SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-------------------
FORM 8-K/A
CURRENT REPORT (AMENDED)
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JANUARY 14, 2004
----------------
DISTINCTIVE DEVICES, INC.
-------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-2749 13-1999951
-------- ------ ----------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
ONE BRIDGE PLAZA, SUITE 100, 07024
FORT LEE, JERSEY -----
---------------- (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (201) 363-9922
----------------
NOT APPLICABLE
--------------
(Former Name or Former Address, if Changed Since Last Report)
On January 19, 2004, Distinctive Devices, Inc. (the "Company") filed a
Form 8-K to report that it had closed its acquisition of galaxis technology ag
("galaxis"). In response to parts (a) and (b) of Item 7 of such Form 8-K, the
Company stated that it would file the required financial information by
amendment, as permitted by Instructions (a)(4) and (b)(2) to Item 7 to Form 8-K.
This Form 8-K/A is being filed to provide the required financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial statements of businesses acquired:
Consolidated Financial Statements of galaxis as of and for the
years ended December 31, 2002 and 2001 (audited)
Condensed Interim Consolidated Financial Statements of galaxis as
of and for the nine months ended September 30, 2003 (unaudited)
(b) Pro forma financial information:
Unaudited Pro Forma Condensed Combining Balance Sheet as of
September 30, 2003
Unaudited Pro Forma Condensed Combining Statement of Operations
for the nine months ended September 30, 2003
Unaudited Pro Forma Condensed Combining Statement of Operations
for the year ended December 31, 2002
Notes to Unaudited Pro Forma Condensed Combining Financial
Information
1
(a) FINANCIAL INFORMATION FOR GALAXIS TECHNOLOGY
INDEX
Page
----
Report of Independent Certified Public Accountants 3
Consolidated Balance Sheets as of December 31, 2002 and
December 31, 2001 (audited) 4
Consolidated Income Statements for the two years ended December 31, 2002
(audited) 5
Consolidated Statements of Cash Flows for the two years ended December 31,
2002 (audited) 6
Consolidated Statements of Changes in Stockholder's Equity (audited) 7
Notes to Financial Statements 8
Consolidated Balance Sheet as of September 30, 2003 (Unaudited) 17
Consolidated Income Statement for the nine months ended September 30, 2003
(unaudited) 18
Consolidated Statement of Cash Flow for the nine months ended September 30,
2003 (unaudited) 19
Consolidated Statements of Changes in Stockholder's Equity for the two years
and nine months ended September 30, 2003 (unaudited) 20
Notes to Unaudited Financial Statements 21
2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF MANAGEMENT AND STOCKHOLDERS
OF GALAXIS TECHNOLOGY AG.,
LUBECK, GERMANY
We have audited the accompanying consolidated balance sheets of galaxis
technology ag. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholder's equity and cash flows for each of the
two years in the period ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of galaxis technology
ag. as of December 31, 2002 and 2001, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to the
consolidated financial statements, the Company's working capital is not
sufficient to fund its current level of operations for the next year and the
Company has an accumulated deficit of approximately $7,083,000 as of
December 31, 2002. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 9 and Note 3. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 3 to the consolidated financial statements, the Board of
Management is a party to certain legal actions. Management and legal counsel for
the Company are of the opinion that these legal actions will not have a material
effect on the Company's financial position.
Kohberg und Kollegen GmbH
Wirtschaftsprufungsgesellschaft,
Lubeck
Lubeck, Germany
January 9, 2004,
except for note 3,
January 14, 2004
3
galaxis technology ag
CONSOLIDATED BALANCE SHEETS
- ---------------------------
December 31, December 31,
ASSETS 2002 2001
- ------ ---------------- -------------------
USD USD
Current Assets
Cash and cash equivalents $ 113,372 $ 147,407
Accounts receivable 8,261,873 2,518,440
Inventories 5,755,039 978,404
Prepaid expenses 783,043 743,441
Other current assets 2,185,755 4,730,099
---------------- -------------------
17,099,081 9,117,791
Machinery and Equipment 631,828 460,252
Intangible Assets 41,099,433 18,444,564
---------------- -------------------
TOTAL ASSETS $ 58,830,342 $ 28,022,607
================ ===================
galaxis technology ag
CONSOLIDATED BALANCE SHEETS
- ---------------------------
December 31, December 31,
LIABILITIES & STOCKHOLDER'S EQUITY 2002 2001
---------------------------------- ------------------- -----------------
USD USD
Liabilities
Current Liabilities
Short term borrowings $ 10,742,294 $ 8,829,253
Accounts payable 25,109,628 5,272,055
Advance payments 7,296 359,966
Other accrued and current liabilities 13,042,031 7,933,653
------------------- -----------------
48,901,249 22,394,926
Minority Interest 6,552 0
Stockholder's equity
Common Stock 47,105 47,105
Additional paid in capital 16,283,860 16,286,508
Other Comprehensive Income 674,311 (610,013)
Retained earnings (7,082,735) (10,095,920)
------------------- -----------------
9,922,541 5,627,681
------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 58,830,342 $ 28,022,607
=================== =================
See notes to financial statements
4
galaxis technology ag
CONSOLIDATED INCOME STATEMENTS
- ------------------------------
2002 2001
----------------- ----------------
A. OPERATING SECTION USD USD
- ---------------------
1. Net sales and gross revenues $ 37,079,672 $ 16,587,534
2. Costs and expenses applicable to sales and revenues (30,292,055) (15,578,581)
3. Other operating costs and expenses (1,704,308) (2,033,845)
----------------- ----------------
GROSS MARGIN/GROSS PROFIT ON SALE 5,083,309 (1,024,892)
4. Selling, general and administrative expenses (7818,425) (8,511,907)
----------------- ----------------
OPERATING INCOME/INCOME FROM OPERATIONS (2,735,115) (9,536,799)
B. NONOPERATING SECTION:
5. Nonoperating income 6,479,298 2,028,469
6. Interest and amortization of debt discount and expense
a) interest income 490,941 161,594
b) interest expense (1,221,939) (912,926)
----------------- ----------------
7. INCOME OR LOSS BEFORE INCOME TAX EXPENSE AND APPROPRIATE ITEMS BELOW 3,013,185 (8,259,662)
8. INCOME OR LOSS FROM CONTINUING OPERATIONS 3,013,185 (8,259,662)
----------------- ----------------
9. NET INCOME OR LOSS $ 3,013,185 $ (8,259,662)
================= ================
See notes to financial statements
5
galaxis technology ag
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
2002 2001
------------------ ------------------
USD USD
cash flows from operating activities
- ------------------------------------
Net income $ 3,013,185 $ -8,259,662
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Depreciation expense 3,249,013 825,515
Decrease (+)/ Increase (-) in inventories -4,776,635 1,602,035
Decrease (+)/ Increase (-) in accounts receivable -5,743,432 -1,737,491
Decrease (+)/ Increase (-) in prepaid expenses
and other assets 2,504,743 -2,385,602
Decrease (-)/ Increase (+) in short term borrowings 1,913,041 3,241,487
Decrease (-)/ Increase (+) in accounts payable
and advance payments 19,484,904 4,038,851
Decrease (-)/Increase (+) in other accrued and current liabilities 5,108,378 1,823,445
------------------ ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 24,753,196 -851,422
Cash flows from investing activities
Purchase of intangible assets -21,961,542 -324,621
Purchase of equipment -677,085 -258,791
Sale of intangible assets and equipment 26,208 37,758
------------------ ------------------
NET CASH (USED IN) INVESTING ACTIVITIES -22,612,419 -545,654
Cash flows from financing activities
Additional paid-in capital and minority interest 3,903 -3,299
------------------ ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,903 -3,299
EFFECT OF EXCHANGE RATE CHANGES ON CASH -2,178,715 604,729
------------------ ------------------
NET INCREASE (+)/ DECREASE (-) IN CASH -34,035 -795,647
Cash January 1 147,407 943,054
------------------ ------------------
Cash December 31 $ 113,372 $ 147,407
================== ==================
See notes to financial statements
6
galaxis technology ag
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
Common Stock Additional paid in capital
--------------------- ----------------------------------
USD USD
--------------------- ----------------------------------
BALANCE AT DECEMBER 31, 2000 $ 47,105 $ 16,289,808
Net Loss 2001 -- 0
Other changes not related
to stockholders -- (3,299)
Other comprehensive Income -- 0
--------------------- ----------------------------------
BALANCE AT DECEMBER 31, 2001 47,105 16,286,509
Net Income 2002 -- 0
Other changes not related
to stockholders -- (2,649)
Other comprehensive Income -- 0
--------------------- ----------------------------------
BALANCE AT DECEMBER 31, 2002 $ 47,105 $ 16,283,860
galaxis technology ag
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
Retained earnings Translation adjustments Total
--------------------------- ---------------------------- ---------------------
USD USD USD
--------------------------- ---------------------------- ---------------------
BALANCE AT DECEMBER 31, 2000 $ (1,836,257) $ 0 $ 14,500,655
Net Loss 2001 (8,259,662) 0 (8,259,662)
Other changes not related
to stockholders 0 0 (3,299)
Other comprehensive Income 0 (610,013) (610,013)
--------------------------- ---------------------------- ---------------------
BALANCE AT DECEMBER 31, 2001 (10,095,920) (610,013) 5,627,681
Net Income 2002 3,013,185 0 3,013,185
Other changes not related
to stockholders 0 0 (2,649)
Other comprehensive Income 0 1,284,324 1,284,324
--------------------------- ---------------------------- ---------------------
BALANCE AT DECEMBER 31, 2002 $ (7,082,735) $ 674,311 $ 9,922,541
See notes to financial statements
7
NOTES TO FINANCIAL STATEMENTS 2002
----------------------------------
1. Summary of Significant Accounting Policies
2. Related Party Transactions
3. Subsequent Events
4. Certain Significant Risks and Uncertainties
5. Accounting Change
6. Business Combinations
7. Discontinued Operations
8. Income Taxes
9. Going concern
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 Description of the business operations, the foundation and the
--------------------------------------------------------------
presentation principles
- -----------------------
The corporation's parent company was entered in the company's register of
Lubeck district court on January 21, 2000 under the No. HRB 4762.
The business of the Company (Art. 2 of the articles of association) is the
permit-free trading of all types of merchandise, in particular with electrical
and electronic equipment as well as entertainment electronics, computers and
trading in satellite reception systems and their accessories, which are sold
under the name "galaxis".
The Company is entitled to carry out all legal transactions and other
action considered necessary or purposeful for it to achieve the purpose of the
business. In particular, it may set up, acquire, sell or invest or participate
in domestic and foreign companies and set up branches. At the time of the audit
the Company had three legally independent branches in Wismar, Livorno (Italy)
and Madrid (Spain).
The consolidated financial statements have been prepared according to the
generally accepted accounting standards in the USA ("US GAAP"). galaxis
technology ag. is a public stock corporation under German law. Consolidated
financial statements according to the HGB are not required as the company falls
below the size classes defined in Art, 293 HGB.
1.2 Accounting and valuation
------------------------
The consolidated financial statements have essentially been prepared
according to the following accounting and valuation principles:
The consolidated financial statements include galaxis technology ag. as
well as its subsidiary and sub-subsidiary.
8
The consolidated companies include the following:
Corporation parent company:
galaxis technology ag., Lubeck
Capital stock : 50,000.00 EUR
Sole stockholder : Media Hill Communication GmbH,
Hanover
Board of Management : W. M. Klimek, W. Hopp
Subsidiary: OmniScience Multimedia Lab GmbH, Lubeck
Capital stock : 25,000.00 EUR
Sole stockholder : galaxis technology ag., Lubeck
General Manager : F. Fischer
Sub-subsidiary: Convergence GmbH, Berlin
Capital stock : 25,000.00 EUR
Stockholder : OmniScience Multimedia Lab,
Lubeck, 75%
H. Curanz, Berlin, 25%
General Managers : W .M. Klimek, F. Fischer
No associated companies remain after the consolidation. As of the balance
sheet date there were no noteworthy co-determination rights of minority
stockholders and these also do not exist today. At the day of this report,
OmniScience Multimedia Lab GmbH owns 100% of Convergence GmbH. The consolidation
is carried out according to the purchase accounting method. As the subsidiary
and sub-subsidiary are new startup or the acquisition of the shell companies, no
purchase costs were due apart from the fees payable on purchasing the companies
(notary, company's register) , so that the purchase costs match the amount of
capital taken over.
Currency
- --------
The functional currency of the corporation is the Euro (EUR). Therefore the
consolidated financial statements are prepared in Euros (EUR). There are no
foreign currencies of included companies, whose functional currency is not the
Euro.
For US-Reporting purposes the financial statements have also been prepared
in US-Dollars (USD). The translation has been prepared in accordance with
FAS 52.
Securities
- ----------
The corporation did not hold any securities as of the balance sheet date.
Inventories
- -----------
Inventories are valued at the purchase or production costs or at the lower
market price. The production costs include wages and material costs as well as
overheads.
9
Fixed assets
- ------------
The fixed assets, i.e. machinery and equipment, are reported at purchase or
manufacturing costs, less the planned depreciation due to wear. The depreciation
is calculated using the linear method. The simplification rule in accordance
with Art. 6 Para 2 EStG/1/ was used for the new additions of low cost items./2/
Other short-term assets
- -----------------------
Accounts receivable and other assets were valued at their face value.
Identifiable individual risks were taken into account in the accounts receivable
by means of allowances. The general credit risk is adequately taken into account
by a lump-sum allowance.
The other reserves and accruals take into account all the identifiable
risks, losses and uncertain liabilities with the sums required according to
sensible business assessment. In total, all the risks existing as of the balance
sheet date, where they were identifiable at the time the consolidated financial
statements were prepared, were taken into account by forming adequate reserves
and allowances. Where such risks were incurred after the balance sheet date they
are referred to under Item 3 of these Notes.
Intangible assets
- -----------------
In July 2001 the FASB published the SFAS No. 141 "Business Mergers". The
Company applied the acquisition method during the whole of the report period.
The revaluation of intangible assets acquired within the scope of company
acquisitions within the scope of the introduction of SFAS No. 142 "goodwill and
other intangible assets" is used analog by the Company. For the first time
preparation of these consolidated financial statements according to US GAAP, all
the purchased and self-produced intangible assets were valued with respect to
their purchase costs and useful life. The Board of Management decided to assign
a planned useful life of 40 years for the intangible asset items "trademark
rights" as well as all basic patents and similar rights. The depreciation is
linear.
Applying SFAS No. 142 the corporation does not depreciate the intangible
asset "good-will". The historical costs amount to 15.429.043 Euros (i.e.
16.174.266 USD as of Dec 31,2002)
The management obeys the obligation of annually impairment tests.
Unplanned depreciation
- ----------------------
There was no unplanned depreciation of assets.
Financial instrument
- --------------------
Derivative financial instruments were not used.
- --------------------
1 Income tax law
2 Items less than ca. 445(euro)net are fully written off at the time of purchase
10
Sales realization
- -----------------
Sales are reported less discounts and other reductions, as soon as the
deliveries or services are provided. The income from license fees are realized
as soon as the service is provided and the payment has been received. There is
no long-term production with partial realization of profits.
Use of the SEC Staff Accounting Bulletin (SAB) No. 101 did not have any
material influence on the earnings position.
Nonoperating income
- -------------------
Nonoperating Incomes are arising about US $ 6,5 million.
Here especially compensation claims (about US$ 4,8 million) and income from
reversal of accruals/reserves
Re. the significant balance sheet items:
- ----------------------------------------
Intangible Assets
The "galaxis" trademark right was contributed by the sole stockholder in
2000 at their own purchase costs of 15.8 mln. Euro. For the purposes of the US
GAAP accounting the sum is amortized over 40 years. The disclosed value as of
Dec 31, 2002 is 15.7 mln. USD.
The goodwill purchased for cash include the right to regular customer and
supplier trade of COMET Vertriebsgesellschaft mbH. The total purchase costs
amounted to 15.1 mln. Euro. Of which, 3.6 mln. Euro were added in 2000 and 11.5
mln. Euro in 2002. As of Dec 31,2002 the disclosed value is 16.2 mln. USD.
The item also includes purchase costs of 9.0 mln. Euro (9.4 mln. USD) for
self-produced intangible assets, especially software. The corporation applies
SFAS No. 86.
The other intangible assets essentially include the purchase of
licenses, which have been purchased from external firms.
In the opinion of the Board of Management, the total reported value of
around 39.2 mln. Euro (41.1 mln. USD) has been adequately verified by expert
valuations and reports and assessment made within the scope of due diligence
audits.
Machinery and Equipment
Includes around 0.5 mln. Euro (0.5 mln. USD) essentially for tool costs.
The costs of purchasing and producing tools for the production of housings are
reported as tool costs. The tools are located on the premises of Riwotec GmbH,
Bad Blankenburg. The costs are written off over the planned production period of
three years.
11
The other machinery and equipment (fixed assets) essentially include office
equipment and furnishings and computing hardware.
Inventories
The finished products and work in process of galaxis technology ag. were
recorded within the scope of a physical stock take on January 2, 2003. The work
in process includes stocks of merchandise, pre-financed for Katek GmbH and where
they are kept in storage. The valuation was made at cost or production costs.
The figure in the balance sheet contains write-downs of 300 kEUR.
The balance sheet figure for 2002 includes services in progress of
Convergence GmbH for around 2.8 mln. Euro (2.9 mln. USD).
Trade accounts receivable
The accounts receivable from customers includes 5 mln. Euro (5.2 mln. USD)
accounts receivable from the factoring contract with Company A. The remaining
accounts receivable from customers amounted to 3.2 mln. (3.3 mln. USD) Euro
gross. The main debtors were Company B with 1.8 mln. Euro (1.9 mln. USD) and
Company C with 0.5 mln. Euro (0.5 mln. USD). At the time of the audit the
accounts receivable had been received.
Other current assets
The other assets essentially include prepaid value added tax reimbursements
to which the Company is entitled from the tax office.
Cash and cash equivalents
Cf. the statement of cash flows for the liquid assets (cash and cash
equivalents), includes financial instruments with original maturities of three
months or less.
Prepaid expenses
The prepaid expenses were essentially formed for accrued advance payments
for licenses.
Stockholder's equity
Apart from the unchanged "capital subscribed", the loss carried forward and
the net loss for the year, the stockholder's equity includes the capital surplus
(capital reserves). The capital reserves were formed for transfers in accordance
with Art. 272 Para. 2 No. 4 HGB.
Other accrued and current liabilities
The accruals and reserves include provisions for warranty claims (120
kEUR), for individual licenses still to be paid (443 kEUR), for employees'
holiday entitlement (354 kEUR), financial statement accounting and auditing
12
costs (58 kEUR) and for still outstanding invoices (330 kEUR). Further accruals
were formed (each < 100 kEUR) for other uncertain liabilities as of the balance
sheet date.
The notes payable reported as of the balance sheet date had been settled by
the time of the audit.
The other liabilities include accounts payable to COMET
Vertriebsgesellschaft mbH for 4.3 mln. Euro (4.5 mln. USD), loans amounting to
1.3 mln. Euro (1.5 USD) due to Omnivest OHG, Stockelsdorf, and customers with
credit balances amounting to 677 kEUR (710 kUSD).
The accounts payable to COMET Vertriebsgesellschaft mbH were incurred by
the purchase of the goodwill in 2002.
Short term borrowings
- ---------------------
The bank debts almost exclusively include the overdraft facility with
Lloyds TSB Bank, Geneva.
Accounts payable
- ----------------
The trade accounts payable essentially concern 3.6 mln. Euro (3.8 mln. USD)
due to Company A, 18.9 mln. Euro (19.8 mln. USD) due to Company B and 2.4 mln.
Euro (2,5 mln. USD) due to Company C. At the time of the audit the accounts
payable had only been partly settled. There are payment agreements.
1.3 Capital stock
-------------
The capital stock of the corporation's parent company as of the balance
sheet date amount to 50,000.00 EURO. It is divided into 50,000 no-par shares.
The shares are made out in the bearer's name
1.4 Income per share
----------------
The income per share is calculated on the basis of the capital stock
described above as follows:
2002/kUSD 2001/kUSD 2000/kUSD
--------- --------- ---------
o Net income for the year 3,013 -8,259 -1,823
o Shares 50,000 50,000 50,000
Income per share (in USD): 60.26 -165.18 -36.46
2. RELATED PARTY TRANSACTIONS
--------------------------
In 2000 transfers were made to the capital reserves of galaxis technology
ag. amounting to 17.3 mln. Euro. Of which around 1.4 mln. EUR was provided by
cash payments. The difference was made up by the contribution of the rights to
the "galaxis" trademark by the sole stockholder of galaxis technology ag., Media
Hill Communication GmbH, Hanover.
13
Further, in the business years 2000 and 2002, intangible assets amounting
to around 13mln. EUR (13.6 mln. USD) were acquired from Comet
Vertriebsgesellschaft mbH, Lubeck, with whom the corporation does not have any
legal association. The Members of galaxis technology ag's Board of Management
were previously the general managers of Comet Vertriebsgesellschaft mbH. During
the report period, Mr. W. Hopp was still the general manager of Comet
Vertriebsgesellschaft mbH.
3. SUBSEQUENT EVENTS
-----------------
The public prosecutor of Lubeck has for many months been investigating the
Board of Management, senior staff, the Supervisory Board and third parties. We
have not yet been granted access to the files. The company itself is not subject
of the investigation. Management has determined that there will be no material
impact to the financial statements resulting from these investigations.
On September 30, 2003 galaxis technology ag. concluded a payment agreement
with its main supplier under which galaxis shall pay the sum of 12.0 mln. EUR
(12.6 mln. USD) due in accordance with the payment schedule against the jointly
determined trade account payable to this supplier of around 21.8 mln. EUR (22.8
mln. USD. The first sum due of 1.0 mln. EUR (1.0 mln. USD) was passed on to the
supplier on schedule.
On January 14, 2004, Distinctive Devices Inc. (DDI), a United States
corporation (incorporated in Delaware) completed its acquisition of all of the
outstanding capital stock of galaxis technology AG ("galaxis"), from Media Hill
Communication Beratungs- und Vertriebs GmbH, a German corporation ("Media
Hill"), the sole shareholder of galaxis, in exchange for 6,400,000 shares of the
DDI's Common Stock, pursuant to a Share Purchase Agreement. In addition, DDI
made a US $2,000,000 capital contribution to galaxis, including converting a
prior loan made to galaxis in 2003 in the principal amount of US $1 million,
into equity. DDI is to make an additional capital contribution of US$1,000,000
no later than thirty (30) days after closing.
4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
-------------------------------------------
The preparation of the consolidated financial statements requires the Board
of Management to make judgments, estimates and assumptions. These have an
influence on the reporting of assets and debts, the details of possible
liabilities at the time of the balance sheet date as well as the reporting of
income and expenditure during the report period. The actual sums can differ
significantly from the estimates.
5. ACCOUNTING CHANGE
-----------------
The valuation methods used by the corporation remained unchanged during the
report period. From the current announcements of the Financial Accounting
Standards Board (FASB)
- SFAS 143 "Accounting for the shutdown of assets"
- SFAS 144 "Accounting for valuation reserves, allowances or sales
of fixed assets"
14
- SFAS 146: "Accounting for costs related with the abandonment and sale
of business operations"
do not result in any expected changes in the accounting of the consolidated
companies or any other noteworthy effects on the corporation's assets,
liabilities, financial position and earnings position.
6. BUSINESS COMBINATIONS
---------------------
OmniScience MultimediaLab GmbH, Lubeck
--------------------------------------
Share of the voting rights 100 %
Business purpose Software development
Purchase price None, as new startup
Time of the first consolidation 01.01.2001
Goodwill acquired 0.00 EUR
Convergence GmbH, Berlin
Share of the voting rights 75 %
Business purpose Software development
Purchase price None, as new startup
Time of the first consolidation 01.01.2001
Goodwill acquired 0.00 EUR
7. DISCONTINUED OPERATIONS
-----------------------
Not applicable
8. INCOME TAXES
------------
The corporation's companies are subject to German income tax (corporate tax
and municipal trade tax). As the tax assessments have not yet been received,
there are not fixed sums with respect to tax losses carried forward. Therefore,
the capitalization of deferred tax claims has been dispensed with. The income
tax burden of a German corporation is around 43.5 %. Actual income taxes have
not yet had to be paid.
As the corporation has made a loss during the whole of the period of
accounting under US GAAP and deferred tax claims have not been capitalized, we
have fully dispensed with including the effects of tax for reasons of
insignificance. Overall, these would not have any noteworthy effect on the
corporation's assets, liabilities, financial position and earnings position.
9. GOING CONCERN
-------------
As shown in the accompanying consolidated financial statements, the Company
has an accumulated deficit of approximately $7,083,000 and a working capital
deficit of approximately $31,802,000 as of December 31, 2002.
15
In response to the economic conditions of the Company, management has
restructured its current financing agreements and as described in Note 3 has
become a subsidiary of Distinctive Devices, Inc., effective January 14, 2004.
Management continues to obtain new customer contracts and agreements which
should improve working capital. Management believes the combination of these
actions maximizes the probability of the Company's ability to remain in
business.
Because it is unclear whether the Company will be successful in
accomplishing these objectives, there is uncertainty about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of asset and the satisfactions of liabilities in the normal course
of business. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of assets,
including intangible assets, or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
16
GALAXIS TECHNOLOGY AG
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2003
- ---------------------------------------------------
Consolidated Consolidated
Unaudited Unaudited
ASSETS 9/30/2003 LIABILITIES & STOCKHOLDER'S EQUITY 9/30/2003
------ ----------------------------------
---------------- ---------------
USD USD
Current Assets Liabilities
Cash and cash equivalents $ 271,132 Current liabilities
Accounts receivable 2,253,365 Short term borrowings $ 14,293,952
Inventories 4,757,891 Accounts payable 24,379,349
Prepaid expenses 600,676 Advance payments 16,027
Other accrued and current
Other current assets 4,097,046 liabilities 12,430,974
---------------- ---------------
11,980,110 51,120,302
Property, Plant and Equipment Stockholder's equity
Machinery and Equipment 855,211 Common Stock 47,105
----------------
855,211 Additional paid in capital
16,288,504
Other Comprehensive Income 1,735,677
Intangible Assets 49,372,419 Retained earnings (6,983,849)
---------------
11,087,437
---------------- ---------------
Total liabilities and stockholder's
Total assets $ 62,207,739 equity $ 62,207,739
================ ===============
See notes to financial statements
17
GALAXIS TECHNOLOGY AG
CONSOLIDATED INCOME STATEMENT
- -----------------------------
Unaudited
Nine months ended September 30, 2003
---------------------------------------------
A. Operating section USD
1. Net sales and gross revenues $ 31,135,415
2. Costs and expenses applicable to sales and revenues (24,650,692)
3. Other operating costs and expenses (1,511,691)
---------------------------------------------
Gross margin/ gross profit on sale 4,973,031
4. Selling, general and administrative expenses (8,469,150)
---------------------------------------------
Operating income (3,496,119)
B. Nonoperating section:
5. Nonoperating income 4,862,950
6. Interest and amortization of debt discount and expense
a) interest income 9,790 b) interest expense (1,277,735)
7. Nonoperating expenses
---------------------------------------------
8. Income from continuing operations before taxes 98,886
---------------------------------------------
9. NET INCOME OR LOSS $ 98,886
=============================================
See notes to financial statements
18
GALAXIS TECHNOLOGY AG
CONSOLIDATED STATEMENT OF CASH FLOW
- -----------------------------------
January 1 - September 30,
2003
---------------------------------
USD
cash flows from operating activities
Net income $ 98,886
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation expense 2,068,405
Capitalised Intangible assets own work
Decrease (+)/ Increase (-) in inventories 997,148
Decrease (+)/ Increase (-) in accounts receivable 6,008,508
Decrease (+)/ Increase (-) in deferred taxes 0
Decrease (+)/ Increase (-) in prepaid expenses and other assets 182,367
Decrease (-)/ Increase (+) in short term borrowings 3,551,659
Decrease (-)/ Increase (+) in accounts payable and advance payments -721,549
Decrease (-)/ Increase (+) in other accrued and
current liabilities -611,057
---------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,574,366
Cash flows from investing activities
Purchase of Intangible Assets -6,078,222
---------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES -6,078,222
Cash flows from financing activities
Additional paid-in capital and minority interest 4,645
---------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,645
EFFECT OF EXCHANGE RATE CHANGES ON CASH -5,343,029
---------------------------------
NET INCREASE (+) / DECREASE (-) IN CASH 157,760
Cash January 1 113,372
---------------------------------
CASH SEPTEMBER 30 $ 271,132
=================================
See notes to financial statements
19
GALAXIS TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
- ----------------------------------------------------------
Additional paid Retained translation
Common Stock in capital earnings adjustments Total
------------ --------------- ------------ ------------- ---------------
USD USD USD USD USD
BALANCE AT DECEMBER 31, 2000 $ 47,105 $ 16,289,808 $(1,836,257) $ 0 $ 14,500,655
Net Loss 2001 -- 0 (8,259,662) 0 (8,259,662)
Other changes not related to stockholder -- (3,299) 0 0 (3,299)
Other comprehensive Income -- 0 0 (610,013) (610,013)
------------ --------------- ------------ ------------- ---------------
BALANCE AT DECEMBER 31, 2001 47,105 16,286,509 10,095,920) (610,013) 5,627,681
Net Income 2002 -- 0 3,013,185 0 3,013,185
Other changes not related to stockholder -- (2,649) 0 0 (2,649)
Other comprehensive Income -- 0 0 1,284,324 1,284,324
------------ --------------- ------------ ------------- ---------------
BALANCE AT DECEMBER 31, 2002 47,105 16,283,860 (7,082,735) 674,311 9,922,541
Net Income 2003 (01-09) -- 0 98,886 0 98,886
Other changes not related to stockholder -- 4,644 0 0 4,644
Other comprehensive Income -- 0 0 1,061,366 1,061,366
------------ --------------- ------------ ------------- ---------------
BALANCE AT SEPTEMBER 30, 2003 $ 47,105 $ 16,288,504 $(6,983,849) $ 1,735,677 $ 11,087,437
============ =============== ============ ============= ===============
See notes to financial statements
20
GALAXIS TECHNOLOGY AG
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of galaxis technology ag and its subsidiaries (the "Company"):
OmniScience Multimedia Lab Gmb H and Convergence GmbH.
NOTE 2: INTERIM FINANCIAL DATA
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission and accounting principles
generally accepted in the United States of America for interim financial
information. These condensed consolidated financial statements do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. The
annual consolidated financial statements of the Company as of December 31, 2002
should be read in conjunction with these statements. The financial information
included herein has not been audited. However, management believes the
accompanying unaudited condensed consolidated financial statements contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the consolidated financial position of the Company as of
September 30, 2003 and the results of its consolidated operations and cash flows
for the nine month period ended September 30, 2003. The results of its
consolidated operations and cash flows for the nine month period ended September
30, 2003 are not necessarily indicative of the results of consolidated
operations or cash flows for the year ending December 31, 2003.
NOTE 3: INVENTORIES
The Company's inventories consists mainly of finished products and work in
process for multimedia equipment. The inventories include stocks of merchandise,
pre-financed for Katek GmbH and where they are kept in storage. The valuation
was made at cost or production costs.
NOTE 4: GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has
an accumulated deficit of approximately $6,983,000 and a working capital deficit
of approximately $39,140,192 as of September 30, 2003.
In response to the economic conditions of the Company, management has
restructured its current financing agreements and as described in Note 5 has
become a subsidiary of Distinctive Devices, Inc., effective January 14, 2004.
Management continues to obtain new customer contracts and agreements which
should improve working capital. Management believes the combination of these
actions maximizes the probability of the Company's ability to remain in
business.
21
GALAXIS TECHNOLOGY AG
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4: GOING CONCERN (CONTINUED)
Because it is unclear whether the Company will be successful in accomplishing
these objectives, there is uncertainty about the Company's ability to continue
as a going concern. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of asset
and the satisfactions of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of assets, including intangible assets, or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
NOTE 5: SUBSEQUENT EVENT
On January 14, 2004, Distinctive Devices Inc. (DDI), a United States corporation
(incorporated in Delaware) completed its acquisition of all of the outstanding
capital stock of galaxis technology AG, from Media Hill Communication Beratungs-
und Vertriebs GmbH, a German corporation ("Media Hill"), the sole shareholder of
galaxis technology AG, in exchange for 6,400,000 shares of the DDI's Common
Stock, pursuant to a Share Purchase Agreement. In addition, DDI made a US
$2,000,000 capital contribution to galaxis technology AG, including converting
a prior loan made to galaxis in 2003 in the principal amount of US $1 million,
into equity. DDI is to make an additional capital contribution of US$1,000,000
no later than thirty (30) days after closing.
22
(B) UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION FOR THE
COMPANY AND GALAXIS
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Combining Balance Sheet as of
September 30, 2003 25
Unaudited Pro Forma Condensed Combining Statement of Operations for the
Nine Months Ended September 30, 2003 26
Unaudited Pro Forma Condensed Combining Statement of Operations for the
Year Ended December 31, 2002 27
Notes to Unaudited Pro Forma Condensed Combining Financial Information 28
23
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combining financial statements
have been prepared to give effect to the Company's acquisition of galaxis using
the purchase method of accounting and the assumptions and adjustments described
in the accompanying notes to unaudited pro forma condensed combining financial
information.
The unaudited pro forma condensed combining balance sheet gives effect to
the acquisition as if it had occurred on September 30, 2003. The unaudited pro
forma condensed combining statements of operations for the year ended December
31, 2002 and the nine-months ended September 30, 2003 give effect to the
acquisition as if it had occurred on January 1, 2002. The pro forma information
is based upon the historical financial information of the Company and galaxis
and the assumptions, estimates and adjustments described in the notes to the
unaudited pro forma condensed combining financial information. The assumptions,
estimates and adjustments are preliminary and have been made solely for purposes
of developing such pro forma information.
Under the purchase method of accounting, the aggregate consideration paid
is allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values on the transaction date.
As currently estimated, the purchase price is less than the estimated fair value
of the net assets acquired. As a result, the excess of the estimated fair values
over the purchase price, $8,234,018, will be allocated through a reduction of
long lived assets for purchase accounting purposes. The estimated purchase price
allocation is based on management's preliminary analysis and estimates.
The unaudited pro forma condensed combining financial information is
presented for illustrative purposes only and is not necessarily indicative of
the consolidated financial position or consolidated results of operations that
would have been reported had the acquisition occurred on the date indicated, nor
do they represent a forecast of the consolidated financial position at any
future date or the consolidated results of operations for any future period.
Furthermore, no effect has been given in the unaudited pro forma condensed
combining statements of operations for synergistic benefits that may be realized
through the combination of the two companies or costs that may be incurred in
integrating their operations. The unaudited pro forma condensed combining
financial information should be read in conjunction with the historical
consolidated financial information, including the notes thereto, and
management's discussion and analysis of financial condition and results of
operations of the Company covering those periods included in its annual report
and quarterly report, as the case may be, made under the Securities Exchange Act
of 1934, as amended.
24
DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
SEPTEMBER 30, 2003
HISTORICAL PRO FORMA
DISTINCTIVE
DEVICES, INC. GALAXIS ADJUSTMENTS COMBINED
------------ ------- ----------- --------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 344,768 $ 271,132 (A) $ (105,000) $ 510,900
Accounts Receivable, Net 169,817 2,253,365 -- 2,423,182
Inventories 668,418 4,757,891 -- 5,426,309
Prepaid Expenses and Other Current
Assets 56,123 4,697,722 -- 4,753,845
------------ -------------- ------------ ------------
Total Current Assets 1,239,126 11,980,110 (105,000) 13,114,236
PROPERTY AND EQUIPMENT, Net 757,743 855,211 -- 1,612,954
INTANGIBLE ASSETS, Net -- 49,372,419 (B) 1,893,563 51,265,982
OTHER ASSETS 76,062 -- -- 76,062
------------ -------------- ------------ ------------
Total Assets $ 2,072,931 $ 62,207,740 $ 1,788,563 $ 66,069,234
============ ============== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Term Loan Due Banks $ 19,508 $ -- $ -- $ 19,508
Other Loans Payable 857,929 14,293,952 -- 15,151,881
Accounts Payable and Accrued Liabilities 508,354 24,395,377 -- 24,903,731
Other Accrued and Current Liabilities 173,718 12,430,974 -- 12,604,692
------------ -------------- ------------ ------------
Total Current Liabilities 1,559,509 51,120,303 -- 52,679,812
------------ -------------- ------------ ------------
MINORITY INTEREST 165,403 -- -- 165,403
------------ -------------- ------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock 7,655 47,105 (C) (47,105)
(D) 6,400 14,055
Additional Paid-In Capital 5,758,994 16,288,504 (C) (16,288,504)
(D) 10,809,600
(E) 2,060,000 18,628,594
Accumulated Other Comprehensive
Income -- 1,735,677 (C) (1,735,677) --
Accumulated Deficit (5,418,630) (6,983,849) (C) 6,983,849 (5,418,630)
------------- --------------- ------------ -------------
Total Stockholders' Equity 348,019 11,087,437 1,788,563 13,224,019
------------ -------------- ------------ ------------
Total Liabilities and Stockholders'
Equity $ 2,072,931 $ 62,207,740 $ 1,788,563 $ 66,069,234
============ ============== ============ ============
See accompanying notes to unaudited pro forma condensed combining financial
information
25
DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003
HISTORICAL PRO FORMA
--------------------------------- ----------------------------------
DISTINCTIVE
DEVICES, INC. GALAXIS ADJUSTMENTS COMBINED
------------- ------------ ----------- ----------------
Revenue, Net $ 913,952 $ 31,135,415 $ -- $ 32,049,367
Cost of Goods Sold 548,718 24,650,692 -- 25,199,410
------------- ------------- ------------- ----------------
Gross Profit 365,234 6,484,723 -- 6,849,957
Operating Expenses 951,577 9,980,841 (F) 312,500
(G) 1,073,790 12,318,708
------------- ------------- ------------- ----------------
Operating Loss (586,343) (3,496,118) (1,386,290) (5,468,751)
-------------- -------------- -------------- -----------------
Other Income (Expense):
Interest and Other Income 37,823 9,790 -- 47,613
Other -- 4,862,949 4,862,949
Interest Expense (141,840) (1,277,735) -- (1,419,575)
-------------- -------------- ------------- -----------------
Total Other Income (Expense) (104,017) 3,595,004 -- 3,490,987
-------------- ------------- ------------- ----------------
Income (Loss) from Continuing
Operations $ (690,360) $ 98,886 $ (1,386,290) $ (1,977,764)
============== ============= ============= ================
7,257,103 13,657,103
============= ===============
Weighted Average Shares of Common Stock
Outstanding
Loss Per Share-- Basic and Diluted: $ (0.10) $ (0.14)
============== =================
Loss From Continuing Operations
See accompanying notes to unaudited pro forma condensed combining financial
information
26
DISTINCTIVE DEVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
HISTORICAL PRO FORMA
---------------------------------- ----------------------------------
DISTINCTIVE
DEVICES, INC. GALAXIS ADJUSTMENTS COMBINED
--------------- ------------- ------------- -------------
Revenue, Net $ 882,134 $ 37,079,672 $ - $ 37,961,806
Cost of Goods Sold 687,314 30,292,055 - 30,979,369
------------- ------------- ------------- -------------
Gross Profit 194,820 6,787,617 - 6,982,437
Operating Expenses 1,067,737 9,522,732 (F) 312,500 11,843,550
------------- ------------- ----------
(G) 940,581
Operating Loss (872,917) (2,735,115) (1,253,081) (4,861,113)
-------------- -------------- -------------- --------------
Other Income (Expense):
Interest and Other Income 47,889 490,941 - 538,830
Other -- 6,479,298 - 6,479,298
Interest Expense (59,001) (1,221,939) - (1,280,940)
-------------- -------------- ------------- --------------
Total Other Income (Expense) (11,112) 5,748,300 - 5,737,188
-------------- ------------- ------------- -------------
Income (Loss) from Continuing
Operations $ (884,029) $ 3,013,185 $ (1,253,081) $ 876,075
============== ============= ============== =================
Weighted Average Shares of Common Stock
Outstanding
Basic 3,775,134 10,175,134
============= =============
Diluted 3,775,134 11,535,949
============= =============
Earnings (Loss) Per Share from Continuing
Operations:
Basic $ (0.23) $ 0.09
================= ================
Diluted $ (0.23) $ 0.08
================= ================
See accompanying notes to unaudited pro forma condensed combining financial
information
27
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
The unaudited pro forma condensed combining financial information included
herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and certain footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations; however,
management believes that the disclosures are adequate to make the information
presented not misleading.
1. BASIS OF PRESENTATION
On January 14, 2004, Distinctive Devices, Inc. (the "Company") completed its
acquisition of all of the outstanding capital stock of galaxis technology AG
("galaxis") from Media Hill Communication Beratungs - und Vertriebs GmbH ("Media
Hill"), a German corporation, the sole shareholder of galaxis, in exchange for
6,400,000 shares of the Company's common stock.
In addition, the Company granted stock options to a member of management and a
board member for 1,000,000 shares and 250,000 shares, respectively, of common
stock, exercisable at $.70 per share for five years for their services
attributed to the acquisition.
2. PRELIMINARY PURCHASE PRICE- GALAXIS
The Company used the estimated value of its common stock of approximately $1.69
per share based upon the average closing price of the Company's common stock for
the three trading days before and after the acquisition date. Based on these
factors, the estimated value amounted to approximately $10,816,000.
The Company used the Black-Scholes option pricing model to determine the
estimated fair value of the granted stock options. The assumptions were applied
as follows: risk free interest rate 3.12%; expected option life 5 years;
expected stock price volatility 184%; expected dividend yield 0%. Based on these
assumptions, the estimated value amounted to approximately $2,060,000.
The total estimated purchase price is summarized below:
Estimated value of common stock issued $ 10,816,000
Estimated value of stock options 2,060,000
Estimated acquisition transaction costs 105,000
-------------
Total estimated purchase price $ 12,981,000
=============
The above estimated purchase price does not included any amounts to be derived
from contingent considerations.
28
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
2. PRELIMINARY PURCHASE PRICE- GALAXIS (CONTINUED)
The preliminary allocation of the aggregate purchase price to the tangible and
intangible assets acquired and liabilities assumed in connection with this
acquisition was based upon estimated fair values as determined by management.
The preliminary purchase price allocation is summarized below:
Tangible assets acquired $ 12,835,321
Intangible assets acquired 51,265,982
Liabilities assumed (51,120,303)
-------------
Total estimated purchase price $ 12,891,000
=============
The allocation of the purchase price is preliminary. The purchase price
allocation will remain preliminary until the Company completes a third party
valuation of identifiable intangible assets acquired and determines the fair
values of other assets and liabilities acquired. The final determination of the
purchase price allocation is expected to be completed as soon as practicable.
The final amounts allocated to assets and liabilities acquired could differ from
the amounts presented in the unaudited pro forma condensed combining financial
information.
3. PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma combining financial information have been
prepared as if the acquisition was completed on September 30, 2003 for balance
sheet purposes and as of January 1, 2002 for statement of operations purposes
and reflect the following pro forma adjustments:
BALANCE SHEET ADJUSTMENTS
-------------------------
(A)
To record estimated acquisition transaction costs, as previously discussed.
(B)
To adjust the value to the allocated purchase price of the intangible
assets acquired: intellectual property of $38,772,591, with an
estimated useful life of 10 years and trademarks of $12,493,391, with
an estimated useful life of 40 years.
(C)
To eliminate galaxis' common stock, additional paid-in capital,
accumulated other comprehensive income and accumulated deficit.
(D)
To record issuance of the 6,400,000 shares of the Company's common
stock, $.001 par value, as previously discussed.
29
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
FINANCIAL INFORMATION (CONTINUED)
3. PRO FORMA ADJUSTMENTS (CONTINUED)
(E)
To record grant of 1,250,000 stock options, in total, for the Company's
common stock to a member of management and a board member, as
previously discussed.
STATEMENT OF OPERATIONS ADJUSTMENTS
-----------------------------------
(F)
To adjust executive compensation expense for the 1,250,000 stock
options issued to galaxis's CEO to reflect current estimated
compensation expense.
(G)
To adjust amortization expense for the adjustment in intangible asset
values (A).
4. ITEMS NOT ADJUSTED
The pro forma adjustments do not reflect any integration adjustments such as
operating efficiencies and cost savings that may be achieved with respect to the
combining entity.
5. COMMON SHARES OUTSTANDING
The number of pro forma common shares outstanding after giving effect to the
acquisition for purposes of the pro forma September 30, 2003 balance sheet is:
Company's common shares outstanding at
September 30, 2003 - Historical 7,654,736
Increase in common shares attributable to
acquisition of galaxies 6,400,000
----------
Total pro forma common shares outstanding 14,054,736
==========
30
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING
FINANCIAL INFORMATION (CONTINUED)
6. PRO FORMA COMBINING EARNINGS (LOSS) PER SHARE
The pro forma combining earnings (loss) per share attributable to common
stockholders, basic and diluted, is computed as follows:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------------ ------------------
BASIC EARNINGS (LOSS) PER SHARE COMPUTATION:
NUMERATOR:
Income (loss) from continuing operations - historical $ (591,474) $ 2,129,156
Adjustment to executive compensation expense (312,500) (312,500)
Adjustment to amortization expense (1,073,790) (940,581)
------------------ -----------------
$ (1,977,764) $ 876,075
================== =================
DENOMINATOR:
Average number of common shares outstanding - historical 7,257,103 3,775,134
Issuance of common stock for acquisition 6,400,000 6,400,000
------------------ -----------------
13,657,103 10,175,134
================== =================
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------------ ------------------
DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION:
NUMERATOR:
Income (loss) from continuing operations - historical $ (591,474) $ 2,129,156
Adjustment to executive compensation expense (312,500) (312,500)
Adjustment to amortization expense (1,073,790) (940,581)
------------------ -----------------
$ (1,977,764) $ 876,075
================== =================
DENOMINATOR:
Average number of common shares outstanding - historical 7,257,103 3,775,134
Issuance of common stock for acquisition 6,400,000 6,400,000
Incremental shares for assumed exercise of securities (a) 1,360,815
------------------ -----------------
13,657,103 11,535,949
================== =================
(A) The weighted average shares of common stock outstanding are not adjusted for
potential effects of the Company's stock options/warrants because of their
antidilutive effect.
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this amendment to its Current Report on
Form 8-K to be signed on its behalf by the undersigned, hereunto duly
authorized.
Date: March 29, 2004
Distinctive Devices, Inc.
By: /s/ Sanjay Mody
-------------------------------
Sanjay Mody
President and Chief Executive Officer
32