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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 0-26206
Norland Medical Systems, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1387931
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
106 Corporate Park Drive, Suite 106
White Plains, New York 10604
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(Address of principal executive offices)
(Zip Code)
(914) 694-2285
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
As of November 12, 2001, 30,433,509 shares of the registrant's Common
Stock, $0.0005 par value, were outstanding.
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NORLAND MEDICAL SYSTEMS, INC.
TABLE OF CONTENTS FOR FORM 10-Q
Page
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Title Page.....................................................................1
Document Table of Contents.....................................................2
Introduction...................................................................3
PART I FINANCIAL INFORMATION.............................................4
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets.............................4
Condensed Consolidated Statements of Operations...................5
Condensed Consolidated Statements of Cash Flows...................6
Notes to Condensed Consolidated Financial Statements..............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risks......13
PART II OTHER INFORMATION................................................14
Item 1. Legal Proceedings................................................14
Item 2. Changes in Securities............................................14
Item 3. Defaults Upon Senior Securities..................................14
Item 4. Submission of Matters to a Vote of Security Holders..............14
Item 5. Other Information................................................14
Item 6. Exhibits and Reports on Form 8-K.................................14
Signatures....................................................................15
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
I N T R O D U C T I O N
THE STATEMENTS INCLUDED IN THIS FORM 10Q ("REPORT") REGARDING FUTURE FINANCIAL
PERFORMANCE AND RESULTS AND THE OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS
ARE FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVES," "INTENDS," "EXPECTS,"
"ANTICIPATES," "PROJECTS," "ESTIMATES," "PREDICTS," AND SIMILAR EXPRESSIONS ARE
ALSO INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES. IN CONNECTION WITH THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, NORLAND MEDICAL SYSTEMS, INC., (THE
"COMPANY") CAUTIONS THE READER THAT ACTUAL RESULTS OR EVENTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS AND
RELATED ASSUMPTIONS DUE TO CERTAIN IMPORTANT FACTORS, INCLUDING, WITHOUT
LIMITATION, THE FOLLOWING: (I) THE CONTINUED DEVELOPMENT OF NEW PRODUCTS AND
PRODUCT ENHANCEMENTS THAT CAN BE MARKETED BY THE COMPANY; (II) THE IMPORTANCE TO
THE COMPANY'S SALES GROWTH THAT THE EFFICACY OF NEW THERAPIES FOR THE TREATMENT
OF OSTEOPOROSIS AND OTHER BONE DISORDERS BE DEMONSTRATED AND THAT REGULATORY
APPROVAL OF SUCH THERAPIES BE GRANTED, PARTICULARLY IN THE UNITED STATES; (III)
THE ACCEPTANCE AND ADOPTION BY PRIMARY CARE PROVIDERS OF NEW OSTEOPOROSIS
THERAPIES AND THE COMPANY'S ABILITY TO EXPAND SALES OF ITS PRODUCTS TO THESE
PROVIDERS; (IV) THE COMPANY MAY BE ADVERSELY AFFECTED BY CHANGES IN THE
REIMBURSEMENT POLICIES OF GOVERNMENTAL PROGRAMS (E.G., MEDICARE AND MEDICAID)
AND PRIVATE THIRD PARTY PAYORS, INCLUDING PRIVATE INSURANCE PLANS AND MANAGED
CARE PLANS; (V) THE HIGH LEVEL OF COMPETITION IN THE BONE DENSITOMETRY MARKET;
(VI) CHANGES IN BONE DENSITOMETRY TECHNOLOGY; (VII) THE COMPANY'S ABILITY TO
CONTINUE TO MAINTAIN AND EXPAND ACCEPTABLE RELATIONSHIPS WITH THIRD PARTY
DEALERS AND DISTRIBUTORS; (VIII) THE COMPANY'S ABILITY TO PROVIDE ATTRACTIVE
FINANCING OPTIONS TO ITS CUSTOMERS AND TO PROVIDE CUSTOMERS WITH FAST AND
EFFICIENT SERVICE FOR THE COMPANY'S PRODUCTS; (IX) CHANGES THAT MAY RESULT FROM
HEALTH CARE REFORM IN THE UNITED STATES MAY ADVERSELY AFFECT THE COMPANY; (X)
THE COMPANY'S CASH FLOW AND THE RESULTS OF ITS ONGOING FINANCING EFFORTS; (XI)
THE EFFECT OF REGULATION BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION AND
OTHER AGENCIES (XII) THE OUTCOME OF ANY LITIGATION COMMENCED AGAINST THE
COMPANY; AND (XIII) OTHER RISKS DESCRIBED ELSEWHERE IN THIS REPORT AND IN OTHER
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
COMPANY IS ALSO SUBJECT TO GENERAL BUSINESS RISKS, INCLUDING ADVERSE STATE,
FEDERAL OR FOREIGN LEGISLATION AND REGULATION, ADVERSE PUBLICITY OR NEWS
COVERAGE, CHANGES IN GENERAL ECONOMIC CONDITIONS AND THE COMPANY'S ABILITY TO
RETAIN AND ATTRACT KEY EMPLOYEES. NOTHING CONTAINED IN THIS REPORT SHOULD BE
VIEWED AS SUGGESTING THE EXISTENCE OF A TREND OR PROJECTION OF ANY FUTURE TREND
WITH RESPECT TO ANY MATTER. ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
REPORT ARE MADE AS OF THE DATE HEREOF, BASED ON INFORMATION AVAILABLE TO THE
COMPANY AS OF THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE
ANY FORWARD-LOOKING STATEMENTS.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<Table>
<Caption>
September 30, December 31,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ -- $ 53,289
Accounts receivable - trade, less allowance for
doubtful accounts of $282,500, and $301,000 respectively 853,004 1,496,454
Inventories, net 1,116,592 1,223,591
Prepaid expenses and other current assets 94,499 76,117
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Total current assets 2,064,095 2,849,451
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Property and equipment, net 557,825 786,777
Other 7,808 8,508
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Total assets 2,629,728 $ 3,644,736
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Note payable, net of discount 1,199,529 $ 1,159,686
Accounts payable - related parties 478,082 178,338
Accounts payable - trade 1,601,729 1,655,941
Accrued expenses 785,983 1,098,623
Accrued warranty expenses 315,000 335,000
Unearned service revenue 470,795 466,965
Accrued interest expense 95,430 37,586
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Total current liabilities 4,946,548 4,932,139
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Stockholders' equity (deficit):
Common stock - par value $.0005 per share,
45,000,000 shares authorized, 30,433,509 and
29,233,509 shares issued and outstanding,
respectively 15,215 14,615
Additional paid-in capital 38,683,805 38,504,405
Accumulated deficit (41,015,840) (39,806,423)
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Total stockholders' equity (deficit) (2,316,820) (1,287,403)
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Total liabilities and stockholders' equity (deficit) $ 2,629,728 $ 3,644,736
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue $ 2,024,522 $ 2,824,507 $ 7,087,034 $ 10,650,378
Cost of revenue 1,214,447 1,580,102 4,136,182 5,903,544
------------ ------------ ------------ ------------
Gross profit 810,075 1,244,405 2,950,852 4,746,834
Sales and marketing expense 660,521 1,079,394 2,042,004 3,493,385
General and administrative expense 531,730 627,710 1,761,580 2,299,653
Research and development expense 94,001 137,732 253,914 517,202
Nonrecurring charge -- -- -- 7,258,036
Operating loss (476,177) (600,431) (1,106,646) (8,821,442)
Interest expense (34,888) (50,289) (104,457) (187,447)
Interest income 126 1,381 1,686 5,670
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Loss before income taxes (510,939) (649,339) (1,209,417) (9,003,219)
Income tax expense -- 8,668 -- 4,118,507
------------ ------------ ------------ ------------
Net loss $ (510,939) $ (658,007) $ (1,209,417) $(13,121,726)
============ ============ ============ ============
Basic and diluted weighted average shares 30,433,509 27,045,166 30,365,862 26,676,505
============ ============ ============ ============
Basic and diluted loss per share $ (0.02) $ (0.02) $ (0.04) $ (0.49)
============ ============ ============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,209,417) $(13,121,726)
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Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization expense 118,298 346,244
Depreciation expense 184,299 403,430
Nonrecurring charge -- 7,258,036
Provision for doubtful accounts (18,500) (50,000)
Deferred income taxes -- 3,969,841
Other -- (8,871)
Changes in assets and liabilities:
Accounts receivable 661,950 1,006,641
Inventories 73,197 185,990
Prepaid expenses and other assets (17,682) 64,835
Accounts payable 245,532 (392,437)
Accrued expenses (270,966) 781,766
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Total adjustments 976,128 13,565,475
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Net cash (used in) provided by
operating activities (233,289) 443,749
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CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property and equipment -- (242,213)
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Net cash used in investing activities -- 242,213
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 3,669,000
Payments on bank borrowings -- (3,980,816)
Issuance of common stock 180,000 125,500
Net cash provided by (used in) financing 180,000 (186,316)
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Net (decrease) increase in cash and cash equivalents (53,289) 15,220
Cash and cash equivalents at beginning of period 53,289 67,666
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Cash and cash equivalents at end of period $ 0 $ 82,886
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</Table>
See accompanying notes to condensed consolidated financial statements.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements of Norland Medical Systems, Inc.
and its subsidiaries (the "Company") presented herein have been prepared
pursuant to the rules of the Securities and Exchange Commission for quarterly
reports on Form 10-Q and do not include all of the information and footnote
disclosures required by generally accepted accounting principles. The Company's
condensed consolidated balance sheet as of December 31, 2000 was derived from
the Company's latest audited consolidated balance sheet. In the opinion of
management, the accompanying interim unaudited condensed consolidated financial
statements contain all adjustments (consisting of normal, recurring accruals)
necessary for a fair presentation of the Company's consolidated financial
position, results of operations and cash flows for these interim periods. The
accompanying consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
year ended December 31, 2000, and included in the Company's Report on Form 10-K
as filed with the Securities and Exchange Commission on April 16, 2001.
The Company has incurred operating losses during each of the last fifteen
consecutive quarters and as of September 30, 2001, the Company's current
liabilities exceeded its current assets by approximately $2,900,000 and it has a
stockholders' deficit of approximately $2,300,000. The Company does not
currently have an operating line of credit. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
continued existence is dependent upon several factors, including the ability to
return to profitability.
The Company continues to pursue an aggressive strategy of cost reduction and
containment to make a profit on reduced sales. The Company is also pursuing
initiatives to increase liquidity, including external investments and obtaining
a line of credit. The Company does not have a commitment for such financing, and
there can be no guarantee that the Company will be able to obtain such
financing.
In order to increase its cash flow, the Company is continuing its efforts to
stimulate sales of bone densitometers and new product offerings through its
product diversification program. The Company is also continuing to focus its
efforts on improving the aging of its accounts receivable and reducing the level
of inventory. To do so, the Company has implemented higher credit standards for
its customers and is emphasizing the receipt of down payments from customers at
the time their purchase orders are received and attempting to more closely
coordinate the timing of purchases of parts and sub-assemblies.
The results of operations for the three months and nine months ended September
30, 2001 are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 2001.
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(2) INVENTORIES
As of September 30, 2001 and December 31, 2000, inventories consisted of the
following:
<Table>
<Caption>
SEPTEMBER 30,2001 DECEMBER 31, 2000
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Raw materials, product kits, spare parts
and sub-assemblies $ 869,762 $ 966,652
Work in progress 309,466 334,090
Finished goods 749,134 734,619
Inventory reserves (811,770) (811,770)
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$ 1,116,592 $ 1,223,591
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</Table>
(3) CASH FLOW INFORMATION
Cash paid for interest was $1,965 and $96,425 for the nine months ended
September 30, 2001 and 2000, respectively. Cash paid for income taxes was
$120,000 and $3,169 for the nine months ended September 30, 2001 and 2000,
respectively. The taxes paid in 2001 satisfy an obligation resulting from a
state income tax audit, covering the tax year 1997.
(4) NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prohibits
pooling-of-interests method of accounting for business combinations initiated
after June 30, 2001, and applies to all business combinations completed after
June 30, 2001. There are also transition provisions that apply to purchase
combinations completed prior to June 30, 2001. SFAS 141 is effective
immediately. SFAS No. 142 is effective for the Company beginning January 1,
2002, and applies to goodwill and other intangible assets recognized in the
Company's consolidated balance sheet as of that date, regardless of when those
assets were initially recognized. The Company has evaluated SFAS No. 142 and
anticipates that SFAS No. 142 will not impact its consolidated financial
statements when adopted.
In August 2001, the FASB issued SFAS No. 143, "Accounting For Asset Retirement
Obligations". This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. This standard requires entities to
record the fair value of a liability for an asset retirement obligation in the
period incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the obligation
for its recorded amount or incurs a gain or loss upon settlement. The Company is
required to adopt the provisions of SFAS No. 143 at the beginning of fiscal
2002. The Company has not determined
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the impact, if any, the adoption of this statement will have on its financial
position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
statement supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". This Statement also amends ARB No. 51, "Consolidated Financial
Statements", to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This Statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. This Statement also broadens
the presentation of discontinued operations to include more disposal
transactions. The provisions of this Statement are required to be adopted by the
Company at the beginning of fiscal 2002. The Company has not determined the
impact, if any, adoption of this statement will have on its financial position
or results of operations.
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NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED IN ITEM 1 OF THIS
REPORT. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES, SOME OF WHICH ARE DESCRIBED IN THE INTRODUCTION
TO THIS REPORT. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
SET FORTH IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE DISCUSSED IN THE INTRODUCTION.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Revenue for the nine months ended September 30, 2001 decreased $3,563,344 (or
34%) to $7,087,034 from $10,650,378 for the comparable period of 2000. The
decrease in revenue was primarily the result of significantly decreased sales of
the Company's DXA-based bone densitometry systems in the United States. Sales of
complete bone densitometry systems represented 76% and 83% of total revenue for
the nine months ended September 30, 2001 and 2000, respectively. Sales of
Ultrasound devises, QCT systems, parts and services and rental income comprised
the balance of revenues for such periods.
The Company believes sales in the United States have been negatively affected
primarily by changes in the Medicare reimbursement rates for bone densitometry
tests. Lower reimbursement rates by Medicare caused clinics and hospitals to
reduce testing and therefore lowered demand for bone densitometry equipment.
Revenues and the mix of products sold are expected to continue to be influenced
by the relative degree of difference in reimbursement rate levels for peripheral
and central systems. In addition, the Company has been operating with very
limited cash. The limited cash has adversely affected its manufacturing
operations. Until additional financing is secured, production will continue to
be negatively affected. Longer term sales will also be influenced by the
Company's ability to bring systems to the market that can be operated more
profitably by end users at the applicable reimbursement levels. The Company's
focus on improved software would allow the systems to be operated more
profitably (easier to use) by the customer.
In an attempt to increase its sales of DXA and Ultrasound measurement systems in
the U. S. market the Company has expanded its network of third party dealers,
distributors and independent representatives to contact the country's large
market of gynecologists and primary care physicians, and access the hospitals,
imaging and mammography center markets. As part of this expansion, distribution
agreements were signed with Cooper Surgical, Inc. in November 2000 and with
Marconi Medical Systems, Inc. in January 2001. On the positive side, the company
has experienced modest increases in sales to Cooper and Marconi recently. There
can be no assurance that the Company will be able to significantly increase
distribution of its DXA and Ultrasound devices as a result of such agreements.
In conjunction with the increased focus on the distribution of DXA and
Ultrasound devices and as a result of decreasing sales of pQCT systems in North
America, the Company, Bionix LLC and Stratec Medizintechnik GmbH agreed to
terminate their December 31, 2000 distribution agreement for such pQCT systems
and to enter into a new agreement as of August 1, 2001. Under
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such agreement, the Company will among other things, retain the right to service
its pQCT customers, provide assistance with regulatory agencies and receive a
finders fee on future sales to all accounts marketed prior to August 1, 2001.
The impact of this change is that revenue would be reduced but net income would
not be significantly impacted.
Cost of revenue as a percentage of revenue was 58.4% and 55.4% for the nine
months ended September 30, 2001 and 2000, respectively, resulting in a gross
margin of 41.6% for the nine months ended September 30, 2001 compared to 44.6%
for the comparable period of 2000. The Company has taken steps to reduce
manufacturing overhead, such as reducing personnel in the purchasing functions,
the affect on the gross margin have been small. While the selling prices of the
Company's systems have not been reduced, the Company has certain fixed
manufacturing costs each quarter, and to the extent that revenues are lower in
any given quarter, such fixed costs have a more negative impact on gross
margins.
Sales and marketing expense decreased $1,451,381 (or 42.0%) to $2,042,004 for
the nine months ended September 30, 2001 from $3,493,385 for the nine months
ended September 30, 2000, and decreased as a percentage of revenue to 28.8% from
32.8%. The dollar decrease was primarily due to a reduction in personnel and
decreased advertising, marketing, promotion and travel related expenses incurred
by sales and customer service personnel. These reductions have not significantly
impacted sales.
General and administrative expense decreased $538,073 (23%) to $1,761,580 for
the nine months ended September 30, 2001 from $2,299,653 for the nine months
ended September 30, 2000, and increased as a percentage of revenue to 24.9% from
21.6%. The dollar decrease was attributable to personnel reductions. These
reductions have not impacted sales volume.
Research and development expense decreased $263,288 or (51.0%) to $253,914 for
the nine months ended September 30, 2001 from $517,202 for the nine months ended
September 30, 2000, and also decreased as a percentage of revenue to 3.6% from
4.9%. The decrease was primarily attributable to a reduction in personnel. The
Company has shifted from hardware and software development to primarily software
development, where the Company believes the short term the impact of its
research and developments investment could improve sales while controlling
costs.
During the three months ended June 30, 2000, Company management evaluated its
financial position and determined that it would be appropriate to charge to
operations the remaining unamortized costs of goodwill, and fully reserve
against its deferred income tax assets due to impairment. Such charges
aggregated $11,367,877; $7,258,036 for goodwill and $4,109,841 for deferred
income taxes.
Interest expense decreased $82,990 or (44.0%) to $104,457 for the nine months
ended September 30, 2001 from $187,447 for the nine months ended September 30,
2000. Interest expense for both periods represents interest on a note payable
issued by the Company in connection with the acquisition of Norland Corporation
on September 11, 1997. The decrease in interest expense reflects the reduced
outstanding principal balance of the Note payable and reduced borrowings under
the Company's credit facility during the nine months ended September 30, 2000.
The credit facility was terminated in August 2000. The decrease in interest
income in the nine-month period ended September 30, 2001 as compared to
September 30, 2000 reflects the Company's reduced cash position.
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The Company had a net loss of ($1,209,417) ($0.04) per share based on 30,365,862
weighted average shares for the nine months ended September 30, 2001 compared to
a net loss of ($13,121,726) ($0.49) per share based on 26,676,505 weighted
average shares for the nine months ended September 30, 2000.
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Revenue for the three months ended September 30, 2001 decreased $799,985 (28%)
to $2,024,522 from $2,824,507 for the comparable period of 2000. The decrease in
revenue was the result of significantly decreased sales of the Company's
DXA-based bone densitometry systems in the United States. Sales of complete bone
densitometry systems represented 71% and 81% of total revenue for the three
months ended September 30, 2001 and 2000, respectively. Sales of Ultrasound
devises, QCT systems, parts and services and rental income comprised the balance
of revenues for such periods.
Cost of revenue as a percentage of revenue was 60.0% and 56.0% for the three
months ended September 30, 2001 and 2000, respectively, resulting in a gross
margin of 40.0% for the three months ended September 30, 2001 compared to 44.0%
for the comparable period of 2000. The company has certain fixed manufacturing
costs each quarter; to the extent that revenues are lower, such fixed costs have
a more negative impact on gross margins.
Sales and marketing expense decreased $418,873 (39%) to $660,521 for the three
months ended September 30, 2001 from $1,079,394 for the three months ended
September 30, 2000, and decreased as a percentage of revenue to 32.6% from
38.2%. The dollar decrease was primarily due to a reduction in personnel and
decreased advertising, marketing, promotion and travel related expenses incurred
by sales and customer service personnel. Management does not consider these
reductions to have had a significant impact on sales.
General and administrative expense decreased $95,980 (15%) to $531,730 for the
three months ended September 30, 2001 from $627,710 for the three months ended
September 30, 2000 and increased as a percentage of revenue to 26.3% from 22.0%.
The decrease in cost is attributed to a reduction in personnel, supplies and
insurance costs.
Research and development expense decreased $43,731 (32.0%) to $94,001 for the
three months ended September 30, 2001 from $137,732 for the three months ended
September 30, 2000. These costs decreased as a percentage of revenue to 4.6%
from 4.9%. The decrease in expenditures was primarily attributable to a
reduction in personnel. The Company is narrowing its focus to software
development and reducing its efforts in hardware development. The Company
believes improved software will increase sales and control costs.
Interest expense decreased $15,401 (31.0%) to $34,888 for the three months ended
September 30, 2001 from $50,289 for the three months ended September 30, 2000.
Interest expense for both periods represents interest on a Note payable issued
by the Company in connection with the acquisition of Norland Corporation on
September 11, 1997. Interest for the three-month periods ended September 30,
2000 also includes interest relating to borrowings on a line of credit that was
repaid in August of 2000.
The Company had a net loss of ($510,939) ($0.02) per share based on 30,433,509
weighted average shares for the three months ended September 30, 2001 compared
to a net loss of ($658,007) ($0.02)
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per share based on 27,045,166 weighted average shares for the three months ended
September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had cash of $53,289. At September 30, 2001,
the Company had no cash. The decrease in cash was primarily the result of the
payment of operating expenses, a reduction in accrued expenses, this increase
was partially offset by decreased accounts receivable, increased accounts
payable, increased related party payables, and the proceeds received from the
issuance of common stock. A favorable component to the changes in liquidity is
the increase in common stock and related party payables resulting from equity
and debentures issued to officers and directors of the company.
At the present time, capital expenditures for the balance of 2001 are not
expected to be significant and will be funded from operations. The Company's
most significant cash needs are for the purchase of inventory associated with
its product diversification program. The Company may fund these purchases with
equity, cash available from operations and/or other financing arrangements.
There can be no assurance that the Company will be successful in obtaining such
financing.
In order to increase its cash flow, the Company is continuing its efforts to
stimulate sales of bone densitometers and increase sales of musculoskeletal
products. This increased effort refers to the distribution agreements signed
with Cooper Surgical and Marconi Medical Systems mentioned elsewhere. There can
be no assurance that these efforts will be successful.
The Company has been seeking additional equity and debt financing. The Company
does not have a commitment for such bank financing or other financing at this
time, and there can be no guarantee that the Company will be able to obtain such
financing. The failure to do so could have a materially adverse effect on the
Company and its operations. In addition, the nature of the Company's business is
such that it is subject to changes in technology, government approval and
regulation, and changes in third-party reimbursement in the United States and
numerous foreign markets. Significant changes in one or more of these factors in
a major market for the Company's products could significantly affect the
Company's cash needs.
FORWARD-LOOKING STATEMENTS
As indicated in the Introduction to this Report, forward-looking statements,
including those contained in this Management's Discussion and Analysis section,
are subject to risks and uncertainties. This section includes forward-looking
statements with respect to the effect of reimbursement rates on future sales and
product mix, future capital expenditures and the Company's plans for funding its
ongoing operations. Such forward-looking statements are subject to the factors
cited in the Introduction.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's major financial market risk exposure is changing interest rates,
primarily in the Unites States. The Company's policy has been to manage its
interest rate risks through use of fixed rate debt. The Company is in default of
the interest due on its note payable as of September 30, 2001 and accordingly
the note has been classified as a current liability.
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<Page>
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In the normal course of business, the Company is named in lawsuits in which
claims are asserted against the Company. In the opinion of management, the
liabilities, if any, which may ultimately result from such lawsuits are not
expected to have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
Item 2. CHANGE IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits furnished:
None
(b) Reports on Form 8-K:
None
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<Page>
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORLAND MEDICAL SYSTEMS, INC.
(Registrant)
Date: November 12, 2001 /s/ REYNALD G. BONMATI
------------------------
Reynald G. Bonmati
President
Date: November 12, 2001 /s/ RICHARD RAHN
------------------
Richard Rahn
Vice President Finance
(Principal Financial and Accounting
Officer)
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<Page>
NORLAND MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
None
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