SPO MEDICAL EQUIPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
UNAUDITED
SPO MEDICAL EQUIPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
UNAUDITED
TABLE OF CONTENTS
Page
----
INTERIM FINANCIAL STATEMENTS:
Condensed Interim Balance Sheet 2
Condensed Interim Statements of Operations 3
Condensed Interim Statements of Cash Flows 4
Notes to the Condensed Interim Financial Statements 5-6
SPO MEDICAL EQUIPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM BALANCE SHEET
(Unaudited)
March 31, December 31,
----------- ------------
2 0 0 5 2 0 0 4
----------- ------------
Assets
Current Assets
Cash and cash equivalents $ 31,449 $ 8,581
Short-term investments 32,439 32,601
Trade receivables 251,903 153,341
Other receivables 18,134 24,435
Inventory 16,221 --
----------- ------------
350,146 218,958
----------- ------------
Long-Term Investments
Deposits 5,386 5,182
Severance pay fund 93,844 83,135
----------- ------------
99,230 88,317
----------- ------------
Fixed Assets
Cost 66,268 63,841
Less - accumulated depreciation 44,536 43,440
----------- ------------
21,732 20,401
----------- ------------
$ 471,108 $ 327,676
=========== ============
Liabilities and Shareholders' Deficiency
Current Liabilities
Short-term loans $ 304,749 $ 552,881
Accounts payable 145,768 149,906
Other payables and accrued expenses 254,898 279,933
----------- ------------
705,415 982,720
----------- ------------
Long-Term Liabilities
Long term loans 350,515 --
Accrued severance pay 121,149 118,732
----------- ------------
471,664 118,732
----------- ------------
Shareholders' Deficiency
Share capital 635,069 599,684
Additional paid-in capital 2,898,364 2,674,606
Accumulated deficit (4,239,404) (4,048,066)
----------- ------------
(705,971) (773,776)
----------- ------------
$ 471,108 $ 327,676
=========== ============
See Notes to Financial Statements.
2
SPO MEDICAL EQUIPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
from
January 1,
Three months ended 1996
March 31, (inception)
------------------------ to March 31,
2 0 0 5 2 0 0 4 2 0 0 5
---------- ----------- ----------
Revenues
Sales of products $ 373,350 $ -- $ 538,054
Research and development services -- -- 546,164
---------- ----------- ----------
Total revenues 373,350 -- 1,084,218
---------- ----------- ----------
Costs and expenses
Cost of revenues 154,355 -- 424,032
Research and development, net 96,756 (6,656) 974,382
Selling and marketing 112,033 1,029 605,800
General and administrative 106,472 73,211 1,484,926
Merger expenses 37,500 -- 1,514,231
---------- ----------- ----------
Total costs and expenses 507,116 67,584 5,003,371
---------- ----------- ----------
Operating loss 133,766 67,584 3,919,153
Financial expenses, net 57,572 15,696 320,251
---------- ----------- ----------
Loss for the period $ 191,338 $ 83,280 $4,239,404
========== =========== ==========
Basic and diluted loss per share $ 0.06 $ 0.03
========== ===========
Weighted average number of shares
outstanding used in computation of EPS 3,210,032 2,941,617
========== ===========
See Notes to Financial Statements.
3
SPO MEDICAL EQUIPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended Cumulative from
---------------------- January 1, 1996
March 31, (inception)
---------------------- to March 31,
2 0 0 5 2 0 0 4 2 0 0 5
--------- --------- ---------------
Cash Flows from Operating Activities
Loss for the period $(191,338) $ (83,280) $ (4,239,404)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation 1,096 866 45,167
Amortization of deferred stock-based compensation -- -- 133,314
Stock-based compensation expenses -- -- 1,730,696
Revaluation of short-term credit -- -- (307)
Increase (decrease) in accrued severance pay, net (8,292) (8,467) 27,305
Increase in accrued interest payable in loans 11,011 833 33,892
Revaluation of long-term deposits (204) -- (204)
Beneficial conversion feature expense -- -- 115,000
Changes in assets and liabilities:
Increase in Inventory (16,221) -- (16,221)
Increase in trade receivables (98,562) -- (251,903)
Decrease (increase) in other receivables 6,301 37,056 (18,134)
Increase (decrease) in accounts payable (4,138) (5,384) 145,768
Increase (decrease) in other payables and accrued expenses (25,035) 38,902 254,898
--------- --------- ---------------
Net cash used in operating activities (325,382) (19,474) (2,040,133)
--------- --------- ---------------
Cash Flows from Investing Activities
Increase in short-term investments -- -- (32,601)
Decrease (increase) in long-term deposits 162 -- (5,020)
Purchase of fixed assets (2,427) (452) (68,765)
Proceeds from sale of fixed assets -- -- 1,866
--------- --------- ---------------
Net cash used in investing activities (2,265) (452) (104,520)
--------- --------- ---------------
Cash Flows from Financing Activities
Issuance of share capital -- -- 1,295,280
Receipt of long term loans 350,515 -- 350,515
Receipt of short-term loans -- 100,000 569,529
Repayment of short-term loans -- -- (39,222)
--------- --------- ---------------
Net cash provided byfinancing activities 350,515 100,000 2,176,102
--------- --------- ---------------
Increase in cash and cash equivalents 22,868 80,074 31,449
Cash and cash equivalents at the beginning of the period 8,581 5,733 --
--------- --------- ---------------
Cash and cash equivalents at the end of the period $ 31,449 $ 85,807 $ 31,449
========= ========= ===============
Non cash transactions
Conversion of short-term loans $ 259,143 -- $ 259,143
========= ========= ===============
4
SPO MEDICAL EQUIPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed interim financial statements have been
prepared by SPO MEDICAL EQUIPMENT LTD. ("SPO" or the "Company") in accordance
with accounting principles generally accepted in the United States of America.
These financial statements reflect all adjustments, consisting of normal
recurring adjustments and accruals, which are, in the opinion of management,
necessary for a fair presentation of the financial position of the Company as of
March 31, 2005 and the results of operations and cash flows for the interim
periods indicated in conformity with generally accepted accounting principles
applicable to interim periods. Accordingly, certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction with the
audited financial statements and notes thereto of the Company for the year ended
December 31, 2004, appearing in the Company's Form 8 K/A filed on November 7,
2005. The results of operations presented are not necessarily indicative of the
results to be expected for future quarters or for the year ending December 31,
2005. The balance sheet at December 31, 2004 has been derived from the audited
financial statements as of and for the year ended December 31, 2004, but does
not include all the information and footnotes required by generally accepted
accounting principles for annual financial statements.
NOTE 2 - EXCHANGE TRANSACTION
On February 28, 2005 the Company and its shareholders entered into a Capital
Stock Exchange Agreement (as amended by Restated Capital Stock Exchange
Agreement) (the "Exchange Agreement") with United Diagnostic, Inc., a Delaware
corporation ("UNDI") under which on the Closing day and no later than April 30,
2005, UNDI shall acquire 100% of the Company's issued and outstanding stock for
consideration consisting of 5,937,381 shares of UNDI's common stock (including
options to acquire such shares). Upon consummation of the Exchange the Company
will survive as a wholly owned subsidiary of UNDI.
NOTE 3 - GOING CONCERN
As reflected in the accompanying condensed interim consolidated financial
statements, the Company's operations for the three months ended March 31, 2005,
resulted in a net loss of $ 180,334 and the Company's balance sheet at March 31,
2005 reflects a working capital deficiency of $ 355,269 and a total
shareholders' deficiency of $ 705,971. The Company's ability to continue
operating as a going concern is dependent on its ability to raise sufficient
additional working capital. Management's plans in this regard include raising
additional cash from current and potential stockholders, increasing the
marketing of its solutions and obtaining loans.
5
SPO MEDICAL EQUIPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - SHORT-TERM LOANS
a. In January 2005, the Company issued to ten investors Convertible
Promissory Notes ("Notes") in the total amount of $300,000. The Notes bear
interest at an annual rate of 8% and are payable after one year. The Notes
are convertible into common shares of the Company commencing on the first
business day after the receipt by the Company of at least $2 million from
the sale of its Common Stock ("Transaction"), at a pre share price equal
to the lesser of (i) a pre-money valuation of 40% less than the pre-money
valuation in the Transaction and (ii) $12 million divided by the number of
the Company's outstanding shares immediately prior to the Transaction (the
"Exercise Price").
In addition, the Company issued to three of the investors a Warrant for
the Purchase of Shares to purchase from the Company (during a period of
three years from the close of the Transaction), $30,000 of common shares
of the Company or any other equity securities which may be issued by it
with respect thereto, for a per share price equal to the Exercise Price.
b. In March 2005 the holders of two convertible loans in the total amount of
$250,000 elected to convert their loans to ordinary stock and received a
total of 152,437 common stock in the company.
6
SPO Medical Equipment Ltd.
(A Development Stage Company)
Financial Statements
As of December 31, 2004
SPO Medical Equipment Ltd.
(A Development Stage Company)
Financial Statements
Table of Contents
Page
----
Report of Independent Registered Public Accounting Firm 2
Financial Statements:
Balance Sheets as of December 31, 2004 and 2003 3
Statements of Operations for the years ended December 31, 2004 and
2003 and for the period from January 1, 1996 (inception) to December
31, 2004 4
Statement of Shareholders' Equity (Deficiency) for the years ended
December 31, 2004 and 2003 and for the period from January 1, 1996
(inception) to December 31, 2004 5-6
Statements of Cash Flows for the years ended December 31, 2004 and
2003 and for the period from January 1, 1996 (inception) to December
31, 2004 7
Notes to the Financial Statements 8-15
Report of Independent Registered Public Accounting Firm
To the Shareholders of
SPO Medical Equipment Ltd.
(A Development Stage Company)
We have audited the accompanying balance sheets of SPO Medical Equipment Ltd.
("the Company") (a development-stage company) as of December 31, 2004 and 2003,
and the related statements of operations, shareholders' equity (deficiency) and
cash flows for the years ended December 31, 2004 and 2003 and for the period
from January 1, 1996 (date of inception) to December 31, 2004. 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by the Company's management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2004 and 2003, and the results of its operations and its cash flows for the
years ended December 31, 2004 and 2003 and for the period from January 1, 1996
(date of inception) to December 31, 2004, in conformity with generally accepted
accounting principles in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
company. As discussed in Note 1b to the financial statements, the Company's
recurring losses from operations and shareholders' deficiency raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1c. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu
Tel-Aviv, Israel
March 31, 2005
SPO Medical Equipment Ltd.
(A Development Stage Company)
Balance Sheets
December 31,
--------------------------
Note 2004 2003
---- ----------- -----------
Assets
Current Assets
Cash and cash equivalents $ 8,581 $ 5,733
Short-term investments 32,601 --
Trade receivables 153,341 --
Other receivables 3 24,435 41,777
----------- -----------
218,958 47,510
----------- -----------
Long-Term Investments
Deposits 5,182 --
Severance pay fund 4 83,135 115,275
----------- -----------
88,317 115,275
----------- -----------
Fixed Assets
Cost 63,841 56,460
Less - accumulated depreciation 43,440 39,806
----------- -----------
20,401 16,654
----------- -----------
$ 327,676 $ 179,439
=========== ===========
Liabilities and Shareholders' Deficiency
Current Liabilities
Short-term loans 4 552,881 $ --
Accounts payable 149,906 41,272
Other payables and accrued expenses 279,933 68,592
----------- -----------
982,720 109,864
----------- -----------
Long-Term Liabilities
Accrued severance pay 5 118,732 153,394
----------- -----------
Contingencies and Commitments 6
Shareholders' Deficiency
Share capital:
Ordinary shares NIS1 par value (Authorized - 30,000,000 shares,
issued and outstanding - 2,941,617 and 2,501,891 shares at
December 31, 2004 and 2003, respectively) 7 599,684 501,422
Additional paid-in capital 2,674,606 927,172
Deficit accumulated during the development stage (4,048,066) (1,512,413)
----------- -----------
(773,776) (83,819)
----------- -----------
$ 327,676 $ 179,439
=========== ===========
The accompanying notes to these financial statements are an integral part
thereof.
3
SPO Medical Equipment Ltd.
(A Development Stage Company)
Statements of Operations
Cumulative from
January 1, 1996
(inception) to
Year ended December 31, December 31,
-------------------------- -----------
Note 2004 2003 2004
---- ----------- ----------- -----------
Revenues
Sales of products $ 164,704 $ -- $ 164,704
Research and development services 3,000 137,121 546,164
----------- ----------- -----------
Total revenues 167,704 137,121 710,868
----------- ----------- -----------
Costs and expenses
Cost of revenues 96,499 75,279 269,677
Research and development, net (including non-cash compensation of
$283,214 in 2004) 9 447,952 38,932 877,626
Selling and marketing 183,543 48,173 493,767
General and administrative 10 236,626 185,854 1,378,454
Merger expenses (including non-cash compensation of $1,369,849 in 2004) 7c 1,476,731 -- 1,476,731
----------- ----------- -----------
Total costs and expenses 2,441,351 348,238 4,496,255
----------- ----------- -----------
Operating loss (2,273,647) (211,117) (3,785,387)
Financial expenses, net (including non-cash compensation of $77,633 and
Beneficial conversion feature of $115,000 in 2004) (262,006) (6,773) (262,679)
----------- ----------- -----------
Loss for the period $(2,535,653) $ (217,890) $(4,048,066)
=========== =========== ===========
Basic and diluted loss per ordinary share $ (0.83) $ (0.09)
=========== ===========
Weighted average number of shares
outstanding used in computation of basic and diluted loss per share 3,057,595 2,501,891
=========== ===========
The accompanying notes to these financial statements are an integral part
thereof.
4
SPO Medical Equipment Ltd.
(A Development Stage Company)
Statement of Shareholders' Equity (Deficiency)
Number of
ordinary Additional Deferred
shares NIS 1 Share paid-in stock-based Accumulated
par value capital capital compensation deficit Total
------------ -------- ----------- ------------- ------------ ---------
Balance at January 1, 1996 (date of inception) $ -- $ -- $ -- $ -- $ --
Issuance of ordinary shares 700 220 220
Income for the year 1,102 1,102
------------ -------- ----------- ------------- ------------ ---------
Balance at December 31, 1996 700 220 -- -- 1,102 1,322
Loss for the year (11,754) (11,754)
------------ -------- ----------- ------------- ------------ ---------
Balance at December 31, 1997 700 220 -- -- (10,652) (10,432)
Issuance of ordinary shares 325 90 324,940 325,030
Loss for the year (512,920) (512,920)
------------ -------- ----------- ------------- ------------ ---------
Balance at December 31, 1998 1,025 310 324,940 -- (523,572) (198,322)
Issuance of ordinary shares 375 90 374,910 375,000
Deferred compensation related to stock option
grants to the CEO 133,314 (133,314) --
Amortization of deferred stock-based
compensation 122,157 122,157
Exercise of CEO options 80 20 20
Loss for the year (523,752) (523,752)
------------ -------- ----------- ------------- ------------ ---------
Balance at December 31, 1999 1,480 420 833,164 (11,157) (1,047,324) (224,897)
Issuance of ordinary shares 340 83 496,584 496,667
Amortization of deferred stock-based
compensation 11,157 11,157
Exercise of CEO options 40 10 10
Loss for the year (486,969) (486,969)
------------ -------- ----------- ------------- ------------ ---------
Balance at December 31, 2000 1,860 $ 513 $ 1,329,748 $ -- $ (1,534,293) $(204,032)
============ ======== =========== ============= ============ =========
The accompanying notes to these financial statements are an integral part
thereof.
5
SPO Medical Equipment Ltd.
(A Development Stage Company)
Statement of Shareholders' Equity (Deficiency) (Cont.)
Number of
ordinary Additional Deferred
shares NIS 1 Share paid-in stock-based Accumulated
par value capital capital compensation deficit Total
------------ --------- ----------- ------------- ------------ -----------
Balance at December 31, 2000 1,860 $ 513 $ 1,329,748 $ -- $ (1,534,293) $ (204,032)
Issuance of ordinary shares 20 5 98,328 98,333
Income for the year 229,295 229,295
------------ --------- ----------- ------------- ------------ -----------
Balance at December 31, 2001 1,880 518 1,428,076 -- (1,304,998) 123,596
Issuance of ordinary shares for no
consideration 2,500,011 500,904 (500,904)
Income for the year 10,475 10,475
------------ --------- ----------- ------------- ------------ -----------
Balance at December 31, 2002 2,501,891 501,422 927,172 -- (1,294,523) 134,071
Loss for the year (217,890) (217,890)
------------ --------- ----------- ------------- ------------ -----------
Balance at December 31, 2003 2,501,891 501,422 927,172 -- (1,512,413) (83,819)
Issuance of ordinary shares to consultants 439,726 98,262 1,271,587 1,369,849
Stock-based compensation related to options
granted to CTO 283,214 283,214
Stock-based compensation related to warrant
granted to lender 77,633 77,633
Beneficial conversion feature 115,000 115,000
Loss for the year (2,535,653) (2,535,653)
------------ --------- ----------- ------------- ------------ -----------
Balance at December 31, 2004 2,941,617 $ 599,684 $ 2,674,606 $ -- $ (4,048,066) $ (773,776)
============ ========= =========== ============= ============ ===========
The accompanying notes to these financial statements are an integral part
thereof.
6
SPO Medical Equipment Ltd.
(A Development Stage Company)
Statements of Cash Flows
Cumulative from
January 1, 1996
Year ended December 31, (inception) to
------------------------ December 31,
2004 2003 2004
----------- --------- -----------
Cash Flows from Operating Activities
Loss for the period $(2,535,653) $(217,890) $(4,048,066)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation 3,634 4,627 44,071
Amortization of deferred stock-based compensation -- -- 133,314
Stock-based compensation expenses 1,730,696 -- 1,730,696
Revaluation of short-term credit -- -- (307)
Increase (decrease) in accrued severance pay, net (2,522) (1,027) 35,597
Increase in accrued interest payable in short-term loans 22,881 -- 22,881
Beneficial conversion feature expense 115,000 -- 115,000
Changes in assets and liabilities:
Increase in trade receivables (153,341) -- (153,341)
Decrease (increase) in other receivables 17,342 124,284 (24,435)
Increase in accounts payable 108,634 7,072 149,906
Increase (decrease) in other payables and accrued expenses 211,341 (29,824) 279,933
----------- --------- -----------
Net cash used in operating activities (481,988) (112,758) (1,714,751)
----------- --------- -----------
Cash Flows from Investing Activities
Decrease (increase) in short-term investments (32,601) 44,169 (32,601)
Increase in long-term deposits (5,182) -- (5,182)
Purchase of fixed assets (7,381) (6,894) (66,338)
Proceeds from sale of fixed assets -- -- 1,866
----------- --------- -----------
Net cash provided by (used in) investing activities (45,164) 37,275 (102,255)
----------- --------- -----------
Cash Flows from Financing Activities
Issuance of share capital -- -- 1,295,280
Receipt of short-term loans 565,000 -- 569,529
Repayment of short-term loans (35,000) (4,222) (39,222)
----------- --------- -----------
Net cash provided by (used in) financing activities 530,000 (4,222) 1,825,587
----------- --------- -----------
Increase (decrease) in cash and cash equivalents 2,848 (79,705) 8,581
Cash and cash equivalents at the beginning of the period 5,733 85,438 --
----------- --------- -----------
Cash and cash equivalents at the end of the period $ 8,581 $ 5,733 $ 8,581
=========== ========= ===========
The accompanying notes to these financial statements are an integral part
thereof.
7
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 1 - Organization and Principal Activities
a. SPO Medical Equipment Ltd. (the "Company") was incorporated in
Israel in August 31, 1995 and commenced operations in January 1,
1996. The Company is engaged in the research and development of a
pulse oximetry technique which can be applied to a series of
non-invasive blood oxygen saturation and pulse rate monitors.
Applications including respiratory distress monitors for hospital
patients, early warning of crib death conditions (SIDS), fitness
training etc. The Company is considered to be in the development
stage and has earned limited revenues to date. Most of the revenues
of the Company are currently generated from providing development
services to others. Business activities to date have focused on
product and marketing research, product development, and raising
capital.
On February 28, 2005 the Company and its shareholders entered into a
Capital Stock Exchange Agreement (as amended by Restated Capital
Stock Exchange Agreement) (the "Exchange Agreement") with United
Diagnostic, Inc., a Delaware corporation ("UNDI") under which on the
Closing day and no later than April 30, 2005, UNDI shall acquire
100% of the Company's issued and outstanding stock for consideration
consisting of 5,937,381 shares of UNDI's common stock (including
options to acquire such shares). Upon consummation of the Exchange
Agreement the Company will survive as a wholly owned subsidiary of
UNDI.
The Company has a limited operating history and faces a number of
risks, including uncertainties regarding demand and market
acceptance of the Company's products, the effects of technological
change, competition and the development of new products.
b. Going Concern
As reflected in these financial statements, the Company's operations
for the year ended December 31, 2004, resulted in a net loss of
$2,535,653 and the Company's balance sheet at December 31, 2004
reflects a working capital deficiency of $763,762 and a total
shareholders' deficiency of $773,776. The Company's ability to
continue operating as a going concern is dependent on its ability to
raise sufficient additional working capital. Management's plans in
this regard include raising additional equity financing from current
and potential shareholders, increasing the marketing of its
solutions and obtaining loans.
Note 2 - Significant Accounting Policies
The financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in the United
States of America.
a. 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.
b. Financial statements in U.S. dollars
The reporting currency of the Company is the U.S. dollar ("dollar").
The dollar is the functional currency of the Company. Transactions
and balances originally denominated in dollars are presented at
their original amounts. Non-dollar transactions and balances are
remeasured into dollars in accordance with the principles set forth
in Statement of Financial Accounting Standards ("SFAS") No. 52
"Foreign Currency Translation" ("SFAS No. 52"). All exchange gains
and losses from remeasurement of monetary balance sheet items
resulting from transactions in non-dollar currencies are recorded in
the statement of operations as they arise.
8
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 2 - Significant Accounting Policies (cont.)
c. Cash equivalents
The Company considers all highly liquid investments originally
purchased with maturities of three months or less to be cash
equivalents.
d. Fixed assets
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
as follows:
Computers 3 - 5 years
Other electronic equipment 7 - 10 years
Office furniture and equipment 7 - 15 years
In accordance with SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets", management reviews long-lived assets
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable based on
estimated future undiscounted cash flows. If so indicated, an
impairment loss would be recognized for the difference between the
carrying amount of the asset and its fair value. As of December 31,
2004, no impairment losses have been recorded.
e. Revenue recognition
The Company generates its revenues from providing research and
development services and sales of its products. Revenues from the
services are recognized when such services are performed. Revenues
from the sale of products are recognized upon shipment to the
customer, provided that persuasive evidence of an arrangement
exists, title has been transferred, the price is fixed and
determined, collection of resulting receivables is reasonably
assured and there are no remaining significant obligations.
f. Research and development costs
Research and development costs, net of government grants and
participation by others, are charged to expenses as incurred.
g. Deferred income taxes
Deferred income taxes are provided for temporary differences between
the assets and liabilities, as measured in the financial statements
and for tax purposes, at the tax rates expected to be in effect when
these differences reverse, in accordance with SFAS No. 109
"Accounting for Income Taxes" ("SFAS No. 109").
h. Fair value of financial instruments
The financial instruments of the Company consist mainly of cash and
cash equivalents, short-term investments, trade receivables,
accounts payable and short-term loans.
In view of their nature, the fair value of the Company's financial
instruments is usually identical or close to their carrying value.
i. Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents. The majority of the Company's cash and cash equivalents
are invested in deposits. Management believes that the financial
institutions that hold the Company's investments are financially
sound, and accordingly, minimal credit risk exists with respect to
these investments.
The Company has no significant off-balance sheet concentration of
credit risk, such as foreign exchange contracts or other foreign
currency hedging arrangements.
9
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 2 - Significant Accounting Policies (cont.)
j. Stock-based compensation
The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25), and in
accordance with FASB Interpretation No. 44. Pursuant to these
accounting pronouncements, the Company records compensation for
stock options granted to employees based on the difference, if any,
between the exercise price of the options and the market price of
the underlying shares at the grant date. Deferred compensation is
amortized to compensation expense over the vesting period of the
options.
Had compensation cost for the Company's option plans been determined
on the basis of the fair value at the grant dates in accordance with
the provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), as amended by SFAS No. 148
"Accounting for Stock-Based Compensation" ("SFAS No. 148"), the
Company's net loss and basic and diluted net loss per share would
not have been changed.
For purposes of estimating fair value in accordance with SFAS 123,
the Company utilized the Black-Scholes option-pricing model. The
following assumptions were utilized in such calculations for the
year 2004 (all in weighted averages):
Risk-free interest rate 3.31%
Expected life of options 5 years
Expected dividend yield none
Volatility 0%
k. Effects of recently issued accounting standards
In December 2004, the FASB issued SFAS No. 123 (revised 2004) "Share
Based Payments" ("SFAS 123(R)"). This Statement is a revision of
FASB Statement No. 123, "Accounting for Stock-Based Compensation",
which supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and its authoritative interpretations. SFAS 123(R)
establishes standards for the accounting for transactions in which
an entity exchanges its equity instruments for goods or services;
focuses primarily on accounting for transactions in which an entity
obtains employee and directors services in share-based payment
transactions; and does not change the accounting guidance for
share-based payment transactions with parties other than employees.
SFAS 123(R) eliminates the alternative to use APB 25's intrinsic
value method of accounting that was provided in SFAS 123 as
originally issued and requires to measure the cost of employee
services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. The
fair-value-based method in this Statement is similar to the
fair-value-based method in SFAS 123 in most respects. The costs
associated with the awards will be recognized over the period during
which an employee is required to provide service in exchange for the
award - the requisite service period (usually the vesting period).
The grant-date fair value of employee share options and similar
instruments will be estimated using option-pricing models adjusted
for the unique characteristics of those instruments (unless
observable market prices for the same or similar instruments are
available). If an equity award is modified after the grant date,
incremental compensation cost will be recognized in an amount equal
to the excess of the fair value of the modified award over the fair
value of the original award immediately before the modification.
10
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 2 - Significant Accounting Policies (cont.)
k. Effects of recently issued accounting standards (cont.)
The provisions of SFAS 123(R) apply to all awards to be granted by
the Company after June 30, 2005 and to awards modified, repurchased,
or cancelled after that date. When initially applying the provisions
of SFAS 123(R), in the third quarter of 2005, the Company will be
required to elect between using either the "modified prospective
method" or the "modified retrospective method". Under the modified
prospective method, the Company is required to recognize
compensation cost for all awards granted after the adoption of SFAS
123(R) and for the unvested portion of previously granted awards
that are outstanding on that date.
Under the modified retrospective method, the Company is required to
restate its previously issued financial statements to recognize the
amounts previously calculated and reported on a pro forma basis, as
if the original provisions of SFAS 123 had been adopted. Under both
methods, it is permitted to use either a straight line or an
accelerated method to amortize the cost as an expense for awards
with graded vesting.
Management has recently commenced identifying the potential future
impact of applying the provisions of SFAS 123(R), including each of
its proposed transition methods, yet is currently unable to fully
quantify the effect of this Standard on the Company's future
financial position and results of operations. Nonetheless, it is
expected that the adoption of SFAS 123(R) will increase the
stock-based-award expenses the Company is to record in the future in
comparison to the expenses recorded under the guidance currently
applied by the Company.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets an amendment of APB No. 29". This Statement
amends Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not
have commercial substance. The Statement specifies that a
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result
of the exchange. This Statement is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges
occurring in fiscal periods beginning after the date this Statement
was issued. Retroactive application is not permitted.
Note 3 - Other Receivables
December 31,
-----------------
2004 2003
------- -------
Research and development participation
from the Government of Israel $ -- $18,719
Tax authorities 23,019 4,561
Others 1,416 18,497
------- -------
$24,435 $41,777
======= =======
11
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 4 - Short-term Loans
a. In February and July 2004, the Company issued to lender A two
Convertible Promissory Notes ("Notes") in the amount of $100,000
each. The Notes bear interest at an annual rate of 8% and are
repayable after one year.
The Notes are convertible into common shares of the Company at a
pre-money valuation of $5 million on a fully diluted basis
commencing on the first business day after one year from the date of
issuance of the Notes.
The second Note grants to the lender an additional right to purchase
common shares of the Company until July 1, 2007 for total
consideration of $50,000 (50% of the Principal Debt) plus accrued
interest at a per share purchase price equal to the price per share
paid by investors in the first subsequent equity financing in the
Company wherein the amount invested is not less than $1.5 million.
As of December 31, 2004 the lender has agreed to convert the Notes
into common shares of the Company at a pre-money valuation of $5
million on a fully diluted basis. Pursuant to the Exchange Agreement
the conversion will result in the issuance of 224,366 shares of
common stock. The shares were issued on March 7, 2005.
b. In April 2004, the Company issued to two lenders B a one-year
Convertible Promissory Notes ("Notes") each in the amount of $57,500
(the total amount of $115,000). The loan was intended to cover
certain outstanding debts of the targeted shell company that was
being considered under the terms of a share exchange. Provisions
were included to convert the loan into share capital of the target
company in the event the transaction was not consummated. The loan
provided interest at an annual rate of 10%. However, if the Company
does not make full payment of all unpaid amounts owed on or prior to
the maturity date, interest will thereafter accrue at the annual
rate of 18%.
The Notes are automatically convertible into common shares of UNDI
at a per share conversion rate equal to 20% less than the valuation
in the first sale of Common Stock of the Company after the Share
Exchange. In the event that the Company does not raise through sale
of Common Stock at least $250,000 within 180 days of the close of
the share exchange the Notes are convertible at a rate of $0.01 per
share; provided, upon such conversion UNDI shall sale all shares
which it owns of the Company to the previous shareholders of the
Company existing prior to the Share Exchange for an aggregate price
of $115,000.
In accordance with EITF 00-27, the company recorded beneficial
conversion feature of $115,000 for the year ended December 31,2004.
c. In July 2004, the Company issued to lender C a Convertible Debenture
("Debenture") up to $200,000. The maturity date is August 31, 2005.
The Debenture bears interest at an annual rate of 8%.
The lender is entitled to convert all or part of the principal
amount of the Debenture plus interest accrued into common shares of
the Company at any time from the date of purchase until the maturity
date at a pre-money Company valuation which is the lesser of $5
million and the valuation which the first subsequent investment in
the Company of not less than $1.5 million is made.
As of December 31, 2004 the lender has agreed to convert the
Debenture into common shares of the Company at a pre-money valuation
of $5 million on a fully diluted basis. Pursuant to the Exchange
Agreement the shares arising from the conversion will be exchanged
for 57,586 shares of UNDI's common stock.
12
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 4 - Short-term Loans (cont.)
d. In November 2004, the Company issued to lender D a Promissory Note
("Note") in the amount of $100,000. The Maturity date will be the
earlier of the consummation of the Exchange Agreement (see Note 2)
and funding of at least $1 million or March 13, 2005. The Note bears
interest at an annual rate of 12% and if the Company does not make
full payment of all unpaid amounts owed on or prior to the Maturity
date, interest will accrue thereafter at the rate of 1.25% per
month.
As additional consideration, the Company issued to the lender a
Common Stock Purchase Warrant ("Warrant") to purchase 25,000 common
shares of the Company at an exercise price of $0.01 per share at any
time prior to November 13, 2006. The Warrant was exercised prior to
closing of the Exchange Agreement Pursuant to the Exchange Agreement
the shares arising from the conversion will be exchanged for 57,586
shares of UNDI's common stock.
The Company accounted for these options under the fair value method
of EITF 00-27. The fair value was determined using the Black-Scholes
pricing model with the following assumptions: risk-free interest
rate of 2.31%; volatility rate of 50%; dividend yield of 0% and an
expected life of five months. Non-cash compensation expenses were
$77,633 for the year ended December 31, 2004.
The Warrant was exercised prior to closing of the Exchange Agreement
Pursuant to the Exchange Agreement the shares arising from the conversion will
be exchanged for 57,586 shares of UNDI's common stock.
e. In October 2004, the Company received from lender D a financing
facility of up to $100,000 (after reduction of $10,000 as lending
fee) against a product order received by the Company from its
customer ("Order"). A total of $35,000 was repaid in November 2004.
The principal outstanding of $65,000 is payable on earlier of
receipt of full payment for the Order and February 11, 2005
("Maturity"). The principal outstanding after Maturity will bear
interest at an annual rate of 18%.
Note 5 - Accrued Severance Pay
The Company's liability for severance pay to employees is calculated
in accordance with the Israeli law based on the most recent salary
paid to the employee and the length of employment with the Company.
Part of the liability is funded through individual insurance
policies purchased from outside insurance companies, which are not
under the Company's control, and by deposits in severance pay funds.
The unfunded portion is fully accrued for in the Company's financial
statements.
Severance pay expenses (income) for the years ended December 31,
2004 and 2003 were ($160,212) and $79,977 respectively.
Note 6 - Contingencies and Commitments
The Company is committed to pay royalties of 3% to the Government of
Israel on proceeds from the sale of products, the research and
development of which the Government has participated in by way of
grants, up to the amount of 100%-150% of the grants received plus
interest at LIBOR (in dollar terms). The total amount of grants
received or accrued, net of royalties paid or accrued, as of
December 31, 2004 was $1,413,793. The refund of the grants is
contingent upon the successful outcome of the research and
development and the attainment of sales. The Company has no
obligation to refund these grants, if sales are not generated. The
financial risk is assumed completely by the Government of Israel.
The grants are received from the Government on a project by project
basis. If the project fails the Company has no obligation to repay
any grant received for the specific unsuccessful or aborted project.
13
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 7 - Share Capital
a. In June 2002 the Company increased its authorized share capital to
30,000,000 ordinary shares of NIS1 par value. In addition, the
Company issued 2,500,011 ordinary shares to all existing
shareholders for no consideration, such that after the issuance each
shareholder's percentage of the share capital of the Company would
remain unchanged.
b. 1998 Stock Option Plan
Under the 1998 Stock Option Plan (the "1998 Plan") for employees of
the Company, options to purchase up to 253,000 ordinary shares (as
was adjusted with the share issuance mentioned in Note 7a) of the
Company may be granted at an exercise price that shall be determined
by the Stock Option Committee appointed and maintained by the Board
of Directors of the Company. The options granted shall be
exercisable on the date and for the number of shares as shall be
provided in the option agreement. Under the 1998 Plan, options will
expire ten years from the date of the grant.
In January 1999 the Company granted to the Company's Chief Executive
Officer options to purchase up to 120 ordinary shares of the Company
pursuant to his employment agreement and the 1998 Plan. The options
had an exercise price of NIS1.00 and vested over two years. In
connection with this issuance, the Company recorded a stock-based
compensation expense totaling $133,314. All of the options were
exercised during 1999 and 2000.
On October 18, 2004 the Company granted to the Company's Chief
Technology Officer fully vested stock options to purchase 90,978
ordinary shares of the Company at an exercise price of NIS0.01 per
share under Company's 1998 Stock Option Plan. In connection with
this issuance, the Company recorded a stock-based compensation
expense totaling $566,632. Pursuant to the Exchange Agreement the
options will be exchanged for fully vested penny options to acquire
168,275 shares of UNDI's common stock.
As of December 31, 2004, there are 90,978 options granted to the
Company's Chief Technology Officer, as mentioned above, outstanding
under the 1998 Plan. As of December 31, 2004, 10,402 ordinary shares
are available for future grants.
c. On October 18, 2004 the Company issued 439,726 ordinary shares to a
group of investors in consideration of introduction the Company to
UNDI for the purposes of entering into the Exchange Agreement. In
connection with this issuance, the Company recorded a stock-based
compensation expense totaling $1,369,849.
Note 8 - Deferred Taxes
In accordance with SFAS No. 109, the components of deferred income
taxes are as follows:
December 31,
----------------------
2004 2003
--------- ---------
Net operating losses carryforwards $ 904,829 $ 841,272
Less - valuation allowance (904,829) (841,272)
--------- ---------
$ -- $ --
========= =========
As of December 31, 2004 and 2003, a valuation allowance of $904,829
and $841,272 respectively, is provided due to the level of
uncertainty with respect to the realization of the deferred tax
assets.
14
SPO Medical Equipment Ltd.
(A Development Stage Company)
Notes to the Financial Statements
Note 9 - Research and Development Expenses, net
Cumulative
from
January 1,
1996
(inception)
Year ended December 31, to
--------------------- December 31,
2004 2003 2004
-------- ---------- ----------
Salaries $412,180 $ 122,721 $1,731,973
Subcontractors 100,982 40,112 565,544
Materials and tools 60,374 9,074 207,672
Depreciation 2,828 3,841 38,167
-------- ---------- ----------
546,364 175,748 2,543,356
-------- ---------- ----------
Less -
Royalty bearing government
grants -- 105,449 1,413,793
Participation by others 128,412 31,367 251,937
-------- ---------- ----------
$447,952 $ 38,932 $ 877,626
======== ========== ==========
Note 10 - General and Administrative Expenses
Cumulative
from
January 1,
1996
(inception)
Year ended December 31, to
--------------------- December 31,
2004 2003 2004
-------- ---------- ----------
Salaries $ 69,187 $ 74,543 $ 660,732(*)
Professional fees 94,023 36,040 319,388
Car expenses 27,770 26,322 146,466
Miscellaneous 45,646 48,949 251,868
-------- ---------- ----------
$236,626 $ 185,854 $1,378,454
======== ========== ==========
(*) Includes an amount of $133,314 in stock-based compensation to
the CEO (see Note 7b).
Note 11 - Subsequent Events
In January 2005, the Company issued to ten investors Convertible
Promissory Notes ("Notes") in the total amount of $300,000. The
Notes bear interest at an annual rate of 8% and are payable after
one year. The Notes are convertible into common shares of the
Company commencing on the first business day after the receipt by
the Company of at least $2 million from the sale of its Common Stock
("Transaction"), at a per share price equal to the lesser of (i) a
pre-money valuation of 40% less than the pre-money valuation in the
Transaction and (ii) $12 million divided by the number of the
Company's outstanding shares immediately prior to the Transaction
(the "Exercise Price").
In addition, the Company issued to three of the investors a Warrant
for the Purchase of Shares to purchase from the Company (during a
period of three years from the close of the Transaction), $30,000 of
common shares of the Company or any other equity securities which
may be issued by it with respect thereto, for a per share price
equal to the Exercise Price.
15
SPO MEDICAL, INC
(Formerly known as UNITED DIAGNOSTIC, INC.)
(A Development Stage Company)
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
SPO MEDICAL, INC
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheets as of March 31,
2005 and the unaudited pro forma consolidated statements of operations for the
twelve months ended December 31, 2004 and the three months ended March 31, 2005
are based on the historical financial statements of United Diagnostic, Inc.
("UNDI") and SPO Medical Equipment Ltd. ("SPO") after giving effect to the
merger of SPO and UNDI into SPO MEDICAL, INC. The result of the combination will
have SPO as the continuing operating entity in a reverse merger transaction. See
notes to pro forma financial statements for a detailed description of the events
as a result of this reverse merger.
The unaudited pro forma consolidated financial statements should be read with
the accompanying unaudited pro forma footnotes as well as the historical
financial statements and accompanying notes of SPO included in this form 8-K as
well as the historical financial statements and accompanying footnotes of UNDI
as filed with the Securities & Exchange Commission. The unaudited pro forma
consolidated financial statements are not intended to represent or be indicative
of the consolidated results of operations or financial condition that would have
been reported had the merger been completed as of the dates presented and should
not be taken as representative of future consolidated results of operations and
financial condition of the merged entity.
SPO MEDICAL, INC.
(Formerly known as UNITED DIAGNOSTIC, INC.)
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro forma Consolidated Condensed Balance Sheet
As of March 31, 2005
In thousands of U.S. Dollars
Pro forma
adjustments
increase
UNDI SPO (decrease) Notes Pro forma
-------- ------- ----------- ----- ---------
Assets
Current Assets $ 1 $ 31 -- $ 32
Cash and cash equivalents -- 32 -- 32
Short-term investments -- 252 -- 252
Trade receivables 14 19 -- 33
Other receivables -- 16 -- 16
-------- ------- ----------- ---------
15 350 -- 365
Long-Term Investments
Deposit -- 5 -- 5
Severance pay fund -- 94 -- 94
-------- ------- ----------- ---------
-- 99 -- 99
Fixed Assets
Cost -- 66 -- 66
Less - accumulated depreciation -- 44 -- 44
-------- ------- ----------- ---------
-- 22 22
-------- ------- ----------- ---------
$ 15 $ 471 $ -- $ 486
======== ======= =========== =========
Liabilities & Stockholders' Deficiency
Current Liabilities
Short-term loans $ -- $ 305 $ -- $ 305
Accounts payable 209 146 -- 355
Other payables and accrued expenses 56 254 85 E,F 395
Notes payable 66 -- -- 66
Due to related parties 285 -- (185) E,F 100
Contract payable 55 -- -- 55
-------- ------- ----------- ---------
671 705 (100) 1,276
-------- ------- ----------- ---------
Long-Term Liabilities
Loans -- 351 -- 351
Accrued severance pay -- 121 -- 121
-------- ------- ----------- ---------
-- 472 -- 472
-------- ------- ----------- ---------
Stockholders' Deficiency
Share capital 17 635 (635) B
154 A 171
Additional paid-in capital 59,787 2,898 (59,787) C
635 B
(827) D
310 E 3,016
Accumulated deficit (60,460) (4,239) 60,460 C
(210) F (4,449)
-------- ------- ----------- ---------
(656) (706) 100 (1,262)
-------- ------- ----------- ---------
$ 15 $ 471 $ -- $ 486
======== ======= =========== =========
2
SPO MEDICAL, INC.
(Formerly known as UNITED DIAGNOSTIC, INC.)
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro forma Consolidated Condensed Statement of Operations
For the three months ended March 31, 2005
In thousands of U.S. Dollars, except per share data
Pro forma
adjustments
increase
UNDI SPO (decrease) Notes Pro forma
---- ----- ----------- ----- ---------
Revenues
Sales of products $ -- $ 373 -- 373
Research and development services -- -- --
---- ----- ----------- ---------
Total revenues -- $ 373 373
Costs and expenses
Cost of revenues -- 154 -- 154
Research and development, net -- 97 -- 97
Selling and marketing -- 112 -- 112
General and administrative -- 106 -- 106
Merger expenses 2 38 210 F 250
---- ----- ----------- ---------
Total costs and expenses 2 507 210 719
---- ----- ----------- ---------
Operating loss 2 134 346
Financial expenses, net 2 57 59
---- ----- ----------- ---------
Loss for the period $ 4 $ 191 $ 210 $ 405
==== ===== =========== =========
Basic and diluted loss per share NIL $0.06 $ 0.023
==== ===== =========
3
SPO MEDICAL, INC.
(Formerly known as UNITED DIAGNOSTIC, INC.)
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Notes to Unaudited pro forma Financial Statements as of March 31, 2005
The pro forma Balance sheet assumes the transaction occurred as of March 31,
2005, and the pro forma Statement of Operations assumes the transaction occurred
as of January 1, 2005. The pro forma adjustments reflecting this transaction are
described below:
The acquisition of SPO by UNDI effected a change in control and was accounted
for as a reverse acquisition whereby SPO is the accounting acquirer for
financial statements purposes.
A. Issuance of common stock of UNDI.
B. Elimination and reclassification of SPO'S share capital to additional
paid-in-capital.
C. Elimination of the additional paid-in-capital and the accumulated deficit
of UNDI.
D. Deduction from additional paid-in-capital resulting from the reverse
merger acquisition.
E. Waiver of company liabilities by related parties resulting from the
reverse merger acquisition in the amount of $310,000.
F. Merger expenses in 2005 consist of:
$100,000 payment to related party for consulting services.
$55,000 additional professional fees.
$55,000 other expenses related to the reverse merger.
4
SPO MEDICAL, INC.
(Formerly known as UNITED DIAGNOSTIC, INC.)
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro forma Consolidated Condensed Statement of Operations
For the year ended December 31, 2004
In thousands of U.S. Dollars, except per share data
Pro forma
adjustments
increase
UNDI SPO (decrease) Notes Pro forma
---- ------- ----------- ----- ---------
Revenues
Sales of products $ -- $ 165 $ -- $ 165
Research and development services -- 3 -- 3
---- ------- ----------- ---------
Total revenues -- 168 -- 168
---- ------- ----------- ---------
Costs and expenses
Cost of revenues -- 96 -- 96
Research and development, net -- 448 -- 448
Selling and marketing -- 184 -- 184
General and administrative -- 237 -- 237
Merger expenses 2 1,477 250 A 1,729
---- ------- ----------- ---------
Total costs and expenses 2 2,442 250 2,694
---- ------- ----------- ---------
Operating loss 2 2,274 250 2,526
Financial expenses, net 6 262 -- 268
---- ------- ----------- ---------
Loss for the period $ 8 $ 2,536 $ 250 $ 2,794
==== ======= =========== =========
Basic and diluted loss per ordinary share NIL $ (0.83) $ (0.160)
==== ======= =========
5
SPO MEDICAL, INC.
(Formerly known as UNITED DIAGNOSTIC, INC.)
(A Development Stage Company)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Notes to Unaudited pro forma Statement of operation to the year ended December
31, 2004
The pro forma Statement of Operation assumes the transaction occurred as of
January 1, 2004. The pro forma adjustments reflecting this transaction are
described below:
The acquisition of SPO by UNDI effected a change in control and was accounted
for as a reverse acquisition whereby SPO is the accounting acquirer for
financial statements purposes.
A. Merger expenses consist of:
$100,000 payment to related party for consulting services.
$55,000 additional professional fees.
$95,000 other expenses related to the reverse merger.
6