Exhibit 99.1
C.L. McIntosh & Associates, Inc.
Financial Statements
Year ended December 31, 1995
Contents
Report of Independent Auditors............................................. 1
Financial Statements
Statement of Financial Position............................................ 2
Statement of Operations.................................................... 4
Statement of Changes in Shareholders' Equity............................... 5
Statement of Cash Flows.................................................... 6
Notes to Financial Statements.............................................. 7
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Report of Independent Auditors
Board of Directors
C.L. McIntosh & Associates, Inc.
We have audited the statement of financial position of C.L. McIntosh &
Associates, Inc. as of December 31, 1995, and the related statements of
operations, changes in shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C.L. McIntosh & Associates,
Inc. at December 31, 1995, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 5, 1996, except for Note 7, as to
which the date is December 31, 1996
1
C.L. McIntosh & Associates, Inc.
Statement of Financial Position
December 31, 1995
Assets
Current Assets:
Cash $ 166,605
Accounts receivable 937,036
Prepaid insurance 3,999
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Total current assets 1,107,640
Fixed assets:
Computer equipment 98,013
Office furniture and fixtures 171,892
Leasehold improvements 24,899
Accumulated depreciation (196,785)
----------
98,019
Other assets:
Security deposits 8,484
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Total assets $1,214,143
==========
2
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 84,000
Accrued expenses payable 28,321
Current portion of long-term debt 10,814
Client retainers 87,142
Accrued salaries 104,542
Accrued bonus payroll 37,239
Accrued profit sharing 90,000
Short-term debt 80,000
----------
Total current liabilities 522,058
Long-term liabilities
Long-term debt 18,953
Less current portion (10,814)
----------
8,139
Shareholder's equity
Common Stock 100
Retained earnings 683,846
----------
Total shareholders' equity 683,946
----------
Total liabilities and shareholders' equity $1,214,143
==========
See accompanying notes.
3
C.L. McIntosh & Associates, Inc.
Statement of Operations
Year ended December 31, 1995
Revenue
Service fees $3,985,534
Cost of sales 2,230,719
----------
Gross profit 1,664,815
Operating expenses
Selling and marketing 257,623
General and administration 900,562
----------
Total operating expenses 1,158,185
----------
Income from operations 506,630
Interest expense, net (12,046)
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Net income $ 494,584
==========
See accompanying notes
4
C.L. McIntosh & Associates, Inc.
Statement of Changes in Shareholders' Equity
Year ended December 31, 1995
Common Stock Retained
Shares Amount Earnings Total
----------------------------------------
Balance at December 31, 1994 100 $100 $219,976 $220,076
Shareholder distributions (30,714) (30,714)
Net income for the year 494,584 494,584
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Balance at December 31, 1995 100 $100 $683,846 $683,946
========================================
See accompanying notes.
5
C.L. McIntosh & Associates, Inc.
Statement of Cash Flows
Year ended December 31, 1995
Operating Activities
Net income $ 494,584
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 53,062
Changes in operating assets and liabilities
Accounts receivable (421,527)
Prepaid insurance (3,999)
Security deposits 1,188
Accounts payable (42,581)
Accrued expenses payable 1,086
Client retainers 82,258
Accrued bonus payable 37,239
Accrued salaries 10,626
Accrued profit sharing 32,200
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Net cash provided by operating activities 244,136
Investing activities
Purchases of fixed assets (31,672)
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Net cash used in investing activities (31,672)
Financing activities
Payments on short-term and long-term debt (49,819)
Distributions to shareholders (30,714)
----------
Net cash used in financing activities (80,533)
----------
Increase in cash 131,931
Cash at beginning of year 34,674
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Cash at end of year $166,605
==========
See accompanying notes
6
C.L. McIntosh & Associates, Inc.
Notes to Financial Statements
December 31, 1995
1. Description of Business
The Company provides a full range of medical and regulatory affairs services for
clients throughout the United States, Western Europe, Israel and Japan. Services
include regulatory strategic planning and implementation; clinical research and
study management; statistical design, analysis, and interpretation; regulatory
submissions and compliance; and training and education.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue from consulting services over the period in
which consulting services are performed.
Equipment and Fixtures
Equipment and fixtures are stated at cost. The Company provides for depreciation
using accelerated methods at rates designed to amortize the cost of equipment
and fixtures over their estimated useful lives of seven to thirty-one and a half
years.
Income Taxes
The Company is a Subchapter S Corporation for income tax purposes. Accordingly,
taxable income and other items of tax consequence are passed through directly to
the respective shareholders.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7
C.L. McIntosh & Associates, Inc.
Notes to Financial Statements (continued)
3. SHORT-TERM DEBT
The Company's balance on its line of credit at December 31, 1995 was $80,000,
the entirety of which is due on May 1, 1996, along with unpaid accrued interest
of one percent over the bank's prime rate (8.5% at December 31, 1995). The
weighted-average interest rate on the borrowings in fiscal 1995 was 9.75%.
4. LONG-TERM DEBT
Note payable, interest at 10% payable monthly, secured by accounts
receivable, principal due September 15, 1997 $15,420
Note payable, interest at 10% payable monthly, secured by accounts
receivable, principal due June 30, 1997 3,533
Total long-term debt 18,953
Less current portion 10,814
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Long-term debt, net of current portion $ 8,139
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Required payments of principal on long-term debt for the years following December 31, 1995 are summarized as
follows:
1996 $10,814
1997 8,139
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$18,953
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Interest paid during fiscal year 1995 totaled $12,682
8
C.L. McIntosh & Associates, Inc.
Notes to Financial Statements (continued)
5. Leases
The Company leases its office space, certain office equipment and vehicles under
operating leases. The office lease expires September 1998, and the remaining
leases expire at various times in 1996 and 1997. Future minimum lease payments
under the leases at December 31, 1995 are as follows:
Fiscal year
1996 $ 241,809
1997 236,017
1998 240,486
1999 245,112
2000 248,983
Thereafter 105,276
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$1,317,683
==========
Rent expense for the year ended December 31, 1995 was $120,414.
6. Significant Customer
The Company sells a substantial portion of its product to one customer. During
1995, sales to this customer totaled $631,754. At December 31, 1995, the amount
due from this customer included in accounts receivable was $119,401.
7. Subsequent Events
The Company borrowed $150,000 on July 1, 1996 at a rate of 1% over the bank's
prime rate, collateralized by general assets of the Company due along with
accrued unpaid interest on July 1, 1997. Accrued interest payments are due
monthly.
Effective December 31, 1996, the Company merged with Summit Medical Systems,
Inc., through a pooling of interests in which all of the outstanding shares of
the Company's common stock were exchanged for 976,453 shares of the combined
entity's common stock.
9
C.L. McIntosh & Associates, Inc.
Notes to Financial Statements (continued)
7. Subsequent Events (continued)
As a result of the transaction, pro forma income per share would be as follows:
Net income $ 494,584
Pro forma income tax expenses 197,800
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Pro forma net income $ 296,784
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Income per share of common stock $ 2,968
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Weighted average number of common shares outstanding 100
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