UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________
FORM 8-K AMENDED
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported) July 23, 1998
BIOSENSOR CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-11408 41-1427114
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification no.)
6 Woodcross Drive, Columbia, SC 29212
(Address of principal executive offices) (Zip Code)
(803) 407-3044
(Registrant's telephone number, including area code)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
Filed by amendment November 24, 1998
(b) Pro forma financial information.
Filed by amendment November 24, 1998
(a.) Financial statements of businesses acquired
CAROLINA MEDICAL, INC.
AND SUBSIDIARIES
King, North Carolina
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
AND FOR THE YEAR THEN ENDED
Audited Consolidated Financial Statements
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
June 30, 1998
and For The Year Then Ended
Audited Consolidated Financial Statements
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Consolidated Statement of Changes in Stockholders' Equity 7
Notes to Consolidated Financial Statements 8
The Board of Directors and Stockholders
Carolina Medical, Inc. and Subsidiaries
King, North Carolina
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of Carolina
Medical, Inc. and Subsidiaries (the "Company") as of June 30, 1998, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. We did not audit the financial statements of
Advanced Medical Products, Inc., a subsidiary, which statements reflect total
assets of $1,100,302 as of June 30, 1998, and total revenues of $2,191,812 for
the year then ended. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Advanced Medical Products, Inc., is based solely on the
report of the other auditors.
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 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
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Carolina Medical, Inc. and
Subsidiaries as of June 30, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note Q, under a Plan of Reorganization and Merger, all of the
outstanding common stock of Carolina Medical, Inc. was acquired by Biosensor
Corporation on July 23, 1998, and the Board of Directors of Advanced Medical
Products, Inc., a subsidiary of Carolina Medical, Inc., approved a plan
authorizing this company to merge with a subsidiary of Biosensor Corporation.
August 14, 1998, except for the last sentence
of Note F, as to which the date is October 8, 1998.
CONSOLIDATED BALANCE SHEET
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
June 30, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 772,415
Accounts receivable, net of allowance for
bad debts of $25,000 1,364,546
Refundable income taxes 30,708
Inventories--Note C 1,366,232
Deferred income taxes--Note N 138,868
Other 102,299
Total Current Assets 3,775,068
PROPERTY AND EQUIPMENT--Note D 891,764
OTHER ASSETS
Goodwill, net of accumulated amortization
of $45,148--Note L 1,220,934
Other assets, net--Note E 216,166
1,437,100
_________
$6,103,932
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEET - CONTINUED
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
June 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt--Note F $ 265,923
Current maturities of related party obligations--Note G 161,136
Current maturities of capital lease obligations--Note H 14,791
Note payable--Note F 295,798
Trade accounts payable 1,017,962
Accrued payroll and related liabilities 224,601
Deferred service contract revenue 312,971
Other accrued expenses 330,974
Total Current Liabilities 2,624,156
LONG-TERM DEBT, less current maturities--Note F 1,044,232
RELATED PARTY OBLIGATIONS, less current maturities--Note G 1,638,507
CAPITAL LEASE OBLIGATIONS, less current maturities--Note H 7,757
DEFERRED TAX LIABILITY--Note N 3,855
COMMITMENTS AND CONTINGENCIES--Notes H, I, and Q
STOCKHOLDERS' EQUITY
Common stock, $.20 par value; 4,000,000 shares
authorized; 1,987,002 issued and outstanding 397,400
Additional paid-in capital 1,267,152
Accumulated deficit (879,127)
785,425
$6,103,932
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF OPERATIONS
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
For The Year Ended June 30, 1998
NET SALES AND SERVICES $8,481,926
COST OF SALES AND SERVICES 5,509,806
GROSS PROFIT 2,972,120
OPERATING EXPENSES:
Selling, general and administrative 2,339,923
Research and development 796,189
3,136,112
OPERATING LOSS (163,992)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 28,410
OTHER EXPENSES, net--Note P (280,709)
NET LOSS BEFORE INCOME TAXES (416,291)
PROVISION FOR INCOME TAXES--Note N (67,690)
NET LOSS $ (483,981)
LOSS PER COMMON SHARE $ (.34)
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
For The Year Ended June 30, 1998
OPERATING ACTIVITIES
Net loss $ (483,981)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Minority interest in consolidated subsidiary (28,410)
Depreciation 244,264
Amortization 93,106
Deferred income taxes (46,720)
(Increase) decrease in current assets:
Accounts receivable 390,341
Refundable income taxes (22,128)
Inventories 471,153
Prepaid and other current assets 17,398
Increase (decrease) in current liabilities:
Accounts payable 128,690
Accrued payroll and related liabilities (66,457)
Deferred service contract revenue 156,577
Other accrued expenses (174,506)
CASH PROVIDED BY OPERATING ACTIVITIES 679,327
INVESTING ACTIVITIES
Purchase of property and equipment (110,125)
Capitalization of product software (10,632)
Capitalization of costs related to mergers (47,722)
Increase in deposits and other assets 61,043
CASH USED BY INVESTING ACTIVITIES (107,436)
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
For The Year Ended June 30, 1998
FINANCING ACTIVITIES
Proceeds from issuance of long term debt 65,335
Payments of long term debt (465,537)
Issuance of common stock 250,000
Increase in additional paid in capital 159,687
CASH PROVIDED BY FINANCING ACTIVITIES 9,485
NET INCREASE IN CASH AND CASH EQUIVALENTS 581,376
CASH AT BEGINNING OF YEAR 191,039
CASH AT END OF YEAR $ 772,415
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 258,565
Cash paid for income taxes $ 154,440
SCHEDULE OF NON-CASH ACTIVITIES:
Debt issued in exchange for assets
of Braemar, Inc.--Note L $2,403,760
Capitalization of demo inventory $ 59,507
Capitalization of software costs $ 28,873
Issuance of common stock in settlement of accounts payable $ 55,988
Issuance of common stock in exchange for certain assets $ 277,144
Exchange of assets in settlement of accounts payable $ 24,120
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
For The Year Ended June 30, 1998
Common Additional
Stock Paid-in Accumulated
Shares Amount Capital Deficit
Beginning Equity - BIO-TEL
International, Inc. as of
June 30, 1997 1,552,000 $ 15,520 $ 528,827 $(258,513)
Interest in losses of
subsidiary limited by
investment balance (136,633)
Issuance of BIO-TEL
International, Inc. stock 80,000 800
BIO-TEL International, Inc.
merger into Carolina Medical,
Inc. --Note L (57,392) 298,602 (180,179)
Issuance of Carolina
Medical, Inc. stock 412,394 82,478 918,504
Current year net loss (483,981)
Ending Equity - Carolina
Medical, Inc. and
subsidiaries as of
June 30, 1998 1,987,002 $397,400 $1,267,152 $(879,127)
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA MEDICAL, INC. AND SUBSIDIARIES
NOTE A--NATURE OF BUSINESS
Carolina Medical, Inc. and Subsidiaries consist of Carolina Medical, Inc.
("CMI"), Advanced Medical Products, Inc. ("AMP") and Braemar, Inc. CMI was
incorporated in July 1959, and manufactures and services ultrasound imaging and
electronic diagnostic instruments for detecting circulatory disorders,
measuring blood flow and blood pressure. AMP manufactures (through
subcontractors), assembles and markets diagnostic equipment, primarily for use
in physicians' offices. Braemar, Inc. manufactures and services non-invasive
medical and other specialized monitoring devices. The Company's sales are
principally to customers in the United States with some international sales.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Carolina Medical, Inc. and its subsidiaries (collectively, the
"Company"). Significant intercompany accounts and transactions are eliminated
in consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid short-term
investments purchased with an original maturity of three months or less to be
equivalent to cash. During fiscal year 1998, the Company had bank deposits in
excess of the amount insured by the Federal Deposit Insurance Corporation.
Concentration of Credit Risk: Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of temporary
cash investments and trade accounts receivable. The Company places its
temporary cash investments with high quality financial institutions. No losses
have been experienced on such investments. The Company reviews a customer's
credit history before extending credit. An allowance for doubtful accounts is
established based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
Inventories: Inventories are valued at the lower of cost or market using the
average and first-in first-out cost methods.
Property and Equipment: Property and equipment are recorded at cost.
Depreciation is calculated by the straight-line or declining-balance method
over estimated useful lives of three to ten years for equipment and three to
five years for automobiles.
Revenue Recognition: Revenues from product sales are recognized at date of
shipment. Service contract revenues are recognized during the term of the
service contract which, in most cases, ranges from one to three years.
Service Contracts: Amounts billed to customers for service contracts are
recognized as income over the term of the agreements and the associated costs
are recognized as incurred. Current liabilities include service contract
revenue deferrals of approximately $313,000 as of June 30, 1998.
Warranty Reserve: The Company warrants its products against defects in
material and workmanship for ninety days for electromagnetic and ultrasound
probes and one year for electronic and ultrasound equipment. An accrual is
provided for estimated future claims. Such accruals are based on historical
experience and management's estimate of the level of future claims.
Research and Development: Research and development costs are charged to
operations as incurred. These costs are for proprietary research and
development activities that are expected to contribute to the future
profitability of the Company.
Software Development Costs: The costs incurred by the Company to develop
computer software for sale with products are expensed as research and
development costs until technological feasibility is established. Costs
incurred after the attainment of technological feasibility are capitalized
until the software is ready for sale. Thereafter, capitalized software costs
are amortized over their estimated useful lives. Software amortization expense
for the year ended June 30, 1998 was $76,832.
License Agreements: The Company amortizes its licensing agreements using the
straight-line method over the life of the license.
Management Estimates: Management uses estimates and assumptions in preparing
financial statements. Those estimates and assumptions may affect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities, and reported revenues and expenses. Significant estimates used in
preparing these financial statements include those assumed in computing the
inventory valuation allowance and warranty reserve. Actual results could
differ from those estimates.
Income Taxes: Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes relate primarily to differences between
financial and income tax reporting for the basis of inventory, accounts
receivable, property and equipment, and accrued liabilities. The deferred tax
accounts represent the future tax return consequences of those differences,
which will either be deductible or taxable when the assets and liabilities are
recovered or settled (Note N).
Advertising: The Company expenses the initial production costs of advertising,
except for direct-response advertising which is capitalized and amortized over
its expected period of future benefits. Direct-response advertising consists
primarily of brochures and distribution of brochures that include response
cards for the Company's products. The capitalized costs of the advertising are
amortized over a six-month period from the date that the production costs were
incurred.
At June 30, 1998, approximately $36,000 were reported as assets and advertising
expense was approximately $60,000.
Goodwill: Goodwill is recorded for the excess of the purchase price over the
fair value of acquired net assets, and is amortized using the straight-line
method over 15 years.
Loss per Common Share: The Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), Earnings Per Share, which supersedes APB
Opinion No. 15. SFAS No. 128 requires the presentation of earnings per share
by all entities that have common stock or potential common stock, such as
options, warrants, and convertible securities, outstanding that trade in a
public market. Generally, basic per share amounts are computed by dividing net
income or loss by the weighted-average number of common shares outstanding.
New Accounting Pronouncements: The Financial Accounting Standards Board has
issued SFAS No. 130, Reporting Comprehensive Income, which establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 is
effective for financial statements for periods beginning after December 15,
1997, and requires comparative information for earlier years to be restated.
The FASB has issued Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information. Statement No. 131 establishes standards
for the manner in which a publicly held enterprise reports certain information
about operating segments of their business. The information required to be
disclosed for an entity's operating segment not only consists of financial
information, but also certain related disclosures of the segment's products and
services, geographic areas, and major customers. Statement No. 131 will become
effective for the Company's year ending June 30, 1999; however, the impact on
disclosures is not anticipated to be significant.
NOTE C--INVENTORIES
Raw materials and supplies $1,207,964
Work in process 225,728
Finished goods 459,158
Evaluation units and replacements 16,500
Inventory reserve (543,118)
$1,366,232
The inventory reserve has been established for estimated inventory losses due
to obsolescence and waste.
NOTE D--PROPERTY AND EQUIPMENT
Machinery and equipment $2,480,053
Vehicles 45,083
Furniture and fixtures 177,373
Leasehold improvements 36,421
Projects in progress 8,130
2,747,060
Accumulated depreciation (1,855,296)
$ 891,764
Depreciation expense recorded for the year ended June 30, 1998 was $244,264.
NOTE E--OTHER ASSETS
Other assets consist of the following as of June 30, 1998:
Deferred charges, net of accumulated
amortization of $22,500 $ 60,000
Cash surrender value of life insurance,
net of policy loans of $22,736 20,698
Software development costs, net of accumulated
amortization of $319,381 52,751
License agreement, net of accumulated
amortization of $5,000 5,000
Pending merger costs--Note Q 52,748
Deposits 24,969
$216,166
NOTE F--LONG-TERM DEBT AND NOTE PAYABLE
Term loan with bank, payable in monthly installments
of $3,600, including interest at 8% per annum through
June 1, 2001; guaranteed by certain officers of CMI
and collateralized by substantially all of CMI's assets $113,768
Term loan with bank, payable in monthly installments
of $1,500, including interest at the bank's prime
rate plus 2% per annum, due on April 1, 1999, secured
by equipment 60,246
Term loan with bank, payable in monthly
installments of $2,042, including interest at
10% per annum through October 10, 2000,
collateralized by substantially all of CMI's assets 102,052
Non-interest bearing note payable to a company for
purchase of inventory, face amount of $144,468,
due February 1999, payable in monthly installments of
$6,020, interest imputed at 8% per annum; (net of
unamortized discount of $1,154 in 1998) 42,002
Term loan for product liability insurance
coverage, due March 1998, payable in monthly
installments, including interest at 9 1/2% per annum,
unsecured 17,068
Term loan with bank, payable in monthly installments
of $2,000, including interest at 11% per annum due
March 2000, secured by furniture, fixtures and equipment 40,279
Term loan for royalty agreements, payable in monthly
installments of principal only of $2,981, unsecured 9,740
Term loan, principal payable in quarterly installments
of $25,000 through September 1999, $40,000
through June 2002, with balance of $360,00
due September 1, 2002; interest payable quarterly
at 7 1/4 per annum, guaranteed by CMI and
collateralized by a pledge of shares of CMI 925,000
1,310,155
Less current maturities 265,923
$1,044,232
Certain of the bank loan agreements contain requirements to provide specified
financial information to the bank on a quarterly basis. These agreements
require the book values of the assets securing the obligations to be at least
1.5 times the outstanding loan balances.
As of June 30, 1998, one of the Company's subsidiaries, AMP, had $295,798
outstanding under a line-of-credit agreement with a bank. The line-of-credit
is limited to the lesser of $750,000, or the sum of 80% of eligible
receivables and 100% of eligible inventories up to $130,000. The line bears
interest at 2% plus the greater of the bank's prime rate or 7%. The line is
due on December 31, 1998, and is secured by substantially all assets of AMP.
However, AMP is in violation of certain covenants, including the minimum net
working capital, location of inventory, delivery of audited financial
statements and minimum tangible net worth requirements. The lender has
waived the covenant violations through December 31, 1998, except for location
of inventory.
Maturities of long-term debt at June 30, 1998 were as follows:
1999 $ 265,923
2000 229,944
2001 231,037
2002 189,129
2003 380,494
Thereafter 13,628
$1,310,155
NOTE G--RELATED PARTY OBLIGATIONS AND TRANSACTIONS
Note payable to CMI stockholder, annual interest of 9%,
due September 30, 1998, unsecured $ 28,129
Note payable to affiliated partnership, annual
interest of 5 1/4%, due July 21, 1999, unsecured (Note H) 21,514
Note payable to stockholder, annual interest of 10%,
due January 1, 1999, secured by accounts receivable
and inventory 150,000
Note payable to stockholder, annual interest of prime
plus 1 1/2%, due October 20, 1999, unsecured (Note L) 1,600,000
1,799,643
Less current maturities 161,136
$1,638,507
Maturities of the related party notes payable as of June 30, 1998 were as
follows:
1999 $ 161,136
2000 1,638,507
$1,799,643
AMP had sales of approximately $88,000 in 1998 to Nishimoto Sangyo Company,
Ltd., a stockholder.
As more fully explained in Note H, CMI leases its land and building from an
affiliated partnership. Total rent expense under this lease agreement was
$79,200 for the year ended June 30, 1998.
NOTE H--LEASE OBLIGATIONS
The Company's subsidiary, Braemar, Inc., acquired a copier and a telephone
system under long-term lease agreements. For financial reporting purposes,
minimum lease payments relating to the equipment have been capitalized. The
copier lease expires in January 2000, and the telephone system lease expires
in September 1999. Capitalized costs and related accumulated depreciation of
assets under capital leases as of June 30, 1998, were approximately $32,500
and $16,500, respectively.
Future minimum lease payments under capital lease agreements as of June 30,
1998 were as follows:
1999 $16,144
2000 7,911
Total minimum lease payments 24,055
Less amounts representing interest 1,507
Present value of minimum lease payments 22,548
Less current maturities 14,791
$ 7,757
In April 1987, CMI sold its land and building located in King, North Carolina
to King Investment Partners ("KIP"), a partnership composed principally of
CMI's controlling stockholders and their spouses, and entered into an agreement
to lease the land and building from KIP. Under this agreement, KIP has the
option of increasing the lease amount at the end of each year. The lease
imposes certain subleasing restrictions on CMI, as well as minimum insurance
requirements. During July 1994, CMI issued an unsecured note payable to KIP
for unpaid rent payable over five years at an interest rate of 5 1/4% per annum
(Note G). Effective May 1, 1996, the lease term was amended to allow for a 10%
increase in rental payments to $79,200 annually. The current three-year lease
expires on May 1, 1999.
AMP leases its current facility under a five-year lease agreement which will
expire October 31, 2001. AMP also leases equipment under agreements with
varying monthly payment amounts. The terms of the lease range from 36 to 60
months.
Braemar, Inc. maintains a non-cancelable operating lease for office and
manufacturing space, which includes costs allocated by the lessor for property
taxes, insurance and maintenance. This lease expires August 31, 1999, and
contains an option for Braemar to renew the lease for one additional three-year
term. In addition, Braemar rents office equipment under operating leases with
various expiration dates.
Future minimum lease payments under operating leases as of June 30, 1998 were
as follows:
1999 $331,750
2000 191,683
2001 103,929
2002 40,761
2003 5,670
$673,793
Total rent expense under operating leases was $314,564 for the year ended June
30, 1998.
NOTE I--COMMITMENTS AND CONTINGENCIES
In January 1993, certain intellectual property was acquired through a non-
exclusive licensing agreement with Indiana Business Modernization and
Technology Corporation ("BMT"). In connection with this agreement, CMI paid an
initial fee of $10,000, and is required to pay a royalty equal to 1% of net
sales generated by the intellectual property, until total payments equal
$300,000. Thereafter, CMI is required to pay 1/2% of net sales, until total
payments equal $603,450. In no event shall the royalty payments be less than
$25,000 per year for the first five years of the agreement. The agreement also
stipulates that BMT shall not grant any nonexclusive license of the
intellectual property to any other party for eighteen months after the date of
the agreement. CMI's royalty fees for the year ended June 30, 1998 were
$26,668.
In fiscal year 1997, CMI determined that the land adjacent to its building was
contaminated by toxic chemicals. This land is owned by an affiliated
partnership which also owns the land and building occupied by CMI (Note H).
The initial cleanup cost of approximately $10,000 was paid by the partnership
in 1997. During fiscal 1998, CMI paid approximately $8,000 for environmental
testing, which is still in progress. The cost of the property cleanup is not
expected to exceed $75,000. While CMI may be contingently liable for these
remediation costs, it is possible that the property owner or its insurance
company will be ultimately liable for these costs.
AMP has not obtained product liability insurance due to prohibitive costs. The
nature and extent of liability for product defects is uncertain. There are no
known product liability claims, and management presently believes that there is
no material risk of loss to AMP from product liability claims.
NOTE I--COMMITMENTS AND CONTINGENCIES - Continued
During 1993, the Security and Exchange Commission ("SEC") commenced a private
investigation of AMP's accounting and recordkeeping practices to determine if
violations of federal securities laws had occurred. On September 5, 1996, the
SEC accepted an offer of settlement whereby AMP, AMP's former President, and
AMP's former Vice President, without admitting or denying any wrongdoing,
signed a consent decree to cease and desist from committing or causing any
violations and any future violations of certain sections of the Securities
and Exchange Act.
Braemar, Inc. has entered into product licensing agreements with various
companies which allow Braemar to manufacture and sell certain medical devices
protected by patent or copyright. These agreements have terms of five or more
years. Royalties due under license agreements are required as a percentage of
net sales of those products ranging from 5% to 20%, or as a fixed dollar amount
per unit sold.
NOTE J--SIGNIFICANT CUSTOMER CONCENTRATIONS
The percentages of the Company's sales to certain major customers during the
year ended June 30, 1998 were:
Customer A 10%
Customer B 7%
Customer C 7%
Accounts receivable at June 30, 1998 from these companies were:
Customer A $ 88,266
Customer B $ 128,452
Customer C $ 85,674
The Company had sales to foreign entities during fiscal year 1998 of
approximately $957,000.
NOTE K--INVESTMENT IN AMP
During fiscal year 1998, CMI increased its ownership interest in AMP from 44.4%
to 55.3% by acquiring shares of AMP's common stock. These acquisitions
included shares acquired directly from AMP and from two stockholders. The
acquisitions were financed in part with proceeds from a $196,240 loan from a
stockholder (Note G).
Also during 1998, CMI acquired all of the outstanding shares of AMP preferred
stock and accrued preferred stock dividends from two stockholders.
NOTE L--BUSINESS COMBINATIONS
Effective October 1, 1997, a wholly-owned subsidiary of Bio-Tel International,
Inc. ("BTI"), an affiliate of CMI, acquired certain assets and assumed certain
liabilities of Braemar, Inc., a Minnesota company. This subsidiary was
subsequently renamed Braemar, Inc. The purchase price was $2,447,355,
including acquisition fees of $43,395, and the fair value of the acquired net
assets was $1,520,328, with the difference allocated to goodwill. This
acquisition was financed by a $1,000,000 note payable to the seller and from
loan proceeds of $1,403,760 from a note with one of the Company's stockholders
(Note G).
The consolidated financial statements as of June 30, 1998 include the
operations of Braemar, Inc. for the period from October 1, 1997 through June
30, 1998.
Effective December 8, 1997, BTI merged into CMI, and CMI was the surviving
entity.
NOTE M--STOCK OPTIONS
The following information discloses the details of a stock option plan in
effect for AMP.
AMP has reserved 750,000 shares of authorized common stock for issuance
pursuant to the terms of an Incentive Stock Option Plan.
Stock options are granted at prices not less than 100% of the fair market value
of common shares at the date of the grant and expire five years from the date
of grant. Stock option activity during 1998 is as follows:
Exercise Price
Number Weighted Average
Shares per Share Total
Outstanding as of
June 30, 1997 335,000 $ .3318 $111,150
Granted 400,000 .1750 70,000
Canceled (132,500) .2583 (34,225)
Outstanding as of
June 30, 1998 602,500 $ .2439 $146,925
AMP has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for AMP's stock option plan been determined based
on the fair value at the grant date for awards consistent with the provisions
of SFAS No. 123, AMP's net loss and loss per share would have been changed to
the pro forma amounts indicated below for June 30,
1998
Net loss - as reported $ (795,612)
Net loss - pro forma $ (807,371)
Basic and diluted loss per share - as reported $ (.16)
Basic and diluted loss per share - pro forma $ (.16)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants:
1998
Dividend yield 0%
Expected volatility 125%
Risk free interest rate 6.3%
Expected life 5 years
NOTE N--INCOME TAXES
The Company accounts for its income taxes under Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes. The Company's income tax year end is September 30, even though its
financial reporting year end is June 30. The Company intends to change its
income tax year to June 30 upon approval from the Internal Revenue Service.
The income tax provision (benefit) consists of the following:
Federal State Total
Current $100,180 $14,231 $114,411
Deferred (41,605) (5,116) (46,721)
$ 58,575 $ 9,115 $ 67,690
The net deferred tax assets and liabilities in the accompanying balance sheet
include the following components:
Deferred tax assets $143,468
Deferred tax liabilities (8,455)
Net deferred tax assets 135,013
Less current deferred tax assets 138,868
Long-term deferred tax liability $ (3,855)
The Company has net operating loss carryovers totaling approximately $69,000
for state tax purposes that may be offset against future taxable income.
Additionally, the Company has research and development tax credits of
approximately $40,000 which are available to reduce income taxes payable in
future periods.
The loss and credit carryovers expire as follows:
Research and
Development
Year Ending State Loss Tax Credit
September 30 Carryovers Carryovers
1998 $69,000
2002 $40,000
The following table summarizes the significant differences between the U.S.
Federal statutory tax rate of 34% and the Company's effective tax rate for
financial statement purposes as of June 30, 1998:
Income tax provision at U.S. statutory rates $(151,198)
Benefit of states' operating loss (2,219)
Expenses with no tax benefit 143,206
Temporary differences 86,227
Prior year over provision (16,758)
State income taxes 6,911
Other 1,521
Income tax provision $ 67,690
NOTE O--EMPLOYEE BENEFIT PLANS
Profit-Sharing Plan - CMI has a profit-sharing plan covering its eligible
employees which includes essentially all employees. This plan is to be funded
as accrued and is non-contributory by the participants. Effective January 1,
1998, the Profit-Sharing Plan assets were transferred into CMI's Employee
401(k) Plan.
Employee 401(k) Plan - CMI has an employee 401(k) plan which is contributory by
the participants. CMI, at its option, may contribute to the plan on a matching
basis. CMI contributed $5,000 to this plan during the year ended June 30,
1998. Following the acquisition of Braemar, Inc. in October 1997, eligible
employees of Braemar are allowed to participate in CMI's 401(k) Plan.
AMP has a defined contribution 401(k) Plan covering substantially all
employees. Participants may contribute up to 15% of their annual compensation
to the plan. AMP has the discretion to match 25% of a participant's
contribution up to 4% of salary. There were no Company contributions for the
year ended June 30, 1998.
Employee Flexible Benefits Plan - CMI has an employee flexible benefits plan,
or salary reduction plan, which provides for pre-tax payment by employees of
medical insurance premiums and part of their unreimbursed medical and dependent
care expenses.
NOTE P--OTHER INCOME AND EXPENSES
Other income and (expenses) as of June 30, 1998 consist of:
Interest income $ 3,852
Interest expense (301,534)
Miscellaneous income 21,846
Miscellaneous expense (4,873)
$(280,709)
NOTE Q--PLAN OF REORGANIZATION AND MERGER
On July 23, 1998, all of the outstanding shares of CMI were acquired by
Biosensor Corporation ("Biosensor") pursuant to a Plan of Reorganization and
Agreement by and between CMI and Biosensor, dated May 29, 1998. Because the
former shareholders of CMI effectively control Biosensor after the transaction,
it will be recorded as a "reverse acquisition" whereby CMI will be deemed to
have acquired Biosensor.
Also in July 1998, AMP's Board of Directors approved a Plan of Reorganization
and Merger, that had been previously approved by the Board of Biosensor
Corporation, authorizing the merger of a wholly-owned subsidiary of Biosensor
Corporation, which has not yet been organized, with and into AMP, subject to
certain terms and conditions. AMP and Biosensor are currently preparing a
definitive agreement to combine their cardiac monitor businesses, and to do
business as Advanced Biosensor, Inc.
BIO-TEL INTERNATIONAL, INC.
AND SUBSIDIARY
King, North Carolina
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
AND FOR THE YEAR THEN ENDED
Audited Consolidated Financial Statements
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
June 30, 1997
and For The Year Then Ended
Audited Consolidated Financial Statements
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Consolidated Statement of Changes in Stockholders' Equity 7
Notes to Consolidated Financial Statements 8
The Board of Directors and Stockholders
BIO-TEL International, Inc. and Subsidiary
King, North Carolina
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of BIO-TEL
International, Inc. and Subsidiary as of June 30, 1997, and the related
consolidated statements of income, changes in stockholders' 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 BIO-TEL
International, Inc. and Subsidiary as of June 30, 1997, and the results
of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
August 27, 1998
CONSOLIDATED BALANCE SHEET
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
June 30, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 140,101
Accounts receivable 286,812
Refundable income taxes 8,580
Inventories--Note C 805,760
Prepaid expenses 32,279
Deferred income taxes--Note J 56,152
Total Current Assets 1,329,684
PROPERTY AND EQUIPMENT--Note D 155,208
NOTE RECEIVABLE - RELATED PARTY--Note M 159,482
DEFERRED TAXES - Noncurrent--Note J 32,141
OTHER ASSETS
Cash value of life insurance,
net of policy loans--Note E 23,547
Other--Notes F and M 40,899
64,446
$1,740,961
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEET - Continued
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt--Note H $ 359,171
Note payable--Note G 18,333
Trade accounts payable 126,733
Accrued salaries and other expenses 84,001
Warranty reserve 49,924
Deferred service contract revenue 154,763
Advances from customers 16,143
Income taxes payable--Note J 9,200
Other accrued expenses 77,832
Total Current Liabilities 896,100
LONG-TERM DEBT, less current maturities--Note H 321,715
DEFERRED CONTRACT REVENUE 1,631
COMMITMENTS AND CONTINGENCIES--Notes H and M
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY--Note N 235,681
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 5,000,000 shares
authorized; 1,552,000 issued and outstanding 15,520
Additional paid-in capital 528,827
Accumulated deficit (258,513)
285,834
$1,740,961
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF OPERATIONS
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
For The Year Ended June 30, 1997
GROSS SALES:
Product sales $ 913,479
Service contracts and other 972,568
1,886,047
COST OF SALES AND SERVICES 950,274
GROSS PROFIT 935,773
OPERATING EXPENSES:
Research and development 169,361
Marketing and sales 242,926
General and administrative 363,914
776,201
OPERATING INCOME 159,572
LOSS FROM EQUITY INVESTMENT--Note N (165,692)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY (35,734)
OTHER EXPENSES, net--Note L (42,583)
NET LOSS BEFORE INCOME TAXES (84,437)
PROVISION FOR INCOME TAXES--Note J (32,528)
NET LOSS $ (116,965)
LOSS PER COMMON SHARE $ (0.08)
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
For The Year Ended June 30, 1997
OPERATING ACTIVITIES
Net loss $ (116,965)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 44,096
Increase in deferred tax assets 3,907
Minority interest 35,734
Loss from operations of equity investment 165,692
Decrease in refundable income taxes 19,420
Decrease in accounts receivable 14,295
Increase in inventories (66,506)
Increase in other prepaids (3,193)
Decrease in accounts payable and accrued expenses (30,235)
Decrease in deferred service contract revenue (12,355)
CASH PROVIDED BY OPERATING ACTIVITIES 53,890
INVESTING ACTIVITIES
Decrease in cash value of life insurance 2,225
Increase in note receivable (59,978)
Purchase of property and equipment (23,191)
Purchase of software (7,753)
CASH USED BY INVESTING ACTIVITIES (88,697)
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
For The Year Ended June 30, 1997
FINANCING ACTIVITIES
Proceeds from issuance of debt 70,530
Repayments of debt (238,355)
CASH USED BY FINANCING ACTIVITIES (167,825)
NET DECREASE IN CASH AND CASH EQUIVALENTS (202,632)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 342,733
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 140,101
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 48,459
SCHEDULE OF NON-CASH OPERATING AND FINANCING TRANSACTIONS
Acquisition of inventory in exchange for a note payable $ 183,118
Issuance of note payable in exchange for inventory $ 144,468
See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
For The Year Ended June 30, 1997
Common Additional
Stock Paid-In Accumulated
Shares Amount Capital Deficit
Balance, June 30, 1996 1,552,000 $15,520 $528,827 $(141,548)
Net Loss (116,965)
Balance, June 30, 1997 1,552,000 $15,520 $528,827 $(258,513)
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BIO-TEL INTERNATIONAL, INC. AND SUBSIDIARY
NOTE A--NATURE OF BUSINESS
BIO-TEL International, Inc., a Delaware corporation, was incorporated and
began operations in January 1996. Its subsidiary, Carolina Medical, Inc.
(CMI), is established in manufacturing and servicing of ultrasound
imaging and electronic diagnostic instruments for detecting circulatory
disorders and measuring blood flow and blood pressure parameters. These
companies' sales are principally to customers in the United States with
some international sales.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the accounts of BIO-TEL International, Inc. and its subsidiary
(collectively, the "Company"). Significant intercompany accounts and
transactions are eliminated in consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid
short-term investments purchased with an original maturity of three
months or less to be equivalent to cash. During fiscal year 1997, the
Company had bank deposits in excess of the amount insured by the Federal
Deposit Insurance Corporation.
Inventories: Inventories are valued at the lower of cost or market using
the standard cost method.
Property and Equipment: Property and equipment are recorded at cost.
Depreciation is calculated by the straight-line or declining-balance
method over estimated useful lives of three to ten years for equipment
and three to five years for automobiles.
Revenue Recognition: Revenues from product sales are recognized at date
of shipment. Service contract revenues are recognized during the term of
the service contract which, in most cases, ranges from one to three
years.
Warranty Reserve: The Company warrants its products against defects in
material and workmanship for ninety days for electromagnetic and
ultrasound probes and one year for electronic and ultrasound equipment.
An accrual is provided for estimated future claims. Such accruals are
based on historical experience and management's estimate of the level of
future claims.
Research and Development: Research and development costs are charged to
operations as incurred. These costs are for proprietary research and
development activities that are expected to contribute to the future
profitability of the Company.
Advertising: The Company follows the policy of charging the costs of
advertising to operating expenses as incurred.
Loss per Common Share: The Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), Earnings Per Share, which
supersedes APB Opinion No. 15. SFAS No. 128 requires the presentation of
earnings per share by all entities that have common stock or potential
common stock, such as options, warrants, and convertible securities,
outstanding that trade in a public market. Generally, basic per share
amounts are computed by dividing net income or loss by the weighted-
average number of common shares outstanding.
Software Development Costs: The costs incurred by the Company to develop
computer software for sale with products are expensed as research and
development costs until technological feasibility is established. Costs
incurred after the attainment of technological feasibility are
capitalized until the software is ready for sale. Thereafter,
capitalized software costs are amortized over their estimated useful
lives. No amounts relating to these costs were expensed during the year
ended June 30, 1997.
Management Estimates: Management uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions may
affect the reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities, and reported revenues and expenses.
Significant estimates used in preparing these financial statements
include those assumed in computing the inventory valuation allowance and
warranty reserve. Actual results could differ from those estimates.
Income Taxes: Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes relate primarily to
differences between financial and income tax reporting for the basis of
inventory, property and equipment, accounting for equity investments, and
accrued compensation. The deferred tax accounts represent the future tax
return consequences of those differences, which will either be deductible
or taxable when the assets and liabilities are recovered or settled (Note
I).
Equity Investments: An investment in a corporation over which the
Company can exert significant influence is accounted for under the equity
method of accounting, whereby the investment is recorded at cost and
adjusted for the Company's proportionate share of its undistributed
earnings or losses (Note N).
New Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997, and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on
future financial disclosures. Results of operations and financial
position, however, will be unaffected by implementations of this standard.
NOTE C--INVENTORIES
Raw materials and supplies $414,941
Work in process 227,907
Finished goods at plant 140,768
Finished goods on short-term loan,
held for sale and demonstration 72,144
Inventory reserve (50,000)
$805,760
The inventory reserve has been established for estimated inventory losses
due to obsolescence and waste.
NOTE D--PROPERTY AND EQUIPMENT
Machinery and equipment $931,835
Vehicles 23,330
Leasehold improvements 9,127
964,292
Accumulated depreciation (809,084)
$155,208
Depreciation expense recorded for the year ended June 30, 1997 was
$33,162.
NOTE E--CASH VALUE OF LIFE INSURANCE
Cash surrender value $44,628
Policy loans (21,081)
Net cash value of life insurance $23,547
NOTE F--OTHER ASSETS
Other assets consist of the following as of June 30, 1997:
Accumulated Unamortized
Cost Amortization Amount
Asset acquisition costs $44,923 $(39,897) $ 5,026
Software development costs 28,873 28,873
License agreement--Note M 10,000 (3,000) 7,000
$83,796 $(42,897) $40,899
NOTE G--PRODUCT LIABILITY
The Company owed $18,333 as of June 30, 1997, under note agreements for
product liability insurance coverage. The current note is due in nine
monthly installments, including interest at 9 1/2% per annum.
NOTE H--LONG-TERM DEBT
Term loan with bank, payable in monthly installments
of $3,600, including interest at 8% per annum through
June 1, 2001; guaranteed by certain officers of the
Company and collateralized by substantially all of
the Company's assets $146,412
Term loan with bank, payable in monthly installments
of $1,500 including interest at the bank's prime rate
plus 2% per annum, due on April 1, 1999, secured by
equipment 71,218
Term loan with bank, payable in monthly
installments of $2,042, including interest at
10% per annum through October 10, 2000,
collateralized by substantially all of the
Company's assets 115,647
Note due to stockholder, annual interest of 10% due
monthly, principal due January 1998, secured by
certain assets of an affiliate 150,000
Note due affiliated partnership, annual interest at
5?%, due July 1999, unsecured 32,081
Note due to stockholder, annual interest at 9%,
due September 30, 1997, unsecured 25,800
Non-interest bearing notes to a company for
purchase of equipment, due December 31, 1997,
secured by equipment 31,746
Non-interest bearing note to a company for
purchase of inventory, due February 1999,
payable in monthly installments of $6,020,
interest imputed at 8% per annum; ( net of
unamortized discount of $7,408) 107,982
680,886
Less current maturities 359,171
$321,715
Certain of the bank loan agreements contain requirements to provide
certain financial information to the bank on a quarterly basis. These
agreements require the book values of the assets securing the obligations
to be at least 1.5 times the outstanding loan balances.
Maturities of long-term debt are as follows:
1998 $359,171
1999 111,801
2000 81,048
2001 74,533
2002 25,504
Thereafter 28,829
$680,886
NOTE I--COMMITMENTS AND CONTINGENCIES
In January 1993, certain intellectual property was acquired through a
non-exclusive licensing agreement with Indiana Business Modernization and
Technology Corporation ("BMT"). In connection with this agreement, the
Company paid an initial $10,000 fee and is required to pay a royalty
equal to 1% of net sales incorporating the intellectual property, until
total payments equal $300,000. Thereafter, the Company is required to
pay 1/2% percent of net sales, until total payments equal $603,450. In no
event shall the royalty payments be less than $25,000 per year for the
first five years of the agreement. The agreement also stipulates that
BMT shall not grant any non-exclusive license of the intellectual
property to any other party for eighteen months after the date of the
agreement. The Company's royalty fees for the year ended June 30, 1997
were $25,000.
In fiscal year 1997, the Company determined that the land adjacent to its
building was contaminated by toxic chemicals. This land is owned by an
affiliated partnership which also owns the land and building occupied by
the Company (Note L). The initial cleanup cost of approximately $10,000
was paid by the partnership in 1997. The cost of the property cleanup is
not expected to exceed $75,000. While the Company may be contingently
liable for these remediation costs, it is possible that the property
owner or its insurance company will be ultimately liable for these costs.
NOTE J--INCOME TAXES
The Company accounts for its income taxes under Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes, which requires
an asset and liability approach to financial accounting and reporting for
income taxes. The Company's income tax year end is September 30, even
though its financial reporting year end is June 30. The Company intends
to change its income tax year end to June 30 upon approval from the
Internal Revenue Service.
The income tax provision consists of the following:
Federal State Total
Current $28,621 $ $28,621
Deferred 3,087 820 3,907
$31,708 $ 820 $32,528
The following table summarizes the significant differences between the
U.S. Federal statutory tax rate of 34% and the Company's effective tax
rate for financial statement purposes as of June 30, 1997:
Income tax provision at U.S. statutory rates $(28,709)
Benefit of net operating loss not recognized 54,617
Minority interest loss 12,149
Expenses with no tax benefit 2,206
Other (7,735)
Income tax provision $ 32,528
The net deferred tax assets in the accompanying balance sheet include the
following components:
Deferred tax assets $108,572
Deferred tax liabilities (20,279)
Net deferred tax assets 88,293
Less current portion 56,152
Long-term portion $ 32,141
The Company has net operating loss carryovers totaling approximately
$34,500 for state tax purposes that may be offset against future taxable
income. Additionally, the Company has research and development tax
credits of approximately $40,000 which are available to reduce income
taxes payable in future periods.
The loss and credit carryovers expire as follows:
Research and
Development
Year Ending State Loss Tax Credit
September 30 Carryovers Carryovers
1998 $34,500 $
2002 40,000
$34,500 $ 40,000
NOTE K - EMPLOYEE BENEFIT PLANS
Profit-Sharing Plan - The Company has a profit-sharing plan covering its
eligible employees, which includes essentially all employees. This plan
is to be funded as accrued and is non-contributory by the participants.
There were no contributions made by the Company to this plan for the year
ended June 30, 1997.
Employee 401(k) Plan - The Company has an employee 401(k) plan which is
contributory by the participants. The Company, at its option, may
contribute to the plan on a matching basis. There were no contributions
by the Company for the year ended June 30, 1997.
Employee Flexible Benefits Plan - The Company has an employee flexible
benefits plan, or salary reduction plan, which provides for pre-tax
payment by employees of medical insurance premiums and part of their
unreimbursed medical and dependent care expenses.
NOTE L--OTHER INCOME AND EXPENSES
Other income and (expenses) consist of:
Interest income $ 17,198
Interest expense (59,412)
Miscellaneous expense (369)
$(42,583)
NOTE M--RELATED PARTY TRANSACTIONS
In April 1987, the Company sold its land and building located in King,
North Carolina to King Investment Partners ("KIP"), a partnership
composed principally of Carolina Medical, Inc.'s controlling stockholders
and their spouses, and entered into an agreement to lease the land and
building from KIP. Under this agreement, KIP has the option of
increasing the lease amount at the end of each year. The lease imposes
certain subleasing restrictions on the Company, as well as minimum
insurance requirements. During July 1994, the Company issued an
unsecured note payable to KIP for unpaid rent payable due over five years
at an interest rate of 5 1/4 percent per annum. Effective May 1, 1996, the
lease term was amended by the Company and KIP to allow for a 10% increase
in rental payments to $79,200 annually. The current three-year lease
expires on May 1, 1999.
Total rent expense to KIP was $79,200 for the year ended June 30, 1997.
Future minimum lease payments under the lease with KIP as of June 30,
1997 are as follows:
1998 $ 79,200
1999 66,000
$145,200
The Company owns approximately 29% of the common stock of Advanced
Medical Products, Inc. ("AMPI"). AMPI owes the Company $150,000 under a
note agreement which bears interest at 12% per annum. This note is due
December 31, 1998 and includes unpaid interest of $9,482 as of June 30, 1997.
In January 1996, certain intellectual property was acquired through a
non-exclusive licensing agreement with AMPI. In connection with this
agreement, the Company paid an initial fee of $10,000 and is required to
pay royalties, based on attained levels of net sales incorporating the
licensed property, ranging from 1% to 3% of those sales up to $990,000.
The Company's obligation under this agreement will terminate when
cumulative royalties and cash payments to AMPI total $1,000,000. The
agreement also stipulates that AMPI shall not grant any nonexclusive
license of the intellectual property to any other party for a period of
twelve months from the date of the agreement. There were no royalties
paid under this agreement for the year ended June 30, 1997.
The Company capitalized the initial fee of $10,000 relating to the
license agreement as an intangible asset. This asset is being amortized
over a period of five years using the straight-line method.
NOTE N--EQUITY INVESTMENT
The Company owns approximately 29% of the common stock of AMPI, which is
a publicly held company, and accounts for its investment under the equity
method.
AMPI's assets, liabilities, and results of operations as of and for the
year ended June 30, 1997 were as follows:
Total Assets $1,556,444
Total Liabilities $1,646,682
Net Loss $ (680,912)
NOTE O--SUBSEQUENT EVENTS
In July 1997, a company was formed as a wholly-owned subsidiary of the
Company. Effective on October 1, 1997, this subsidiary acquired certain
assets and assumed certain liabilities of Braemar, Inc. of Burnsville,
Minnesota. Braemar manufactures non-invasive medical recording and
monitoring equipment. The purchase price was $2,447,355 including
acquisition fees of $43,395, and the fair value of the acquired net
assets was $1,520,328, with the difference allocated to goodwill. This
acquisition was financed by a $1,000,000 note payable to the seller and
from loan proceeds of $1,403,760 from a note with one of the Company's
stockholders.
Effective December 8, 1997, the Company was merged into Carolina Medical,
Inc., with Carolina Medical, Inc. as the surviving entity.
(b.) Pro forma financial information
BIOSENSOR CORPORATION
Pro forma Combined Balance Sheets
June 30, 1998
Carolina Proforma Proforma
Medical Biosensor Combining Combined
Consolidated Corp. Adjustments Biosensor Corp
ASSETS
CURRENT ASSETS
Cash and
cash equivalents $772,415 $50,082 $822,497
Accounts receivable,
net of allowance for
bad debts 1,364,546 204,068 1,568,614
Refundable income
taxes 30,708 0 30,708
Inventories 1,366,232 217,222 1,583,454
Deferred income
taxes 138,868 0 138,868
Other 102,299 42,508 144,807
Total Current Assets 3,775,068 513,880 0 4,288,948
PROPERTY AND EQUIPMENT 891,764 33,411 925,175
OTHER ASSETS
Goodwill, net of accum.
amortization 1,220,934 0 1,220,934
Other assets, net 216,166 0 216,166
1,437,100 0 0 1,437,100
$6,103,932 $547,291 $0 $6,651,223
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of
long-term debt $265,923 $27,000 $292,923
Current maturities of
related party
obligations 161,136 0 161,136
Current maturities of
capital lease
obligations 14,791 0 14,791
Notes payable 295,798 0 295,798
Trade accounts
payable 1,017,962 71,440 1,089,402
Accrued payroll
and related
liabilities 224,601 32,510 257,111
Deferred service
contract revenue 312,971 41,051 354,022
Other accrued
expenses 330,974 140,405 471,379
Total Current
Liabilities 2,624,156 312,406 0 2,936,562
LONG-TERM DEBT, less
current maturities 1,044,232 125,000 1,169,232
RELATED PARTY
OBLIGATIONS, less
current maturities 1,638,507 0 1,638,507
CAPITAL LEASE
OBLIGATIONS, less
current maturities 7,757 0 7,757
DEFERRED TAX LIABILITY 3,855 0 3,855
STOCKHOLDERS' EQUITY
Common stock 397,400 142,153 (397,400) (A) 142,153
Preferred stock 0 0 715,321 (B) 715,321
Additional paid-in
capital 1,267,152 2,941,447 (3,291,636) (C) 916,963
Accumulated
deficit (879,127) (2,973,715) 2,973,715 (D) (879,127)
785,425 109,885 0 895,310
$6,103,932 $547,291 $0 $6,651,223
Notes:
(A) Elimination of par value of Carolina Medical, Inc. common stock
(B) Assignment of value to preferred stock equal to par value of Biosensor
common stock upon conversion of preferred to common.
(C) Adjustment to paid in capital for adjustments to common stock,
preferred stock & retained earnings.
(D) Elimination of Biosensor's retained deficit as a result of the reverse
merger.
BIOSENSOR CORPORATION
Pro forma Combined Statements of Operations
Year Ended June 30, 1998
Carolina Braemar Inc. Proforma Proforma
Medical,Inc. Additional Biosensor Combining Combined
Consolidated Quarter- (E) Corp. (F)Adjustments Biosensor
Corp.
NET SALES
AND SERVICES $8,481,926 $1,345,892 1,929,036 $11,756,854
COST OF SALES
AND SERVICES 5,509,806 869,054 991,169 7,370,029
GROSS PROFIT 2,972,120 476,838 937,867 0 4,386,825
OPERATING EXPENSES:
Selling, general
and admin. 2,301,223 190,939 957,996 14,699(G) 3,464,857
Research and
development 796,189 199,303 242,644 1,238,136
3,097,412 390,242 1,200,640 14,699 4,702,993
OPERATING INCOME
(LOSS) (125,292) 86,596 (262,773) (14,699) (316,168)
MINORITY INTEREST
IN CONSOLIDATED
SUBSIDIARY 28,410 0 0 (28,410)(H) $0
OTHER INCOME
(EXPENSE), NET (319,409) (529) 154,336 (58,125)(I) (223,727)
NET LOSS BEFORE
INCOME TAXES (416,291) 86,067 (108,437) (101,234) (539,895)
PROVISION FOR
INCOME TAXES (67,690) (33,997) 101,687(J) 0
NET LOSS ($483,981) $52,070 ($108,437) $453 ($539,895)
Basic Earnings (Loss) per
Common Share (based on 2,843,055
shares issued and outstanding) $0.19
Notes:
(E) Quarter ended Sept. 30, 1997 - prior to the acquisition of Braemar assets.
(F) Statement of Operations for Biosensor is for twelve months ended May 31,
1998.
(G) One additional quarter of amortization of Good Will for Braemar, Inc.
(H) Elimination of minority interest in net loss based on majority interest
in Advanced Medical for the full twelve months.
(I) Interest for additional quarter on debt incurred with the purchase of
Braemar assets is purchased at the beginning of the fiscal year.
(J) Elimination of provision for income tax based on consolidated tax return.
