UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB AMENDED
_ ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] For the fiscal year ended MAY 31, 1998
* TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from
___ to ____
Commission file number 0-11408
BIOSENSOR CORPORATION
________________________________________________________________________
Minnesota 41-1427114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Woodcross Drive
Columbia, SC 29212
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (803) 407-3044
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
(Title of Class)
Common Stock $.05 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. X
The issuer's revenues for its most recent fiscal year were $1,929,000
The aggregate market value of the voting stock held by non-affiliates as
of August 7, 1998 (based upon the most recent trade price) was
approximately $221,000.
At August 31, 1998, the number of shares outstanding of the registrant's
preferred stock, $0.10 par value was 149,025.15 and common stock, $.05
par value, was 2,843,055
DOCUMENTS INCORPORATED BY REFERENCE: None
PART I
ITEM 1. BUSINESS
General
Biosensor Corporation (the "Company" or "Biosensor") designs,
manufactures and markets cardiac and pulmonary diagnostic equipment for
physicians' offices, clinics and hospitals. The Biosensor ambulatory ECG
("Holter") monitoring system consists of a patient-worn microprocessor
based unit called the patient recorder, which monitors and records
cardiac events. Patient recorder data is transferred in a three to five
minute procedure to a personal computer (PC) based central station,
located at the physician's office or healthcare facility. The central
station's computer presents cardiac performance data on a CRT or prints
a hard copy for analysis by the physician. The central computer can
also be used for running many PC compatible computer programs for office
management. The Biosensor spirometry system uses software developed by
the Company in conjunction with hardware purchased from another
manufacturer (OEM). The Company sells three other PC compatible OEM
products, an ambulatory blood pressure system, an ECG system, and an ECG
stress system, and manufactures telemetry equipment for other medical
equipment manufacturers. The Company's products are distributed in the
United States primarily through independent manufactures'
representatives. Internationally, the products are marketed primarily
through independent distributors.
Subsequent Events
On July 23, 1998, Biosensor acquired all of the outstanding shares of
Carolina Medical, Inc. ("CMI"), a Minnesota corporation, pursuant to a
Plan of Reorganization and Agreement (the "Plan") by and between the
Company and CMI, dated May 29, 1998. The Company acquired 1,987,002
shares of the CMI's Common Stock in exchange for 149,025.15 shares of
its Series A Preferred Stock. Each share of Series A Preferred Stock is
convertible into 96 shares of the Company's Common Stock. Each share of
Series A Preferred Stock votes and participates in dividends and
liquidations on an as-if-converted basis. CMI was organized to
facilitate the share exchange with the Company as a preliminary step to
the share exchange. Carolina Medical, Inc., a North Carolina
corporation was recently merged with and into CMI. CMI develops,
manufactures, markets and services digital ultrasound imagers,
electronic instruments for detecting circulatory system disorders and
measuring the flow and pressure of blood, and cardiac monitoring
systems. CMI has two subsidiaries: Braemar, Inc., and Advance Medical
Products, Inc. Braemar, Inc., a North Carolina corporation, is a
wholly-owned subsidiary of CMI that develops, manufactures and markets
tape recording devices for ambulatory ECG monitoring devices. CMI owns
approximately 55% of the issued and outstanding common stock, and all of
the issued and outstanding preferred stock, of Advanced Medical Product,
Inc., a publicly held Delaware corporation, that develops, manufactures,
and markets ambulatory ECG and blood pressure monitors. For accounting
purposes, the transaction became effective July 1, 1998. Because the
former CMI shareholders effectively control the Company after the
transaction, the transaction will be recorded as a "reverse
acquisition", whereby CMI will be deemed to have acquired Biosensor.
The net assets of Biosensor acquired will be recorded at fair market
value. The historical financial statements of the Company prior to the
acquisition will become those of CMI. Subsequent to July 1, 1998, the
financial statements will include the operations of the combined
companies.
Biosensor's Board of Directors has also authorized the merger of a
wholly owned subsidiary of the Company, which has not yet been
organized, with and into Advanced Medical Products, Inc., subject to
certain terms and conditions. The Company and Advanced Medical
Products, Inc. are currently negotiating a definitive agreement to
combine their cardiac monitor businesses, and to do business as Advanced
Biosensor Inc.
Products
A. Holter Systems
In the event a 30 second ECG (aka EKG) is unable to tell the physician
information needed about a potential cardiac condition, the physician
may order a 24 hour patient worn ECG, called a Holter, ambulatory ECG,
or long term ECG. The Holter monitor is used primarily to evaluate
potential cardiac patient symptoms, to look for episodes where the blood
supply to the heart may be compromised (ischemia), to evaluate cardiac
risk in patients with suspected or overt cardiac disease, and to
determine whether cardiac drugs and therapies used to reduce heart
rhythm problems are performing properly. Approximately 2.5 million such
procedures are ordered annually in the United States. The Company
estimates approximately an equal number are ordered annually in
international markets. In the United States, the physician typically
charges about $150 per test. International reimbursement can vary from
several dollars up to approximately $80 per test. Reimbursements are
gennerally sufficient for a private physician or health care facility to
financially justify a small Holter system. The Company believes its
Holter systems have significant benefits over competitive offerings,
including real time analysis technology using FLASH memory components,
an easy to use PC compatible program, an attractive recorder size,
documented accuracy, and an affordable price.
The Company's four versions of full disclosure monitoring systems are
comprised of a patient recorder using the Argus ECG analysis algorithm
and a central computer system and three software variations for report
viewing and printing. The full disclosure feature allows for storage
and review of all 24 hours of the ECG data. The Company's method of
full disclosure ECG storage uses real time digital means, rather than
the more traditional tape storage means.
Optional superimposition allows the operator to view the ECG data via
screen display of one beat over its predecessor at high speeds, allowing
24 hours of data to be reviewed in 30 minutes or less.
B. Spirometry System
The Company's spirometry system is used by physicians to measure lung
capacity and function. It uses PC compatible software developed by the
Company to function in conjunction with hardware supplied by an outside
vendors. The package allows physicians to expand patient care by
performing comprehensive pulmonary function tests from their office or
clinic. The spirometry system includes a unique feature set comprised
of a patented, completely disposable sensor, which eliminates cleaning,
chemical contamination, labor and the risk of spreading disease; a
"sailboat race game" providing patient stimulation and involvement in
testing; patient trending which allows physicians to see the patient
progress over time; and built in help manuals to make operation easy.
C. Telemetry
Biosensor sells a telemetry transmitter and receiver to other medical
equipment vendors, used for monitoring the ECG of patients in cardiac
rehabilitation. Telemetry is the process of radio transmitting,
receiving and displaying physiologic signals including ECG from one or
more remote patients to a nurses' station.
D. OEM Distribution
The Company sells other diagnostic equipment to physicians, clinics and
hospitals. Such equipment includes stress testing equipment, ECG, and
ambulatory blood pressure equipment. This equipment is acquired from
other manufacturers and re-sold.
Research and Development
Since its formation, the Company's research and development activities
have been focused on developing computerized cardiac monitoring systems
capable of providing patient-worn heart monitoring, analysis, and
reporting. These products are currently on the market. The Company's
present research and development efforts are focused upon enhancing and
improving existing systems and developing compatible diagnostic products
such as the spirometry software and the ambulatory blood pressure
software. The Company currently employs one person in R&D, and engages
outside consultants for specific projects. The Company expended $
242,000 in 1998 and $289,000 in 1997 for research, development, and
engineering activities, which consisted principally of the salaries and
benefits of its employees and consultants.
Manufacturing and Sources of Supply
The components which are included in the Company's monitoring systems
are presently purchased from outside vendors, tested and incorporated
into the system by Company personnel. Components are available from
multiple sources. If the Company were unable to obtain certain
components from one or more of its suppliers, the Company would be
forced to seek comparable components from other suppliers. The Company
believes it would be able to acquire hardware components from alternate
OEM suppliers should it become necessary. The Company is in the process
of outsourcing its manufacturing to Braemar Inc which maintains an ISO
9001 certified manufacturing facility and has the capability to provide
CE mark, an increasingly critical requirement for export of medical
devices to Europe.
Marketing and Distribution
Healthcare reform in the United States, Germany, and in some Asian
markets over the past few years has influenced the buying patterns of
medical device end-users. With this evolution, products used in this
environment must be lower in price and more cost effective to operate,
while remaining feature rich. The Company believes this trend will
continue, and that its products are well suited to the new environment.
Currently, the Company markets its products through independent
manufacturers sales representatives in the United States, and
distributors overseas. Biosensor believes that its sales
representatives can be effective in reaching the physicians office,
clinics, and small to mid-sized hospitals; have specific knowledge of
and contacts in particular markets; and enhance the quality and scope of
the Company's sales and marketing efforts. Pursuant to agreements with
sales representatives and distributors, the sales force is prohibited
from engaging in the promotion or sale of products that compete directly
with the Company's products.
The Company has one employee sales manager and approximately 17
independent sales organizations covering the United States. In
addition, it supports distribution activities in approximately 35
international markets. The Company employs two full-time sales and
marketing personnel at its headquarters. These employees work directly
and in conjunction with sales representatives and distributors in
marketing and selling to doctors, clinics, and hospitals. The Company's
marketing staff prepares advertising copy, full color sales brochures,
sales bulletins, and reimbursement support documentation.
Competition
Holter Systems
Competition for sales of ambulatory monitoring equipment can be
described by dividing the market into two segments of approximately
equal size based upon target customers and price considerations:
1) Larger hospitals, clinic, and service companies. These groups
predominantly purchase 24 hour tape scanning and analysis equipment
dependent upon technician operation. Equipment for such users is priced
in the $30,000 to $80,000 range, where volume justifies a significant
capital outlay. Del Mar Avionics Inc., Oxford, Marquette Electronics,
Inc., Reynolds, Zymed, Inc.. and Spacelabs, Inc. are the principal
domestic suppliers to this market segment. Historically, these
companies have represented more than half of industry sales revenues.
End-users in this market have also demonstrated a willingness to
consider purchasing lower priced (more cost-effective) systems.
2) Physician office and small hospital systems. Physicians and
small hospitals have a tendency to purchase more limited feature Holter
systems in a price range of $6,000 to $25,000. Advanced Medical
Products, Burdick, Custo, Diagnostic Monitoring, and Rozinn are among
the companies that compete with Biosensor selling Holter systems to
office based physicians and small hospitals. Principally price,
marketing coverage, ease-of-use and product features are the key
attributes of the sales process. In the United States, diminishing
demand for equipment has resulted from office consolidation and
transition into managed care in the physician office market. This
change may be temporary or permanent. The physician office diagnostic
equipment market is characterized by intense competition. Several well
established competing organizations with resources greater than the
Company's have been successful at increasing their market share.
Spirometry
There are a number of companies producing spirometry systems for the
office and clinic market including Burdick, SpiroMetrics, QRS, and
others. Many of these companies sell devices which perform only one
function, while others offer multi-purpose personal computer based
systems. Biosensor's spirometry products sell for between $2,000 and
$4,000 and are PC based companions to the the Company's Holter monitors.
Telemetry
The Company's analog telemetry products are sold to other medical
equipment manufacturers (OEM) and are used in cardiac rehabilitation
product offerings. This market is shifting from analog to digital
technology that is generally being developed by the Company's customers.
The Company believes that unique niches for the analog technology will
continue to be available, but growth of this product line is not
expected. A matched pair, including a telemetry transmitter and
receiver, sell for approximately $1,300.
Government Regulation
The diagnostic products sold by the Company are "devices" as defined in
the Federal Food, Drug and Cosmetic Act (the "Act), and are subject to
the FDA regulatory authority over the manufacturing, performance
standards, patient registries, labeling and advertising thereof. Under
the Act, the FDA must determine the extent of control necessary to
assure the safety and effectiveness of devices and must define those
control levels by the promulgation of regulations and standards. Under
Section 510(k) of the Act, a medical device can be marketed if the FDA
determines that the device is substantially equivalent to similar
devices marketed prior to May 28, 1976. All of the Company's products
have FDA 510(K) regulatory clearance. Action by the FDA does not,
however, constitute approval by the FDA of the Company's products or
pass upon their safety and effectiveness. While the Company believes
that regulatory clearance for certain diagnostic devices which are
substantially equivalent to a device currently in commercial
distribution, including products which the Company may in the future
develop and market, may be obtained in less time and at a lower cost
than certain other medical devices, there can be no assurance that
regulatory agencies may not require lengthy clinical testing or other
procedures that will involve time and substantial cost. There can be no
assurance that, even after such time and expenditures, regulatory
clearance will be obtained. A marketed product is subject to continual
review, and later discovery of previously unknown problems can result in
restrictions on a product's marketing, or withdrawal of the product from
the market.
Distribution in Western Europe requires "CE" certification, and as of
June 14, 1998 that certification requires compliance and testing under
Medical Device Directives (MDD). At May 31, 1998, the Company was in
compliance with existing regulations and had filed its documents
demonstrating compliance under the MDD.
Trade Secrets
Biosensor exclusively licenses its Argus ECG analysis algorithms used in
the Holter monitor from CNS, Inc. for all medical applications except
sleep applications. With the exception of the Argus algorithms, the
Company's software programs and systems are not protected by patents or
registered copyrights, but instead the Company relies upon the law of
trade secrets and the confidentiality provisions of its employment
agreements. The Argus algorithms are subject to copyright protection
claimed by Washington University. There are no patents or registered
copyrights owned by Biosensor on its spirometry or ambulatory blood
pressure software, but the products are covered by general US and
foreign copyright laws. The OEM hardware vendor has a patent which
protects the disposable sensor, though the relationship with Biosensor
is non-exclusive. The Company believes that protection of its systems
by patents or registered copyrights is less important than the
knowledge, experience and creativity of the Company's product
development and marketing staff in an industry characterized by rapid
technological change. There can be no assurance that competitors could
not successfully duplicate the Company's proprietary software or the
Argus algorithms.
Healthcare Reform
As a result of concerns about changes to the United States system of
healthcare payments, a reduction in purchase levels by physicians has
occurred. These shifts are occurring in varying degrees in other parts
of the world as well. The Company believes that its competitors are
also being affected by these factors.
Employees
As of May 31, 1998, the Company had 8 employees 7 of whom were full-
time. No employees are represented by labor organizations and there are
no collective bargaining agreements. Employee relations are believed to
be good. The company plans some reductions in personnel in connection
with the business combination detailed above (Item 1, Business,
Subsequent Event). No material costs are anticipated as a result of
these reductions.
ITEM 2. PROPERTIES
The Company leases approximately 4,500 square feet of office space in
Maple Grove, MN from a partnership controlled by an officer/stockholder.
The lease requires approximate future noncancellable minimum annual
lease payment of $54,000 through December 2003 plus a pro rata share of
operating expenses. The Company has also guaranteed the underlying debt
on the property, which consists of a $1,100,000 term loan expiring
January 2000.
In connection with the business combination detailed above (Item 1,
Business, Subsequent Event), the Company intends to sub-lease the space
occupied in Maple Grove, MN. The Company is relocating employees,
inventories, equipment and records to facilities in Burnsville, MN and
Columbia, SC. The Company has accrued approximately $70,000 at June 30,
1998 in anticipation of various sub-leasing and/or lease termination
costs. In addition, the Company has negotiated a release from the loan
guarantee on the Maple Grove property. Under the Release from Loan
Guarantee Agreement, the Company is responsible for the payment of
closing costs in the required refinancing of the Mortgage, estimated at
$17,000, and any interest rate differential over a three year period.
For each one-percent increase in interest over present rates, the
Company could be required to pay approximately $11,000 annually for up
to three years.
ITEM 3. LEGAL PROCEEDINGS
In September 1996, a jury verdict in the amount of $325,000, plus fees
of $27,000, was awarded to a former vendor for its claim that the
Company owed additional amounts under a 1988 software license agreement.
This liability was fully accrued as of May 31, 1997. In December 1997,
the Company entered into a settlement agreement with this vendor to
reduce the jury award to $200,000. The remaining amount due under the
agreement calls for annual payments of $25,000 through December 2002,
with an additional $25,000 due December 1999. In the event the Company
defaults on any of the annual payments, the full judgment, less any
amounts paid under the settlement agreement, will be reinstated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Minneapolis Local Over-The
Counter market. The high and low bid prices for the common stock by
fiscal quarter as reported by local market makers are presented below.
The bid quotations represent prices between broker-dealers and do not
include retail mark-ups, mark-downs, or commissions and do not
necessarily represent actual transactions.
1998 1997
QUARTER HIGH LOW HIGH LOW
First Quarter $0.250 $0.1875 $0.813 $0.563
Second Quarter $0.1875 $0.125 $0.688 $0.281
Third Quarter $0.125 $0.0625 $0.281 $0.281
Fourth Quarter $0.3125 $0.0625 $0.374 $0.281
At August 31, 1998, the Company had approximately 400 shareholders of
record.
The Company has not paid any cash dividends on its common stock. The
Company intends to retain any earnings it may generate to finance the
development of its business and, accordingly, does not anticipate
payment of any dividends in the foreseeable future.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Biosensor Corporations net sales totaled approximately $1,929,000 in
fiscal 1998, compared with sales of $2,505,000 in fiscal 1997. Sales
decreased 23% from 1997 to 1998. Sales in the U.S. in 1998 decreased by
$116,000 while sales in international markets decreased by $428,000.
The decreases in US and international sales are a result of continued
competitive pressures and a diminished marketplace in the U.S. and
certain European countries, largely as a result of healthcare reforms.
Cost of products sold as a percentage of net sales was 51% in fiscal
1998 and 49% in 1997. The increase in 1998 was due to reductions in
average selling prices in reaction to a price competitive market
environment.
Research, development and engineering expenses for fiscal year 1998
decreased $47,000 compared to fiscal 1997. The decrease in 1998 was due
to personnel reductions, primarily from attrition.
Sales and marketing expenses decreased by $40,000 from 1997 to 1998.
The decrease resulted primarily from lower commissions paid to sales
representatives on the lower level of sales.
General and administrative expenses were $347,000 in 1998 compared to
$476,000 in 1997. Decreases in personnel, and lower legal expenditures
produced most of the $129,000 decrease in expenses in 1998.
The Company had other income of $158,000 in 1998 primarily due to the
settlement of a legal judgment as described in Item 3 above. As a
result of the settlement of the liability for less than was recorded in
1997, a reduction in liability of $152,000 was recorded as "other
income" in the 1998 Statement of Operations.
Liquidity and Capital Resources
During 1998 the Company generated cash of $79,000 from operating
activities. The net loss of $108,000, and decrease in accrued expenses
resulting from the settlement of litigation with a former vendor as
described in Item 3 and above, were more than offset by decreases in
accounts receivable of $156,000 and decreases in inventories of $97,000,
and increases in accounts payable of $53,000. The decrease in accounts
receivable is due to lower fourth quarter sales, and improved collection
efforts. In response to the downturn in sales, the Company began a
reduction in personnel and related expenses in March 1998, and reduced
the amount of space occupied in its rented facilities. Marketing
activities were concentrated on selected foreign distributors in
international markets that were not as directly affected by health care
reform. In addition, the Company increased its investigations into
possible merger and acquisition opportunities that could provide for
greater critical mass and improved manufacturing, marketing, and sales
efficiencies.
In a move that the Company believes will further improve liquidity and
capital resources and provide better access to capital markets, on July
23, 1998, Biosensor acquired in a reverse merger all of the outstanding
shares of Carolina Medical, Inc. ("CMI"), a Minnesota corporation,
pursuant to a Plan of Reorganization and Agreement (the "Plan") by and
between the Company and CMI, dated May 29, 1998. (see Item 1, Business,
Subsequent Events). Carolina Medical, Inc. had raised $470,000 (net of
costs) in May 1998 from a private placement of its common stock with two
new investors. In addition to CMI's operations in King, North
Carolina, CMI owns Braemar Inc., a manufacturer of medical products
similar to those manufactured by the Company, located in Minnesota, and
control of Advanced Medical Products, Inc., a direct competitor of the
Company located in South Carolina. The Company and CMI believe that
cost savings of between $300,000 and $500,000 annually could potentially
be realized by moving the manufacture of the Company's products to
Braemar, Inc. and by combining the marketing, sales, customer service
and administrative operations of the Company with similar operations of
Advanced Medical Products, Inc., eliminating redundant costs. A Plan of
Reorganization and Merger between Biosensor and Advanced Medical
Products has been approved by the Boards of Directors of both the
Company and Advanced Medical Products, Inc. A definitive agreement is
being negotiated that would result in the consolidation of the Companys
operations into Advanced Medical Products, the combination to be
operated as Advanced Biosensor, Inc. This would be expected to lead to
increased sales, and cost savings in the range of those described above
which, longer term, would be expected to have a positive affect on
liquidity and capital resources. Short term, Biosensors inventory and
receivables could add to the borrowing base and therefore provide
greater liquidity under a credit agreement in place between Advanced
Medical Products Inc. and Emergent Financial Group, their asset based
lender.
Forward-Looking Statements
The Company may from time to time make written of oral "forward-looking
statements", within the meaning of the Private Securities Litigation
Reform Act of 1995, including statements contained in this Form 10KSB
and in other documents filed by the Company with the Securities and
Exchange Commission and in its reports to stockholders, as well as
elsewhere. "Forward-looking statements" are statements such as those
contained in projections, plans, objectives, estimates, statements of
future economic performance, and assumptions related to any of the
forgoing, and may be identified by the use of forward-looking
terminology, such as "may", "expect", "anticipate", "estimate", "goal",
"continued", or other comparable terminology. By their very nature,
forward-looking statements are subject to known and unknown risks and
uncertainties relating to the Company's future performance that may
cause the actual results, performance or achievments of the Company, or
industry results, to differ materially from those expressed or implied
in such "forward-looking statements". Any such statement is qualified
by reference to the following cautionary statements.
The Companys business operates in highly competitive markets and is
subject to changes in general economic conditions, competition, customer
and market preferences, government regulation, the impact of tax
regulation, foreigh exchange rate fluctuations, the degree of market
acceptance of the products, the uncertainties of potential litigation,
as well as other risks and uncertainties detailed elsewhere herein and
from time to time in the Company's Securities and Exchange Commission
filings.
This Form 10KSB contains forward looking statements, particularly in the
following sections: "Business"; and "Management's Discussion and
Analysis of Financial Condition and Results of Operations"; Actual
results could differ materially from those projected in the forward
looking statements as a result of known and unknown risks,
uncertainties, and other factors, including but not limited to the
timely and effective integration of the Biosensor's business and
operations with the business and operations of Carolina Medical and
Advanced Medical Products and the achievment of expected operating
synergies, market acceptance of the Company's products and services,
changes in expected research and development requirements, the effects
of changing economic conditions and business conditions generally, and
changes in medical device markets as a result of health care reforms
both domestically and internationlly. The Company does not undertake
and assumes no obligation to update any forward-looking statement that
may be made from time to time by or on behalf of the Company.
Year 2000 Impact Analysis
The Company has examined the effects that the year 2000 will have on the
operation of its business and on the its customers use and acceptance of
its products. Biosensor believes that it has a plan in place that will
eliminate or render immaterial any impact that the year 2000 will have
on its business. Internal accounting and preparation of monthly,
quarterly and annual financial statements is currently performed on
personal computers using accounting and inventory software obtained from
Great Plains running on theMicrosoft DOS operating system software. By
the end of calendar 1998 the Company expects to upgrade to the latest
version of Great Plains software running under Windows 95 or Windows 98
at a total cost estimated to be less than $15,000. This new software is
Y2K compliant. The Company's products use microprocessors and imbedded
software, and data captured and stored by these products are processed
by software provided to customers by the Company. Calculations
performed by the imbedded code in the Company's products and by
processing software supplied by the Company do not utilize the year.
The Company believes that all of its recorders currently being sold and
those being serviced under waranty will be not be effected by a change
in year from 1999 to 2000 or from 2000 to 2001.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are filed as part of this Annual Report on form
10-KSB on pages sixteen (16) through twenty six (26).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
On July 23, 1998, Dr. Stephen L. Zuckerman resigned as a director
of the Company and five persons were appointed to serve as directors of
the Company until the next annual meeting of shareholders. The names
and ages of the Company's directors and executive officers, and their
principal occupations are set forth below.
Name Age Position Term of Service From
L. John Ankney 69 Director July 1998
David A. Heiden 50 Director July 1998
C. Roger Jones 60 Director July 1998
Ronald G. Moyer 62 President, CEO &Director July 1998
Michael W. Oliver 45 Acting CFO July 1998
B. Steven Springrose 49 Director 1982
Spencer M. Vawter 61 Director July 1998
Other Information Regarding the Officers and Directors:
Business Experience
L. John Ankney has acted as independent consultant to several companies
since 1993. He served as President and Director from 1970 to 1993 for
Transnational Electronic and Funding Corporation, an investment, venture
capital, and management consulting company. Mr. Ankney served as a
director of Digilog, Inc. from 1974 to 1989.
David A. Heiden is currently Vice President of Sales for Video Display
Corporation. From 1989 until 1998 he was president and CEO of
Urological Care America, Inc., a company that assisted urology practices
in the managed care environment. He served as President and CEO of
Lithotripter Technologies of the Americas from 1985 to 1988. Prior to
that he was Vice President of Marketing and Sales for Dornier Medical
Systems.
C. Roger Jones has served as President and Chief Operating Officer of
Carolina Medical since 1985. From 1970 to 1985, he was Vice President
of Sales and Marketing for Carolina Medical where he served in various
other capicities since 1961. He has served as Chairman for Eagle Golf
Ball Company, Inc. since 1988.
Ronald G. Moyer was appointed President, Chief Executive Officer, and
Chairman of the Board of Biosensor on July 23, 1998. He also has served
as Chief Executive Officer and Chairman of Advanced Medical Products,
Inc. since 1996 and was that company's President from 1996 until
October 1997. Since 1992 he has been the Chief Executive Officer and
Chairman of Carolina Medical Inc., a manufacturer of medical
instruments. In 1991 and 1992 he was Director of Mergers and
Acquisitions for Dominion Holdings Group, a Merchant Bank. From 1989 to
1991, he served as Chief Operating Officer of CXR Corporation, an AMEX
listed public company. Prior to that time since 1969 he was the
President, Chief Executive Officer and Chairman of the Board of Digilog,
Inc., a publicly held telecommunications company. He received a BS
from Tri-State University in 1956, an MS in Aerospace Engineering from
Drexel University in 1963 and completed the Harvard Business School
Small Corporation Management Program in 1981.
Michael W. Oliver is the Acting Chief Financial Officer of the Company.
He is President of The Oliver Group, a management consulting firm. From
1990 to 1997 he was Treasurer of Reichhold Chemicals.
He was Executive Vice President and CFO of The Harris Organization, a
privately held holding company, from 1988 to 1990. He received his BA
and MBA from the University of Pittsburgh.
B. Steven Springrose serves as the Company's Vice President, Chief
Technology Officer, and Director, and served as President, Chief
Executive Officer and Chairman of the Company from its inception in 1982
until July 1998. Mr. Springrose also served as Chief Financial Officer
until July, 1998. From 1973 to 1976 Mr. Springrose was involved in the
design , development, manufacture and marketing of medical products. He
developed new product concepts as a biomedical engineer at Medtronic,
Inc. (1973-1974), and held operations, management and product
development engineering positions at Minntech Corporation (1974-1976).
Mr. Springrose was employed at Cardiac Pacemakers, Inc. from 1976
through 1982 in various marketing capacities prior to founding the
Company.
Spencer M. Vawter is President and CEO of Carmile Products, Inc,, a
developer and marketer of software automation products for the chemical
laboratory. Previously, Mr. Vawter served as President and/or CEO of
several urology, ultrasound and medical companies, including Mentor
Urology, Avalon Technology, Biosound, and various divisions of
Boehringer Mannheim. Mr. Vawter also was Senior Vice President of Bio-
Dynamics, Director of Medical Instrumentation for the American Medical
Association.. Mr. Vawter holds a BA degree from Franklin College and an
MSc from DePaul University.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the indicated compensation paid and/or
accrued to the Company's Chief Executive Officer for the years
indicated. No other executive officer of the Company received salary
and bonus in excess of $100,000 during the fiscal year ended May 31,
1998.
Long Term Compensation
Annual Compensation Awards Payouts
Other All
Name and Annual Restricted Other
Principal Compen- Stock LTIP Compen-
Position Year Salary Bonus sation Award(s) Options Payouts sation
($) ($) ($) ($) SARs(#) ($) -
B. Steven
Springrose 1998 $100,000 - - - - - -
CEO and 1997 $100,000 - - - - - -
CFO 1996 $ 99,000 $27,000 - - - - -
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information provided to the Company as to
the beneficial ownership of the Company's common stock as of August 7,
1998 by (i) persons holding 5% or more of such stock; and (ii) all
officers and directors as a group:
Common Stock Percent of
Beneficial Owner Beneficially Owned Outstanding Shares (1)
B. Steven Springrose 896,000(2) 31.7%
Officers and Directors 896,000(3) 31.7%
as a Group (1 persons)
(1) See Item 1, Business, Subsequent Event.
(2) Includes 35,000 shares owned jointly with Mr. Springroses
spouse and 6,000 shares held for the benefit of Mr.
Springroses children, as to which shares he disclaims
beneficial interest.
(3) Does not include 70,576 shares held by a partnership in which
Dr. Zuckerman is a general partner and currently holds a .5%
interest, and 10,000 shares which may be acquired within 60
days of the date hereof pursuant to the exercise of stock
options. Dr. Zuckerman was a Director prior to July 23,
1998. (see Item 9, Directors, Executive Officers, Promoters
and Control Persons)
The Following table presents information provided to the Company as to
the beneficial ownership of the Companys Series A Preferred Stock as of
August 7, 1998 by (i) persons holding 5% or more of such stock; and (ii)
all officers and directors as a group:
Preferred Stock Percent of
Beneficial Owner Beneficially Owned Outstanding Shares (1)
Ronald G. Moyer 48,471.75(2) 32.5%
C. Roger Jones 19,012.50(3) 12.8%
Officers and Directors 67,484.25(4) 45.3%
as a Group
(2 persons)
(1) Preferred stock issued July 23, 1998. See Item 1, Business,
Subsequent Event.
(2) Each share of series A preferred stock is convertible into 96
shares of common stock and carries the corresponding voting rights.
Preferred stock owned beneficially by Ronald G. Moyer is convertible into
4,653,288 shares of common stock. If all outstanding preferred
shares were converted into common stock, Ronald G. Moyer would
own 27.1% of the common stock then outstanding.
(3) Each share of series A preferred stock is convertible into 96
shares of common stock and carries the corresponding voting rights. Preferred
stock owned beneficially by C. Roger Jones is convertible into
1,825,200 shares of common stock. If all outstanding preferred
shares were converted into common stock, C. Roger Jones would
own 10.6% of the common stock then outstanding.
(4) If all outstanding preferred shares were converted into
common stock, all officers and directors as a group would own
7,374,488 shares of common stock or 43% of the total then outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an operating lease for office space with Springrose
Partners. L.L.P. a limited partnership in which B. Steven Springrose,
the registrant's current Director and former CEO and CFO and his spouse
are the owners. The lease runs through December 2003. Approximate
future noncancelable minimum lease payments of $54,000 are required
under the lease. In addition, the lease provides that the registrant
pay a pro rata share of building operating expenses and required a
deposit of $18,000. The registrant has also guaranteed the underlying
debt on the property. The debt consists of a $1,100,000 five year term
loan expiring in January 2000. Subsequent to May 31, 1998 the Company
has obtained a release from that guarantee (Item 2, Properties).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Page No. or
Incorporation by
Exhibit No. Description Reference to
3.1 Restated Articles of Incorporation *
3.2 Amended Bylaws *
10.1 Agreement between the Company and Washington
University (this agreement expired March 1993) *
10.4 Stock purchase agreement between the Company and
Norwest Growth Fund, Inc. *
10.5 Biosensor Corporation Incentive Stock Option Plan *
10.9 License agreement with CNS, Inc. **
10.10 Line of Credit agreement with First Bank National
Association dated May 6, 1994 ***
10.11 Agreement with Marcom Inc. ***
10.12 Line of Credit Agreement with First Bank National
Association dated May 25, 1995 as amended August 2,
1995. ****
10.13 Line of Credit Agreement with Norwest Bank,
National Association dated April 7, 1997 *****
10.14 Lease agreement with Springrose Partners LLP
dated April 7, 1997 *****
* Incorporated by reference to the corresponding exhibit in the Company's Form
S-18 Registration Statement (No. 2-86322C).
** Incorporated by reference to the corresponding exhibit in the Company's Form
10K Filed on August 29, 1989.
*** Incorporated by reference to the corresponding exhibit in the Company's
Form 10K-SB Filed on August 26, 1994
**** Incorporated by reference to the corresponding exhibit in the Company's
Form 10K-SB Filed on August 26, 1996
***** Incorporated by reference to the corresponding exhibit in the Company's
Form 10K-SB Filed on August 25,1997
Form 8-K
There were no filings on form 8-K in the fourth quarter of 1998. A form
8-K was filed by the Company on July 28, 1998 regarding the merger
with Carolina Medical (see above Item 1, Business, Subsequent Event)
SIGNATURES
In accordance with Sections 13 or 15(d) of the Exchange Act, the
Registrant caused this reoprt to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOSENSOR CORPORATION
By: /s/ Ronald G. Moyer
Ronald G. Moyer
President and Chief Executive Officer
Date: August 31, 1998
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:
/s/ Ronald G. Moyer
Ronald G. Moyer President, Chief Executive August 31, 1998
Officer, and Director
(Principal Executive Officer)
/s/Michael Oliver
Michael Oliver Chief Financial Officer August 31, 1998
(Acting)
/s/ L. John Ankney
L. John Ankney Director August 31, 1998
/s/ David A. Heiden
David A. Heiden Director August 31, 1998
/s/ C. Roger Jones
C. Roger Jones Director August 31, 1998
/s/ B. Steven Springrose
B. Steven Springrose Director August 31, 1998
/s/ Spencer M. Vawter
Spencer M. Vawter Director August 31, 1998
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Biosensor Corporation
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Biosensor Corporation
as of May 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for the years 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 audits.
We conducted our audits 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 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 Biosensor
Corporation as of May 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
As discussed in Note 8, on July 23, 1998, the Company acquired all of
the outstanding shares of Carolina Medical, Inc. (CMI), through the
issuance of approximately 149,000 shares of preferred stock. As a
result of that transaction, the shareholders of CMI effectively control
the Company.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
June 23, 1998 (except for Note 8, as to
which the date is July 23, 1998)
BIOSENSOR CORPORATION
BALANCE SHEETS
May 31, 1998 and 1997
ASSETS 1998 1997
Current Assets
Cash $ 77,115 $ 4,739
Accounts receivable, less allowance
for doubtful accounts of $17,000 in 1998
and $111,000 in 1997 244,604 400,262
Inventories:
Raw materials and component parts 95,196 118,664
Work in process 14,372 50,015
Finished goods 99,762 138,586
Prepaid expenses and other 18,648 54,822
Total current assets 549,697 767,088
Deposits (Note 5) 18,000 18,000
Property and Equipment, at cost
Manufacturing and engineering equipment 201,847 219,164
Office furniture and equipment 155,735 149,149
357,582 368,313
Less accumulated depreciation 322,670 308,853
34,912 59,460
Total assets $ 602,609 844,548
See Notes to Financial Statements.
LIABILITIES AND STOCKHOLDERS EQUITY
1998 1997
Current Liabilities
Trade accounts payable $ 103,060 $ 50,246
Accrued expenses:
Current portion of accrued litigation costs 25,000 352,000
Commissions 5,782 15,492
Compensation 43,311 48,872
Warranty 43,790 30,618
Other 17,004 1,221
Total current liabilities 237,947 498,449
Accrued Litigation Costs (Note 7) 125,000 0
Commitments and Contingencies (Notes 5, 7, and 8)
Stockholders Equity (Notes 3 and 8)
Preferred stock $0.10 par value; authorized 150,000
shares; No shares issued and outstanding in 1998
and 1997 - -
Common stock, $0.05 par value; authorized 4,850,000
shares; Issued and outstanding 2,843,055 shares
in 1998 and 2,823,055 shares in 1997 142,153 141,153
Additional paid-in capital 2,941,447 2,940,447
Accumulated deficit (2,843,938) (2,735,501)
Net stockholder's equity 239,662 346,099
$ 602,609 $ 844,548
See Notes to Financial Statements.
BIOSENSOR CORPORATION
STATEMENTS OF OPERATIONS
Years Ended May 31, 1998 and 1997
1998 1997
Net sales (Note 4) $ 1,929,037 $ 2,504,907
Costs and expenses (Note 5):
Cost of products sold 991,170 1,235,205
Research, development, and engineering 242,644 289,286
Sales and marketing 610,738 650,467
General and administrative 347,258 476,133
2,191,810 2,651,091
Operating loss (262,773) (146,184)
Nonoperating income (expense):
Other income (expense), primarily litigation
(Note 7) 158,151 (353,761)
Interest expense (3,815) (2,587)
Interest income 0 2,593
Net loss $ (108,437) $ (499,939)
Basic and diluted net loss per share $ (0.04) $ (0.17)
Weighted-average shares outstanding 2,824,863 2,820,877
See Notes to Financial Statements.
BIOSENSOR CORPORATION
STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended May 31, 1998 and 1997
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
Balance, May 31, 1996 $ 140,403 $2,940,447 $(2,235,562) $ 845,288
Issuance of 15,000
shares upon
Exercise of stock
option 750 - - 750
Net loss - - (499,939) (499,939)
Balance, May 31, 1997 141,153 2,940,447 (2,735,501) 346,099
Issuance of 20,000
shares upon
Exercise of stock
option 1,000 1,000 - 2,000
Net loss - - (108,437) (108,437)
Balance, May 31, 1998 $ 142,153 $2,941,447 $(2,843,938) $ 239,662
See Notes to Financial Statements.
BIOSENSOR CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended May 31, 1998 and 1997
1998 1997
Cash Flows From Operating Activities
Net loss $ (108,437) $ (499,939)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 25,347 32,347
Exchange of property and equipment 7,815 0
Bad debt expense 0 99,000
Changes in assets and liabilities:
Accounts receivable 155,658 106,274
Inventories 97,935 1,111
Prepaid expenses and other 36,174 (37,659)
Accounts payable 52,814 (115,812)
Accrued expenses (188,316) 279,437
Other 0 (6,796)
Net cash provided by (used in)
operating activities 78,990 (142,037)
Cash Flows From Investing Activities
Purchase of property and equipment (8,614) (18,471)
Proceeds from the sale of property and equipment 1,075
Net cash used in investing
activities (8,614) (17,396)
Cash Flows From Financing Activities
Stock options exercised 2,000 750
Net cash provided by financing
activities 2,000 750
Increase (decrease) in cash 72,376 (158,683)
Cash
Beginning of year 4,739 163,422
End of year $ 77,115 $ 4,739
Supplemental Disclosures of Cash Flow Information
Cash paid for interest $ 3,815 $ 2,587
See Notes to Financial Statements.
Biosensor Corporation
NOTES TO FINANCIAL STATEMENTS
Note 1: Nature of Business and Significant Accounting Policies
Nature of business: Biosensor Corporation (the Company) is engaged in
the development, manufacture, and marketing of diagnostic equipment for
physicians' offices, clinics, and hospitals throughout the U.S., Europe,
and Asia. The 24-hour ambulatory cardiac monitoring, EKG telemetry,
pulmonary function, EKG, and ambulatory blood pressure systems operate
independently or in unison on an IBM compatible office computer. The
Company also manufactures cardiac monitors for OEM distributors.
The Company had sales to foreign customers of approximately $669,000 and
$1,039,000 in 1998 and 1997, respectively. Accounts receivable of
$116,512 and $297,057 were recorded at May 31, 1998 and 1997,
respectively.
A summary of the Company's significant accounting policies follows:
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced
any losses in such accounts.
Inventories: Inventories are carried at the lower of cost or market
determined under the first-in, first-out (FIFO) method.
Depreciation: Depreciation of property and equipment is computed using
straight-line and accelerated methods over the following useful lives:
Years
Manufacturing and engineering equipment 3-5
Office furniture and equipment 5-7
Income recognition: Revenues and expenses are recorded using the
accrual basis of accounting for both financial reporting and income tax
purposes. Revenue is recognized at the time of delivery to distributors
or customers. The Company markets its products through a sales staff
and through independent domestic and international distributors on
credit terms it establishes with individual distributors and customers.
However, revenues are not accrued if collection thereof is not
reasonably assured or the customer has an unconditional right of return.
Income taxes: Deferred taxes are provided on a liability method,
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards. Deferred
tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Accrued warranty: The products manufactured by the Company are sold
with a one-year warranty. The Company accrues warranty costs based upon
historical experiences and current conditions. The Company also offers
an extended warranty to its customers, under which revenues are
initially deferred and recognized to match the expected related costs
incurred over the extended warranty period. Expense for work performed
under the extended warranties are recognized as incurred. As of May 31,
1998 and 1997, the amount of accrued warranty costs were $3,486 and
$4,668, respectively, and deferred warranty revenue was $40,304 and
$25,950, respectively.
Net income (loss) per 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. Basic per share
amounts are computed, generally, by dividing net income or loss by the
weighted-average number of common shares outstanding. Diluted per share
amounts assume the conversion, exercise, or issuance of all potential
common stock instruments unless the effect is antidilutive, thereby
reducing a loss or increasing the income per common share. The Company
initially applied Statement No. 128 for the year ended May 31, 1998, and
as required by the statement, has restated the per share information for
the prior year to conform to the statement. As described in Note 3, at
May 31, 1998 and 1997, the Company had options outstanding to purchase a
total of 75,000 and 85,000 shares of common stock, respectively, at a
weighted-average exercise price of approximately $0.17 and $0.12,
respectively. However, because the Company has incurred losses in 1998
and 1997, the inclusion of those potential common shares in the
calculation of diluted loss per share would have an antidilutive effect.
Therefore, basic and diluted loss per share amounts are the same in 1998
and 1997.
Issued but not yet adopted standard: 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 segments 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
May 31, 1999; however, the impact on disclosures is not anticipated to
be significant.
Note 2: Income Taxes
A reconciliation of federal statutory income taxes to the Company's
effective tax provision is as follows:
May 31
1998 1997
Computed "expected" federal tax expense
(benefit) at statutory rates $ (37,900) $ (175,000)
State income taxes, net of federal benefit (7,600) (38,700)
Effect of net operating losses with no
current benefit 45,500 213,700
$ - $ -
Net deferred taxes included the following at May 31, 1998 and 1997:
1998 1997
Deferred tax assets $ 1,009,000 $ 975,000
Valuation allowance for deferred tax assets (1,009,000) (975,000)
Net $ - $ -
Deferred tax assets are comprised of the following at May 31, 1998 and
1997:
1998 1997
Loss carryforwards $ 865,000 $ 689,000
Accrued litigation 51,000 120,000
Tax credit carryforwards 58,000 85,000
Accrued compensation 14,000 16,000
Warranty accrual 15,000 10,000
Allowance for doubtful accounts 6,000 38,000
Other, net - 17,000
Subtotal 1,009,000 975,000
Valuation allowance for deferred tax assets (1,009,000) (975,000)
Net $ - $ -
At May 31, 1998, the Company has approximately $2,471,000 of net
operating loss (NOL) carryforwards available to offset future taxable
income and approximately $59,000 of tax credit carryforwards to offset
future federal income tax liabilities. These carryforwards expire as
follows:
Years ending May 31: Net Operating Loss Tax Credit
1999 $ 0 $ 48,000
2000 846,000 11,000
2001 516,000 0
2002 236,000 0
2003 113,000 0
2004 128,000 0
2010 186,000 0
2011 0 0
2012 56,000 0
2013 390,000 0
$2,471,000 $ 59,000
The merger (see Note 8) will limit the annual availability of the NOL
carryforwards.
Note 3: Stock Options
The Company has a stock option plan that permits the granting of
incentive stock options meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and nonqualified options
which do not meet the requirements of Section 422. The plan has 250,000
shares available for grant. Option prices shall be determined by the
Company at the date the option is granted and shall not be less than the
fair market value of the common stock of the Company on the grant date.
Options become exercisable as determined at the date of the grant by the
Board of Directors. Options expire ten years after the date of grant
unless an earlier expiration date is set at the time of the grant.
The Company 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 plan. Had compensation cost for the Companys stock
option plan been determined based on the fair value at the grant date
for stock options consistent with the provisions of Statement of
Financial Accounting Standards No. 123, the Companys net loss and basic
and diluted loss per share would have changed to the pro forma amounts
indicated below:
Years Ended May 31
1998 1997
Net loss, as reported $ (108,437) $ (499,939)
Net loss, pro forma (111,422) (501,072)
Basic and diluted loss per share, as reported (0.04) (0.17)
Basic and diluted loss per share, pro forma (0.04) (0.17)
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998 and 1997:
Years Ended May 31
1998 1997
Expected dividend yield 0 0
Expected stock price volatility 155.92% 0
Risk-free interest rate 6.3% 0
Expected life of options 2 years 0
Weighted-average fair value of options
granted during the year $ 0.15 $ 0
Additional information relating to all outstanding options as of May 31,
1998 and 1997, is as follows:
1998 1997
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
Options outstanding,
beginning of year 85,000 $ 0.12 105,000 $ 0.10
Options granted 45,000 0.21 0 0
Options exercised (20,000) 0.10 (15,000) 0.05
Options surrendered (35,000) 0.12 (5,000) 0.05
Options outstanding,
end of year 75,000 $ 0.17 85,000 $ 0.12
Options exercisable
at year end 41,750 $ 0.14 51,250 $ 0.11
Weighted-average fair
value of options granted
during the year $ 0.13 $ 0
The following table summarizes information about stock options
outstanding at May 31, 1998:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Number Out- Remaining Average Number Average
Exercise Standing at Contractual Exercise Exercisable at Exercise
Prices May 31, 1998 Life(Years) Price May 31, 198 Price
$0.0625 -
$0.28 75,000 4 $ 0.17 41,750 $0.14
Note 4: Export Sales
The Company's export sales are principally to Europe and Asia and
totaled approximately 35 and 41 percent of net sales for the years ended
May 31, 1998 and 1997, respectively.
Note 5: Related-Party Lease
The Company leases its office facility from a partnership controlled by
an officer/stockholder of the Company. The lease requires approximate
future noncancelable minimum annual lease payments of $54,000 through
December 2003, and the payment of a pro rata share of building operating
expenses. The Company has also guaranteed the underlying debt on the
property, which consists of a $1,100,000 term loan expiring January
2000. Total approximate rent expense for the years ended May 31, 1998
and 1997, was $126,000 and $73,000, respectively, of which approximately
$88,000 in 1998 was with the related party. During 1998 the Company
amended their lease agreement, which resulted in cancellation costs of
approximately $20,000.
Note 6: Employee Benefit Plan
The Company has a 401(k) profit sharing plan covering all employees who
meet the age and service requirements of the plan. Employees may make
elective contributions and the Company, at the discretion of the Board
of Directors, has the option of making a matching contribution each
year, up to 25 percent of the employees contribution. No matching
contributions were made for the year ended May 31, 1998. The Company
made matching contributions of approximately $2,400 in 1997.
Note 7: Litigation
In September 1996, a jury verdict in the amount of $352,000 was awarded
to a former vendor for its claim that the Company owed additional
amounts under a 1988 software license agreement. This liability was
full accrued in 1997 and recorded in other expense. In December 1997,
the Company entered into a settlement agreement with this vendor to
reduce the jury award to $200,000. The remaining amount due under the
agreement calls for annual payments of $25,000 through December 2002,
with an additional $25,000 due December 1999. In the event the Company
defaults on any of the annual payments, the full judgment, less any
amounts paid under the settlement agreement, will be reinstated. The
reduction in the liability of $152,000 is recorded in other income in
1998.
Note 8: Subsequent Event
On July 23, 1998, Biosensor acquired all of the outstanding shares of
Carolina Medical, Inc. (CMI), pursuant to a Plan of Reorganization and
Agreement by and between Biosensor and CMI, dated May 29, 1998.
Biosensor acquired all shares of CMIs common stock in exchange for
149,025.15 shares of Biosensor's Series A preferred stock. Each share
of Series A preferred stock is convertible into 96 shares of Biosensor
common stock. Each share of Series A preferred stock votes and
participates in dividends and liquidations on an as-if-converted basis.
The holders of the Series A preferred stock now have voting power equal
to approximately 83 percent of the voting power of all issued and
outstanding shares of Biosensors capital stock.
For accounting purposes, the transaction became effective July 1, 1998.
Because CMI effectively controls the Company after the transaction, the
transaction will be recorded as a "reverse acquisition," whereby CMI
will be deemed to have acquired Biosensor. The net assets of Biosensor
acquired will be recorded at fair market value. The historical
financial statement, of the Company prior to the acquisition will become
those of CMI. Subsequent to July 1, 1998, the financial statements will
include the operations of the combined companies.
In connection with the merger, Biosensor was released from the corporate
guarantee on a $1.1 million loan for the facility partially occupied by
the Company (see Note 5). However, Biosensor agreed to reimburse the
related partnership owning the building for any increase in interest
costs resulting from the refinancing of the partnership's debt through
December 31, 2002. The rate of interest on the building debt is
variable (currently 8.125 percent). This debt is due January 1, 2000.
For every 1 percent increase in the interest rate above 8.125 percent,
the additional annual cost to the Company would be approximately
$11,000.
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 77,115
<SECURITIES> 0
<RECEIVABLES> 264,604
<ALLOWANCES> 17,000
<INVENTORY> 209,330
<CURRENT-ASSETS> 549,697
<PP&E> 357,582
<DEPRECIATION> (322,670)
<TOTAL-ASSETS> 602,609
<CURRENT-LIABILITIES> 237,947
<BONDS> 0
0
0
<COMMON> 142,153
<OTHER-SE> 239,662
<TOTAL-LIABILITY-AND-EQUITY> 602,609
<SALES> 1,929,037
<TOTAL-REVENUES> 1,929,037
<CGS> 991,170
<TOTAL-COSTS> 2,191,810
<OTHER-EXPENSES> (158,151)
<LOSS-PROVISION> 0
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