- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 14, 1996
CONMED CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 0-16093 16-0977505
- ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
310 Broad Street, Utica, New York 13501
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(315) 797-8375
----------------------------------------------------
(Registrant's telephone number, including area code)
Item 5. Other Events
In October 1995, CONMED Corporation (the Company) signed an asset
purchase agreement whereby the Company will acquire substantially all
the business and certain assets of New Dimensions in Medicine, Inc.
("NDM") for a cash purchase price of approximately $32.0 million plus
the assumption of net liabilities of approximately $5.1 million. This
acquisition, which is subject to the approval of the shareholders of
NDM, is expected to close February 23, 1996. The financial statements
of NDM listed under Item 7 have been filed as exhibits to this report
on Form 8-K. Pro forma financial information required pursuant to
Article 11 of Regulation S-X will be filed upon the closing of the
acquisition.
Item 7. Financial Statements and Exhibits
(c) Exhibits
99. i. Financial statements of New Dimensions in Medicine, Inc.
and Subsidiaries together with auditor's report as of
December 31, 1995 and 1994.
ii. Financial statements of NDM Acquisition Corp. and
Subsidiaries together with auditor's report as of
October 14, 1994 and December 31, 1993 and 1992.
Signature
Pursuant to the requirements of 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: February 16, 1996
NEW DIMENSIONS IN MEDICINE, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR
THE TEN-WEEK PERIOD ENDING DECEMBER 31, 1994
TOGETHER WITH AUDITORS' REPORT
NEW DIMENSIONS IN MEDICINE, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE
Consolidated Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and Reserves
Schedules other than that listed above have been omitted as the information has
been included in the consolidated financial statements and related notes, or is
not applicable or not required.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of New Dimensions in Medicine, Inc.:
We have audited the accompanying consolidated balance sheets of NEW DIMENSIONS
IN MEDICINE, INC. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1995 and for
the ten-week period ending December 31, 1994. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully discussed in Note 2 to the consolidated financial statements, on
October 18, 1995, New Dimensions in Medicine, Inc. entered into a definitive
agreement with CONMED Corporation (CONMED), whereby CONMED would acquire
substantially all of the assets and certain trade payables of the Company,
except for the Company's footpump compression and international wound care
business. Additionally, pursuant to a separate agreement, the Company will sell
the assets and technology of the international wound care business to Paul
Hartmann AG. Consequently, the Company intends to wind-down operations, sell its
remaining assets and distribute the net proceeds to its stockholders.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Dimensions In Medicine,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the year ended December 31, 1995 and for the
ten-week period ending December 31, 1994 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has not
demonstrated the ability to achieve sustained earnings from operations. In
addition, as discussed in Notes 2 and 4 to the consolidated financial
statements, the Company has incurred approximately $1.0 million of professional
fees ($.6 million still owed at December 31, 1995) related to the consummation
of the pending asset sales transactions and the Company's bridge loan facility
matures May 31, 1996. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 2. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Dayton, Ohio,
February 14, 1996
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
December 31, December 31,
1995 1994
-------- --------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents (Note 3) ................... $ 1,923 $ 951
Restricted cash (Note 3) ............................. 173 179
Receivables, net (Notes 3, 4 and 6) .................. 3,567 5,386
Receivable from Diversified Liquidating Trust (Note 1) -- 361
Inventories (Notes 3 and 4) .......................... 5,504 6,712
Prepaid expenses and other current assets ............ 295 365
-------- --------
Total current assets ......................... 11,462 13,954
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net (Notes 3 and 4) ..... 10,370 11,326
INTANGIBLE ASSETS, net (Notes 3 and 5) .................. 8,026 8,681
OTHER LONG-TERM ASSETS, net ............................. 255 464
-------- --------
Total assets ................................. $ 30,113 $ 34,425
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Revolving line of credit (Note 4) .................... $ -- $ 2,500
Current maturities of long-term debt (Note 4) ........ 803 806
Bridge loan (Note 4) ................................. 600 --
Accounts payable (Note 6) ............................ 2,562 3,373
Accrued compensation and benefits .................... 736 1,729
Accrued professional fees (Note 2) ................... 1,255 805
Accrued severance .................................... -- 473
Other accrued liabilities ............................ 896 783
-------- --------
Total current liabilities .................... 6,852 10,469
-------- --------
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 4) 8,100 5,204
-------- --------
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
AS OF DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
December 31, December 31,
1995 1994
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000 shares
authorized; 4,326 shares issued and outstanding
at December 31, 1995 (Notes 1, 3 and 7) ........... 43 43
Additional paid-in capital ........................... 18,457 18,457
Retained earnings (deficit) .......................... (3,339) 252
-------- --------
Total stockholders' equity ................... 15,161 18,752
-------- --------
Total liabilities and stockholders' equity ... $ 30,113 $ 34,425
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
TEN-WEEK PERIOD ENDING DECEMBER 31, 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
10-Week
Year Ended Period Ended
December 31, December 31,
1995 1994
------------ -------------
NET SALES (Note 6) ..................................... $ 29,536 $ 7,398
COST OF SALES .......................................... 17,675 4,286
-------- --------
Gross profit .................................. 11,861 3,112
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
PROFESSIONAL FEES RELATED TO ASSET SALES (Note 2) ...... 950 --
RESTRUCTURING CHARGE (Note 3) .......................... 1,471 --
-------- --------
Income (loss) from operations ................. (3,115) 586
OTHER INCOME (EXPENSE):
Interest expense, net ......................... (576) (120)
Other income, net ............................. 288 7
-------- --------
Income (loss) before provision for income taxes (3,403) 473
PROVISION FOR INCOME TAXES (Note 5) .................... 188 221
-------- --------
NET INCOME (LOSS) ...................................... $ (3,591) $ 252
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Note 3) . 4,316 4,312
-------- --------
NET INCOME (LOSS) PER SHARE ............................ $ (.83) $ .06
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE TEN-WEEK PERIOD ENDED DECEMBER 31, 1994
(IN THOUSANDS)
Common Stock (a) Additional Retained
--------------------- Paid-In Earnings
Shares Amount Capital (Deficit) Equity
----- -------- -------- -------- --------
Balance, October 15, 1994 4,312 $ 43 $ 18,457 $ -- $18,500(b)
Net income ............... -- -- -- 252 252
----- -------- -------- -------- --------
Balance, December 31, 1994 4,312 43 18,457 252 18,752
Issuance of Common Stock . 14 -- -- -- --
Shares (Note 1)
Net loss ................. -- -- -- (3,591) (3,591)
----- -------- -------- -------- --------
Balance, December 31, 1995 4,326 $ 43 $ 18,457 $ (3,339) $ 15,161
===== ======== ======== ======== ========
(a) Represents the number of shares issued in accordance with the Plan of
Reorganization (refer to Notes 1 and 3 for further discussion).
(b) Represents the opening Stockholders' Equity balance as determined under
fresh-start reporting (see Note 1 for further discussion).
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
TEN-WEEK PERIOD ENDING DECEMBER 31, 1994
(IN THOUSANDS)
10-Week
Year Ended Period Ended
December 31, December 31,
1995 1994
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $(3,591) $ 252
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization ............................. 2,076 530
Restructuring charge ...................................... 1,471 --
Change in other current assets and liabilities:
Receivables ............................................ 2,166 (80)
Inventories ............................................ 20 1,267
Prepaid expenses and other current assets .............. (1) (70)
Accounts payable ....................................... (1,724) (733)
Accrued liabilities .................................... 10 (370)
------- -------
Cash provided by operating activities ......... 427 796
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property, plant and equipment ................... (374) (65)
Decrease in restricted cash .................................. 6 164
Increase in other long-term assets ........................... (80) --
------- -------
Cash provided by (used in) investing activities (448) 99
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowing ......................................... 600 --
Long-term borrowing .......................................... 1,200 --
Payment of long-term debt .................................... (807) (401)
------- -------
Cash provided by (used in) financing activities 993 (401)
------- -------
Net increase in cash and cash equivalents ..... 972 494
------- -------
Cash and cash equivalents, beginning of period .................. 951 457
------- -------
Cash and cash equivalents, end of period ........................ $ 1,923 $ 951
======= =======
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
TEN-WEEK PERIOD ENDING DECEMBER 31, 1994
(IN THOUSANDS)
10-Week
Year Ended Period Ended
December 31, December 31,
1995 1994
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ..................................... $ 636 $ 112
======= =======
Cash paid for income taxes ................................. $ 92 $ --
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
(Dollars In Thousands)
1. Company Reorganization and Nature of Business-
(a) Business--
New Dimensions in Medicine, Inc. (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 (See Note 6c). The Company formerly
conducted its business as "NDM Acquisition Corp.," incorporated in
Minnesota and a wholly-owned subsidiary of MEI Diversified Inc..
(b) Reorganization--
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. Pursuant to the Bankruptcy Code, MEI
continued in the management and operation of its businesses and
properties as debtors-in-possession. 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 nonoperating
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 plus payment of certain professional fees to
assist with the Company's working capital requirements. As of December
31, 1994 the Company had received $1,742 and the accompanying
consolidated balance sheet reflects a receivable of $361. NDM collected
this receivable in 1995. The Plan also approved the Company's
authorization of twenty million shares of common stock. Beginning in
April 1995, the Company began an initial issuance of 4,312 of these
shares to certain former creditors of MEI and another 14 shares of
common stock were issued in August 1995 to satisfy claims made by
certain other former creditors of MEI. The Company received notice from
the trust administrator in February 1996 that all such remaining claims
of former MEI creditors were settled upon the issuance of an additional
102 shares. The issuance of these shares had no effect on the Company's
stockholders' equity balance.
(c) New Basis of Accounting- Fresh Start Reporting--
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.
Under fresh-start reporting, 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 discounted free
cash flows generated by the Company through 1999, (ii) the 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.
The effect of the Plan on the Company's consolidated balance sheet as
of October 15, 1994 was as follows:
PRO FORMA CONSOLIDATED BALANCE SHEET
(In Thousands)
Consummation
of Plan of
Reorganization Pro Forma
MEI Diversified ---------------------------------- New Dimensions
Inc. Historical Fresh In Medicine,
Debt Discharge Exchange of Stock Start Inc.
--------------- -------------- ----------------- -------- -------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 2,647 $ (1,847) (1) $ 0 $ 0 $ 800
Marketable securities 8,500 (8,500) (1) 0 0 0
Receivables, net 4,742 (333) (1) 0 0 4,409
Receivable from Diversified Liquid. Trust 0 1,258 (2) 0 0 1,258
Inventories 8,184 (205) (1) 0 0 7,979
Prepaid expenses and other current assets 375 (80) (1) 0 0 295
------- --------- ------------ -------- -------
Total current assets 24,448 (9,707) 0 0 14,741
Property, plant and equipment, net 16,853 (5,319) (1) 0 0 (3) 11,534
Nonoperating real estate 4,462 (4,462) (1) 0 0 0
Goodwill, net of accumulated amortization 24,990 0 0 (24,990) (4) 0
Other assets, primarily intangibles 4,255 (1,774) (1) 0 6,921 (3) 9,402
------- --------- ------------ -------- -------
Total assets $75,008 $ (21,262) $ 0 $(18,069) $35,677
======= ========= ============ ======== =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Revolving line of credit $ 2,500 $ 0 $ 0 $ 0 $ 2,500
Current maturities of long-term debt 826 (20) (1) 0 0 806
Accounts payable 4,982 (876) (1) 0 0 4,106
Accrued compensation and benefits 1,862 0 0 0 1,862
Pre-petition liabilities not subject
to compromise 1,993 (1,993) (1) 0 0 0
Other accrued liabilities 4,468 (2,170) (1) 0 0 2,298
------- --------- ------------ -------- -------
Total current liabilities 16,631 (5,059) 0 0 11,572
Long-term debt, less current maturities 5,605 0 0 0 5,605
Pre-petition liabilities subject to compromise 116,773 (116,773) (1) 0 0 0
Deferred liabilities 285 (285) (1) 0 0 0
------- --------- ------------ -------- -------
Total liabilities 139,294 (122,117) 0 0 17,177
------- --------- ------------ -------- -------
PRO FORMA CONSOLIDATED BALANCE SHEET -- Continued
(In Thousands)
Consummation
of Plan of
Reorganization Pro Forma
MEI Diversified ---------------------------------- New Dimensions
Inc. Historical Fresh In Medicine,
Debt Discharge Exchange of Stock Start Inc.
--------------- -------------- ----------------- -------- -------------
Stockholders' equity (deficit):
Common stock, $.05 par value 962 0 (962) (5) 0 0
Common stock, $.01 par value 0 0 45 (1) 0 45
Common stock warrants 2,300 0 (2,300) (5) 0 0
Unrealized gain on marketable securities 1,150 (1,150) (5) 0 0 0
Additional paid-in capital 85,687 18,455 (1) 3,217 (5) 0 18,455
(88,904) (5) 0 0
Retained earnings (accumulated deficit) (151,739) 81,097 (1) 0 0
87,453 (5) 0 0
1,258 (2) 0 0
0 0 (24,990) (4)
0 0 6,921 (3) 0
Treasury stock, 562,000 shares, at cost (2,646) 2,646 (5) 0 0 0
------- --------- ------------ -------- -------
Total stockholders' equity (deficit) (64,286) 100,855 0 (18,069) 18,500
------- --------- ------------ -------- -------
$75,008 $ (21,262) $ 0 $(18,069) $35,677
======= ========= ============ ======== =======
See accompanying Notes to Pro Forma Consolidated Balance Sheet.
NOTES TO 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 the various Liquidating Trusts; and b) the
issuance of New Dimensions in Medicine, Inc. Common Stock including the
associated additional paid-in capital.
(2) To record amounts receivable from Diversified Liquidating Trust
pursuant to the Plan of Reorganization.
(3) To record adjustments to state the Company's property, plant and
equipment and 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.
2. Sale of Assets and Wind-Down of Operations-
On October 18, 1995, the Company jointly announced with CONMED Corporation
(CONMED) that it had entered into a definitive agreement, whereby CONMED
would acquire for approximately $32.1 million substantially all of the
assets and certain trade payables of the Company, except for the Company's
footpump compression and international wound care business. Additionally,
pursuant to a separate definitive agreement between the Company and Paul
Hartmann AG (Hartmann), the Company will sell the assets and technology of
the international wound care business to Hartmann for a purchase price of
$5 million. The Company has incurred approximately $1.0 million of
professional fees related to the consummation of these transactions
(approximately $.6 million of which remains outstanding at December 31,
1995). The Company plans to close on both of the above asset sales on or
about February 23, 1996.
Pursuant to the above transactions, the Company intends to wind-down
operations and sell its remaining assets. Additionally, the Company intends
to distribute the net proceeds from the above discussed asset sales to its
stockholders. These proposed transactions are subject to regulatory
approvals and approval by the Company's shareholders. The consolidated
financial statements do not reflect any adjustments to the carrying amounts
of its assets and liabilities relating to the impact of the above sale
transactions.
3. Basis of Presentation and Summary of Significant Accounting Policies-
(a) Basis of Presentation--
The accompanying consolidated financial statements include the accounts
of New Dimensions in Medicine, Inc. and its subsidiaries. All
significant intercompany account balances and transactions between the
Company and its subsidiaries have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
(b) Cash and Cash Equivalents--
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Under the
Company's long-term debt agreement, the Company is required to make
monthly principal payments of $67 to an escrow account, as semiannual
installments of $400 are due through May 1, 2002. Funds set aside in
escrow amounted to approximately $173 and $179 as of December 31, 1995
and 1994, respectively.
(c) Receivables--
Receivables consisted of the following at December 31, 1995 and 1994:
December 31, December 31,
1995 1994
------------ ------------
Trade (Note 6c) $4,515 $5,322
Other 103 419
Allowance for doubtful accounts (1,051) (355)
------ ------
$3,567 $5,386
====== ======
(d) 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 December 31, 1995 and 1994:
December 31, December 31,
1995 1994
------------ ------------
Raw materials $3,032 $2,911
Work-in-process 50 37
Finished goods 3,397 4,850
Inventory reserves (975) (1,086)
------ ------
$5,504 $6,712
====== ======
(e) Property, Plant and Equipment--
As a result of the adoption of fresh-start reporting, property, plant
and equipment were adjusted to their estimated fair values as of
October 15, 1994. The following is a summary of the Company's property,
plant and equipment and the associated accumulated depreciation at
December 31, 1995 and 1994:
December 31, December 31,
1995 1994
------------ ------------
Land $ 435 $ 435
Buildings and improvements 2,134 2,128
Machinery and equipment 8,811 8,566
Furniture and fixtures 499 470
Accumulated depreciation (1,509) (273)
------- -------
$10,370 $11,326
======= =======
Depreciation for financial reporting purposes is determined using the
straight-line method. Accelerated depreciation methods are used for tax
reporting purposes. Estimated useful lives for financial reporting
purposes are as follows:
Years
------------
Buildings and improvements 25 - 33
Machinery and equipment 8 - 10
Furniture and fixtures 5 - 10
The adoption of fresh-start reporting did not result in any material
change in the remaining lives of the Company's property, plant and
equipment at October 15, 1994. Expenditures for renewals and
improvements that extend the useful life of an asset are capitalized.
Expenditures for the repair and maintenance of assets are expensed as
incurred.
(f) Intangible Assets--
Intangible assets include patents and trademarks, which are amortized
on a straight-line basis over their legal or estimated remaining useful
lives of 10 to 15 years. Under the provisions of fresh-start reporting,
the Company restated all intangible assets to their estimated fair
values as of October 15, 1994.
The following is a summary of the Company's patents and trademarks at
December 31, 1995 and 1994:
December 31, December 31,
1995 1994
------------ ------------
Patents $7,496 $7,536
Trademarks 1,305 1,302
Accumulated amortization (775) (157)
------ ------
$8,026 $8,681
====== ======
(g) Revenue Recognition--
The Company recognizes revenue upon shipment of the completed products.
The Company's primary distributor is Baxter Healthcare Corporation
(Baxter). Revenue is recorded at the contractual sales prices between
Baxter and NDM. Amounts owed to Baxter for distribution services
calculated under the terms of the contract are recorded as distribution
expense. The Company may not offset amounts owed for distribution
services with expected amounts due from Baxter.
(h) Income Taxes--
The Company provides for income taxes on timing differences resulting
from the use of alternative methods of income and expense recognition
for financial and tax reporting purposes.
(i) Research and Development Expenditures--
Research and development expenditures of $814 and $174 are included in
Selling, General and Administrative Expenses on the Consolidated
Statements of Operations for the year ended December 31, 1995 and for
the ten-week period ended December 31, 1994, respectively.
(j) Net Income Per Share--
As of December 31, 1995 and 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
periods (pro forma basis for 1994).
(k) Reclassifications--
Certain reclassifications of previously reported amounts have been made
to conform with current classifications.
(l) Reserve for general liability insurance claims--
The Company is partially self-insured for general liability and
property insurance claims, which are insured above a deductible amount
of $25 per occurrence with a maximum aggregate deductible of $125 per
year. The Company's estimate of liability for the self-insured claims
is included in "other accrued liabilities" in the consolidated balance
sheets.
(m) Restructuring Charge--
During 1995, the Company decided to forego the marketing of the
footpump compression product line in the future due to the Company's
inability to develop a sustained demand for the products and due to the
patent infringement suit discussed in Note 6e. Accordingly, the Company
recorded a $1,471 restructuring charge in 1995 to write-off the
inventory, machinery, and patents related to the footpump compression
product line.
4. Credit Arrangements-
(a) Line of Credit--
The Company has a revolving line-of-credit agreement with a bank.
During 1995, the revolving line-of-credit agreement was renegotiated
and the maturity date was extended from June 30, 1995 to June 30, 1997.
In addition the line was increased from $2.5 million to $4.0 million;
$3.7 million of which was outstanding as of December 31, 1995 and $2.5
million was outstanding as of December 31, 1994. Borrowings under the
line-of-credit bear interest at prime plus one half percent (9.00%) at
December 31, 1995 and prime plus one percent (9.50%) at December 31,
1994. In addition, the Company negotiated a $1.0 million "bridge loan"
with the same bank to assist in payment of the professional fees
discussed in Note 2. The Company borrowed $.6 million under the bridge
loan in December 1995 (all of which was outstanding at December 31,
1995). The bridge loan carries interest at prime plus one-half percent
(9.00%) at December 31, 1995, and matures on May 31, 1996. Borrowings
under the line and the bridge loan are collateralized by substantially
all of the Company's assets.
(b) Long-Term Debt--
The Company's long-term debt includes a "floating-rate option" note
($5.2 million and $6.0 million outstanding at December 31, 1995 and
1994, respectively), which is secured by a letter of credit issued by
its lender. The lender sets the interest rate on a weekly basis based
on market conditions for similar debt. The Company has the option to
fix the interest rate for periods of 1 to 10 years, as defined; the
floating interest rate at December 31, 1995 and 1994 was 5.83% and
6.28%, respectively. Under the agreement, semiannual installments of
$400 are due through May 1, 2002 (see Note 3b) The Company also pays an
annual letter of credit facility fee of 1.75% of the outstanding loan
balance. Borrowings under the note are collateralized by substantially
all of the Company's assets.
In addition, long-term debt at December 31, 1995 includes the $3.7
million line-of-credit due June 30, 1997.
The Company's financing arrangements contain various covenants related
to cash flow, debt-to-equity ratio, current ratio, capital
expenditures, and tangible net worth, among others. In addition, the
Company is prohibited from declaring or paying dividends on its common
stock by such covenants. These covenants were amended to reflect the
impact of the Company's fresh-start reporting.
The Company's debt obligations mature as follows:
1996 $1,403
1997 4,500
1998 800
1999 800
2000 800
Thereafter 1,200
------
$9,503
======
5. Income Taxes-
The components of the provision for income taxes for the year ended
December 31, 1995 and for the ten-week period ending December 31, 1994,
respectively, consist of the following:
1995 1994
---- ----
Currently payable-
Federal $ -- $ --
State 188 61
Deferred-
Federal - 160
---- ----
$188 $221
==== ====
In accordance with SOP 90-7, the provision for federal income taxes of $160
in 1994 was treated as a reduction in the valuation allowance against the
net operating losses discussed below that existed at the date of adoption
of "fresh start" accounting and is credited against intangible assets.
Future reductions in the valuation allowance which are in excess of
intangible assets will be credited to additional paid-in capital.
Deferred tax balances result from differences in the timing of recognition
of certain transactions for book and tax purposes. At December 31, 1995 and
1994, the Company's deferred tax accounts include timing differences
related to the following:
1995 1994
------- -------
Depreciation of property, plant and equipment $ (617) $(1,314)
Incentive compensation ...................... 36 127
Amortization of intangible assets ........... (1,280) (1,372)
Net operating loss carryforwards ............ 6,970 6,154
Valuation allowance ......................... (5,109) (3,595)
------- -------
Net long-term deferred tax asset ... $ -- $ --
======= =======
Bad debt reserve ............................ $ 431 $ 165
Vacation pay accrual ........................ 155 193
Inventory obsolescence reserve .............. 278 396
Uniform capitalization rules ................ 106 48
Accrued severance pay ....................... -- 213
Other, net .................................. 189 214
Valuation allowance ......................... (1,159) (1,229)
------- -------
Net short-term deferred tax asset .. $ -- $ --
======= =======
As of December 31, 1995, the Company has available net operating loss
carryforwards for income tax and financial reporting purposes of
approximately $20.5 million, which will expire in varying amounts beginning
in 2006. The Company's ability to utilize certain net operating loss
carryforwards in any future year will be limited by the provisions of
Section 382 of the Internal Revenue Code. Due to the uncertainty of
utilizing the net operating loss carryforwards as a result of the Company's
operating losses, a valuation allowance has been recorded against the net
operating loss carryforwards. In addition, no other deferred tax balances
have been recognized in the accompanying consolidated balance sheets due to
the existence of these net operating loss carryforwards.
6. Commitments and Contingencies-
(a) Retirement Plans--
The Company has a qualified 401(k) and discretionary profit sharing
plan. Employees may contribute up to 12% of their annual compensation
to the 401(k) plan, and the Company makes matching contributions of up
to 2-1/2% of the employee's annual compensation. Discretionary
contributions may be made for each plan year in an amount determined by
the Company. The Company made matching contributions of $178 and $24
for the year ended December 31, 1995 and for the ten-week period ending
December 31, 1994.
(b) Postretirement Health Care Benefits--
The Company allows employees, spouses and surviving spouses to
participate in the Company's group health insurance programs from
retirement to age 65 as required by federal law. The cost of such
participation is borne by the former employee or surviving spouse and,
accordingly, no liability is recorded by the Company.
(c) Distribution Agreement and Significant Customer--
A substantial portion of the Company's annual revenues (approximately
70%) are derived from sales of the Company's products through Baxter
Healthcare Corporation (Baxter). The Company and Baxter have entered
into an agreement (effective January 1, 1995) for the distribution of
all of the Company's products in the United States, with an initial
term that expires December 31, 1996. The Company has the option to
extend the term of the agreement for three additional successive
one-year periods. Prior to January 1, 1995, the Company's distribution
agreement with Baxter contained an exclusive right by Baxter to
distribute the Company's critical care products to approximately one
thousand U.S. hospitals that were customers of Baxter on January 1,
1992. The Company provided Baxter with additional payments if the
aggregate sales revenue distributed under the agreement exceeded an
established base amount in effect for each year. At December 31, 1995
and 1994 under the terms of the prior agreement, the Company owed
Baxter approximately $922 and $1,824, respectively, which is included
in accounts payable in the accompanying consolidated balance sheets.
Receivables as of December 31, 1995 and 1994, respectively, include
$2,848 and $3,660 due from a unit of Baxter.
(d) Severance Compensation Agreements--
The Company has severance compensation agreements with certain of its
executives. Such agreements provide for the payment over varying
periods from 18 to 24 months to these executives of their annual base
compensation, plus continuation of certain benefits. In addition, the
Company is obligated to pay these executives a cash payment equal to a
percentage of the proceeds to shareholders in the event a change in
control (as defined) within a one-year period is followed by a
termination of employment The maximum contingent liability of the
Company pursuant to such agreements is approximately $2,643 at December
31, 1995.
At the closing of the sales of assets to CONMED and Hartmann (discussed
in Note 2), these executives will be entitled to receive payment of
severance benefits. The Company intends to pay the severance benefits
from the proceeds upon closing of the above transactions. Accordingly,
the accompanying consolidated financial statements do not include any
provision related to these agreements.
(e) Litigation--
The Company is involved in various litigation arising in the normal
course of business. In particular, the Company was informed in July
1995 that a U.K patent court had ruled in favor of a competitor
(plaintiff) related to a patent infringement suit against NDM (U.K.)
Limited, the distributor of NDM products in the U.K. This ruling has
effectively impaired the Company's ability to market its footpump
compression products in the United Kingdom. Following the ruling, the
plaintiff appealed to the court to recover its litigation costs from
the Company, even though NDM was not a party to the suit. In January
1996, the court ruled in favor of the plaintiff's action, rendering NDM
liable for the plaintiff's litigation costs of approximately $500. The
Company has subsequently obtained an indemnification agreement from
Kinetics Concepts, Inc. (KCI), a Texas Corporation, whereby KCI has
agreed to hold NDM harmless from the plaintiff's litigation costs in
exchange for the right to pursue an appeal of the U.K. patent court's
original ruling. Accordingly, no provision has been made in the
accompanying consolidated financial statements to cover such costs. In
the opinion of management, the ultimate disposition of this matter
should not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
(f) Purchase Commitments--
The Company has purchase commitments with various suppliers which
amount to approximately $1,020 at December 31, 1995.
7. Stockholder Rights Agreement-
Pursuant to the Plan, the Company adopted a Stockholder Rights Agreement
(the Rights Agreement). Under the Rights Agreement, the Company declared a
distribution of one right for each share of common stock outstanding on
November 4, 1994. One right will also be issued for each share of common
stock issued through such time that a person or group acquires beneficial
ownership of 25% or more of the outstanding common stock (the Rights
Distribution Date). Each right entitles the holder to purchase from the
Company one or more shares of common stock at one half of the current
market price. The rights are not exercisable until the Rights Distribution
Date, but may be redeemed by the Company for $.01 per right at any time.
8. Disclosure about Fair Value of Financial Instruments-
For certain of the Company's financial instruments, including cash and cash
equivalents, receivables, accounts payable and other accrued liabilities,
the carrying amounts approximate fair value due to their short maturities.
Consequently, such instruments are not included in the following table,
which provides information regarding the estimated fair values of the
Company's other financial instruments at December 31, 1995 and 1994:
1995 1994
------------------------ -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Revolving line of credit $3,700 $3,700 $2,500 $2,500
Bridge loan $ 600 $ 600 $ -- $ --
Floating-rate option note $5,200 $4,985 $6,000 $5,731
The revolving line-of-credit and bridge loan variable rate facilities are
carried at amounts that approximate fair value. The estimated fair value of
the floating-rate option note is based on the present value of the
underlying cash flows discounted at NDM's current borrowing rates for
similar types of debt.
9. Supplementary Data (Unaudited )-
NDM's results of operations for each of the quarters in the year ended
December 31, 1995 are summarized below.
1995 Quarter Ended (Unaudited)
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Net Sales $7,578 $8,256 $7,200 $ 6,502
Gross Profit 3,368 3,559 2,991 1,943
Income (loss) from
operations 303 391 (265) (3,544)
------ ------ ------ -------
Net income (loss) $ 152 $ 203 $ (250) $(3,696)
====== ====== ====== =======
Net income (loss) per share $ .04 $ .05 $ (.06) $ (.85) (a)
====== ====== ====== =======
(a) Due to rounding, the sum of the quarterly amounts does not equal the
total for the year.
SCHEDULE II
NEW DIMENSIONS IN MEDICINE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
Additions
Balance at Charged to
Beginning Costs and Deductions From Balance at
Classification of Period Expenses Reserves End of Period
- ----------------------------- ---------- ---------- --------------- -------------
Year ended December 31, 1995:
Inventory reserve $1,086 $712 $823 $ 975
Allowance for doubtful $ 355 $721 $ 25 $1,051
accounts
10-week period ended
December 31, 1994:
Inventory reserve $1,164 $ 72 $150 $1,086
Allowance for doubtful $ 436 $ 0 $ 81 $ 355
accounts
NDM ACQUISITION CORP. AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF OCTOBER 14, 1994 AND
DECEMBER 31, 1993 AND 1992
TOGETHER WITH
AUDITORS' REPORT
Report of Independent Public Accountants
----------------------------------------
To NDM Acquisition Corp.:
We have audited the accompanying consolidated balance sheets of NDM
ACQUISITION CORP. (a Minnesota corporation and wholly owned subsidiary of MEI
Diversified Inc.) AND SUBSIDIARIES as of October 14, 1994 and December 31, 1993
and 1992, and the related consolidated statements of operations, changes in
shareholder's investment and cash flows for the periods then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NDM Acquisition
Corp. and Subsidiaries as of October 14, 1994 and December 31, 1993 and 1992,
and the results of their operations and their cash flows for the periods then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 2 and 9 to the consolidated financial statements, the Company's line of
credit matures June 30, 1995 and, to date, the Company has not secured an
alternative borrowing facility. The Company has not demonstrated the ability to
achieve sustained earnings from operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to this matter are also described in Notes 2 and 9. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
ARTHUR ANDERSEN LLP
Dayton, Ohio
February 24, 1995
NDM Acquisition Corp. and Subsidiaries
Consolidated Balance Sheets
As of October 14, 1994 and December 31, 1993 and 1992
1994 1993 1992
-------- -------- --------
(In Thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) ............................ $ 457 $ 1,196 $ 1,756
Restricted cash (Note 1) ...................................... 343 162 164
Receivables, net (Notes 1, 4, and 7) .......................... 4,409 4,937 5,191
Inventories (Note 1 and 4) .................................... 7,979 5,892 4,986
Prepaid expenses and other current assets ..................... 295 235 232
-------- -------- --------
Total current assets ............................. 13,483 12,422 12,329
PROPERTY, PLANT AND EQUIPMENT, net (Note 1) ........................ 11,534 11,204 10,753
GOODWILL (Note 1) .................................................. 24,990 25,540 25,779
OTHER INTANGIBLE ASSETS (Note 1) ................................... 2,480 2,766 3,086
-------- -------- --------
$ 52,487 $ 51,932 $ 51,947
======== ======== ========
NDM Acquisition Corp. and Subsidiaries
Consolidated Balance Sheets -- Continued
As of October 14, 1994 and December 31, 1993 and 1992
1994 1993 1992
-------- -------- --------
(In Thousands)
LIABILITIES AND SHAREHOLDER'S INVESTMENT
CURRENT LIABILITIES:
Revolving line of credit (Note 4) ............................. $ 2,500 $ 2,500 $ 600
Current maturities of debt (Note 4) ........................... 806 806 204
Accounts payable (Note 7) ..................................... 4,106 2,963 3,403
Accrued compensation and benefits ............................. 1,862 952 888
Other accrued liabilities ..................................... 2,297 372 317
Accrued interest due to Parent (Notes 4 and 8) ................ 2,174 1,035 203
-------- -------- --------
Total current liabilities ........................ 13,745 8,628 5,615
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 4) ................... 5,605 6,009 7,400
SUBORDINATED NOTE PAYABLE TO PARENT (Note 4) ....................... 20,742 20,000 20,000
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDER'S INVESTMENT:
Common stock, $1 par value; 1,000 shares authorized,
issued and outstanding (Notes 1 and 6) ...................... 1 1 1
Additional paid-in capital .................................... 19,999 19,999 19,999
Accumulated deficit ........................................... (7,605) (2,705) (1,068)
-------- -------- --------
Total shareholder's investment ................... 12,395 17,295 18,932
-------- -------- --------
$ 52,487 $ 51,932 $ 51,947
======== ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
NDM Acquisition Corp. and Subsidiaries
Consolidated Statements of Operations
For the Forty-Two Week Period Ended October 14, 1994 and
For the Years Ended December 31, 1993 and 1992
1994 1993 1992
-------- -------- --------
(In Thousands)
REVENUES ...................................... $ 24,882 $ 33,281 $ 32,766
COST OF SALES ................................. 14,632 19,277 17,824
-------- -------- --------
Gross profit ................ 10,250 14,004 14,942
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .. 8,064 7,934 6,888
WAREHOUSE AND DISTRIBUTION EXPENSES
(Notes 1 and 7) ............................ 2,879 3,336 3,451
RESEARCH AND DEVELOPMENT EXPENSES ............. 971 1,036 885
AMORTIZATION OF INTANGIBLES ................... 806 1,228 1,166
RESTRUCTURING CHARGE (Note 1) ................. 832 342 --
-------- -------- --------
OPERATING INCOME (LOSS) ....................... (3,302) 128 2,552
OTHER INCOME (EXPENSE):
Interest expense ......................... (1,453) (1,494) (1,980)
Interest income .......................... 15 74 142
Other, net ............................... (160) (345) 435
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (4,900) (1,637) 1,149
Provision for income taxes (Note 5) ...... -- -- --
-------- -------- --------
NET INCOME (LOSS) ............................. $ (4,900) $ (1,637) $ 1,149
======== ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
NDM Acquisition Corp. and Subsidiaries
Consolidated Statements of Changes in Shareholder's Investment
For the Forty-Two Week Period Ended October 14, 1994 and
For the Years Ended December 31, 1993 and 1992
Common Stock Additional Accumulated
---------------------- Paid-In
Shares Amounts Capital Deficit
------- ------- ------- -------
(In Thousands)
BALANCE, December 31, 1991 ...................... 1 $ 1 $ 4,999 $(2,217)
Conversion of amounts due to parent (Note 4) -- -- 15,000 --
Net income ................................. -- -- -- 1,149
------- ------- ------- -------
BALANCE, December 31, 1992 ...................... 1 1 19,999 (1,068)
Net loss ................................... -- -- -- (1,637)
------- ------- ------- -------
BALANCE, December 31, 1993 ...................... 1 1 19,999 (2,705)
Net loss ................................... -- -- -- (4,900)
------- ------- ------- -------
BALANCE, October 14, 1994 ....................... 1 $ 1 $19,999 $(7,605)
======= ======= ======= =======
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
NDM Acquisition Corp. and Subsidiaries
Consolidated Statements of Cash Flows
For the Forty-Two Week Period Ended October 14, 1994 and
For the Years Ended December 31, 1993 and 1992
1994 1993 1992
------- ------- -------
(In Thousands)
OPERATING ACTIVITIES:
Net income (loss) ............................................... $(4,900) $(1,637) $ 1,149
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization ............................... 1,908 3,069 2,444
Loss on sale or write-down of property, plant and
equipment ................................................. 55 308 --
Changes in operating assets and liabilities--
Receivables ............................................ 528 74 1,070
Inventories ............................................ (2,087) (509) (1,219)
Prepaid expenses ....................................... (60) 3 (50)
Accounts payable and accrued liabilities ............... 5,117 600 972
------- ------- -------
Net cash provided by operating activities .......... 561 1,908 4,366
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net ................. (1,427) (2,727) (1,490)
Investment in patents and other long-term assets ................ (29) (853) (440)
Acquisition of subsidiary ....................................... -- -- (1,200)
(Increase) Decrease in restricted cash .......................... (181) 2 (164)
------- ------- -------
Net cash used for investing activities ............. (1,637) (3,578) (3,294)
------- ------- -------
FINANCING ACTIVITIES:
Increase in subordinated note payable to parent ................. 742 -- --
Net short-term borrowings ....................................... -- 1,900 600
Long-term debt issued ........................................... -- 18 8,000
Long-term debt retired .......................................... (405) (808) (1,085)
Payments to Parent .............................................. -- -- (7,793)
------- ------- -------
Net cash provided by (used for) financing activities 337 1,110 (278)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (739) (560) 794
------- ------- -------
CASH AND CASH EQUIVALENTS:
Beginning of year ............................................... 1,196 1,756 962
------- ------- -------
End of year ..................................................... $ 457 $ 1,196 $ 1,756
======= ======= =======
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
NDM Acquisition Corp. and Subsidiaries
Notes to Consolidated Financial Statements
As of October 14, 1994 and December 31, 1993 and 1992
(Dollars in Thousands)
(1) Basis of Presentation, Reorganization and Summary of Significant
Accounting Policies-
(a) Basis of Presentation--The accompanying consolidated financial
statements include the accounts of NDM Acquisition Corp. and its
majority-owned subsidiaries (NDM, the Company). All significant
intercompany account balances and transactions between the Company
and its subsidiaries have been eliminated in consolidation. NDM
became a wholly owned subsidiary of MEI Diversified, Inc. (MEI,
the Parent) effective July 1, 1990. The acquisition has been
accounted for as a purchase with the excess purchase price over
the fair value of the net assets acquired recorded as goodwill in
NDM's financial statements.
(b) Nature of Business--The Company is a developer and manufacturer of
electrocardiographic 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 (see Note 7c).
(c) Reorganization--On February 23, 1993, MEI filed a petition for
relief under Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code) in the district of Delaware federal bankruptcy
court. Pursuant to the Bankruptcy Code, MEI continued in the
management and operation of its businesses and properties as
debtors-in-possession. 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, NDM was merged into MEI, and MEI then restated its
Certificate of Incorporation (the day after the Effective Date)
and changed its name to New Dimensions in Medicine, Inc. (New
NDM). 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 nonoperating subsidiaries and the capital stock of NDM.
As a result of the merger, all assets and liabilities of NDM
became assets and liabilities of New NDM except that all
obligations and liabilities owed by 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 plus
payment of certain professional fees to assist with New NDM's
working capital requirements. The Plan also approved New NDM's
authorization of twenty million shares of common stock. Beginning
in April 1995, New NDM plans to formally issue 4,312 of these
shares to certain former creditors of MEI. Another half million
shares of common stock will be reserved for issuance to satisfy
claims being made by certain former creditors of MEI 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. If any of
these additional shares are issued, their issuance will have no
effect on New NDM's opening stockholders' equity balance.
(d) New Basis of Accounting- Fresh Start Reporting (Subsequent
Event)--On the day after the Effective Date (October 15, 1994),
New NDM 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 New NDM's
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.
Estimated fair values on October 15, 1994 were determined by
management with the assistance of independent appraisers. The
valuation methodologies employed to determine the reorganization
value of New 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 New
NDM was computed using a discounted net cash flow technique
utilizing an income capitalization approach. This specific
technique takes into consideration (i) the discounted free cash
flows generated by New NDM through 1999, (ii) the discounted
residual value of New NDM 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 NDM as a result of the merger of
NDM into MEI under the Plan, or as a result of the distribution of
New NDM stock to creditors as provided under the Plan, shall be
unenforceable against New NDM.
The effect of the Plan on New NDM's consolidated balance sheet at
October 15, 1994 was as follows:
PRO FORMA CONSOLIDATED BALANCE SHEET
(In Thousands)
Consummation
of Plan of
Reorganization
MEI --------------------------
Diversified Pro Forma
Inc. Exchange of Fresh New Dimensions
Historical Debt Discharge Stock Start In Medicine, Inc.
---------- -------------- --------- --------- -----------------
Assets
------
Current assets:
Cash and cash equivalents .......................... $ 2,647 $ (1,847)(1) $ 0 $ 0 $ 800
Marketable securities .............................. 8,500 (8,500)(1) 0 0 0
Receivables, net ................................... 4,742 (333)(1) 0 0 4,409
Receivable from Diversified Liquid. Trust .......... 0 1,258 0 0 1,258
Inventories ........................................ 8,184 (205)(1) 0 0 7,979
Prepaid expenses and other current assets .......... 375 (80)(1) 0 0 295
--------- --------- --------- --------- ---------
Total current assets ....................... 24,448 (9,707) 0 0 14,741
Property, plant and equipment, net .................... 16,853 (5,319)(1) 0 0(3) 11,534
Nonoperating real estate .............................. 4,462 (4,462)(1) 0 0 0
Goodwill, net of accumulated amortization ............. 24,990 0 0 (24,990)(4) 0
Other assets, primarily intangibles ................... 4,255 (1,774)(1) 0 6,921(3) 9,402
--------- --------- --------- --------- ---------
Total assets ............................... $ 75,008 $ (21,262) $ 0 $ (18,069) $ 35,677
--------- --------- --------- --------- ---------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Revolving line of credit ........................... $ 2,500 $ 0 $ 0 $ 0 $ 2,500
Current maturities of long-term debt ............... 826 (20)(1) 0 0 806
Accounts payable ................................... 4,982 (876)(1) 0 0 4,106
Accrued compensation and benefits .................. 1,862 0 0 0 1,862
Pre-petition liabilities not subject to
compromise ....................................... 1,993 (1,993)(1) 0 0 0
Other accrued liabilities .......................... 4,468 (2,170)(1) 0 0 2,298
--------- --------- --------- --------- ---------
Total current liabilities .................. 16,631 (5,059) 0 0 11,572
Long-term debt, less current maturities ............... 5,605 0 0 0 5,605
Pre-petition liabilities subject to
compromise ......................................... 116,773 (116,773)(1) 0 0 0
Deferred liabilities .................................. 285 (285)(1) 0 0 0
--------- --------- --------- --------- ---------
Total liabilities .......................... 139,294 (122,117) 0 0 17,177
--------- --------- --------- --------- ---------
PRO FORMA CONSOLIDATED BALANCE SHEET -- Continued
(In Thousands)
Consummation
of Plan of
Reorganization
MEI --------------------------
Diversified Pro Forma
Inc. Exchange of Fresh New Dimensions
Historical Debt Discharge Stock Start In Medicine, Inc.
---------- -------------- --------- --------- -----------------
Stockholders' equity (deficit):
Common stock, $.05 par value ....................... 962 0 (962)(5) 0 0
Common stock, $.01 par value ....................... 0 0 45(1) 0 45
Common stock warrants .............................. 2,300 0 (2,300)(5) 0 0
Unrealized gain on marketable securities ........... 1,150 (1,150)(5) 0 0 0
Additional paid-in capital ......................... 85,687 18,455(1) 3,217(5) 0 18,455
(88,904)(5) 0 0
Retained earnings (accumulated deficit) ............ (151,739) 81,097(1) 0 0
87,453(5) 0 0
1,258(2) 0 0
0 0 (24,990)(4)
0 0 6,921(3) 0
Treasury stock, 562,000 shares, at cost ............ (2,646) 2,646(5) 0 0 0
--------- --------- --------- --------- ---------
Total stockholders' equity
(deficit) ............................... (64,286) 100,855 0 (18,069) 18,500
--------- --------- --------- --------- ---------
$ 75,008 $ (21,262) $ 0 $ (18,069) $ 35,677
========= ========= ========= ========= =========
See accompanying Notes to Pro Forma Consolidated Balance Sheet.
NOTES TO 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 the various
Liquidating Trusts; and b) the issuance of New Dimensions in
Medicine, Inc. Common Stock including the associated
additional paid-in capital.
(2) To record amounts receivable from Diversified Liquidating
Trust pursuant to the Plan of Reorganization.
(3) To record adjustments to state New NDM's property, plant and
equipment and 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 New NDM.
(e) Revenue Recognition--The Company recognizes revenue upon shipment
of the completed products. Revenues derived from domestic sales
through the Baxter Healthcare Corporation (Baxter) distribution
system were approximately 76%, 81% and 88% of total revenues in
1994, 1993 and 1992, respectively (see Note 7). Revenue is
recorded at the contractual sales prices between Baxter and NDM.
Amounts owed to Baxter for distribution services calculated under
the terms of the contract are recorded as distribution expense.
The amount recorded as distribution expense was $2,300, $2,628 and
$2,884 for the 42-week period ended October 14, 1994 and for the
years ended December 31, 1993 and 1992, respectively. The Company
may not offset amounts owed for distribution services with
expected amounts due from Baxter.
(f) Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to
be cash equivalents. Under the Company's long-term debt agreement,
the Company is required to make monthly principal payments of $67
to an escrow account, as semiannual installments of $400 are due
through May 1, 2002. Funds set aside in escrow amounted to
approximately $343, $162 and $164 at October 14, 1994 and December
31, 1993 and 1992, respectively.
The following items represent noncash transactions of the Company
for the year ended December 31, 1992:
Reduction of amounts due to Parent through issuance of
subordinated note payable to Parent $20,000
Increase in shareholder's investment and corresponding
reduction of amounts due to Parent 15,000
Cash payments for interest for the 42-week period ended October
14, 1994 and for the years ended December 31, 1993 and 1992
amounted to $0, $630 and $1,753, respectively.
(g) Receivables--Receivables consisted of the following at October 14,
1994 and December 31, 1993 and 1992, respectively:
1994 1993 1992
------- ------- -------
Trade ................................ $ 4,224 $ 4,597 $ 4,878
Other ................................ 621 370 343
Allowance for doubtful accounts ...... (436) (30) (30)
------- ------- -------
$ 4,409 $ 4,937 $ 5,191
======= ======= =======
Trade receivables as of October 14, 1994 and December 31, 1993 and
1992, include $3,004, $2,763 and $3,238, respectively, due from a
unit of Baxter (See Note 7). The allowance for doubtful accounts
was increased by approximately $500 during the 42-week period
ended October 14, 1994 primarily due to a deterioration of the
aging of receivables.
(h) Inventories--Inventories are valued at the lower of cost
(first-in, first-out) or market value. The components of inventory
at October 14, 1994 and December 31, 1993 and 1992, respectively,
consist of the following:
1994 1993 1992
------- ------- -------
Raw materials .................. $ 2,894 $ 2,973 $ 2,323
Work in process ................ 54 55 62
Finished goods ................. 6,195 3,584 2,840
Inventory reserves ............. (1,164) (720) (239)
------- ------- -------
$ 7,979 $ 5,892 $ 4,986
======= ======= =======
During the 42-week period ended October 14, 1994, NDM recorded a
$603 write-off of excess and obsolete inventory relating primarily
to a new product introduction in the patient care product groups.
(i) Property, Plant and Equipment--Property, plant and equipment,
stated at cost as of October 14, 1994 and December 31, 1993 and
1992, respectively, consists of:
1994 1993 1992
-------- -------- --------
Land .............................. $ 475 $ 475 $ 475
Buildings and improvements ........ 3,423 3,399 3,305
Machinery and equipment ........... 11,108 10,030 8,845
Furniture and fixtures ............ 849 814 633
Accumulated depreciation .......... (4,321) (3,514) (2,505)
-------- -------- --------
$ 11,534 $ 11,204 $ 10,753
======== ======== ========
Depreciation for financial reporting purposes is provided for
using the straight-line method. Accelerated depreciation methods
are used for tax reporting purposes. Estimated useful lives for
financial reporting purposes are as follows:
Years
-----
Buildings and improvements 25-33
Machinery and equipment 8-10
Furniture and fixtures 5-10
Expenditures for renewals and improvements that extend the useful
life of an asset are capitalized. Expenditures for the repair and
maintenance of assets are expensed as incurred.
(j) Goodwill--Goodwill represents the cost of investment in
subsidiaries over the fair value of the underlying net assets at
the dates of acquisition and is being amortized on a straight-line
basis over 40 years. Accumulated amortization was $2,926, $2,374
and $1,680 at October 14, 1994 and December 31, 1993 and 1992,
respectively.
(k) Other Intangible Assets--Other intangible assets include patents
and trademarks which are amortized on a straight-line basis over
their legal or estimated useful lives of 10 to 15 years. Other
intangible assets are shown on the accompanying consolidated
balance sheets net of accumulated amortization of $3,034, $2,577
and $1,746 as of October 14, 1994 and December 31, 1993 and 1992,
respectively.
(l) Restructuring Costs--The Company recorded restructuring costs of
approximately $832 during the 42-week period ended October 14,
1994 and $342 of restructuring costs during 1993. These costs
relate primarily to severance and outplacement costs and are
reflected on the accompanying consolidated statements of
operations as operating expenses.
(2) Liquidity-
The Company's viability as a going concern is dependent upon its ability
to obtain financing, and ultimately, sustained profitability.
The Company's $2.5 million line of credit expires on June 30, 1995.
Company management is working with its current lender to extend the
availability of its line of credit beyond June 30, 1995 and to increase
the amount available under the line of credit. This is dependent on the
financial performance of the Company during the interim months.
Management has prepared cash projections through December 31, 1995, which
are based on budgeted sales for this period. Management believes cash
flows will be adequate to fund future operations through December 31,
1995.
The Company has not demonstrated the ability to achieve sustained
earnings from operations. The Company expects to improve its
profitability due to cost savings generated by the third quarter 1994
restructuring (see Note 1) and improved revenues.
While management continues to pursue alternative borrowing facilities and
to work at achieving successful future operations, there can be no
assurances that the Company will be able to obtain such borrowing
facilities or achieve such operating results. These matters raise
substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated balance sheet does not include any
adjustments relating to the recoverability and classification of recorded
asset amounts nor the amounts and classifications of recorded liability
amounts that might be necessary should the Company be unable to continue
as a going concern.
(3) Acquisitions-
On December 16, 1992, the Company, through a newly organized, wholly
owned subsidiary, LRC Holding Company, Inc., acquired certain assets of
Chrono Dynamics Ltd. (Chrono) and 55% of the outstanding stock of
Chrono's subsidiary, Leg Recovery Centers of America Inc. (LRC). The
acquired assets represent a medical device product line used in the
treatment of certain conditions of the leg, while LRC licenses the use of
the devices to clinics. Neither has had significant historical operating
activities.
The cost of the acquisitions was $1,200 in cash for the assets acquired
from Chrono and $1 in cash for 1,100 newly issued, no par value, shares
of the common stock of LRC. The acquisitions were accounted for using the
purchase method and, accordingly, the results of operations since
December 16, 1992, are included in the accompanying consolidated
statements of operations.
In December 1993 it was determined that the Company's investment in LRC
had no future value and the net investment of $251 was written off.
(4) Indebtedness-
(a) Line of Credit--The Company has a revolving line-of-credit
agreement with a bank whereby it may borrow up to $2,500, all of
which was outstanding as of October 14, 1994. Borrowings under the
line of credit bear interest at prime plus one half percent (8.25%
at October 14, 1994 and 6.5% at December 31, 1993 and 1992).
Borrowings under the line-of-credit are collateralized by
substantially all of the Company's assets. The Company is required
to maintain a compensating balance of 5% of the available line of
credit in its demand deposit accounts.
(b) Long-Term Obligations--The Company's long-term obligations
included the following at October 14, 1994 and December 31, 1993
and 1992, respectively:
1994 1993 1992
-------- -------- --------
Subordinated note payable to Parent
at the prime rate (7.75% at
October 14, 1994 and 6.0% at
December 31, 1993 and 1992), no
payments to be made except as
permitted by the amended and
restated subordination agreement ..... $ 20,742 $ 20,000 $ 20,000
Floating rate option note (5.2% at
October 14, 1994, 3.6% at
December 31, 1993 and 3.9% at
December 31, 1992), due in
semiannual installments of $400
commencing on November 1, 1992 ....... 6,400 6,800 7,600
Revolving line of credit, at prime
plus one half percent (8.3% at
October 14, 1994, 6.5% at
December 31, 1993 and 1992), due
on June 30, 1995 ..................... 2,500 2,500 600
Other long-term debt .................... 11 15 4
-------- -------- --------
29,653 29,315 28,204
Less- Current maturities ............... (3,306) (3,306) (804)
-------- -------- --------
$ 26,347 $ 26,009 $ 27,400
======== ======== ========
The Company's long-term obligations (excluding the subordinated
note payable to Parent) mature as follows:
1994 $ 400
1995 3,306
1996 805
1997 800
1998 800
Thereafter 2,800
--------
$ 8,911
========
During 1992, MEI converted $20,000 of amounts due from NDM into a
subordinated interest-bearing note. In addition, $15,000 of the
amounts due to Parent were converted to equity in the form of
contributed capital.
The floating rate option note is secured by a letter of credit
issued by its lender. The Company has the option to fix the
interest rate for periods of 1 to 10 years, as defined. The
maturity date of the floating rate option note is May 1, 2002.
Borrowings under the floating rate option note are collateralized
by substantially all of the Company's assets. The Company also
pays an annual letter of credit fee of 1.75% of the outstanding
loan balance.
The Company's financing agreements contain various covenants
related to payments to affiliates, cash flow, capital
expenditures, tangible net worth and working capital, among
others. In addition, the Company is prohibited from declaring or
paying dividends on its common stock by such covenants. The
Company is in compliance with these covenants as of October 14,
1994.
(5) Income Taxes-
The Company is included in the consolidated federal income tax return of
MEI. For financial reporting purposes, the Company is allocated an amount
generally equivalent to the provision which would have resulted had the
Company filed separate income tax returns.
The statutory federal income tax rate differs from the Company's
effective tax rate as follows:
1994 1993 1992
----- ----- ----
Statutory federal rate (34.0)% (34.0)% 34.0%
Effect of:
Amortization of goodwill 6.3 12.8 14.1
Net operating losses not recognized 27.4 20.9 --
Net operating losses recognized -- -- (48.5)
Other, net .3 .3 .4
----- ----- ----
-- % -- % -- %
===== ===== ====
As of October 14, 1994, the Company has net operating loss carryforwards
for income tax purposes of approximately $18.1 million, which will expire
in varying amounts beginning in 2006. The Company's ability to utilize
certain net operating loss carryforwards in any future year will be
limited by the provisions of Section 382 of the Internal Revenue Code.
Due to the uncertainty of utilizing the net operating loss carryforwards
as a result of the Company's operating losses, a valuation allowance has
been recorded against the net operating loss carryforwards. In addition,
no other deferred tax balances have been recognized in the accompanying
consolidated balance sheets due to the existence of these net operating
loss carryforwards.
(6) Capital Stock-
The Company's capital stock consists of 1,000 shares of $1 par value
common stock 100% of which is owned by MEI at October 14, 1994. No
dividends were declared or paid during 1994, 1993 or 1992.
(7) Commitments and Contingencies-
(a) Retirement Plans--The Company has a qualified 401(k) and
discretionary profit sharing plan. Employees may contribute up to
12% of their annual compensation to the 401(k) plan, and the
Company makes matching contributions of up to 2-1/2% of the
employee's annual compensation. Discretionary contributions may be
made for each plan year in an amount determined by the Company. No
discretionary contributions were made during 1994, 1993 and 1992.
(b) Postretirement Health Care Benefits--The Company allows employees,
spouses and surviving spouses to participate in the Company's
group health insurance programs from retirement to age 65 as
required by federal law. The cost of such participation is borne
by the former employee or surviving spouse and, accordingly, no
liability is recorded by the Company.
(c) Distribution Agreement--Pursuant to the amended and restated
distribution agreement effective January 1, 1992, NDM granted
Baxter exclusive distribution rights to certain NDM products in
the United States through December 31, 1992. Certain agreed-upon
customers remain exclusive to Baxter through December 31, 1994.
The Company, at its sole discretion, has the option to extend the
term for two additional successive one-year periods. The Company
has agreed to provide Baxter with additional payments if the
aggregate sales revenue distributed under the agreement exceeds an
established base amount in effect for such year. The Company did
not exceed the established base amount in 1993 or 1992 and,
therefore, made no such additional payments. As of October 14,
1994, the Company owed to Baxter approximately $1,511 under the
terms of their agreement, which is included in accounts payable in
the accompanying consolidated balance sheets.
The distribution agreement includes provisions for the assessment
of penalties to Baxter by the Company if the exclusive rights are
violated. Based on audits initiated by the Company in 1994 and
1993 to determine the amount of sales of competitive products by
Baxter to exclusive accounts, the Company was due approximately
$300 and $250 from Baxter as a result of such violations at
October 14, 1994 and December 31, 1993, respectively.
(d) Litigation--The Company is involved in various litigation arising
in the normal course of business. In particular, the Company is
currently defending a patent infringement action brought by a
competitor related to one of the Company's products. The Company
has obtained an opinion from its patent counsel that the product
does not infringe on the competitor's patent, and the Company is
vigorously defending its position. In the opinion of management,
the ultimate disposition of any litigation should not have a
material effect on the Company's consolidated financial position,
results of operations or cash flows.
(8) Related Party Transactions-
(a) Management Fees--The Company paid $60, $144 and $120 to MEI for
general management, financial, administrative, legal, and certain
staff functions and services provided to the Company in 1994, 1993
and 1992, respectively. These fees are included in selling,
general and administrative expenses in the accompanying
consolidated statements of operations. These fees, which
management considers to be reasonable, were based on the actual
costs to provide these services.
(b) Due to Parent--The Company incurred interest charges of
approximately $1,085, $1,217 and $1,760 during 1994, 1993 and 1992
based on average intercompany borrowings from MEI of approximately
$21,760, $20,000 and $27,700, respectively.
(9) Subsequent Events (Unaudited)-
(a) Litigation--In July, 1995 the Company was informed that a U.K.
patent court had ruled in favor of a competitor (plaintiff)
related to the patent infringement suit discussed in Note 6(d).
This ruling has effectively impaired the Company's ability to
market its footpump compression products in the United Kingdom.
The Company is still evaluating whether it will pursue its right
to appeal the decision. Additionally, as a result of the
unfavorable ruling, the court has the option to rule that the
Company reimburse all or a portion of the litigation costs
incurred by the plaintiff in this action. The Company's patent
counsel has been informed that the plaintiff's litigation costs
may approximate $500. No provision has been made in the
accompanying consolidated financial statements to cover plaintiff
litigation costs. The Company intends to vigorously contest the
reimbursement of such costs.
(b) Line of Credit and Industry Conditions--On June 12, 1995, the
Company and its lender signed an amendment to the loan agreement
whereby the Company's line of credit was increased to $4 million
and the maturity of the facility was extended to June 30, 1997. In
July, 1995, the Company borrowed an additional $1.2 million under
the line of credit facility.
The Company's Board of Directors has evaluated its business,
results of operations, financial position and prospects were it to
continue operations as an independent entity. Although the Company
has been profitable in the six months ended June 30, 1995, it does
not expect to be profitable for the remainder of 1995. In
addition, the Board of Directors believes that industry
conditions; primarily the general consolidation occurring in the
health care industry, make it extremely difficult for the Company
to continue as an independent entity without a substantial
infusion of equity capital. The Board of Directors has determined
that the sale of the Company's assets is in the best interests of
the Company and its shareholders.
(c) Sale of Assets--On October 18, 1995, the Company jointly announced
with CONMED Corporation (CONMED) that it had entered into a
definitive agreement, whereby CONMED would acquire for
approximately $32.1 million substantially all of the assets of the
Company, except for the Company's footpump compression and
international would care business. Additionally, pursuant to a
separate letter-of-intent agreement dated July 22, 1995 between
the Company and Paul Hartmann AG (Hartmann), the Company will sell
the assets and technology of the international would care business
to Hartmann for a purchase price of $5 million. The Company is in
the process of finalizing a definitive agreement with Hartmann
related to the purchase of the international would care business.
Pursuant to 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. These
proposed transactions are subject to regulatory approvals and
approval by the Company's shareholders. The consolidated financial
statements do not reflect any adjustments to the carrying amounts
of its assets and liabilities to adopt the liquidation basis of
accounting. 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.
