding pads. NDM also developed its
electrodes internally.
NDM's research and development expenditures were approximately
$885,000, $1,036,000 and $1,145,000 in the fiscal years ended December 31, 1992,
1993 and 1994, respectively.
Patents and Proprietary Protection
NDM seeks to protect its intellectual property through the use of
patents, trade secrets, trademarks, and copyrights. NDM believes that reliance
upon trade secrets and unpatented proprietary know-how, the improvement of
existing products, and the development of new products are generally as
important as patent protection in establishing and maintaining a competitive
advantage. Nevertheless, NDM has obtained and will continue to seek patents,
when available, in connection with its product development program. Although NDM
has been granted United States patents on certain features of its products, and
has applied for others, there can be no assurance that any patent held by the
Company will be valid or otherwise of value to the Company or that any patent
application currently pending will be granted. In addition, a number of the
Company's patents covering its electrodes will expire over the next several
years. Even with significant patent protection, the Company may be vulnerable to
competitors who attempt to copy its products. While the Company has successfully
defended and enforced its patents in the past, there can be no assurance that
the Company will be able to do so in the future. The Company also relies
extensively on trade secrets and unpatented proprietary know-how, particularly
in the formulation and production of its hydrogel technology. There can be no
assurance that the Company will be successful in protecting its trade secrets
and unpatented proprietary know-how. While the Company believes it has all
rights necessary to manufacture and sell its current products without
infringement of patents held by others, the Company has not conducted a formal
infringement search and there can be no assurance that such conflicting rights
do not exist. In particular, NDM is currently defending a patent infringement
action brought by Novamedix Limited relating to NDM's Act One Foot Pump. NDM has
obtained an opinion from its patent counsel that NDM's foot pump does not
infringe the Novamedix patent, and NDM is vigorously defending its position. If
NDM is unsuccessful in defending its position, NDM's strategy with respect to
its Act One Foot Pump would be adversely affected.
NDM has obtained a number of registered trademarks including NDM,
ClearSite, Silvon, Plia-Cell, ResTest, Accutac, NDM High Demand, TenderTrace,
Nu-Connect, V-Trace, Neoflex, DiaTemp and PowerPoint. NDM has filed trademark
applications on Hydrogauze, PinSite and Profile. In addition, NDM has filed
trademark applications on some of its other products and in certain foreign
countries.
Regulation
The medical devices manufactured and marketed by NDM are subject to
regulation by the United States Food and Drug Administration ("FDA") and, in
some instances, by state and foreign authorities. Pursuant to the Medical Device
Amendments of 1976 ("1976 Amendments") to the Federal Food, Drug and Cosmetic
Act, and regulations promulgated thereunder, medical devices intended for human
use are classified into three categories (Classes I, II, and III), depending
upon the degree of regulatory control to which they would be subject. NDM's
current products have been classified as Class I or Class II devices.
If a new device, irrespective of whether it is a Class I or II device,
is substantially equivalent to an existing device that has been continuously
marketed since the effective date of the 1986 Amendments (May 28, 1976) (a
"Substantially Equivalent Device"), FDA requirements may be satisfied through a
Premarket Notification Submission (a "510(k) Submission"), under which the
applicant provides product information supporting its claim of substantial
equivalence. In a 510(k) Submission, the FDA may also require that it be
provided with clinical test results demonstrating the safety and efficacy of the
device. If a medical device does not qualify for the 510(k) Submission
procedure, the manufacturer must file a pre-market approval application, which
requires more extensive testing than the 510(k) Submission process and involves
a significantly longer FDA review process. NDM regularly files 510(k)
Submissions for new products and improvements to existing products.
Although the 510(k) Submission process was originally designed to be
relatively fast, recent legislation, regulations, and policy decisions by the
FDA have made the 510(k) Submission process substantially more difficult and
time-consuming than in the past. There can be no assurance that NDM or any other
manufacturer of medical equipment will be able to obtain clearances or approvals
for new products or product improvements in the future on a timely basis, or at
all. Any significant delay in obtaining the necessary approvals could have a
material adverse effect on NDM.
As a manufacturer of medical devices, NDM is also subject to certain
other FDA regulations and its manufacturing processes and facilities are subject
to continuing review by the FDA to ensure compliance with Good Manufacturing
Practices regulations. NDM believes that its manufacturing and quality control
procedures substantially conform to the requirements of FDA regulations. The
Company underwent a GMP inspection in February 1994 and was found to be in
compliance with GMP regulations.
NDM's products are also subject to regulation in foreign countries.
Employees
As of December 31, 1994, NDM had approximately 204 full-time employees,
including 10 in research and development, 125 in manufacturing, 41 in sales and
marketing, and 28 in general and administrative functions.
Item 2. PROPERTIES.
NDM's administrative, manufacturing, and research and development
facilities are located at 3040 East River Road, Dayton, Ohio 45439. The
facilities consist of approximately 100,000 square feet and are owned by NDM.
Item 3. LEGAL PROCEEDINGS.
On April 8, 1994, Aspen Laboratories, Inc. ("Aspen") filed an action
against NDM in the United States District Court for the Southern District of
Ohio (Western Division-Dayton) Civil Action No. C-3-94-152. Among other things,
the complaint alleges that (i) Aspen is the sole owner of all right, title and
interest in and to a certain patent and invention pursuant to a patent duly and
legally issued by the U.S. Patent and Trademark Office entitled "return
electrode contact monitor" (the "Patent"), (ii) NDM is offering for sale and
selling under the NDM name certain return electrode contact monitors which
infringe claims of the Patent, and (iii) NDM's actions have encouraged, aided,
abetted and actively induced infringement by others and/or have contributed to
infringement by others of the Patent. Aspen's claims for relief include, among
other things, that NDM be enjoined against infringing, inducing others to
infringe, or contributing to the infringement by others upon the Patent and that
an accounting of all NDM's sales and profits derived from the infringement be
undertaken, and that Aspen be compensated in damage for such infringement. This
action has been stayed pending resolution of other litigation, in which NDM is
not a party, involving similar issues. Aspen's parent corporation ConMed has
acquired Birtcher Medical Systems, which manufactures the product for NDM on an
OEM basis. Accordingly, the Company believed this lawsuit will be dismissed.
On June 10, 1994, NovaMedix, Limited filed an action against NDM, Vesta
Healthcare, Inc. and the Hall Company, in United States District Court for the
Southern District of Ohio, Western Division at Dayton, Civil Action No.
C-3-94-251. NovaMedix alleges that defendants are infringing upon several
patents by making, using and selling medical devices, including NDM's Act One
Foot Pump and associated inflatable bladders and slippers embodying the patent
inventions without license from NovaMedix. NovaMedix seeks an injunction against
defendants from further infringement of the patents, damages for the alleged
infringement in an amount not less than a reasonable royalty with interest, and
triple damages for the alleged willful and deliberate nature of the
infringement, together with an award to NovaMedix of its reasonable attorneys
fees. NDM has obtained an opinion from its patent counsel that the Act One Foot
Pump does not infringe the NovaMedix patent, and NDM is vigorously defending its
position.
In October 1994, NovaMedix filed a similar action NDM in the United
Kingdom relating to a U.K. patent that would affect marketing the product in the
U.K. The Company does not believe that it infringes the U.K. patent and is
vigorously defending its position. NDM has answered these complaints and expects
a trial in the United Kingdom in June 1995.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Report.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
Market Information
As of March 31, 1995, 4,311,977 shares of Common Stock were issued and
outstanding. There is currently no established trading market. Pursuant to the
Plan of Reorganization, the Company intends to submit an application for
inclusion of the Common Stock on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System. See "BUSINESS- Background." However,
there can be no assurance that such application will be approved, and until such
time the Company expects the Common Stock to be traded on local over-the-counter
markets.
Holders
Following the distribution of the Common Stock pursuant to the Plan of
Reorganization, the Company expects to have approximately 1,000 shareholders of
record.
Dividends
The Company currently intends to retain any future earnings to fund the
development of its business and therefore does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company is
prohibited under its credit facility from paying dividends on its Common Stock
without the consent of the lender.
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data on the following page for, and
as of the end of, each of the years in the four year period ended December 31,
1993 as well as the selected consolidated financial data for the periods ended
October 14, 1994 and December 31, 1994, have been derived from the consolidated
financial statements of MEI Diversified and New Dimensions In Medicine, Inc.,
which have been audited by Arthur Andersen LLP, independent public accountants.
The auditor's report on MEI Diversified is qualified due to an inability to
obtain written representations regarding certain matters from MEI Diversified
Management. The auditor's reports for both MEI Diversified and New Dimensions In
Medicine, Inc. contain an explanatory paragraph related to their ability to
continue as a going concern. The selected consolidated financial data as of
October 15, 1994 and December 31, 1994 have been derived from the consolidated
balance sheets of New Dimensions In Medicine, Inc., which have been audited by
Arthur Andersen LLP, independent public accountants. This report also contains
an explanatory paragraph related to the ability of New Dimensions In Medicine,
Inc. to continue as a going concern. The consolidated balance sheets of New
Dimensions In Medicine, Inc. as of October 15, 1994 and December 31, 1994 and
the consolidated financial statements for the 10-week period ending December 31,
1994, and the consolidated financial statements of MEI Diversified Inc. as of
October 14, 1994 and December 31, 1993 and for the 42 weeks ended October 14,
1994 and for each of the years in the two year period ended December 31, 1993,
and the reports thereon, are included elsewhere in this Annual Report. The
selected consolidated financial data information is qualified in its entirety by
reference to such consolidated financial statements and should be read in
conjunction with the consolidated financial statements included in or
incorporated by reference into this Annual Report.
Effective as of October 15, 1994, the day after the effective date of
the Plan of Reorganization, the Company adopted "fresh start" accounting for
financial reporting purposes in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." The effect of the
adoption of Statement of Position 90-7 is reflected in the Company's
consolidated balance sheet as of October 15, 1994. Accordingly, the Company's
consolidated balance sheet at and after October 15, 1994 and its consolidated
statements of operations, cash flows and changes in stockholders' equity for the
periods thereafter are not, and will not be, comparable to the consolidated
financial statements of MEI Diversified Inc. for the periods prior to October
15, 1994, that are set forth below and certain of which are included elsewhere
in this Annual Report. The consolidated balance sheets of New Dimensions In
Medicine, Inc., and the consolidated financial statements of MEI Diversified
Inc. and the notes thereto should be referred to for additional information on
certain of the periods presented on the following page.
Statements of Operations Data:
(All Data Except Per Share Data in Thousands)
Post Pre
Reorganization Reorganization
-------------- ---------------------------------------------------
10 Weeks 42 Weeks
Ended Ended Year Ended December 31,
December 31, October 14, ---------------------------------------------------
1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- ---------
Revenues ........................................ $ 7,398 $ 24,882 $ 33,281 $ 32,766 $ 32,512 $ 15,596
Operating income (loss) ......................... 586 (4,516) (2,372) (853) (1,797) (2,887)
Income (loss) from continuing operations ........ 252 (15,275) (11,281) (7,002) (8,039) (5,847)
Income (loss) from discontinued
operations .................................... -- 352 (4,021) (103,218)(1) (4,611) (6,097)
Net income (loss) ............................... 252 (14,923) (15,302) (110,220) (12,650) (11,944)
Per common share:
Income (loss) from --
continuing operations ....................... 06 (.82) (.60) (.37) (.43) (.30)
discontinued operations ..................... -- .02 (.22) (5.53) (.24) (.32)
Net income (loss) ............................. 06 (.80) (.82) (5.90) (.67) (.62)
Weighted average number of
common shares outstanding ...................... 4,312(2) 18,686 18,686 18,685 18,746 19,206
- ----------------
(1) Primarily represents losses incurred in connection with the discontinuance
of the professional beauty salon operations.
(2) As of December 31, 1994, the Company was still in the process of
distributing the shares of common stock to shareholders. For financial
reporting purposes, net income per share has been computed based upon the
weighted average number of shares outstanding during the period on a pro
forma basis.
Balance Sheet Data:
(In Thousands)
Post Pre
Reorganization Reorganization
-------------- ---------------------------------------------------
Fresh-Start Historical as of
As Of December 31,
December 31, October 15, ---------------------------------------------------
1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- ---------
Working capital (deficit) .......................... $ 3,485 $ 3,169 $ 8,298 $(103,264) $ 25,640 $ 41,739
Total assets ....................................... 34,425 35,677 85,132 90,605 190,650 274,586
Pre-petition liabilities
subject to compromise ............................ -- -- 116,327 -- -- --
Long-term debt, less current maturities ............ 5,204 5,605 9 -- 101,362 115,875
Stockholders' equity ............................... 18,752 18,500 (50,513) (35,211) 74,963 86,429
PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated balance sheet gives effect to the
Plan of Reorganization as of October 15, 1994, the day after the effective date
of the Plan of Reorganization. The pro forma consolidated balance sheet has been
prepared on the "fresh-start" basis of accounting prescribed by American
Institute of Certified Public Accountants Statement of Position 90-7, on
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The
unaudited pro forma statements of operations for the 42 weeks ended October 14,
1994, and the year ended December 31, 1993 give effect to the Plan of
Reorganization as if it had occurred, and such transactions had been consummated
as of January 1, 1993. The following pro forma financial information does not
purport to represent what the Company's actual results of operations or
financial position would have been had the effective date in fact occurred, and
had such transactions in fact been consummated, at the beginning of each of
these periods. The pro forma financial information does not give effect to any
transactions other than those included in the Plan of Reorganization and those
discussed in the accompanying Notes to Financial Information, or to the
Company's results of operations since October 15, 1994.
The following financial information is based upon the historical
financial statements of MEI Diversified Inc. as of and for the 42 weeks ended
October 14, 1994 and for the year ended December 31, 1993 included elsewhere in
this Annual Report, and should be read in conjunction with such historical
financial statements, the related notes, and the other information contained in
this Annual Report.
PRO FORMA CONSOLIDATED BALANCE SHEET
(In Thousands)
MEI Consummation
Diversified Inc. of Plan of Fresh New Dimensions
Assets Historical Reorganization Start In Medicine, Inc.
---------------- -------------- --------- -----------------
Current assets:
Cash and cash equivalents .................................. $ 2,647 $ (1,847)(1) $ 0 $ 800
Marketable securities ...................................... 8,500 (8,500)(1) 0 0
Receivables, net ........................................... 4,743 (334)(1) 0 4,409
Receivable from Diversified Liquidating Trust .............. 0 1,258 0 1,258
Inventories ................................................ 8,183 (204)(1) 0 7,979
Prepaid expenses and other current assets .................. 375 (80)(1) 0 295
--------- --------- --------- ---------
Total current assets ................................... 24,448 (9,707) 0 14,741
Property, plant and equipment, net ............................. 16,853 (5,319)(1) 0 11,534
Nonoperating real estate ....................................... 4,462 (4,462)(1) 0 0
Goodwill, net of accumulated amortization ...................... 24,990 0 (24,990)(4) 0
Other assets, primarily intangibles ............................ 4,255 (1,774)(1) 6,921 (3) 9,402
--------- --------- --------- ---------
Total assets ........................................... $ 75,008 $ (21,262) $ (18,069) $ 35,677
========= ========= ========= =========
(Continued)
PRO FORMA CONSOLIDATED BALANCE SHEET
(In Thousands)
MEI Consummation
Diversified Inc. of Plan of Fresh New Dimensions
Assets Historical Reorganization Start In Medicine, Inc.
---------------- -------------- --------- -----------------
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit ................................... $ 2,500 $ 0 $ 0 $ 2,500
Current maturities of long-term debt ....................... 826 (20)(1) 0 806
Accounts payable ........................................... 4,982 (876)(1) 0 4,106
Accrued compensation and benefits .......................... 1,862 0 0 1,862
Pre-petition liabilities not subject to compromise ......... 1,993 (1,993)(1) 0 0
Other accrued liabilities .................................. 4,468 (2,170)(1) 0 2,298
--------- --------- --------- ---------
Total current liabilities .............................. 16,631 (5,059) 0 11,572
Long-term debt, less current maturities ........................ 5,605 0 0 5,605
Pre-petition liabilities subject to compromise ................. 116,773 (116,773)(1) 0 0
Deferred liabilities ........................................... 285 (285)(1) 0 0
--------- --------- --------- ---------
Total liabilities ...................................... 139,294 (122,117) 0 17,177
========= ========= ========= =========
Stockholders' equity:
Common stock, $.05 par value ............................... 962 (962)(5) 0 0
Common stock, $.01 par value ............................... 0 45 (1) 0 45
Common stock warrants ...................................... 2,300 (2,300)(5) 0 0
Unrealized gain on marketable securities ................... 1,150 (1,150)(5) 0 0
Additional paid-in capital ................................. 85,687 18,455 (1) 0
(85,687)(5) 0 18,455
Retained earnings (accumulated deficit) .................... (151,739) 81,097 (1) 0
87,453 (5) 0
1,258 (2) (24,990)(4)
0 6,921 (3) 0
Treasury stock, 562,000 shares, at cost .................... (2,646) 2,646 (5) 0 0
--------- --------- --------- ---------
Total stockholders' equity ............................. (64,286) 100,855 (18,069) 18,500
--------- --------- --------- ---------
$ 75,008 $ (21,262) $ (18,069) $ 35,677
========= ========= ========= =========
See Accompanying Notes to Pro Forma Financial Information.
NOTES TO PRO FORMA FINANCIAL INFORMATION
PRO FORMA CONSOLIDATED BALANCE SHEET
(1) To record the following transactions made in connection with the Plan of
Reorganization:
a) the transfer of assets and liabilities from MEI Diversified Inc. to
various Liquidating Trusts established under the Plan of Reorganization;
and
b) the issuance of New Dimensions In Medicine, Inc. Common Stock including
the associated additional paid in capital in connection with the Plan of
Reorganization.
(2) To record amounts receivable from the Diversified Liquidating Trust
pursuant to the Plan of Reorganization.
(3) To record adjustments to state the Company's intangible assets at their
fair values.
(4) To record the write-off of goodwill in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7 on
Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code.
(5) To write off the historical capital structure of the Company.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
For the 42 Weeks Ended October 14, 1994 For the Year Ended December 31, 1993
---------------------------------------------- ------------------------------------------------------
New New
MEI Dimensions In MEI Dimensions In
Diversified Inc. Pro Forma Medicine, Inc. Diversified Inc. Pro Forma Medicine, Inc.
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
Revenues ................ $24,882 $ 0 $24,882 $33,281 $ 0 $33,281
------- ------- ------- ------- -------- -------
Costs and expenses:
Cost of sales .......... 14,632 (882)(5) 19,277 (1,011)(5)
866 (4) 14,616 885 (4) 19,151
Operating expenses ..... 12,746 (220)(5) 12,648 (253)(5)
216 (4) 221 (4)
(86)(6)
138 (7)
(415)(6)
204 (7) 12,531
Corporate general and
administrative
expenses .............. 1,214 (1,214)(1) 0 2,500 (2,500)(1) 0
Amortization
of intangible
assets ............... 806 (806)(2) 1,228 (1,228)(2)
587 (3) 587 742 (3) 742
------- ------- ------- ------- -------- -------
Total costs and
expenses .............. 29,398 (1,664) 27,734 35,653 (3,092) 32,561
Operating income
(loss) ................ (4,516) 1,664 (2,852) (2,372) 3,092 720
Interest expense ...... (371) 1 (1) (370) (1,897) 1,620 (1) (277)
Interest income ....... 127 (112)(1) 15 239 (165)(1) 74
Gain (loss) on
marketable
securities ........... 0 0 0 (700) 700 (1) 0
Other (expense)
income, net .......... (6,599) 6,440 (1) (159) (768) 423 (1) (345)
------- ------- ------- ------- -------- -------
Income (loss)
from continuing
operations before
income taxes and
reorganization items .. (11,359) 7,993 (3,366) (5,498) 5,670 172
Reorganization items:
Professional fees ..... (3,949) 3,949 (1) 0 (5,883) 5,883 (1) 0
Interest earned on
accumulated cash ..... 33 (33)(1) 0 100 (100)(1) 0
------- ------- ------- ------- -------- -------
Income (loss)
from continuing
operations ............ $(15,275) $11,909 $(3,366) $(11,281) $11,453 $172
======== ======= ======= ======== ======= ====
(Continued)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(In Thousands)
For the Quarter Ended December 31, 1993
----------------------------------------------
New
MEI Dimensions In
Diversified Inc. Pro Forma Medicine, Inc.
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues ................. $8,371 $ 0 $8,371
------ ------ ------
Costs and expenses:
Cost of sales ........... 4,600 (167)(5)
221 (4) 4,654
Operating expenses ...... 3,836 (42)(5)
55 (4)
(21)(6)
34 (7) 3,862
(415)(6)
Corporate general and
administrative
expenses ............... 522 (522)(1) 0
Amortization
of intangible
assets ................. 315 (314)(2)
185 (3) 186
------ ------ ------
Total costs and
expenses ................ 9,273 (570) 8,703
------ ------ ------
Operating income
(loss) .................. (902) 570 (332)
Interest expense ........ (76) 1 (1) (75)
Interest income ......... (214) 220 (1) 6
Gain (loss) on
marketable
securities ............. (700) 700 (1) 0
Other (expense)
income, net ............ (560) 166 (1) (394)
------ ------ ------
Income (loss)
from continuing
operations before
income taxes and
reorganization items .... (2,452) 1,657 (795)
Reorganization items:
Professional fees ....... (1,127) 1,127 (1) 0
Interest earned on
accumulated cash ....... 20 (20)(1) 0
------ ------ ------
Income (loss)
from continuing
operations $(3,559) $2,764 $(795)
======= ====== =====
See Accompanying Notes to Unaudited Pro Forma Financial Information.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) To eliminate the profit and loss effect of former MEI Diversified Inc.
subsidiaries as their assets and liabilities have been transferred into the
various Liquidating Trusts established under the Plan of Reorganization.
(2) To reverse the historical amortization of the excess of cost over fair
value of assets acquired and of other intangible assets. Intangible assets
include patents and trademarks and are amortized on a straight-line basis
over the legal or estimated remaining useful lives of 10 to 15 years.
(3) To record amortization expense based on the revised fair value of
intangible assets (patents and trademarks).
(4) To record depreciation expense based on the revised fair value basis of
property, plant and equipment.
(5) To reverse the historical depreciation on property, plant and equipment.
(6) To reverse the historical amortization expense of start up, marketing and
regulatory costs incurred related to new product introductions which were
amortized over 36 months.
(7) To record start up, marketing and regulatory costs incurred related to new
product introductions based on the revised fair value of these costs.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Introduction
On February 23, 1993, MEI Diversified and certain of its subsidiaries,
MEI Salon Corp., Essanelle Salon Co., The Glemby Company, Inc., Maxim's Beauty
Salons, Inc., Sophia Beauty Salons (NY), Inc., Glemby International Washington,
Inc., Glemby International Missouri, Inc. and Salon Service, Inc. filed
voluntary petitions in U. S. Bankruptcy Court (the "Bankruptcy Court") seeking
to reorganize under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy
Code"). The above filing did not include NDM Acquisition Corp., a former
subsidiary of MEI Diversified in which NDM's business had been conducted ("Old
NDM") or MEI Diversified's Canadian beauty salon subsidiaries. On September 28,
1994, the Bankruptcy Court extended an order confirming the Plan of
Reorganization, and it became effective on October 14, 1994.
On October 14, 1994, Old NDM was merged into MEI Diversified, with MEI
Diversified being the surviving corporation, pursuant to the Plan of
Reorganization. In connection with the merger, MEI Diversified restated its
Certificate of Incorporation and changed its name to "New Dimensions In
Medicine, Inc." The Company is continuing the business operations of Old NDM.
Effective as of October 15, 1994, NDM adopted "fresh start" accounting for
financial reporting purposes in accordance with the American Institute of
Certified Public Accounts Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." The effect of the
adoption of Statement of Position 90-7 is reflected in NDM's Consolidated
Balance Sheet as of October 15, 1994. Accordingly, NDM's Consolidated Balance
Sheet at and after October 15, 1994 and its Consolidated Statements of
Operations, Cash Flows and Changes in Stockholders' Equity for the periods
thereafter are not, and will not be, comparable to the Consolidated Financial
Statements of MEI Diversified for the periods prior to October 14, 1994.
The consolidated financial statements included herein have been
prepared on a going concern basis which assumes continuity of operations and
realization of assets and liquidation of liabilities in the ordinary course of
business. The financial statements reflect the operations of the professional
beauty salon subsidiaries as a discontinued operation as a result of the
December 1993 sale of the net assets of MEI Salon Corp. and its subsidiaries to
a buyer pursuant to Section 363 of the Bankruptcy Code. The financial statements
also reflect the operations of the snack food segment as discontinued operations
due to the sale of the remaining segment operations in 1992. The following 1994
and 1993 results of continuing operations are on a pro forma basis assuming a
going concern and reflect adjustments relating to (a) the Plan of
Reorganization, (b) the application of "fresh-start" accounting principles, and
(c) the elimination of the profit and loss effects of the former MEI
subsidiaries.
Results of Continuing Operations for the 10 Week Period Ended December 31, 1994
and for the Quarter Ended December 31, 1993
Pro Forma
For the 10 Weeks Ended For the Quarter Ended
December 31, 1994 December 31, 1993
----------------- -----------------
(In Thousands)
Revenues $ 7,398 $ 8,371
Cost of Sales 4,286 4,654
Operating Expenses 2,369 3,862
Amortization of Intangible Assets 157 186
Interest Expense 126 75
Interest Income 6 6
Other (Income) Expense, Net (7) 394
Net Income (loss) 252 (795)
Revenue for the Periods Consisted of the Following:
For the 10 weeks Ended For the Quarter Ended
December 31, 1994 December 31, 1993
----------------- -----------------
Critical Care Products 6,248 7,286
Patient Care Products 1,152 1,085
-------- --------
Total Revenue 7,398 8,371
======== ========
Both critical care and patient care products were impacted by the two
week difference in the reporting periods. Patient care products increased
despite the two week difference due to the increased wound care revenue during
the 10 week period ended December 31, 1994.
Cost of sales decreased due to the two week difference in the reporting
periods. However, as a percent of revenue the cost of sales for the 10 week
period ended December 31, 1994 increased by 2.3% over the fourth quarter of
1993. This is attributed to unabsorbed fixed overhead in manufacturing during
the 10 week period ended December 31, 1994 related to an inventory reduction
program and the favorable settlement of certain provisions in a distribution
contract during the fourth quarter of 1993.
Operating expenses which consist of research and development, sales and
marketing, distribution, general and administrative and royalty expenses
decreased significantly in the 10 week period ended December 31, 1994 compared
with the fourth quarter of 1993. The primary reasons for the decrease are the
two week difference in the reporting period and the cost reductions resulting
from the restructuring program implemented during the third quarter of 1994.
These combined with severance costs related to technology changes recorded
during the fourth quarter of 1993 account for the decrease.
Amortization of intangible assets was reduced from the full quarter
1993 levels due to the two week difference in the reporting periods.
Interest expense increased significantly during the 10 week period
ended December 31, 1994 as compared with the quarter ended December 31, 1993.
This reflects the higher amount outstanding on the revolving line of credit
during 1994 combined with increasing interest rates.
Other expense for the 10 week period ended December 31, 1994 was less
than the full quarter ended December 31, 1993 primarily because 1993 was
impacted by the $330 write off of obsolete equipment due to the introduction of
new technology and the valuation reserve established to write off a $251
investment in a patient care business which occurred during the fourth quarter
of 1993.
Under "fresh start" accounting for financial reporting purposes in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7 and current accounting for income tax rules, utilization of the
NOL carryforwards are required to offset intangible assets and do not offset
income tax expense. Therefore, a federal income tax provision has been
appropriately recorded for the 10 week period ended December 31, 1994.
Results of Continuing Operations for the 42 Week Period Ended October 14, 1994
and for the Year Ended December 31, 1993 and for the Year Ended December 31,
1994 on a Pro Forma Basis:
The following analysis compares the 42 week period ended October 14,
1994 to the year ended December 31, 1993. Due to the difference in the length of
the reporting periods the results for the two periods are not directly
comparable.
PRO FORMA CONSOLIDATED
(In Thousands)
For the For the For the
42 Weeks Year Year
Ended Ended Ended
October 14, December 31, December 31,
1994 1993 1994
-------- -------- --------
Revenues ........................... $ 24,882 $ 33,281 $ 32,280
Cost of sales ...................... 14,617 19,151 18,903
Operating expenses ................. 12,531 12,668 14,900
Amortization of
intangible assets ................. 587 742 744
Interest expense ................... 370 277 496
Interest income .................... 15 74 21
Other expense, net ................. 159 345 152
Provision for income taxes ......... 0 0 221
-------- -------- --------
Net income (loss) .................. $ (3,366) $ 172 $ (3,114)
======== ======== ========
Revenues consist of NDM's patient care products (wound dressing,
footpumps and related products) and critical care products (EKG electrodes,
cables, leadwires and operating room products). Revenues for the 42 week period
ended October 14, 1994 were less than the full year period ended December 31,
1993 primarily because of the ten week difference in the reporting periods. NDM
anticipates that 1994 revenues for a comparable full year period would decrease
approximately 3% from 1993 levels. Both patient care and critical care product
revenues were adversely impacted by an inventory reduction program implemented
by NDM's primary distributor as well as the acquisition of Hospital Supply
Corporation of America, a hospital buying group and significant NDM customer, by
the Columbia Healthcare System, which is not a customer of NDM. In addition,
critical care product revenue was adversely affected by the introduction of a
new line of products which initially experienced transition difficulties. NDM
believes that it has resolved the issues associated with this product and that
market acceptance has improved.
Cost of sales decreased due to the ten week difference in the reporting
periods. However, NDM estimates that, on a comparable full year basis, cost of
sales would remain approximately even with 1993 even though: (a) revenues
declined; (b) the Company implemented various manufacturing cost reductions
throughout late 1993 and 1994; and (c) the Company settled certain provisions in
a distribution contract favorably. These effects were offset by the writeoff of
$603,000 of excess and obsolete inventory during the 42 week period ended
October 14, 1994 due to new product introductions during this period in both
critical care and patient care product groups. Also, cost of sales increased as
a percentage of sales because the Company recorded a $192,000 accrual for rework
costs related to critical care products during 1994.
Operating expenses, which consist of research and development, sales
and marketing, distribution, general and administrative and royalty expenses,
for the 42 week period ended October 14, 1994 only decreased 1.1% compared to
such costs for the full year ended December 31, 1993. This resulted from
increased sales and marketing expenses of $1.3 million related to new product
introductions, filling sales management positions that were open during 1993 and
introducing new sales territories during 1994. The Company also experienced an
increase in costs being charged for distribution by its primary distributor
throughout 1994. Operating expenses also increased due to an increase in
reserves for doubtful accounts receivable of $500,000 as a result of a
deterioration in the aging of the account receivable, and an additional accrual
for anticipated legal costs associated with patent defense of $300,000 which
were recorded during 1994. Restructuring costs, consisting primarily of
severance and outplacement costs, of $832,000 were incurred during 1994 compared
with similar costs of $342,000 during 1993.
Amortization of intangible assets decreased proportionately from the
full year-1993 levels due to the ten week difference in the reporting periods.
Interest expense increased significantly during the 42 week period
ended October 14, 1994 as compared with the year ended December 31, 1993. This
reflects the higher amount outstanding on the revolving line of credit during
1994 combined with higher interest rates (1994 effective rate of 7.28%).
Interest income decreased during 1994 due to lower average cash
balances combined with the ten week difference in the reporting periods.
Other expense for the 42 week period ended October 14, 1994 was less
than the full year 1993 primarily because 1993 was impacted by the write off of
equipment obsolete due to the introduction of new technology and the valuation
reserve established to write off an investment in a patient care business.
Results of Continuing Operations on a Historical Basis for the Years Ended
December 31, 1993 and 1992
Years Ended December 31,
------------------------ %
1993 1992 Change
-------- -------- -------
(In Thousands)
Revenues .............................. $ 33,281 $ 32,766 1.6%
Cost of sales ......................... 19,277 17,824 8.2%
Operating expenses .................... 12,648 11,224 12.7%
Corporate general and
administrative expenses .............. 2,500 3,405 -26.5%
Amortization of
intangible assets .................... 1,228 1,166 5.3%
Interest expense ...................... 1,897 11,380 -83.3%
Interest income ....................... 239 4,210 -94.3%
Gain on sale of
nonoperating assets .................. 0 1,144 N.M.
Gain (loss) on marketable
securities ........................... (700) 208 N.M.
Other expense ......................... 768 331 132.0%
Professional fees ..................... 5,883 0 N.M.
Interest earned on
accumulated cash ..................... 100 0 N.M.
The Company's revenues from continuing operations represent NDM's
patient care and critical care products as follows:
Years Ended December 31,
------------------------ %
1993 1992 Change
------- ------- ------
(In Thousands)
Critical care products ............. $29,969 $31,380 (4.5)%
Patient care products .............. 3,312 1,386 139.0%
------- ------- -----
TOTAL REVENUES ..................... $33,281 $32,766 1.6%
======= ======= =====
Revenues were essentially flat for the periods due to the fact that
NDM's primary critical care products have become mature and are now more price
driven than in prior years. In 1993, NDM experienced a 4.5% decrease in the
critical care product revenues, when compared to 1992, which management
attributes to price erosion and volume decreases reflecting lower year-end sales
to NDM's major distributor in 1993. The patient care product revenues increased
139% in 1993 compared with 1992. The 1993 increase resulted from volume
increases combined with new product introductions. NDM attributes the
significant increase primarily to wound dressing revenues which increased as a
result of the advantages of Clearsite's hydrogel technology, NDM's sales force
being allowed to sell Clearsite in the hospital and alternate site markets
beginning in 1992 and NDM's ability to ship product under new foreign
distribution agreements to Germany and Belgium in 1992 with further expansion to
other foreign markets during 1993.
NDM's cost of sales increased as a percentage of sales during 1993 when
compared with 1992. This percentage increase was attributed to an increase in
inventory reserves for obsolescence, increased start-up costs of new product
introductions combined with sales price erosion in the critical care product
line.
Operating expenses, which consist of research and development, sales
and marketing, distribution, general and administrative and royalty expenses
increased 12.7% during 1993 as compared with 1992. Sales and marketing costs
between years increased $852,000 which reflects the cost of additional sales
representatives together with marketing expenses related to the start-up of new
products and increased spending in tradeshows and periodicals. NDM's
distribution costs, including warehousing, decreased by $115,000 in 1993
compared with 1992, due to a decreased distribution rate for non-exclusive
accounts and lower product sales through its principal distributor. Research and
development costs increased $151,000 primarily due to increased level of
clinical studies and new product introductions. Operating general and
administrative expenses increased $536,000 in 1993 over 1992 which was primarily
due to a restructuring charge of $342,000 recorded during 1993.
Corporate general and administrative expenses decreased in 1993 when
compared with 1992 due principally to the MEI Diversified Chapter 11 bankruptcy
which resulted in decreased legal expenses and lower salaries and wages as a
result of staff reductions and executive salary reductions.
Amortization expense increased in 1993 over 1992 and related to new
patent amortization and increased goodwill relative to an acquisition made in
late 1992.
Interest expense in 1993 was down significantly due to the Chapter 11
filing of the Company and its domestic United States professional beauty salon
subsidiaries, which ended the accrual of interest on all debt considered as a
pre-petition liability subject to compromise.
Interest income decreased significantly in 1993 as compared to 1992 due
principally to lower cash and cash equivalent balances as cash was utilized in
the professional beauty salon business together with lower short-term interest
rates in 1993 relative to 1992.
Gain on sale of nonoperating assets in 1992 represents a gain on the
sale of certain nonoperating real estate together with a gain on the sale of the
Company's aircraft charter subsidiary in the fourth quarter of 1992.
The 1993 loss on marketable securities represented the decline in
market value of Regis Corporation (Regis) common stock between December 16, 1993
and year end. See Note 4 of notes to the MEI Diversified consolidated financial
statements. The 1992 gain on sale of marketable securities resulted from the
March 1992 sale of a common stock investment.
Other expense, net, in all periods represents the net operations of the
other subsidiaries which are not significant.
Professional fees incurred during 1993 represent reorganization costs
incurred as a result of the Chapter 11 filing.
Discontinued Operations
On May 1, 1992, MEI Diversified sold the remaining net assets of its
snack food segment. The segment's net operating results have been reported
separately as discontinued operations in the accompanying MEI Diversified
consolidated statements of operations for all years presented. See Note 3 of
notes to the MEI Diversified consolidated financial statements.
The gain on disposal of discontinued operations in the year 1992
represents the May 1992 sale of the net assets of the snack food segment. The
1992 loss from operations of the snack food segment included in loss from
discontinued operations represents the related operating loss of the segment
together with a realization provision for certain receivable and nonoperating
real estate related to the sold snack food subsidiaries. The 1993 loss from
operations of the discontinued snack food segment represents a realization
provision for certain receivables and nonoperating real estate related to
discontinued snack food subsidiaries.
As mentioned above, in December 1993 MEI Diversified sold substantially
all of the net assets of the professional beauty salon segment to Magicuts, Inc.
The 1993 loss from operations of the discontinued professional beauty salon
segment represents the salon operating losses prior to the formulation of a plan
in June 1993 to sell the salon assets.
The larger loss from discontinued operations in 1992 represents the
substantial operating losses incurred by MEI Diversified in its professional
beauty salon operations. The loss from the discontinued operations of the
professional beauty salon segment includes a provision as of December 31, 1992
for disposal of net assets, sold in December 1993, at their net realizable
value.
The 1993 loss on the disposal of discontinued operations primarily
represents the estimated salon operating losses expected to result from the date
MEI Diversified began offering the segment for sale in June 1993 through the
December 1993 sale date.
The gain on settlement of Regis litigation represents the net value
received in December 1993 on the Regis litigation referred to above which was
settled as a part of the sale of the net assets of the professional beauty salon
segment.
Net Loss and Net Loss Per Common Share
The 1993 net loss is due primarily to the operating loss from continued
operations together with professional fees relative to the Chapter 11
reorganization and the operating loss and loss on disposition of the
discontinued professional beauty salon segment offset in part by the gain on
settlement of the Regis litigation in December 1993.
The 1992 net loss is due principally to the professional beauty salon
segment operating loss, the provision for disposal of the discontinued
professional beauty salon segment and interest expense offset in part by the May
1992 gain on disposal of the snack food segment and interest income.
Financial Condition as of December 31, 1994
As stated above, the Plan of Reorganization became effective on October
14, 1994. Under the Plan of Reorganization, Old NDM was merged into MEI
Diversified, and MEI Diversified restated its Certificate of Incorporation and
changed its name to New Dimensions In Medicine, Inc. Pursuant to the Plan of
Reorganization, all assets and liabilities of MEI Diversified were distributed
to certain liquidating estates established under the Plan of Reorganization,
except for certain tax attributes of MEI Diversified and the capital stock of
certain nonoperating subsidiaries. As a result of the merger, all assets and
liabilities of Old NDM became assets and liabilities of the Company except that
all obligations and liabilities owed by Old NDM to MEI Diversified were canceled
pursuant to the Plan of Reorganization. The Company's Amended and Restated
Certificate of Incorporation provides authorization for 20,000,000 shares of
common stock.
As of March 31, 1995, a total of 4,311,977 shares of Common Stock of
NDM have been issued to certain creditors of MEI Diversified, including the
holders of the 12-1/2% Senior Subordinated Notes of MEI Diversified due December
1, 1996 in the original principal amount of $75,000,000 and the 8% Convertible
Debentures of MEI Diversified due December 1, 2006 in the original principal
amount of $50,000,000 in partial satisfaction of their claims. The Company will
issue a total of 4,500,000 shares of Common Stock to such creditors initially.
As of March 29, 1995, 4,311,977 shares of Common Stock have been issued to such
creditors. A total of 500,000 shares of Common Stock will be reserved for
issuance to satisfy claims being made by certain former creditors of MEI
Diversified to which the trust administrator established under the Plan of
Reorganization is objecting. To the extent that these claims are denied,
additional shares of Common Stock will not be issued. The allowed claim of each
such creditor of MEI Diversified will be reduced by $7.60 for each share of
Common Stock of NDM distributed to such creditors.
The assets and liabilities of NDM were adjusted to their estimated fair
market values as of October 15, 1994 in accordance with accounting principles
for entities emerging from bankruptcy ("fresh-start reporting"). The valuation
methodologies used to determine the reorganization value of NDM included an
income capitalization approach, a cost approach and a sales comparison approach.
Property, plant and equipment were valued using a combination of the cost
approach and sales comparison approach. Intangible assets were valued using a
combination of the cost approach and income capitalization approach. The
estimated unleveraged reorganization value of NDM was computed using a
discounted net cash flow technique utilizing an income capitalization approach.
This specific technique takes into consideration (a) the discounted free cash
flows generated by NDM through 1999, (b) the discounted residual value of NDM at
the end of 1999 and (c) projected excess cash on hand at October 15, 1994. For
purposes of discounting values, a weighted average cost of capital rate of 16.5%
was utilized throughout the analysis.
On the effective date of the Plan of Reorganization, all of the claims
against MEI Diversified were released and discharged and became claims against
the MEI Liquidating Estates established under the Plan of Reorganization.
NDM's net working capital is $3.5 million at December 31, 1994. The
Plan or Reorganization includes a provision whereby the trust administrator for
the MEI Diversified Liquidating Trust will distribute up to $2 million to NDM to
assist with NDM's need for additional working capital. As of December 31, 1994,
NDM had received $1,742,000 of this amount, and as of January 9, 1995 NDM had
received the full amount. Although the Company believes, based on its current
plan, that it has sufficient working capital to maintain operations, if the
Company does not meet its plan with respect to revenues or if expenses are
higher than anticipated, the Company may not have sufficient working capital to
continue operations.
As of December 31, 1994, NDM had an outstanding balance of $2.5 million
under a line of credit agreement with a commercial bank (the maximum amount
permitted under the line of credit). The lender has a first security interest in
substantially all of NDM's assets. The interest rate on the line of credit is
one percent over the prime rate effective December 1, 1994. NDM's debt
obligations include a floating rate option note with an outstanding balance of
$6.0 million due in semi-annual installments of $400,000 which commenced on
November 1, 1992 and matures May 1, 2002. The lender sets the interest rate on a
weekly basis based on market conditions for similar debt. This rate was 6.28% at
December 31, 1994 and 5.18% at October 15, 1994. The floating rate option note
is cross collateralized and has a cross-default provision with respect to the
line of credit. As a result of MEI Diversified Chapter 11 bankruptcy, Old NDM
was in default under its line of credit and the floating rate option note. This
default was cured on October 14, 1994 as a result of the Plan of Reorganization
becoming effective. In addition, NDM had not been in compliance with certain
financial covenants established while Old NDM was a subsidiary of MEI
Diversified. NDM and its commercial bank have amended the loan agreement to
provide financing at the same borrowing capacity through June 30, 1995. The
financing arrangements contain various covenants related to cash flow, debt to
equity ratio, current ratio, capital expenditures and tangible net worth, and
the Company is in compliance with these covenants.
As of December 31, 1994, the Company did not have any material
commitments for capital expenditures.
NDM's viability as a going concern is dependent on its ability to
obtain long term financing and to maintain its return to profitability. Based on
current trends and changes implemented in the third quarter of 1994, NDM expects
its future operating expenses to decrease primarily due to: (a) cost savings
from the third quarter restructuring, (b) no anticipated excess or obsolete
inventory write offs, significant warranty claims, additional accruals for legal
costs and significant provisions for potentially uncollectible accounts
receivable, and (c) the elimination of MEI corporate general and administrative
expenses. Management has prepared cash projections which are based on budgeted
sales. Management believes cash plans will be adequate to fund future
operations. Ultimately, NDM's ability to maintain operations will depend on the
success of the restructuring implemented during the third quarter of 1994 which
is intended to improve NDM's profitability. NDM's fourth quarter 1994
performance reflected the improvement from the third quarter restructuring as
well as an increase in revenues compared with the third quarter of 1994. While
the fourth quarter 1994 revenues and financial performance are a significant
improvement over the third quarter 1994 results, there can be no assurance that
NDM will be able to consistently achieve successful future operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Consolidated Financial Statements and the reports of its
independent auditors are included on pages F-1 to F-39 of this Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors and Executive Officers
The executive officers and directors of the Company, their ages and the
offices held, as of March 15, 1995, are as follows:
Name Age Position in the Company
- ---- --- -----------------------
William F. Shea 44 Chairman of the Board, Chief Executive Officer,
President and Director
James V. Cartmell 56 Vice President of Research and Development
Philip J. Oliver 39 Vice President of Finance, Chief Financial Officer
and Assistant Secretary
Steven F. Glover 40 Vice President of Sales
Thomas A. Cycyota 36 Vice President of Marketing
David K. Snider 45 Vice President of Business Development
David J. Brail 30 Director
Marc A. Gineris 36 Director
Leigh Walzer 34 Director
Thomas A. Letscher 34 Secretary
Information regarding the business experience of the executive officers
of the Company is set forth below.
William F. Shea. Mr. Shea became the Chairman of the Board, Chief
Executive Officer, President and a Director of the Company following the
effectiveness of the Plan of Reorganization. Prior to that time, he had been the
President of Old NDM since January 1993 and had been the Vice President/General
Manager of Old NDM from 1990 to January 1993. Prior to joining Old NDM, Mr. Shea
served 16 years with The Kendall Company, including five years as General
Manager of its operations in Japan. Mr. Shea received his Bachelor of Arts
Degree in Economics from the College of the Holy Cross and his Masters of
Business Administration from Boston University.
James V. Cartmell. Mr. Cartmell became the Vice President of Research
and Development of the Company following the effectiveness of the Plan of
Reorganization, a position he had held with Old NDM. Mr. Cartmell had been
employed by Old NDM since October 1972. Mr. Cartmell has also served as Director
of Research and Development, Scientist and Manager of Clinical Testing of Old
NDM. Mr. Cartmell holds numerous patents utilized in NDM's operations and has
received the IR-100 Award two times. Prior to joining NDM, Mr. Cartmell was
employed with the National Cash Register Co. and Monsanto Chemical Co. Mr.
Cartmell received his Associate Degree in Chemical Technology and Bachelor's
Degree in Chemistry from the University of Dayton.
Philip J. Oliver. Mr. Oliver became the Vice President of Finance,
Chief Financial Officer and Assistant Secretary of the Company following the
effectiveness of the Plan of Reorganization. Prior to that time, he had been
Vice President of Finance of Old NDM since January 1993 and Controller of Old
NDM from September 1987 to January 1993. Prior to joining Old NDM, Mr. Oliver
served as Manager of Cost Accounting and General Accounting for Liebel Flarsheim
Co. and as an Internal Auditor for Sybron Corporation. Following graduation from
Ithaca College with a Bachelor of Science Degree in Accounting, Mr. Oliver
served on the audit staff with the independent public accounting firm of
Deloitte Haskins and Sells (now Deloitte & Touche) for two years.
Steven F. Glover. Mr. Glover became the Vice President of Sales of the
Company following the effectiveness of the Plan of Reorganization. He had been
Director of Sales of Old NDM since February 1991. Prior to that time, Mr. Glover
had served in various sales management positions with Baxter Healthcare
Corporation and Medical Networks Inc. Mr. Glover originally joined Old NDM in
1976 and had been employed by Old NDM for six years in various capacities,
including Region Sales Manager, Sales Representative and Sales Administrator.
Mr. Glover received his Bachelor of Arts Degree in Communication Arts from the
University of Dayton and his Masters in Business Administration from Xavier
University.
Thomas A. Cycyota. Mr. Cycyota became the Vice President of Marketing
of the Company following the effectiveness of the Plan of Reorganization. He had
been Group Director of Marketing of Old NDM since November 1991. Prior to
joining Old NDM, Mr. Cycyota served in various product and sales management
positions with Kendall Healthcare Products Co., the most recent of which was
Product Manager of their Wound Care Product Line. Mr. Cycyota received his
Bachelor of Science Degree in Biology from the University of Illinois and his
Masters in Business Administration in Finance from Loyola University.
David K. Snider. Mr. Snider became the Vice President of Business
Development of the Company following the effectiveness of the Plan of
Reorganization. He had been Director of Marketing, O.R. Products of Old NDM
since April 1992. Mr. Snider previously held positions in marketing management
with Abiomed Cardiovascular, Inc., Becton Dickinson and Valleylab, Inc. Mr.
Snider also served in the U.S. Air Force where he became a Registered Nurse and
received his Bachelor of Science Degree from the Community College of the Air
Force.
David J. Brail. Mr. Brail became a Director of the Company upon the
effectiveness of the Plan of Reorganization. Mr. Brail is a Vice President of,
and head of research at, Dickstein Partners Inc., a New York investment firm
which manages three investment funds, Dickstein & Co., L.P., Dickstein
International Limited and Dickstein Focus Fund L.P. See "Principal and Selling
Stockholders." Dickstein Partners Inc. is a principal stockholder of the
Company. Mr. Brail also serves on the board of directors of Amerihost
Properties, Inc. and Banyan Strategic Land Fund II. Prior to joining Dickstein
Partners Inc. in 1987, Mr. Brail worked in corporate finance at Janney
Montgomery Scott, Inc. He received a Bachelor of Science in Economics from the
Wharton School at the University of Pennsylvania in 1987.
Marc A. Gineris. Mr. Gineris became a Director of the Company upon the
effectiveness of the Plan of Reorganization. Mr. Gineris is a Principal with
Alex. Brown & Sons Incorporated, an investment banking firm. Alex. Brown was the
financial advisor to the Creditors' Committee, which was dissolved upon
effectiveness of the Plan of Reorganization. For the past ten years, Mr. Gineris
has specialized in advising restructuring clients and executing leveraged buyout
transactions. Prior to joining Alex. Brown in 1990, Mr. Gineris held positions
with several lending investment banking firms in the Restructuring, Mergers and
Acquisitions and Corporate Finance Departments. Mr. Gineris is also a member of
the board of directors of Aileen, Inc., a New York Stock Exchange publicly
traded company. Mr. Gineris holds a Masters in Business Administration from
Harvard University and a Bachelor of Arts from Pomona College in Claremont,
California.
Leigh Walzer. Mr. Walzer was elected a Director of the Company on
October 17, 1994 following the effectiveness of the Plan of Reorganization.
Since June 1993, Mr. Walzer has been an analyst employed by Heine Securities
Corporation. From April 1992 to June 1993, Mr. Walzer served as Senior Vice
President of Jefferies & Co. From September 1991 to April 1992, Mr. Walzer was
Vice President of BDS Securities, and, from October 1987 to September 1991, he
was an analyst at Smith Management Co. (an affiliate BDS Securities in September
1991). Mr. Walzer holds a Masters in Business Administration from Harvard
University and a Bachelor of Arts from Princeton University.
Thomas A. Letscher. Mr. Letscher has been the Secretary of the Company
since October 1994. He is a partner with the law firm of Oppenheimer Wolff &
Donnelly, Minneapolis, Minnesota, where he has practiced since 1987. Mr.
Letscher received his law degree from the University of California, Berkeley,
and a Bachelor of Science in Engineering from the University of Wisconsin.
The Current Board of Directors was elected following the effectiveness
of the Plan of Reorganization. William F. Shea, David J. Brail and Marc A.
Gineris were elected pursuant to the Plan of Reorganization, and Leigh Walzer
was elected by these Board members at the first meeting of the Board of
Directors following the effectiveness of the Plan of Reorganization, which was
held on October 17, 1994. Generally, directors may be removed at any time, with
or without cause, by the holders of a majority of the Company's Common Stock,
except that within the earlier of the next annual meeting of stockholders or
October 14, 1995, a director may only be removed for cause and only with the
affirmative vote of a majority of the Company's outstanding Common Stock.
Officers of the Company serve at the pleasure of the Board of Directors. The
Company reimburses officers and directors for their authorized expenses.
The Board of Directors has established an Audit Committee and a
Compensation Committee.
The Audit Committee provides assistance to the Board in satisfying its
fiduciary responsibilities relating to accounting, auditing, operating and
reporting practices of the Company. The Audit Committee reviews the annual
financial statements of the Company, the selection and work of the Company's
independent auditors and the adequacy of internal controls for compliance with
corporate policies and directives. This committee currently consists of David J.
Brail, Chair, Leigh Walzer and Marc A. Gineris.
The Compensation Committee reviews and approves the general
compensation and benefit programs of the Company and the specific compensation
and benefits to be paid to the Company's executive officers. This committee
currently consists of Leigh Walzer, Chair, David J. Brail and Marc A. Gineris.
(b) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and all
persons who beneficially own more than 10% of the outstanding shares of the
Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of the
Company's Common Stock. Executive officers, directors and greater than 10%
beneficial owners are also required to furnish the Company with copies of all
Section 16(a) forms they file.
As part of the Plan of Reorganization, the former officers of Old NDM
became the officers of the Company. None of these individuals have ever been
officers, directors, or employees of MEI Diversified. In addition, none of the
former officers or directors of MEI Diversified are officers, directors or
employees of the Company. Accordingly, none of the current officers of the
Company have any personal knowledge of the Section 16(a) forms filed, or
required to be filed, by the former officers and directors of MEI Diversified.
To the Company's knowledge, during the year ended December 31, 1994, all of the
Company's directors, executive officers and beneficial owners of greater than
10% of the Company's Common Stock filed on a timely basis the forms required by
Section 16 of the Exchange Act.
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth for each of the last three fiscal years
the compensation awarded to or earned by (a) the Chief Executive Officer of the
Company and each of the four most highly compensated executive officers of the
Company whose compensation exceeded $100,000 in 1994; and (b) the compensation
awarded to or earned by the Chief Executive Officer of MEI Diversified.
Summary Compensation Table
Annual Compensation
------------------------------------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
------------------ ------ ------ ----- ------------ ------------
William F. Shea(1)........ 1994 $230,000 $ 0 -- $ 1,925
President and Chief Executive 1993 $160,077 34,000 -- 2,024
Officer..................... 1992 $144,711 52,000 -- 41,112
James V. Cartmell(1)...... 1994 $135,000 0 -- 1,925
Vice President of........... 1993 $107,545 16,800 -- 1,873
Research and Development 1992 $ 97,396 23,914 -- 1,818
Philip J. Oliver(1)....... 1994 $115,000 0 -- 2,552
Vice President of Finance 1993 $ 85,800 16,300 -- 2,145
and CFO..................... 1992 $ 78,933 15,554 -- 2,917
Thomas A. Cycyota(1)...... 1994 $120,000 0 -- 2,310
Vice President of Marketing 1993 $ 87,731 16,800 -- 20,749
............................ 1992 $ 78,966 17,250 -- 116,180
Steven F. Glover(1) ...... 1994 $130,000 0 -- 2,310
Vice President of Sales..... 1993 $ 95,077 17,300 -- 2,295
............................ 1992 $ 91,057 22,500 -- 4,188
Donald E. Benson(2)....... 1994 $265,822 -- -- $ 3,712
President/Chief Executive 1993 $313,012 -- $1,500 $ 7,020
Officer..................... 1992 $400,230 -- $6,000 $ 7,020
- ---------------
(1) Current executive officer of NDM.
(2) Former executive officer of MEI Diversified.
Executive Compensation Arrangements
In October 1994, the Compensation Committee of the Board approved an
annual base salary of $230,000 for William Shea, the Company's Chief Executive
Officer, and annual base salaries between $115,000 and $135,000 for the other
executive officers. In March 1995, the Compensation Committee approved the
principle terms of a compensation plan for the Company's executive officers.
This plan provides for the base salaries approved in October 1994. In the event
of certain extraordinary corporate events, the plan provides for lump sum
severance benefits equal to 24 months base salary, in the case of the Chief
Executive Officer, and 18 months base salary, in the case of the other executive
officers, as well as health insurance for the same periods. The Company is also
obligated to pay the executive officers a cash payment equal to a percentage of
the approximate proceeds to shareholders if certain extraordinary corporate
events occur before December 31, 1995. The plan also provides for the grant of
stock and stock options, which would vest at certain times after December 31,
1995 if no such extraordinary corporate events occur before before that time.
Option Grants and Exercises in 1994
The Company did not grant options to any of the named executive
officers in the fiscal year ended December 31, 1994 and, as of such date, none
of the name executive officers held any options to purchase shares of common
stock.
Compensation Committee Report on Executive Compensation
At the first meeting of the new Board of Directors following the
effective date of the Plan of Reorganization, which was held on October 17,
1994, the Board established the Compensation Committee. This Committee consists
solely of the Company's three non-employee directors: Leigh Walzer (Chair),
David J. Brail and Marc A. Gineris. The Committee's goal is to provide the
Company's executive officers with total compensation packages that are
appropriate for the officers of similar public companies in the Company's
industry, consistent with the Company's financial condition and performance. The
Committee also desires to align the goals and objectives of executive management
with those of the Company's stockholders. In October 1994, the Compensation
Committee approved an increase in base salaries for the Company's executive
officers, which was made retroactive to January 1, 1994. These salaries were
based upon a review of base salaries for executive officers of public companies
in the Company's industry. In addition, the Compensation Committee determined
that it was appropriate to make the increases retroactive because of time delays
involved in the MEl Diversified bankruptcy and the delays in the confirmation of
the Plan of Reorganization. During that time, the executive officers of NDM
remained in their positions despite significant uncertainty regarding the future
of NDM and their individual employment opportunities. The Committee decided not
to pay bonuses in 1994 due to the Company's financial performance in 1994 and
its financial condition at the end of the year. However, assuming the Company
returns to profitability in 1995, the Compensation Committee may pay bonuses for
1995. Because the Company has been going through a transition period following
the confirmation of the Plan of Reorganization, the Committee only recently
approved a compensation plan for the Chief Executive Officer and the other
executive officers of the Company, which is described above.
COMPENSATION COMMITTEE
Leigh Walzer (Chair)
David Brail
Marc Generis
Compensation Committee Interlocks/Insider Participation
None of the members of the Company's Compensation Committee of the
Board (David J. Brail, Leigh Walzer and Marc A. Gineris) is or has been an
officer or employee of the Company or any of its subsidiaries. In addition,
there are no Compensation Committee interlocks between the Company and other
entities involving NDM executive officers and NDM directors who serve as
executive officers or directors of such entities.
Director Compensation
The Company currently pays its nonemployee directors a fee of $10,000
per year, plus $500 for each board meeting attended and $250 for each committee
meeting attended. At the present time such director fees are paid on an annual
basis in the form of shares of the Company's Common Stock. Any director
compensation payable to Mr. Walzer will be distributed to the advisory clients
of Heine Securities Corporation, which currently employs Mr. Walzer as an
investment analyst.
Comparative Stock Performance
As of March 31, 1995, 4,311,977 shares of Common Stock were issued and
outstanding. There is currently no established trading market. Pursuant to the
Plan of Reorganization, the Company intends to submit an application for
inclusion of the Common Stock on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System. See "BUSINESS- Background." However,
there can be no assurance that such application will be approved, and until such
time the Company expects the Common Stock to be traded on local over-the-counter
markets.
Pension Plans
Prior to the effective date of the Plan of Reorganization, MEI
Diversified sponsored the MEI Diversified Inc. Pension Plan ("Diversified
Plan"). Pursuant to the Plan of Reorganization, the Diversified Liquidating
Trust has assumed the Diversified Plan and the Pension Benefit Guaranty
Corporation has released any and all claims against NDM based upon the
Diversified Plan.
The following table reflects the estimated annual benefit under the
Diversified Plan at retirement to persons at specified compensation levels at
various years-of-service classification assumptions:
Defined Benefit Pension Table
Years of Service
Final Average ------------------------------------------------------------
Annual Earnings 10 15 20 25
--------------- -------- -------- --------- -----
$ 50,000 $ 7,800 $11,700 $15,600 $19,500
$ 75,000 12,300 18,500 24,600 30,800
$100,000 16,800 25,200 33,600 42,000
$125,000 21,300 32,000 42,600 53,300
$150,000 25,800 38,700 51,600 64,500
$175,000 30,300 45,500 60,600 75,800
$200,000 34,800 52,200 69,600 87,000
$225,000 39,300 59,000 78,600 98,300
$250,000 43,800 65,700 87,600 109,500
A participant having an accrued benefit under the terms of the
Diversified Plan as in effect on December 31, 1988 will be entitled to the
greater of such accrued benefit or the benefit stated in the above table,
provided however, accrued benefits for highly compensated corporate headquarters
employees (as defined in Section 414(q) of the Internal Revenue Code of 1954, as
amended) (the "Code") are frozen at the level for such persons on December 31,
1988 or such later date as such an employee transferred to headquarters from
another employer participating in the Diversified Plan.
Except as to those persons for whom benefits accrued at a higher amount
prior to January 1, 1983, annual benefits payable to participants under the
Diversified Plan at age 65 may not exceed $112,221 pursuant to Section 415 of
the Code.
Compensation covered by the Diversified Plan includes basic and
overtime pay, commissions and bonuses. Compensation is limited, adjusted for
cost of living increases effective January 1, 1991 to $222,220, January 1, 1992
to $228,860, and January 1, 1993 to $235,840, and January 1, 1994 to $150,000.
The compensation limitation is subject to further cost of living adjustments.
All of the compensation in the table entitled "Summary Compensation Table,"
except that $235,840 in 1993 relating to Mr. Benson, is covered by the
Diversified Plan. Mr. Benson has 25 credited years of service under the
Diversified Plan as of October 14, 1994.
An employee becomes a participant upon completion of certain age and
service requirements. Monthly pension benefits are equal to 1.2% of a
participant's final average monthly compensation (computed on the basis of the
five (5) consecutive years out of the last ten (10) years which produces the
highest average) plus .6% of his final average monthly compensation in excess of
covered compensation multiplied by the participant's total years of benefit
service to a maximum of 25 years. Covered compensation is the average (without
indexing) of the social security taxable wage base in effect for each calendar
year during the 35 year period ending with the calendar year in which the
participant attains social security retirement age. Benefits are not subject to
reduction for social security or offset by other amounts.
According to the actuary for the Diversified Plan, the Diversified Plan
is under-funded by approximately $520,000 on a termination basis, but is
over-funded on an ongoing concern basis. Employer contributions may be required
in the event that the assets in the Diversified Plan are insufficient to meet
the annual minimum funding standards of Code section 412. An increase in
interest rates may cause the Diversified Plan to become over-funded on a
termination basis at a future date.
A disability contract covers employees who were officers (including
those who are directors), general managers and department heads of MEI
Diversified's or its subsidiaries. It provides a disability benefit after a
six-month waiting period, until age 65, of two-thirds of the employee's monthly
salary to a maximum benefit of $3,500 per month, less the employee's primary
Social Security benefit.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 15, 1995 (a) by
each person who is known by the Company to beneficially own more than five
percent of the Company's Common Stock, (b) by each of the Company's directors,
(c) each of the Company's executive officers named in the Summary Compensation
Table above, and (d) by all executive officers and directors of the Company as a
group.
Number of Shares Percentage
Name Beneficially Owned(1) Ownership(2)
- ---- --------------------- ------------
Dickstein & Co., L.P.(3)
c/o Dickstein Partners Inc.
Suite 4630
9 West 57th Street
New York, NY 10019...................... 340,265 7.6%
Dickstein International Limited(3)
c/o Dickstein Partners Inc.
Suite 4630
9 West 57th Street
New York, NY 10019...................... 72,015 1.6%
Heine Securities Corporation(4)
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078............ 932,459 20.7%
Executive Life Insurance
Company of New York
123 William Street
New York, NY 10038...................... 346,095 7.7%
William F. Shea.......................... 0 0
James V. Cartmell........................ 0 0
Philip J. Oliver......................... 0 0
Thomas A. Cycyota........................ 0 0
Steven F. Glover......................... 0 0
Marc A. Gineris.......................... 0 0
David J. Brail(5)........................ 0 0
Leigh Walzer(6).......................... 0 0
All executive officers
and directors as a
group (9 persons)...................... 0 0
- ----------------------
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual or entity to acquire them within 60 days are treated as
outstanding only when determining the amount and percentage owned by such
individual or entity.
(2) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to the shares shown opposite the
name of such person or group.
(3) David J. Brail, a director of the Company, is Vice President of Dickstein
Partners Inc. which is the General Partner of Dickstein & Co., L.P. and the
advisor to Dickstein International Limited.
(4) Leigh Walzer, a director of the Company, is an investment analyst employed
by Heine Securities Corporation.
(5) Does not include 340,265 shares of Common Stock and 72,015 shares of Common
Stock beneficially owned by Dickstein & Co., L.P. and Dickstein
International Limited, respectively. See Note 3 above.
(6) Does not include 932,459 shares of Common Stock beneficially owned by Heine
Securities Corporation. See Note 4 above.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to the Plan of Reorganization, the Company became obligated
under the Registration Rights Agreement, dated as of October 14, 1994, among the
Company and the Selling Stockholders to prepare and file a registration
statement under the Securities Act of 1933, to register the resale of certain
shares of Common Stock held by such stockholders. The Company has not yet filed
any such registration statement. Dickstein Partners Inc., is the general partner
of Dickstein & Co., L.P. and advisor to Dickstein International Limited. David
J. Brail, a director of the Company, is a Vice President of Dickstein Partners
Inc. Mr. Brail also served as a member of the Official Committee of Unsecured
Creditors for MEI Diversified, which was the proponent of the Plan of
Reorganization. Leigh Walzer, a director of the Company, is employed by Heine
Securities Corporation.
PART IV
Item EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(1) Financial Statements of Registrant
For the period ended October 14, 1994, the ten weeks ended December 31, 1994 and
the fiscal years ended December 31, 1993 and 1992
Page
----
MEI DIVERSIFIED INC. AND SUBSIDIARIES
As of October 14, 1994 and December 31, 1993 and For the Period Ended October
14, 1994 and For Each of Two Years in the Period Ended December 31, 1993
Report of Independent Public Accountants ....................................F-3
Consolidated Balance Sheets .................................................F-5
Consolidated Statements of Operations .......................................F-6
Consolidated Statements of Stockholders' Equity (Deficit)....................F-7
Consolidated Statements of Cash Flows .......................................F-8
Notes to Consolidated Financial Statements...................................F-9
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
As of December 31, 1994 and For the Ten Week Period Ending December 31, 1994 and
October 15, 1994
Report of Independent Public Accountants....................................F-26
Consolidated Balance Sheets.................................................F-27
Consolidated Income Statement ..............................................F-28
Consolidated Statement of Stockholders' Equity .............................F-29
Consolidated Statement of Cash Flows........................................F-30
Notes to Consolidated Financial Statements..................................F-31
(a)(2) Financial Statement Schedules of Registrant
The following supplemental schedules are included in this Annual Report
on Form 10-K at the page numbers set forth below and should be read in
conjunction with the Financial Statements referred to above:
Page
----
MEI Diversified Inc. and Subsidiaries (Period Ended October 14, 1994)
II - Valuation and Qualifying Accounts and Reserves ...............F-23
New Dimensions In Medicine, Inc. and Subsidiaries
(Ten Weeks Ended December 31, 1994)
II - Valuation and Qualifying Accounts and Reserves................F-42
All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
(a)(3) Exhibits
The Exhibits to this Annual Report are listed in the Exhibit Index on
pages 88-90 of this Annual Report on Form 10-K.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an Exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c):
(1) Executive Severance Agreement, dated August 18, 1993, between NDM
Acquisition Corp. and William Shea (filed herewith).
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fourth quarter of the
Company's fiscal year ending December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed by
the following persons on March 29, 1995 on its behalf by the undersigned,
thereunto duly authorized.
NEW DIMENSIONS IN MEDICINE, INC.
By /s/ William F. Shea
-----------------------------------
William F. Shea
Chief Executive Officer and President
(Principal Executive Officer)
By /s/ Philip J. Oliver
-----------------------------------
Philip J. Oliver
Vice President of Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on March 29, 1995 on behalf
of the Company in the capacities indicated.
Signature Title
--------- -----
/s/ William F. Shea Chairman of the Board and Director
- ---------------------------
William F. Shea
/s/ David J. Brail Director
- ---------------------------
David J. Brail
/s/ Marc A. Gineris Director
- ---------------------------
Marc A. Gineris
/s/ Leigh Walzer Director
- ---------------------------
Leigh Walzer
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995
Commission File Number 0-25840
New Dimensions in Medicine, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1549475
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization Identification No.)
3040 East River Road, Dayton, Ohio 45439
- ---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(513) 294-1767
----------------------------------------------------
(Registrant's telephone number, including area code)
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 whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a Court.
Yes [ X ] No [ ]
As of October 31, 1995 the issuer had 4,325,686 shares of common stock $.01 par
value outstanding.
NEW DIMENSIONS IN MEDICINE INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
- - Consolidated Condensed Balance Sheets -
September 30, 1995 and December 31, 1994
- - Consolidated Condensed Statements of Income -
Three Months and Nine Months Ended September 30, 1995 and 1994
- - Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994
- - Notes to Consolidated Condensed Financial Statements
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
PART I. FINANCIAL INFORMATION
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
--------------------------
September 30,
1995 December 31,
(Unaudited) 1994*
------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 1,977 $ 1,130
Receivables, net of allowance of $467 and $355 ...... 4,372 5,386
Receivables from Diversified Liquidating Trust ...... 40 361
Inventories ......................................... 7,376 6,712
Prepaid expenses and other current assets ........... 194 365
------- -------
Total current assets ................................ 13,959 13,954
------- -------
PROPERTY, PLANT AND EQUIPMENT, net ..................... 10,622 11,326
OTHER LONG-TERM ASSETS ................................. 534 464
INTANGIBLE ASSETS, net ................................. 8,148 8,681
------- -------
Total assets ........................................ $33,263 $34,425
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities
of long-term debt ................................. $ 4,505 $ 3,306
Accounts payable .................................... 1,632 3,373
Accrued compensation and benefits ................... 1,475 1,729
Other accrued liabilities ........................... 1,994 2,061
------- -------
Total current liabilities ........................... 9,606 10,469
------- -------
LONG-TERM DEBT, LESS CURRENT MATURITIES ................ 4,800 5,204
------- -------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value:
20,000,000 shares authorized
4,325,686 shares issued .......................... 43 43
Additional paid-in capital .......................... 18,457 18,457
Retained earnings ................................... 357 252
------- -------
Total stockholders' equity .......................... 18,857 18,752
------- -------
Total liabilities and stockholders' equity .......... $33,263 $34,425
======= =======
* Consolidated condensed from audited financial statements.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
UNAUDITED
(In Thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
Pro forma Pro forma
(See page 9) (See page 9)
1995 1994 1995 1994
-------- -------- -------- --------
NET SALES ...................................... $ 7,200 $ 6,051 $ 23,034 $ 24,216
COST OF SALES .................................. $ 4,209 $ 4,410 13,116 14,068
-------- -------- -------- --------
Gross profit .......................... 2,991 1,641 9,918 10,148
ELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ..................... $ 3,256 $ 5,067 9,489 12,665
-------- -------- -------- --------
Income (loss) from operations ......... (265) (3,426) 429 (2,517)
OTHER INCOME (EXPENSE)
Interest expense, net ................. ($ 145) ($ 111) (424) (328)
Other income (expense), net ........... $ 79 ($ 252) 272 (178)
-------- -------- -------- --------
Income before provision for
income taxes ....................... (331) (3,789) 277 (3,023)
PROVISION FOR INCOME TAXES ..................... ($ 81) ($ 319) 173 0
-------- -------- -------- --------
NET INCOME (LOSS) .............................. ($ 250) ($ 3,470) $ 104 ($ 3,023)
======== ======== ======== ========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ............................. 4,325 4,325 4,325 4,325
-------- -------- -------- --------
PRO FORMA NET INCOME (LOSS) PER SHARE .......... ($ 0.06) ($ 0.80) $ 0.02 ($ 0.70)
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Unaudited (In Thousands)
-------------------------------
Nine Months Ended September 30,
-------------------------------
Pro forma
(See page 11)
1995 1994
------- -------
OPERATING ACTIVITIES:
Net income ..................................................... $ 104 ($3,023)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 1,558 1,551
Change in other current assets and liabilities:
Receivables ............................................ 1,335 429
Inventories ............................................ (661) (2,042)
Prepaid expenses and other current assets .............. 171 (51)
Accounts payable ....................................... (1,741) 3,505
Accrued liabilities .................................... (321) 0
------- -------
Net cash provided by (used in) operating activities 445 369
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property, plant and equipment ..................... (284) (1,536)
Decrease (increase) in other long-term assets and intangibles .. (116) 169
Proceeds from sales of fixed assets ............................ 7 24
------- -------
Cash provided by investing activities ......... (393) (1,343)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution by MEI Diversified Liquidating Trust .............. 0 450
Borrowings under bank line of credit agreement ................. 1,200 0
Payment of long-term debt ...................................... (405) (404)
------- -------
Cash provided by financing activities ............. 795 46
------- -------
Net increase (decrease) in cash and cash equivalent 847 (928)
------- -------
Cash and cash equivalents, beginning of period .................. 1,130 1,358
======= =======
Cash and cash equivalents, end of period ........................ $ 1,977 $ 430
======= =======
The accompanying notes are an integral part of these
consolidated condensed financial statements.
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Company Reorganization
(a) Business New Dimensions in Medicine, Inc. (NDM, the Company) is a
developer and manufacturer of electrocardiograph monitoring
electrodes, electrosurgical products, circulatory aids and hydrogel
wound dressings. The Company also purchases and resells other
medical devices such as foot pumps and the associated accessories,
generators and surgical tools. The Company is in a single line of
business which includes two separate product lines. The majority of
the Company's sales are to domestic customers. The Company formerly
conducted its business under the name "NDM Acquisition Corp.,"
incorporated in Minnesota.
(b) New Basis of Accounting - Fresh Start Reporting NDM Acquisition
Corp. (Old NDM) was a wholly-owned subsidiary of MEI Diversified,
Inc. (MEI), a Delaware corporation. On February 23, 1993, MEI filed
a petition for relief under Chapter 11 of the United States
Bankruptcy Code (the Bankruptcy Code or Chapter 11) in the district
of Delaware federal bankruptcy court. Old NDM was not a named party
in this filing. On October 14, 1994, (the Effective Date), MEI
emerged from Chapter 11, pursuant to the Amended Plan of
Reorganization (the Plan) of the Official Committee of Unsecured
Creditors for MEI Diversified, Inc. et al, dated September 27,
1994, which was confirmed by the U.S. Bankruptcy Court on September
28, 1994. Under the Plan, Old NDM was merged into MEI, and MEI then
restated its Certificate of Incorporation and changed its name to
New Dimensions in Medicine, Inc. Pursuant to the Plan, all assets
and liabilities of MEI were distributed to certain liquidating
estates established under the Plan, except for certain tax
attributes of MEI, the capital stock of certain non-operating
subsidiaries and the capital stock of Old NDM. As a result of the
merger, all assets and liabilities of Old NDM became assets and
liabilities of the Company except that all obligations and
liabilities owed by Old NDM to MEI or any of its subsidiaries or
affiliates were canceled pursuant to the Plan. The Plan also
included a provision whereby the trust administrator for the
Diversified Liquidating Trust would distribute $2,000,000 plus
payment of certain professional fees to assist with the Company's
working capital requirements. As of September 30, 1995, the Company
had received $2,176,000 and the accompanying consolidated condensed
balance sheet reflects a receivable of $40,000.
On the day after the Effective Date (October 15, 1994) the Company
adopted American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization" ("SOP 90-7"). SOP 90-7 requires that the
accompanying balance sheet be prepared on the basis that a new
reporting entity has been created and that assets and liabilities
should be recorded at their estimated fair values as of the
Effective Date. This method of accounting is referred to as
"fresh-start" reporting.
In accordance with SOP 90-7, the provision for federal income taxes
is treated as a reduction in the valuation allowance against the
net operating losses that existed at the date of adoption of "fresh
start" accounting and is credited against intangible assets.
Estimated fair values were determined by management with the
assistance of independent appraisers. The valuation methodologies
employed to determine the reorganization value of the Company
included an income capitalization approach, a cost approach, and a
sales comparison approach. Property, plant and equipment were
valued using a combination of the cost approach and sales
comparison approach. Intangible assets were valued using a
combination of the cost approach and income capitalization
approach. The estimated unleveraged reorganization value of the
Company was computed using a discounted net cash flow technique
utilizing an income capitalization approach. This specific
technique takes into consideration (i) the estimated discounted
free cash flows generated by the Company through 1999 (ii) the
estimated discounted residual value of the Company at the end of
1999, and (iii) projected excess cash on hand at the Effective
Date. For purposes of discounting values, a weighted average cost
of capital rate of 16.5% was utilized throughout the analysis.
On the Effective Date, all of the claims against MEI were released
and discharged pursuant to the Plan and became claims against the
MEI Liquidating Estates. In addition, any and all defaults arising
under contracts or agreements of Old NDM as a result of the merger
of Old NDM into MEI under the Plan, or as a result of the
distribution of Company stock to creditors as provided under the
Plan, shall be unenforceable against the Company. As of September
30, 1995, the Company had issued 4,325,686 shares and may issue up
to an additional 96,844 shares to certain former creditors of MEI.
If any of these additional shares are issued, their issuance will
have no effect on the Company's opening stockholders' equity
balance.
(c) Net Income Per Share
For financial reporting purposes, net income per share has been
computed on a pro forma basis using the weighted average number of
shares assuming that all 4,325,686 shares issued under the Plan
were outstanding as of the beginning of the period.
Note 2. Asset Purchase Agreement
On October 18, 1995, the Company and CONMED Corporation ("CONMED")
entered into an Asset Purchase Agreement (the "Agreement"), pursuant to
which CONMED will purchase substantially all of the Company's assets,
except its hydrogel wound care business outside of the United States,
Mexico and Canada and its foot pump business. CONMED will assume
liabilities related to the assets being acquired. The purchase price
for the assets is $32,134,299, subject to certain adjustments for the
disposition of the excluded assets and satisfaction of liabilities
related to the excluded assets. In addition, the purchase price will be
adjusted if the Company's net assets, subject to certain adjustments
for excluded assets and liabilities and depreciation and amortization,
increase by more than $1,700,000 or decrease by more than $1,000,000
from August 31, 1995 through closing. CONMED is also obligated to enter
into certain agreements with the purchaser of the Company's
international wound care business. The consummation of the Agreement is
subject to additional conditions including the approval of the
shareholders of the Company and required regulatory approvals.
Additionally, pursuant to a separate letter of intent agreement between
the Company and a third party, the Company will sell the assets and
technology of the international wound care business to the third party
and is in the process of negotiating a definitive agreement.
Following consummation of the above transactions, the Company intends
to wind-down operations and liquidate its remaining assets.
Additionally, the Company intends to distribute the net proceeds from
the above discussed asset sales to its shareholders. The proposed
CONMED transaction is subject to regulatory approvals and approval by
the Company's shareholders. The Company has not recorded any
adjustments to the carrying amounts of its assets and liabilities to
adopt the liquidation basis of accounting or the contingencies that may
be triggered by these transactions, such as the repayment of
outstanding debt and severance liabilities.
Under the liquidation basis of accounting, assets would be adjusted to
their estimated realizable value and liabilities would be adjusted to
their estimated settlement amount.
Note 3. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
consolidated financial position of New Dimensions in Medicine, Inc. and
Subsidiaries as of September 30, 1995 and December 31, 1994, and the
results of operations for the three and nine month periods ended
September 30, 1995 and 1994 and cash flows for the nine month periods
ended September 30, 1995 and 1994. The consolidated condensed financial
statements have been prepared under the presumption that users of the
interim financial information have either read or have access to the
audited consolidated financial statements for the ten week period
ending December 31, 1994. Accordingly, certain information and footnote
disclosure which would substantially duplicate the disclosure contained
in the audited financial statements has been omitted from these interim
financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these interim
consolidated condensed financial statements be read in conjunction with
the consolidated financial statements and the notes thereto, included
in the Company's latest annual report on Form 10-K.
Note 4. Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market value. The following is a summary of the components of inventory
at September 30, 1995 and December 31, 1994:
(In Thousands)
-------------------------------------
September 30, 1995
(unaudited) December 31, 1994
------------------ -----------------
Raw Materials .......................... $ 3,332 $ 2,911
Work-In-Process ........................ 95 37
Finished Goods ......................... 5,138 4,850
Inventory Reserves ..................... (1,189) (1,086)
-------- --------
$ 7,376 $ 6,712
======== ========
Note 5. Supplementary Cash Flow Information
Supplementary cash flow information for the nine months ended September
30, 1995 and 1994 follows:
(In Thousands)
-------------------------
1994
1995 (Pro Forma)
---- -----------
Interest Paid ................................ $469 $343
==== ====
Income Taxes Paid ............................ 61 0
==== ====
Note 6. Unaudited Pro Forma Financial Information
The unaudited pro forma statements of operations for the three and nine
months ended September 30, 1994 and the pro forma statement of cash
flows for the nine months ended September 30, 1994 give effect to the
Plan of Reorganization as if it had occurred, and such transactions had
been consummated as of January 1, 1994. The following unaudited pro
forma financial information does not purport to represent what the
Company's actual results of operations or cash flows would have been
had the effective date in fact occurred, and had such transactions in
fact been consummated, at the beginning of this period. The unaudited
pro forma financial information does not give effect to any
transactions other than those included in the Plan of Reorganization
and those discussed in the accompanying Notes to Unaudited Pro Forma
Financial Information, or to the Company's results of operations since
October 15, 1994.
The following financial information is based upon the historical
financial statements of MEI Diversified, Inc. for the three and nine
months ended September 30, 1994 and should be read in conjunction with
such historical financial statements and notes.
NEW DIMENSIONS IN MEDICINE, INC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994
-------------------------------------------------
MEI NEW DIMENSIONS
DIVERSIFIED, IN PRO FORMA IN MEDICINE, INC.
HISTORICAL ADJUSTMENTS PRO FORMA
-------------------------------------------------
REVENUES $6,051 $ 0 $6,051
COSTS AND EXPENSES:
COST OF SALES 4,289 (147)(2)
268 (3) 4,410
OPERATING EXPENSES 5,283 67 (3)
(36)(2)
(460)(6)
31 (7) 4,885
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES 400 (400)(1) 0
AMORTIZATION OF INTANGIBLE ASSETS 256 (256)(4)
-------------------------------------------------
TOTAL COST AND EXPENSES 10,228 (751) 9,477
OPERATING INCOME (LOSS) (4,177) 751 (3,426)
INTEREST EXPENSE (139) 13 (1) (126)
INTEREST INCOME 34 (30)(1) 4
OTHER (EXPENSE) INCOME, NET (6,095) 5,854 (1) (241)
-------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND REORGANIZATION ITEMS (10,377) 6,588 (3,789)
REORGANIZATION ITEMS:
PROFESSIONAL FEES (1,078) 1,078 (1) 0
INTEREST EARNED ON ACCUMULATED CASH 9 (9)(1) 0
-------------------------------------------------
INCOME / (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (11,446) 7,657 (3,789)
PROVISION FOR INCOME TAXES 0 319 (8) 319
-------------------------------------------------
INCOME / (LOSS) FROM CONTINUING OPERATIONS (11,446) 7,976 (3,470)
DISCONTINUED OPERATIONS:
DISCONTINUED OPERATIONS, NET OF INCOME TAXES 0 0
-------------------------------------------------
NET INCOME / (LOSS) ($11,446) $7,976 ($3,470)
=================================================
(Continued)
See Accompanying Notes to Unaudited Pro Forma Financial Information
NEW DIMENSIONS IN MEDICINE, INC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
-------------------------------------------------
MEI NEW DIMENSIONS
DIVERSIFIED, IN PRO FORMA IN MEDICINE, INC.
HISTORICAL ADJUSTMENTS PRO FORMA
-------------------------------------------------
REVENUES $24,216 $ 0 $24,216
COSTS AND EXPENSES:
COST OF SALES 14,103 (839)(2)
804 (3) 14,068
OPERATING EXPENSES 12,350 201 (3)
(210)(2)
(421)(6)
199 (7) 12,119
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES 1,179 (1,179)(1) 0
AMORTIZATION OF INTANGIBLE ASSETS 764 (764)(4)
546 (5) 546
-------------------------------------------------
TOTAL COST AND EXPENSES 28,396 (1,663) 26,733
OPERATING INCOME (LOSS) (4,180) 1,663 (2,517)
INTEREST EXPENSE (350) 7 (1) (343)
INTEREST INCOME 119 (104)(1) 15
OTHER (EXPENSE) INCOME, NET (6,576) 6,398 (1) (178)
-------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND REORGANIZATION ITEMS (10,987) 7,964 (3,023)
REORGANIZATION ITEMS:
PROFESSIONAL FEES (3,949) 3,949 (1) 0
INTEREST EARNED ON ACCUMULATED CASH 31 (31)(1) 0
-------------------------------------------------
INCOME / (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (14,905) 11,882 (3,023)
PROVISION FOR INCOME TAXES 0 0 (8) 0
-------------------------------------------------
INCOME / (LOSS) FROM CONTINUING OPERATIONS (14,905) 11,882 (3,023)
DISCONTINUED OPERATIONS:
DISCONTINUED OPERATIONS, NET OF INCOME TAXES 352 (352)(1) 0
-------------------------------------------------
NET INCOME / (LOSS) ($14,553) $11,530 ($3,023)
=================================================
See Accompanying Notes to Unaudited Pro Forma Financial Information
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) To eliminate the profit and loss effect of former MEI Diversified Inc.
subsidiaries as their assets and liabilities have been transferred into the
various Liquidating Trusts established under the Plan of Reorganization.
(2) To reverse the historical amortization of the excess of cost over fair value
of assets acquired and of other intangible assets.
(3) To record amortization expense based on the revised fair value of intangible
assets (patents and trademarks).
(4) To record depreciation expense based on the revised fair value basis of
property, plant and equipment.
(5) To reverse the historical depreciation on property, plant, and equipment.
(6) To reverse the historical amortization expense of start up, marketing and
regulatory costs incurred related to new product introductions.
(7) To record start up, marketing and regulatory costs incurred related to new
product introductions based on the revised fair value of these costs.
(8) To record an appropriate tax provision for federal income and state
franchise tax.
NEW DIMENSIONS IN MEDICINE, INC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
MEI NEW DIMENSIONS
DIVERSIFIED, IN PRO FORMA IN MEDICINE, INC.
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
OPERATING ACTIVITIES:
Net income ........................................................................... ($14,553) $ 11,530 ($ 3,023)
Adjustments to reconcile net income
to net cash provided by
operating activities:
Reserve for real estate write-down ................................................. 5,000 (5,000)(1)
Depreciation and amortization ...................................................... 2,641 (828)(1)
(1,049)(5)
1,005 (4)
(764)(2)
546(3) 1,551
Other, net ......................................................................... 397 (397)(1) 0
Change in other current assets and liabilities:
Receivables ........................................................................ 424 5 (1) 429
Inventories ........................................................................ (2,246) 204(1) (2,042)
Prepaid expenses and other current assets .......................................... (48) (3)(1) (51)
Accounts payable and accrued expenses .............................................. 3,660 (155)(1)
0 (6) 3,505
Pre-petition liabilities not subject to compromise ................................. (49) 49 (1) 0
Pre-petition liabilities subject to compromise ..................................... 446 (446)(1) 0
Net current assets of discontinued operations ...................................... 400 (400)(1) 0
-------- -------- --------
Net cash provided by (used for)
operating activies ............................................................ (3,928) 4,297 369
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property ....................................................... 554 (530)(1) 24
Decrease in other long-term assets and intangibles ................................... 0 169 (1) 169
Additions of property, plant and equipment ........................................... (1,536) 0 (1) (1,536)
-------- -------- --------
Cash used in investing activities ............................................... (982) (361) (1,343)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution by MEI Liquidating Trust ................................................ 0 450 450
Payment of long-term debt ............................................................ (404) 0 (404)
-------- -------- --------
Cash used in financing activities ............................................... (404) 0 46
-------- -------- --------
Net increase in cash and cash equivalents ....................................... (5,314) 4,386 (1) (928)
-------- -------- --------
Cash and cash equivalents, beginning of period ........................................ 8,106 (6,748) 1,358
-------- -------- --------
Cash and cash equivalents, end of period .............................................. $ 2,792 ($ 2,362) $ 430
======== ======== ========
See Accompanying Notes to Unaudited Pro Forma Financial Information
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
(1) To eliminate the cash flow effect of former MEI Diversified Inc.
subsidiaries as their assets and liabilities have been transferred into the
various Liquidating Trusts established under the Plan of Reorganization.
(2) To reverse the historical amortization of the excess of cost over fair value
of assets acquired and of other intangible assets.
(3) To record amortization expense based on the revised fair value of intangible
assets (patents and trademarks).
(4) To record depreciation expense based on the revised fair value basis of
property, plant and equipment.
(5) To reverse the historical depreciation on property, plant, and equipment.
(6) To record an appropriate tax provision for federal income tax and state
franchise tax.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Unaudited
Unaudited
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars In Thousands) (Dollars In Thousands)
----------------------------------------- ----------------------------------------
Pro Forma Pro Forma
(See Page 9) % (See Page 9) %
1995 1994 Change 1995 1994 Change
------ ------- ------ ------- ------- ------
Revenues $7,200 $ 6,051 19.0% $23,034 $24,216 -4.9%
Cost of Sales 4,209 4,410 -4.6% 13,116 14,068 -6.8%
Operating Expenses 3,256 5,067 -35.7% 9,489 12,665 -25.1%
Operating Income (loss) (265) (3,426) 92.3% 429 (2,517) 117.1%
Interest Expense, net 145 122 18.9% 424 328 29.4%
Other Income (expense) 79 (241) 132.8% 272 (178) 253.0%
Income Tax Provision (benefit) (81) (319) 74.6% 173 0 N.M.
Net Income (loss) (250) (3,470) 92.8% 104 (3,023) 103.5%
Revenue for the periods consisted of the following:
For the Three Months Ended For the Nine Months Ended
September 30, (in thousands) September 30, (In Thousands)
---------------------------- ----------------------------
% %
1995 1994 Change 1995 1994 Change
---- ---- ------ ---- ---- ------
Critical Care Products $5,990 $5,269 13.7% $19,690 $21,583 -8.8%
Patient Care Products 1,210 782 54.7% 3,344 2,633 27.0%
------ ------ ------- -------
Total Revenue $7,200 $6,051 19.0% $23,034 $24,216 -4.9%
====== ====== ======= =======
Revenues increased in the third quarter of 1995 by 19% compared to the third
quarter of 1994 but decreased for the nine month period ended September 30, 1995
by 4.9% compared to the same period in 1994. Although revenues for the third
quarter of 1995 increased from the third quarter of 1994, revenues for the third
quarter of 1995 were below expectations in part due to the announcement of the
sale of the Company's assets. Revenues from patient care products increased
54.7% in the third quarter and 27% for the nine month period compared to the
same periods in 1994. The increase in patient care revenues during the third
quarter included a 58.4% increase in wound care products and a 29.7% increase in
the ActOne(a) foot pump products over the third quarter of 1994. The decrease in
critical care product revenue for the nine month period ended September 30, 1995
as compared with the same period in 1994 reflects the acquisition of Hospital
Supply Corporation of America, a hospital buying group and significant former
customer of NDM, by Columbia Healthcare System, which is not a customer of NDM.
This acquisition took place mid year 1994 and the revenues of the first six
months of 1994 included revenues of the former customer. In addition, critical
care product revenue was lower than in the first nine months of 1994 as a result
of the introduction of a new line of products during 1994 which initially
experienced transition difficulties during the third quarter of 1994. NDM
believes it has resolved the issues associated with this product and that market
acceptance has improved and sales stabilized. However, revenues for the product
are at a lower level than in the first six months of 1994 which was prior to the
introduction. Critical care product revenues during the third quarter showed an
increase over the third quarter 1994 due to the effect of product backorders
incurred during the third quarter of 1994 caused by two key suppliers moving
their manufacturing operations. An inventory reduction program implemented in
the third quarter of 1994 by NDM's primary distributor impacted both patient
care and critical care products accounting for a substantial portion of the
increase in the third quarter of 1995 from the third quarter of 1994.
Cost of sales decreased 4.6% and 6.8% from comparable three and nine month
periods ended September 30, 1995. The decrease was primarily due to the
following: 1) The third quarter of 1994 cost of sales was increased by the write
off of $603,000 in excess and obsolete inventory due to new foot pump product
introductions and the establishment of an accrual for anticipated
rework/warranty costs related to critical care products of $192,000 and 2) the
third quarter of 1995 cost of sales was reduced by $135,000 due to the
settlement of certain provisions in a distributor contract. The reduction in
cost of sales for the nine month period ended September 30, 1995 compared with
the same period in 1994 reflects the decrease in revenues for the same periods
combined with the third quarter 1995 activity discussed above.
Operating expenses, consisting of research and development, sales and marketing,
distribution, general and administrative, royalty and amortization expenses,
decreased 35.7% and 25.1% in the three and nine month periods ended September
30, 1995 from the same periods in 1994. The decrease in operating expenses was
primarily due to the following: 1) The third quarter of 1994 general and
administrative expenses included an accrual for anticipated legal costs
associated with patent defense of $300,000, an additional provision for
potentially uncollectable accounts of $500,000 and restructuring expenses of
$756,000 related to various severance and outplacement costs and 2) the third
quarter of 1995 operating expenses were reduced due to cost savings in the sales
and marketing expenses by approximately $500,000 including an $80,000 reduction
to accrued incentive compensation; cost reductions in research and development
expense of approximately $150,000 offset by an accrual in general and
administrative costs for professional fees incurred related to the sale of
substantially all the assets of the company of approximately $300,000 as well as
an increase in the provision for doubtful accounts of $45,000. The reduction in
operating expenses for the nine month period ended September 30, 1995 compared
with the same period in 1994 includes a decrease in distribution expenses of
$560,000 as a result of the reduced revenues and a revision to a contract with
the Company's primary distributor, the factors impacting the third quarter and
cost reductions implemented during the third quarter of 1994 as well as
continued cost containment during 1995.
Net interest expense increased by 18.9% in the third quarter and by 29.4% in the
nine months ended September 30, 1995 when compared to the same period in 1994.
This resulted from additional borrowings under the line of credit of $1,200,000
during the third quarter combined with increased interest rates on the borrowing
facilities.
Other income (expense) consists primarily of royalty income offset by other
expenses such as certain bank fees and other non operating expenses. The higher
income relates to increased royalty income for the nine month period during 1995
of $160,000. The expense of $178,000 incurred during the nine month period ended
September 30, 1994 represented non-recurring costs associated with financial
activities due to the restructuring of the company, and the write off of certain
equipment.
The provision for income taxes includes franchise taxes and federal income tax.
This primarily reflects the change in income before income taxes. Under "fresh
start" accounting for financial reporting purposes in accordance with the
American Institute of Certified Public Accountants Statements of Position 90-7
and current accounting for income tax rules, utilization of the NOL
carryforwards are required to offset intangible assets and do not offset income
tax expense. Therefore, a federal income tax provision has been appropriately
recorded.
Liquidity and Capital Resources
NDM's net working capital of $4.4 million at September 30, 1995 increased
$868,000 from the December 31, 1994 levels. Cash of $1,977,000 increased
$847,000 from the December 31, 1994 level primarily due to the additional draw
on the revolving line of credit of $1,200,000 offset by the payment of long-term
debt. Receivables decreased $1,014,000 approximately 50% of which was due to the
settlement of receivables related to a distribution contract collected in the
third quarter as well as normal fluctuations from year end levels. The
receivables from the Diversified Liquidating Trust decreased from December 31,
1994 level due to the collection of amounts due from the Trust under the Plan of
Reorganization of MEI Diversified, Inc. Inventories increased $664,000 from the
December 31, 1994 level the majority of which occurred in raw materials. Current
liabilities decreased $863,000 from the December 31, 1994 level due primarily to
a reduction in accounts payable and accrued liabilities of $2,062,000 offset by
the additional borrowing under the line of credit facility of $1,200,000.
As of September 30, 1995, NDM had an outstanding balance of $3,700,000 under its
line of credit agreement. The line of credit facility has a maximum amount of
$4,000,000 and the term is through June 30, 1997. The line of credit is secured
by a first security interest in substantially all of NDM's assets. The interest
rate on the line of credit is one half of one percent over the prime rate. NDM's
credit facility also include a floating rate option note with an outstanding
balance of $5.6 million at September 30, 1995, due in semi-annual installments
of $400,00 which commenced on November 1, 1992 and matures May 1, 2002. The
lender sets the interest rate on a weekly basis based on market conditions for
similar debt. This rate was 6.28% at December 31, 1994 and 5.81% at September
30, 1995. The financial arrangements contain various covenants related to cash
flow, debt to tangible net worth, current ratio and capital expenditures and the
Company is in compliance with these covenants.
In November 1995, the Company's lender agreed to increase the Company's lending
facility by $1,000,000. The additional funds are to be provided through a six
month demand note with an interest rate of one half of one percent over the
prime rate with a one percent fee. The Company believes that the increase in the
line of credit will provide the Company with sufficient cash to meet its
obligations until closing of the CONMED transaction, provided that such closing
occurs by January 31, 1996. If such closing is delayed or does not occur, the
Company will likely need to raise additional capital to continue operations.
There can be no assurance that the Company will be able to raise any additional
capital or that the terms will be satisfactory the Company.
On October 18, 1995, the Company and CONMED Corporation ("CONMED") entered
into an Asset Purchase Agreement (the "Agreement"), pursuant to which CONMED
will purchase substantially all of the Company's assets, except its hydrogel
wound care business outside of the United States, Mexico and Canada and its foot
pump business. CONMED will assume liabilities related to the assets being
acquired. The purchase price for the assets is $32,134,299, subject to certain
adjustments for the disposition of the excluded assets and satisfaction of
liabilities related to the excluded assets. In addition, the purchase price will
be adjusted if the Company's net assets, subject to certain adjustments for
excluded assets and liabilities and depreciation and amortization, increase by
more than $1,700,000 or decrease by more than $1,000,000 from August 31, 1995
through closing. CONMED is also obligated to enter into certain agreements with
the purchaser of the Company's international wound care business. The
consummation of the Agreement is subject to additional conditions including the
approval of the shareholders of
the Company and required regulatory approvals. Additionally, pursuant to a
separate letter of intent agreement between the Company and a third party, the
Company will sell the assets and technology of the international wound care
business to the third party and is in the process of negotiating a definitive
agreement.
Following consummation of the above transactions, the Company intends to
wind-down operations and liquidate its remaining assets. Additionally, the
Company intends to distribute the net proceeds from the above discussed asset
sales to its shareholders. The proposed CONMED transaction is subject to
regulatory approvals and approval by the Company's shareholders. The Company has
not recorded any adjustments to the carrying amounts of its assets and
liabilities to adopt the liquidation basis of accounting or the contingencies
that may be triggered by these transactions, such as the repayment of
outstanding debt and severance liabilities.
Under the liquidation basis of accounting, assets would be adjusted to their
estimated realizable value and liabilities would be adjusted to their estimated
settlement amount.
As of September 30, 1995, the Company did not have any material commitments for
capital expenditures.
PART II. OTHER INFORMATION
Item 3. Legal Proceedings
NovaMedix, Limited
Following is an update to the previously disclosed action entitled
NovaMedix Limited vs. NDM (U.K). In July, 1995, a U.K. patent
court ruled in favor of NovaMedix Limited in a patent infringement
suit against NDM (U.K). the distributor of NDM's product in the
U.K. This ruling has effectively impaired the Company's ability to
market its foot pump compression products in the United Kingdom.
NDM (U.K.) is still evaluating whether it will pursue its right to
appeal the decision. Additionally, following the ruling, NovaMedix
has appealed to the court to recover its costs and damages from
NDM even though NDM was not a party to the action. The Company's
patent counsel has been informed that the plaintiff's litigation
costs may approximate $500,000. No provision has been made in the
accompanying consolidated financial statements to cover plaintiff
litigation costs. The Company has already applied to the court to
set aside NovaMedix's application to recover its costs from NDM.
Item 5. Other Information
On October 18, 1995, the Company and CONMED Corporation ("CONMED")
entered into an Asset Purchase Agreement (the "Agreement"),
pursuant to which CONMED will purchase substantially all of the
Company's assets, except its hydrogel wound care business outside
of the United States, Mexico and Canada and its foot pump
business. CONMED will assume liabilities related to the assets
being acquired. The purchase price for the assets is $32,134,299,
subject to certain adjustments for the disposition of the excluded
assets and satisfaction of liabilities related to the excluded
assets. In addition, the purchase price will be adjusted if the
Company's net assets, subject to certain adjustments for excluded
assets and liabilities and depreciation and amortization, increase
by more than $1,700,000 or decrease by more than $1,000,000 from
August 31, 1995 through closing. CONMED is also obligated to enter
into certain agreements with the purchaser of the Company's
international wound care business. The consummation of the
Agreement is subject to additional conditions including the
approval of the shareholders of the Company and required
regulatory approvals. Additionally, pursuant to a separate letter
of intent agreement between the Company and a third party, the
Company will sell the assets and technology of the international
wound care business to the third party and is in the process of
negotiating a definitive agreement.
Following consummation of the above transactions, the Company
intends to wind-down operations and liquidate its remaining
assets. Additionally, the Company intends to distribute the net
proceeds from the above discussed asset sales to its shareholders.
The proposed CONMED transaction is subject to regulatory approvals
and approval by the Company's shareholders. The Company has not
recorded any adjustments to the carrying amounts of its assets and
liabilities to adopt the liquidation basis of accounting or the
contingencies that may be triggered by these transactions, such as
the repayment of outstanding debt and severance liabilities.
Under the liquidation basis of accounting, assets would be
adjusted to their estimated realizable value and liabilities would
be adjusted to their estimated settlement amount.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NEW DIMENSIONS IN MEDICINE, INC.
Date: November 13, 1995 By /s/ William F. Shea
------------------------------------
William F. Shea
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1995 By /s/ Philip J. Oliver
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Philip J. Oliver
Vice President of Finance
(Principal Accounting and
Financial Officer)
