SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission File No. 0-16341
ADVANCED MEDICAL PRODUCTS INC.
(Name of Small Business Issuer in its Charter)
Delaware 16-1284228
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6 Woodcross Drive, Columbia, South Carolina 29212
(Address of Principal Executive Offices) (Zip Code)
(803) 407-3044
Issuer's Telephone Number, Including Area Code)
Securities Registered Under Section 12(b) of the Exchange Act
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities Registered Under Section 12(g) of the Exchange Act
Common Stock, $.01 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 Issuer was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [ x ]
Check here if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of the Issuer'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. [ ]
The Issuer's total revenues for its most recent fiscal year were
$2,976,847.
The aggregate market value, as of December 31, 1997, of voting stock
held by non-affiliates was approximately $820,524.97/
The number of outstanding shares of common equity on December 31,
1997 was 5,962,495
Transitional Small Business Disclosure format (check one):
Yes [ ] No [ X ]
Total pages = . Exhibit Index Appears on Page .
ADVANCED MEDICAL PRODUCTS INC.
INDEX
Item Page
PART I
1. Description of Business 3
2. Description of Property 15
3. Legal Proceedings 16
4. Submission of Matters to a Vote of
Security Holders 17
PART II
5. Market for Common Equity
and Related Stockholder Matters 17
6. Management's Discussion and Analysis 20
7. Financial Statements 25
8. Changes in and Disagreements with
Accountants on Accounting
and Financial Disclosure 25
PART III
9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act 26
10. Executive Compensation 28
11. Security Ownership of Certain Beneficial
Owners and Management 34
12. Certain Relationships and Related Transactions 35
PART IV
13. Exhibits, List and Reports on Form 8-K 36
Item 1. Description of Business
Advanced Medical Products Inc. (the "Registrant" or the "Company")
develops, manufactures, assembles and markets medical diagnostic equipment and
software primarily for use in physicians' offices. Holter monitors (24 hour
electrocardiogram (ECG) monitors) and ambulatory blood pressure (ABP)
instruments have provided most of the Company's past sales. A portable
ultrasound imager developed by the Company has not produced sales, but is
expected to contribute to future sales.
The Company has demonstrated it's ability to develop, produce and market
miniaturized electronic devices for medical applications that are generally
smaller, lighter and take less power than similar products offered by
competitors; it's mission is to provide to the medical profession leading edge
hardware and software technology that will save physicians time, reduce cost of
health care and improve patient outcomes. Most of the Company's revenues in
the past have resulted from sales to office based family practice physicians,
internists and cardiologists. Because of changes taking place in health care,
the Company is in the process of redirecting much of it's marketing efforts
towards managed care organizations, including Health Maintenance Organizations
(HMO's), Group Purchasing Organizations (GPO's), Integrated Health Networks
(IHN's) and hospitals where many of the purchasing decisions are now being
made. In addition, much of the engineering development efforts are being
directed toward enhancements and features such as personal computer (PC)
interfaces, "Windows" based software and digital storage and electronic
transfer of medical records (telemedicine) that make the Company's products
more attractive to the markets available in the current health care
environment. The Company intends that all future products will be PC based,
and will include telemedicine features.
The Registrant was incorporated under the laws of the State of Delaware
on September 3, 1986, and in June 1987, successfully concluded an initial
public offering of its Common Stock, providing net proceeds to the Registrant
of approximately $2,034,000. Effective September 13, 1989, the Registrant
reverse split its outstanding Common Stock at the rate of 1:100, and
recapitalized so as to authorize the issuance of a total of 5,000,000 shares of
Common Stock, $.01 par value. All references to shares and per share data in
this Annual Report give retroactive effect to such reverse split and re-
capitalization. In September 1992, the Company amended its Certificate of
Incorporation so as to create a class of stock consisting of 4,000 shares of
redeemable Class A Preferred Stock, and sold 2,000 of such shares, for
$2,000,000, to Nishimoto Sangyo Company, Ltd., (Nishimoto) a distributor of the
Company's products (see "Distributor/OEM Arrangements", and "Market for Common
Equity and Related Stockholder Matters"). In 1996, Nishimoto assigned all
rights of redemption on the preferred stock to the Company and purchased 113
additional shares of preferred stock, and subscribed for 300,000 shares of
common stock, paid in satisfaction of $215,000 in unpaid dividends and
interest. In 1996, the Company amended its certificate of incorporation
increasing the authorized common stock to 7,000,000 shares.
During the Registrant's third quarter of fiscal 1996, Carolina Medical
Inc. purchased from the Company a total of 2,150,000 shares, or 42.1%, of the
Company's then currently issued and outstanding common stock for $430,000. In
November 1997, Carolina Medical purchased an additional 850,000 common shares,
which increased that Companys ownership in the registrants common stock to
3,000,000 shares or 50.3% of the total outstanding.
For the two fiscal years ended June 30, 1996 and June 30, 1997, the
Registrant generated revenues of $4,232,428, and $2,976,847, respectively, and
incurred net losses of $(1,040,418), and $(680,912), respectively. In 1996,
equity investments of $430,000, the conversion of the $2,000,000 in redeemable
preferred stock into non-redeemable preferred stock, the conversion of $215,000
in unpaid dividends into equity, the conversion of $160,000 in past due rent
into long term liability (which was subsequently converted to equity in
September 1996), the cancellation of certain future long term lease payment
obligations and the implementation of operating cost reductions totaling more
than $60,000 per month, the Company's financial position was substantially
improved. In December 1996, Nishimoto converted $104,000 of their December 31,
1996 preferred stock dividend into 104 shares of $1,000 face value Preferred
Stock to bring their total Preferred Stock ownership to 2,217 shares out of
2,377 shares of Class A Preferred Stock outstanding.
PRODUCTS
The Company's products include various solid state electronic medical
diagnostic devices supported by several proprietary "D.O.S." and "Windows"
based software programs that run on personal computers. Current products
consist of a family of ambulatory electrocardiogram ("ECG") monitors, and
ambulatory blood pressure ("ABP") monitors. The Company's products are
assembled at and shipped from the Company's facilities in Columbia, South
Carolina (see "Assembly and Shipping", below) and are marketed by the Company
and by several private label distributors (see "Distributor/OEM", below).
Manufacturing of circuit assemblies is out sourced to contract manufacturers.
The Company markets its products through in-house marketing personnel, with
extensive use of direct mail and telemarketing in conjunction with independent
manufacturers representatives (see "Sales and Marketing", below). During
fiscal 1997, product revenue was derived from sales of ambulatory ECG monitors
and blood pressure monitors and a unique combination unit that monitors both
ECG and blood pressure. The Company's first marketable software product, the
MICRO ANALYST I was introduced during the year and had some sales; however, the
MICRO ANALYST I is expected to contribute more to 1998 revenues.
Marketing of the Company's existing and proposed products are and will be
subject to the jurisdiction of the Federal Food and Drug Administration
("FDA"). In addition, the ability of the Company to successfully market its
products is materially dependent upon the extent to which medical procedures
utilizing the Company's products are reimbursable under insurance programs.
While most procedures utilizing the Company's existing products are currently
reimbursable, there is no assurance that current reimbursement policies will
continue. Further, changes in the national health care system brought about by
changes in governmental regulation, and in the insurance industry have had and
will continue to have substantial affect on the Company and its operations.
(See "Government Regulation" and "Insurance Reimbursement", below.)
Ambulatory ECG (Holter) Monitor
An electrocardiogram ("ECG") is a primary source of diagnostic
information for the physician as it has the capability to non-invasively
(without puncture or incision of the skin or insertion of an instrument into
the body) record and detect electrical events of the heart, including
arrhythmia's (disorders of the cardiac rhythm) and/or symptomatic or
asymptomatic (without symptoms) ischemia (the interruption of blood supply and
oxygen to the heart, caused by the blockage of coronary arteries). An
ambulatory (a diagnostic technique where the patient is monitored while
engaging in normal activities) ECG monitor consists of electrodes which are
taped to the patient's chest and connected by cables to a monitor which records
up to 24 hours of ECG information transmitted from the electrodes. The ECG
monitor stores the information received, and, when connected to a computer
and/or external printer, can be stored for future use, displayed on a viewing
monitor and/or printed, or transmitted electronically to a remote site for
interpretation by a specialist.
The various ECG monitoring systems produced and marketed by the Company
are designed to produce a concise printout of the recorded information. Each
system consists of a monitor, weighing approximately six ounces and powered by
two "triple A" 1.5 volt batteries, a printer, which is a standard computer
printer with certain modifications, computer software, connecting cables and,
in certain models, a personal computer and laser printer (if desired by the
customer).
The Company's proprietary MICRO FD? ECG Monitor has the ability to
continuously record, and subsequently print out, up to 24 hours of ECG
waveforms in a compressed format known as "full disclosure". In addition, this
system prints full size, diagnostic quality ECG strips of clinically
significant events, such as arrhythmias and ischemia.
The Company's proprietary MICRO SI? was introduced in 1988. The MICRO
SI? utilizes the same basic technology as the MICRO FD?, and, in addition, by
interfacing the monitor with a computer, the operator is provided with a
variety of analysis, editing, display, reporting and/or storage options,
including comprehensive printout capabilities. Included is an option for high
speed, superimposition scanning.
The Company's proprietary "New Age" ambulatory ECG monitoring system
introduced in 1992 is an advancement over the MICRO FD? and MICRO SI? systems
due to its smaller size and lighter weight. The "New Age" system is used with
a direct operator interface or by interfacing with a monitor and computer,
using proprietary "New Age" software developed by the Company, which runs on
the "D.O.S." operating system. The Company recently introduced a new software
product called "MICRO ANALYST I" for use with the New Age which operates on a
PC under the "Windows" or "Windows 95" operating systems. Numerous features
and enhancements were added to the MICRO ANALYST I during fiscal 1997.
The Company has received FDA pre-marketing authorization to market its
family of ambulatory ECG (Holter) monitoring systems. Procedures utilizing
technology of the type incorporated in its family of ambulatory ECG systems are
currently reimbursable under guidelines recommended by the Health Care
Financing Administration ("HCFA"), and under most private third-party
reimbursement programs. (See "Government Regulation", below.)
Ambulatory Blood Pressure Monitor
The Company also markets a family of diagnostic devices incorporating an
ambulatory blood pressure monitor (the "ABP Monitor"). The ABP Monitor records
up to 24 hours of blood pressure data, including systolic, diastolic and mean
arterial pressures and pulse rate in a solid state recorder. Management
believes that the ABP Monitor is smaller, lighter and quieter than similar
units available from other manufacturers, and is designed to be more
comfortable for the patient. Results recorded by the ABP Monitor are capable
of being printed out in a tabular format on a printer or displayed on a viewing
monitor.
The Company currently offers both a stand-alone ABP monitor and combined
ECG Holter and ABP Monitor. The Company has received FDA pre-marketing
clearance to market the ABP Monitor. The stand-alone blood pressure monitoring
procedure is not generally reimbursable under many existing government-
sponsored reimbursement programs; however, private, third-party insurers are
increasingly approving reimbursement for the blood pressure procedure.
Management believes that this trend is due to lower long-term costs to carriers
when hypertension is diagnosed early. The ECG Holter procedure performed
simultaneously with the blood pressure procedure, utilizing the Company's
combined ECG Holter and ABP Monitor, is currently reimbursable under existing
reimbursement guidelines recommended by HCFA. Due to current reimbursement
guidelines, Management anticipates that domestic sales of ABP Monitors will
continue to be predominantly for the combined ECG Holter and ABP Monitor
version of the product. This product is unique in the market as the Company
believes it is currently the only manufacturer producing a combination system.
Twelve Lead Electrocardiograph
During fiscal 1993, the Company commenced marketing a twelve lead
electrocardiograph (the "SPECTRA ECG?") for use in the physicians' office. The
SPECTRA ECG? is designed to operate in conventional "12 lead" or "rhythm"
modes, thus allowing the physician to perform in-office ECG analysis. To
assist the physician in this analysis, the SPECTRA ECG? performs an
"interpretive" analysis. The SPECTRA ECG? incorporates computer software that
is proprietary to an unaffiliated third party. The Company has licensed the
non-exclusive right to use such software in the SPECTRA ECG?, and incurred
annual license fees for such right. The Company pays royalties based upon
products actually sold, subject to minimum annual guaranteed royalties payable
to the licensor. Management determined in 1996 that the Company had not been
successful at selling the SPECTRA ECG product against aggressively priced
competitive products at prices and in sufficient quantity that would cover
manufacturing, royalty and selling expenses. Therefore, the Company has phased
out the SPECTRA ECG product. Reserves were booked in 1996 to cover the costs
of such phase out. Effective April 1, 1996 the minimum annual guaranteed
royalty was terminated by agreement with the Licensor.
Ultrasound Imager
The Company has developed the first model of a miniaturized, hand-held,
ultrasound imager (the "MICROS QV?" previously known as the "Ultra PCI").
Market introduction of this product at the American College of Emergency
Physicians show in September 1996 gave indicators of strong market interest.
The MICROS QV? displays real time, ultrasound images of internal organs on a
small flat panel television screen (3" diagonal). The unit permits the
physician to "freeze" any image on the television screen and store up to ten
images internally in digital memory. The image may be reproduced to a hard
copy through an accompanying printer or transmitted to a personal computer for
storage on a hard disk or floppy disk for subsequent image storage, archiving,
processing or for electronic transfer to a remote location for interpretation
or "second opinion" by a specialist. The MICROS QV? weighs approximately 33
ounces and its size is approximately 5"x2"x9". The unit is powered by a
rechargeable battery pack that provides up to two hours of continuous scanning.
Management believes that the MICROS QV? is a unique product which
provides two major advantages over other currently available ultrasound
technology: first, the ease of use of a small unit, and; second, the lower cost
of the device. Management is not aware of another hand held ultrasound imager
currently available in the marketplace. Management believes that the market
for the MICROS QV? includes various hospital departments such as emergency
departments and radiology and a wide range of physicians, including
gynecologists, obstetricians, cardiologists, internists, family practitioners
and general practitioners. In emergency room, ambulance of emergency helicopter
situations, life saving answers may sometimes be found using the portable
MICROS QV? Ultrasound system for immediate abdominal or pelvic exams. Findings
may include (but not limited to) pericardial effusion, left ventricle
hypertrophy, ectopic pregnancy, ovarian cyst, fluid in the abdomen, abdominal
aortic aneurysm, gall stones and kidney stones.
The Company has received FDA pre-marketing authorization for the MICROS
QV?, and has built prototype units, but does not presently have the financial,
technical or marketing resources needed to release the product. While
Management believes that procedures utilizing the MICROS QV? will be
reimbursable on a basis equivalent to procedures utilizing other ultrasound
imagers, there is no assurance that such reimbursement will continue at its
present rate. (See "Government Regulation", below.)
Other Products - The Company intends to identify, develop, license or
purchase technology consistent with its objective of marketing medical
diagnostic equipment and software for use in the physicians' office and for
selective niche hospital applications. While Management is currently
considering several technologies for development by the Company, no material
contractual and/or capital commitments have yet been made with respect to any
such technology.
The Company has purchased most of the parts and materials needed to manufacture
twenty five pre-production units and has completed production of fifteen units
of the MICROS QV product. Approximately $135,000 of the Companys inventory is
devoted to this product line, which could be considered at risk if the
product is not successfully marketed.
INTERNATIONAL DISTRIBUTION/OEM ARRANGEMENTS
The Company sells its products internationally through foreign
distributors, some of whom resell the products under their own private label.
In addition, the Company derives a portion of its revenues from domestic and
international arrangements pursuant to which the Company manufactures products
intended to conform to specifications provided by customers, for resale by such
customers under their own respective product designations. In some cases, the
Company grants the Distributor/OEM an exclusive geographic territory in which
the Company agrees not to authorize any other Distributor/OEM to sell products
bearing the product name and/or product configuration manufactured for any
other Distributor/OEM. The Company intends to continue to pursue
Distributor/OEM business on a purchase order basis, and is currently a party to
Distribution/OEM Agreements with customers including Nishimoto Sangyo Company,
Ltd. ("Nishimoto"), Kontron Instruments Ltd., and Delmar Avionics.
Pursuant to the Company's distributor agreement with Nishimoto, Nishimoto
has agreed to purchase products from the Company for resale under its product
name and design in Japan and Taiwan. In addition, at the time of execution of
the initial Distribution/OEM Agreement, Nishimoto purchased $2,000,000 of the
Company's redeemable Class A Preferred Stock. The Distribution/OEM Agreement,
which expired in October 1997, was extended to October 1998. The Company
believes that the Distribution Agreement will be extended year to year. On
March 31, 1996 the preferred stock agreement was renegotiated and Nishimoto
assigned all redemption rights to the Company. See "Market for Common Equity
and Related Stockholder Matters", below.
Nishimoto accounted for 11% of the Company's total revenues in fiscal
1997 and 13% in fiscal 1996; Kontron accounted for 7% in revenues in 1997 and
16% in 1996.
GOVERNMENT REGULATION
Regulations applicable to the marketing of medical devices, including
claims as to product capability and performance, are generally administered by
the Federal Food and Drug Administration ("FDA"). In addition, policies
concerning insurance reimbursement for procedures performed by physicians using
the Company's products are influenced by determinations of the United States
Health Care Financing Administration ("HCFA"). The Company has, from time to
time, consulted with professional advisors experienced in FDA and HCFA matters,
however no written legal or other opinions have been obtained from such
advisors in connection with their consulting activities or the Company's FDA
filings. The Company relies upon the expertise of Management in formulating
Company policy affected by FDA and HCFA regulations and guidelines. Further,
changes in national health care policy and other changes in governmental
regulations, have affected and will continue to affect the Company and its
operations.
FDA Review
The proprietary non-invasive diagnostic medical products currently
marketed and under development by the Company are subject to regulatory
approvals by various government agencies. The FDA regulates diagnostic devices
such as those sold and under development by the Company. If a diagnostic
product is "substantially equivalent" to one or more pre-existing defined
products or test procedures, the FDA may not conduct a detailed review. When
there is no "substantial equivalent" to one or more pre-existing defined
products or test procedures, however, the review process may be lengthy. While
the Company does not believe that review of its diagnostic devices currently
under development will be required, there can be no assurance that FDA
clearance may not be required and if required will be obtained, or that the FDA
will, in fact, determine that they are "substantially equivalent" devices, or
that additional testing or modifications will not be necessary to obtain FDA
clearance, all of which would result in additional expense to the Company and
would delay marketing and sales of the products affected. The Company cannot
proceed with sales of such products until it receives clearance notification
from the FDA. In the event that the FDA requests additional information, there
could be multiple cycles of submissions, each involving a 90 day waiting
period, until clearance is obtained. If the FDA grants pre-marketing clearance
of a product, its regulations will apply to manufacturing and marketing of the
product, including product labeling. In the event that FDA clearance is not
obtained for a product, the Company may be unable to market such product. FDA
marketing clearance does not evidence any endorsement or product recommendation
on its part.
The Company has received FDA pre-marketing clearance for its family of
Holter and ECG monitors, its ABP monitors, as well as for the ULTRA PVD? and
the MICROS QV? ultrasound imagers.
Insurance Reimbursement
Suppliers of health care products and services are greatly affected by
Medicare and other government reimbursement programs, which reimbursement rates
Management believes generally parallel government reimbursement rates.
Physicians are currently reimbursed specified amounts for diagnostic procedures
performed with the Company's products. Reimbursement programs, including those
applicable to Federal, State and private insurance carriers, are greatly
influenced by determinations and rate recommendations made by HCFA. Regional
Medicare and Medicaid administrators, as well as private carriers, often
establish their reimbursement rates and policies, based upon HCFA
recommendations.
The ability of physicians to perform procedures that are reimbursable
under insurance programs has a significant impact upon the ability of the
Company to successfully market its products. In the event that HCFA
reclassifies procedures and/or recommends new or different reimbursement rates,
or should other regulatory changes make it uneconomic to perform diagnostic
tests in a physician's office, the Company's business could be adversely
affected.
Procedures utilizing the Company's existing family of products are
reimbursable under existing reimbursement codes recommended by HCFA. However,
there is no assurance that procedures utilizing such products will continue to
be reimbursable or that reimbursement will continue at current rates.
Management believes that blood pressure diagnostic procedures are currently
reimbursable under insurance guidelines in certain regions and that procedures
utilizing the ABP Monitor are reimbursable by some private carriers.
Management expects that such reimbursement will increasingly be approved by
private carriers as the long-term cost saving benefits of early diagnosis of
hypertension are shown.
Changes in Legislation
The current political and social climate in the United States includes
the continuing pursuit of health care reforms designed to provide health care
benefits to all Americans. An emphasis of most health care reform proposals
was on preventative care, i.e., early diagnostic testing and early intervention
and treatment, rather than high cost, critical care at a later date.
Management believes that proposed change in legislation will have a favorable
impact upon the Company's future operations because they address the need for
primary care physicians to undertake responsibility for diagnostic testing in
their office practices.
While management continues to believe that additional health care reforms
will be adopted, the current political environment makes it impracticable to
predict the precise direction and nature that health care reform may take. The
extent of governmental regulation of medical diagnostic devices which might
arise from future legislative or administrative action, and the consequences
thereof to the Company, cannot accurately be predicted at this time.
SALES AND MARKETING
The Company markets its products through an in-house network consisting
of marketing persons, regional sales managers and territorial sales assistants.
Marketing personnel utilize on-going direct mail campaigns and selected trade
shows to create awareness and generate leads for its sales force. Territory
sales assistants qualify leads, and the regional sales managers then follow-up
leads and pursue sales. Sales personnel are compensated primarily on a
commission basis (and, in certain cases, by salary plus commission). The
Company also markets its products in the U.S. through independent
manufacturers' representatives.
The Company has focused its marketing efforts toward office-based,
primary care physicians, and has found that, due to their large number, direct
mail and telemarketing are efficient tools to create awareness and generate
interest in the Company's products.
The Company sells its products internationally through foreign
distributors. Currently the Company has distribution agreements with Nishimoto
Sangyo Company Ltd. for distribution in Japan and Taiwan and with Kontron
Instruments for distribution throughout Europe.
RESEARCH AND DEVELOPMENT
The Company currently conducts research and development activities in
order to enhance existing products and develop proposed products. For the two
fiscal years ended June 30, 1997 and June 30, 1996, the Company incurred
research and development expenditures of $205,264, and $363,100, respectively.
Additional direct costs of development of the Windows 95 based Analyst I
software were capitalized during both fiscal years. Most of research and
development expenses during the most recent fiscal year were incurred in
connection with enhancements to the Holter and Ambulatory Blood Pressure
devices; in fiscal 1996, much of the expense was incurred on the Micros QV and
on write-offs of previously capitalized costs.
The Company intends to rely upon trade secret protection and
confidentiality agreements, as well as restrictions on disclosure of
information contained in design documentation, to safeguard its proprietary
product designs and technology. Nevertheless, competitors may be able to learn
certain of the Company's trade secrets or copy its product designs or develop
similar products. Should the Company be unable to safeguard its trade secrets,
it could materially impact on the Company's business. (See "Patents and
Trademarks", below.)
ASSEMBLY AND SHIPPING
The Company's ECG monitors, its ABP Monitors and MICROS QV Ultrasound
products consist of solid state electronic components and circuit boards,
electrical cables and computer software programs. Some components are standard
items, while others will be manufactured to the Company's specifications. The
components are generally available from multiple sources and the Company does
not believe it will be dependent upon specific suppliers as the sole source of
components for its existing and proposed products. The Company currently has no
binding arrangements with any subcontractors. Molded plastic parts for the
various products manufactured by the Company are subcontracted for manufacture
to the Company's specifications by unaffiliated parties using tooling owned by
the Company. Component parts are assembled at and systems are shipped from the
Company's facilities. The Company intends to out source more of its
manufacturing in the future in order to further reduce in-house fixed costs.
Operations at the Company's facilities include assembly, quality control,
servicing, and shipping. The Company performs test and inspection procedures
in order to minimize errors and enhance operating reliability. The Company
believes that its procedures are consistent with regulations established by the
FDA with respect to manufacturing practices for medical devices. The FDA
periodically reviews the Company's facilities and procedures, having recently
completed a review in October 1997.
There is a risk that the Company may have to repair or replace products
which it markets or reimburse persons for products in use that prove to be
defective, and the Company books warranty reserve to cover an estimate of these
expenses. In addition, the Company could be subject to claims for personal
injuries or property damage resulting from the use of its products. To date,
Management is not aware of any product liability claim against the Company.
The Company does not currently maintain product liability insurance, and a
successful product liability claim could have a materially adverse impact on
the Company's financial condition.
BACKLOG
As of June 30, 1997 and June 30, 1996, the Company's backlog of orders
was not significant. Generally, the Company builds product to forecast and
ships from stock and does not have a significant backlog.
COMPETITION
The Company's current and proposed products face competition from a
variety of professionally accepted and recognized diagnostic systems.
Competition is based on product characteristics (including reliability and
performance efficiency), price, warranty terms and service. Numerous companies
produce medical electronic equipment, many of which have substantially greater
financial resources and personnel than the Company. The Company also competes
with commercial services, which provide ambulatory ECG and ABP monitoring, and
ultrasound imaging services to individual physicians, physicians' group
practices and hospitals.
The Company believes that its principal competitors in the office
ambulatory ECG market are Rozin, Burdick, Biosensor and Q-Med, Inc.; and in the
ambulatory blood pressure market are Spacelabs, Inc., and Welch Allyn. The
Company believes there is currently limited competition in the portable
ultrasound market as Management knows of no hand held ultrasound imager
currently being produced or manufactured; however, larger, less portable
ultrasound imagers are currently being marketed for use in hospitals, labs,
clinics and in the physicians' office. The efficacy of the Company's products
has not been verified by independent sources.
PATENTS AND TRADEMARKS
Management does not believe that the technology incorporated into its ECG
monitors, ABP Monitors and other current products, or to be incorporated in the
Company's proposed products, is amenable to patent protection because such
technology is not new, but rather represents innovative uses for existing
technology. The Company intends to rely upon trade secret protection and
confidentiality agreements, as well as restrictions on disclosure of
information contained in design documentation, to safeguard its proprietary
product designs and technology. Nevertheless, competitors may "reverse
engineer" the Company's products and thereby learn certain of the Company's
trade secrets or copy its product designs or develop similar products. Should
the Company be unable to safeguard its trade secrets, it could materially
impact on the Company's business. While the Company intends to rely on common
law ownership and un-patented proprietary processes to protect its trade
secrets, there is no assurance that others will not independently develop such
processes or independently develop substantially similar processes and even
obtain patents thereon. (See "Research and Development", above.)
The Company claims common law trademark ownership of the identifying
names of its products (e.g., MICRO SI?, ULTRA PVD?, SPECTRA ECG?, MICROS QV?,
MICRO ANALYST I, etc.), and evidences such ownership claims through the use of
symbol "TM". The Company intends to claim trademark ownership with respect to
identifying names of proposed products, as and when such proposed products are
shipped or sold. The Company has not sought and does not currently intend to
seek formal Federal trademark registration for its product names. Such common
law trademark ownership provides trademark protection only in jurisdictions in
which the trademark is actually used and, therefore, it is possible that third
parties may claim trademark ownership in the Company's marks in jurisdictions
where the Company is not actually using the trademark. While Management
believes that Federal registration is not required in order to obtain trademark
protection, such registration would provide certain protection in addition to
those afforded by the use of the symbol "TM" (e.g., the right to sue in Federal
court for trademark infringement; constructive notice of a claim of ownership,
which eliminates a good faith defense for a party adopting the trademark
subsequent to the date of registration; and prima facie evidence of the
validity of the registration, Registrant's ownership of the mark and of
Registrant's exclusive right to use the mark in commerce in connection with the
goods specified in the registration certificate). In the event a third party
were to successfully challenge any trademarks used by the Company, significant
expense in adopting new trademarks could be incurred.
EMPLOYEES
The Company currently employs 15 full-time persons consisting of its
Chief Executive Officer, its President, 1 Vice President, a sales and marketing
staff of 4, a manufacturing staff of 4 persons, 1 service person and 1 quality
control person, a product development engineer, and 1 administrative person.
The Company also employs part-time persons, 4 in sales, 1 in administration and
utilizes the services of outside consultants from time to time. The Company is
not a party to any collective bargaining agreement and believes it enjoys
harmonious employee relations.
Item 2. Description of Property
The Company is a party to a lease agreement (the "Lease") with T & L A
Partnership (the "Landlord"), pursuant to which the Company has leased a 10,080
square foot building located at 6 Woodcross Drive, Columbia, South Carolina
29212. This Lease is for a term of five years, which commenced on November 1,
1996. The Lease provides for the Company's payment of rent in the amount of
$6,720 per month for year one, $7,056 per month for year two, $7,392 per month
for year three, $7,728 per month for year four, and $8,064 per month for year
five of the Lease term. The Company is required to maintain the property at
its expense, and to pay the costs of electricity, lights, water, sewer, heat,
janitor service and all other utility services consumed in connection with the
Company's tenancy. The Company will have the option of renewing the lease
for an additional five (5) years at the prevailing rate in effect at the end of
the initial five year lease period, with all terms and conditions of the
original lease applicable throughout the second or optional five years. The
Company also had an eighteen (18) month purchase option with the right to buy
the property or assign this option to an affiliated party, which expired on
April 30, 1998.
Prior to November 1, 1996, the Company had a lease agreement (the
"Lease") with South Carolina Real Estate Development Company, Inc. (the
"Landlord"), pursuant to which the Company leased approximately four acres of
land and a building consisting of approximately 20,800 square feet situated
thereon. The land and building (the "Premises") are located at the Carolina
Research Park, in Columbia, South Carolina. The Lease was originally for a
term of fifteen years, which commenced on or about January 20, 1993. On
September 20, 1996, the Company terminated it's lease effective October 31,
1996 and satisfied all past due amounts with the issuance of 160 shares of
$1,000 per share face value Class A Preferred Stock. The Class A Preferred
Stock carries an annual dividend of five percent (5%) payable in January of
each year. The lease was terminated with no further obligations on future
periods of the lease.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Registrant
is a party or of which any of its property is subject, nor is the Company aware
of any material proceedings to which any officer, director or affiliate of the
Registrant or beneficial owner of more than 5% of Registrant's outstanding
securities, or any associate of any such persons, is a party adverse to the
Registrant or has a material interest adverse to the Registrant, except as
follows:
The Company was a third party defendant in a lawsuit commenced on or
about July 28, 1993 under the caption Joseph W. Grefer v. Paul Anderson,
individually, and d/b/a Crossroads Commons (New York Supreme Court, County of
Onondaga). On February 20, 1997, a Decision by the Supreme Court dismissing the
Paul Anderson third-party action against Advanced Medical Products was made.
Since then, a Notice of Appeal has been filed, but no preliminary filings have
been received.
The Company was a defendant in a lawsuit commenced on August 12, 1994 in
Court of Common Pleas, State of South Carolina, under the caption Keshlear
Associates, Inc. v. Advanced Medical Products. On November 7, 1996, both
parties agreed to resolve the controversy for a total of $18,200. The Company
paid the Plaintiff $9,200 at that time and agreed to pay monthly installments
of $750. The last payment was made November 7, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Registrant's Common Stock, $.01 par value, is traded in the over-the-
counter market and, through February 1, 1995 was quoted on the NASDAQ automated
quotation system under the symbol "ADVA". The Company's Common Stock was de-
listed from NASDAQ trading commencing February 2, 1995, due to the Company's
inability to meet NASDAQ capital and surplus requirements.
Set forth below is the range of high and low bid information for the
Registrant's Common Stock for the two preceding fiscal years. Quotations
through February 1, 1995 are reported by NASDAQ and reflect closing bid prices.
Quotations subsequent to February 1, 1995 are reported from the Pink Sheets
and reflect daily bid prices. These quotations represent prices between
dealers, do not reflect retail mark-up, mark-down or commissions, and may not
represent actual market transactions.
High Bid Low Bid
Third Calendar Quarter, 1995 7/16 3/16
Fourth Calendar Quarter, 1995 1/2 3/16
First Calendar Quarter, 1996 7/16 1/4
Second Calendar Quarter, 1996 1/2 1/4
Third Calendar Quarter, 1996 1/2 1/4
Fourth Calendar Quarter, 1996 3/4 3/16
First Calendar Quarter, 1997 7/16 3/16
Second Calendar Quarter, 1997 6/16 2/16
As of December 31, 1997, there were approximately 1,883 record holders of
the Registrant's outstanding Common Stock.
The Registrant has never paid any cash dividends on its Common Stock and
does not anticipate paying cash dividends on its common stock in the
foreseeable future, but rather intends to retain earnings, if any, for future
growth and expansion opportunities. Payment of cash dividends in the future
will be dependent upon the Registrant's earnings, financial condition, capital
requirements and other factors determined to be relevant by the Board of
Directors.
Registrant has 4,000 shares of authorized Class A Preferred Stock, no par
value, of which 2,377 shares are currently issued and outstanding. Nishimoto
Sangyo Company, Ltd. ("Nishimoto") owns 2,217 shares, and 160 shares are owned
by SCANA Corporation. The Class A Preferred Stock provided that a majority of
the holders of such shares may require Registrant to redeem all or any portion
of such shares at any time following the expiration or termination of that
certain Distribution Agreement between Registrant and Nishimoto, dated
September 8, 1992, as amended, or in the event of a change of control of
Registrant of a nature which would be required to be reported in response to
Item 6(e) of Schedule 14A of the Securities Exchange Act of 1934, as amended.
Further, Registrant was required to redeem all outstanding shares of the Class
A Preferred Stock on October 15, 2002.
Pursuant to that certain First Amendment to Preferred Stock Purchase
Agreement between Registrant and Nishimoto, effective as of March 31, 1996 (the
"Amendment"), Nishimoto assigned to Registrant all rights of redemption,
mandatory or otherwise, to which Nishimoto was entitled with respect to all or
any part of the Class A Preferred Stock. The rights of redemption which were
assigned, included all demand redemption rights upon the expiration or
termination of the Distribution Agreement or as of October 15, 2002.
Nishimoto further agreed that any transaction which has or may result in
a change of control of Registrant which is sufficient to entitle it to demand
redemption rights were waived and are not applicable in the event Carolina
Medical, Inc. or any of its affiliates, including BIOTEL International, Inc.,
is the party or
parties acquiring control of Registrant. In any other transaction involving a
change of control sufficient to result in demand redemption rights to
Nishimoto, if Nishimoto does not consent to any such change of control,
Nishimoto will continue to enjoy demand redemption rights with respect to such
transaction.
Additionally, Registrant and Nishimoto modified the definition of "change
of control" for this purpose. A "change of control" will constitute the
occurrence of a change in the power to direct the voting rights of greater than
fifty percent (50%) of each class of outstanding voting shares of capital stock
of Registrant or the transfer of substantially all of Registrant's assets.
These modifications were effected solely by contract between Nishimoto and
Registrant, and have not been incorporated in Registrant's certificate of
incorporation.
The terms of the Class A Preferred Stock entitled the holder thereof to
cash dividends at the rate of $50.00 per annum per share. Dividends on such
shares are cumulative. Such dividends are payable annually in arrears. The
dividends payable upon the Class A Preferred Stock for December 31, 1994 and
December 31, 1995 were not paid to the holder of such shares. As of March 31,
1996, the total arrearage was $215,000. Pursuant to the Amendment with
Nishimoto, Registrant satisfied the accrued, but unpaid, December 31, 1994
dividend and interest thereon by the issuance of an additional 113 shares of no
par preferred stock as an offset to $113,000 of their accrued dividend and
accumulated interest. The balance of $102,000 of their accrued dividend and
interest due December 31, 1995 was converted into 300,000 shares of $0.01 par
common stock at $0.34 per share as of March 31, 1996 and were issued by
December 31, 1996. Nishimoto waived and released any and all claims and causes
of action against Registrant arising on account of the nonpayment of the
December 31, 1995 dividend.
On January 12, 1996 Carolina Medical, Inc., a privately held medical
device manufacturing company located in King, North Carolina, purchased 750,000
shares of Advanced Medical Products, Inc.'s authorized but un-issued common
stock for $150,000. BIOTEL International, Inc., a holding company (which was
subsequently acquired by Carolina Medical) purchased an additional 1,400,000
shares of Advanced Medical's common stock on March 29, 1996 for $280,000. As a
result of these stock purchases, Carolina Medical beneficially owned an
aggregate of 2,150,000 shares, or 42.1%, of the Company's common stock.
In December 1996, Nishimoto converted $104,000 of their December 31, 1996
preferred stock dividend into 104 shares of $1,000 face value Preferred Stock
to bring their total Preferred Stock ownership to 2,217 shares out of 2,377
shares of Class A Preferred Stock outstanding
On October 20, 1997 the Company entered into a Stock Purchase Agreement
with Carolina Medical, Inc., selling an additional 850,000 shares of common
stock of Advanced Medical Products, Inc. to Carolina Medical, Inc. for
$263,500. Of this amount, $183,500 was paid to the Company in November and the
balance was structured as a note, which was paid by April 30, 1998. This stock
purchase increased Carolina Medicals ownership in the Company to 3,000,000
shares or 50.3 percent of the 5,962,496 issued and outstanding common stock
shares.
Since December 31, 1997 the Company has been in violation of its
preferred stock agreements with Nishimoto-Sangyo Company, Ltd. and SCANA
Corporation, the Company's two preferred stockholders. These two preferred
stock agreements require that an annual dividend of $50 per $1,000 of the face
value of the preferred stock be declared and paid at the end of each calendar
year. However, the Company had deficits in both retained earnings and
stockholders equity at December 31, 1997 and therefore under Delaware law
cannot legally declare a stock dividend. Nishimoto-Sangyo has been unwilling to
convert unpaid dividends into additional common or preferred shares of Advanced
Medical, as they have done in prior years, but has indicated a willingness to
sell their common and preferred stock in the Company in exchange for shares of
Carolina Medical, Inc. If that transaction were to be consummated, then
Carolina Medical would own 55.3% of the common stock and 93.3% of the preferred
stock of the Company issued and outstanding.
The Company believes that internally generated funds, the revolving
credit agreement with Emergent Financial Group, the loan agreement with
Carolina Medical, and the cash received from Carolina Medical for the purchase
of an additional 850,000 shares of common stock, should provide sufficient
working capital to meet immediate needs, but not sufficient to meet longer term
working capital requirements. The Company is actively seeking additional
capital sources to provide long term debt or equity funding. The Company has
had discussions with Carolina Medical and others regarding possible additional
investments in the Company, or a possible share exchange. However there is no
assurance that existing shareholders will provide the Company with any
additional funding, or that other sources of funding will be available if and
when needed.
Item 6. Management's Discussion and Analysis
"Management's Discussion and Analysis" of the financial condition and
results of operations, and other sections of this report contain various
"forward-looking statements" which represent the Company's expectations
concerning future events including the following: the Company's future cash
flows, results of operations and overall financial performance, the expected
continuing availability of the credit line, the Company's continuing ability to
sell its Holter and ambulatory blood pressure products to office practices, and
the Company's belief regarding future recovery from declining revenues in the
medical device industry.
Because of the forgoing factors, the actual results achieved by the
Company in the future may differ materially from the expected results described
in the forward-looking statements. The following discussion should be read in
conjunction with the accompanying Consolidated Financial Statements, including
the notes thereto, appearing elsewhere herein.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
Net sales declined 30% to $2,976,847 in fiscal 1997 from $4,232,428 in
fiscal 1996. Sales of medical devices to office based physicians in the
Companys major markets, the U.S., Europe and Japan, have continued to be
adversely impacted by changes taking place in the health care industry,
particularly the continuing moves toward managed care and capitation of
costs. Many physician practices have been sold to hospitals or managed care
groups and capital equipment expenditures by health care providers have been
reduced substantially over the past few years.
The Companys international sales were down more than domestic sales with
sales to Nishimoto Sangyo, the Companys distributor in Japan, off more than
40%. Sales in Germany were also considerably lower due to general economic
conditions in Germany and reductions in medical procedure reimbursement rates
implemented in Germany during 1996. Lower international sales impacted profits
to a greater degree than lower domestic sales because of the substantially
lower sales and marketing costs to the Company on international sales.
Despite lower sales, gross margins were increased from 42% in fiscal 1996
to 45% in 1997 so that gross profits of $1,333,887 in fiscal 1997 were off by
$430,565 even though sales were off by $1,255,581. This was the result of a
combination of lower inventory write-offs in 1997 and by continuing cost
reduction measures that reduced fixed overhead expenses. Emphasis on selling
products with higher profit margins also contributed positively.
Selling, general and administrative expenses of $1,782,301 or 59.9% of
sales were lower by $869,327 in fiscal 1997, partly due to lower commissions on
the lower level of sales and partly due to reduced expenditures on marketing,
lead generation, and salaries. Selling, general and administrative expenses in
1996 were 62.7% of a much higher sales level. Some of the marketing and sales
cost reductions implemented in fiscal 1997 undoubtedly contributed to lower
sales in 1997.
Research and development costs for fiscal 1997 of $205,264 were 7% of
sales and were lower than in 1996 by $157,836; additional direct costs of
development of the Windows 95 based Analyst I software product were capitalized
during both fiscal years. This product is expected to contribute to sales in
fiscal 1998; the capitalized costs of $90,078 will be expensed over a three
year expected useful life of the product.
Interest expense increased from $22,314 in fiscal 1996 to $65,168 in
fiscal 1997 as a direct result of borrowing against the revolving credit line
established with Emergent Financial Group during the second quarter of fiscal
1997.
The net loss for fiscal 1997 was ($680,912) compared to losses of
($1,040,418) in fiscal 1996. Although net losses have been substantially
reduced in each of the last two fiscal years, cost cutting measures have not
produced cost savings fast enough to return the Company to profitability in
light of the steadily declining sales. Of the $680,912 loss in 1997, $311,729
of it was reported in the second quarter when the Company wrote off a remaining
inventory from an unprofitable product line, and incurred expenses in
connection with relocating to lower cost facilities. The Company believes that
fixed costs have now been reduced sufficiently to enable the business to
operate near break-even at the current level of sales. However, there can be no
assurance that sales will not continue to decline or that additional cost
reductions will not be required in order to attain profitability.
Cash was higher at the end of fiscal 1997 by $36,307. Inventory was
reduced during the year by $236,958 to $512,812 by a combination of write-offs
for discontinued product lines, and continuing efforts to reduce required
stocking levels. Current assets were lower at June 30, 1997 by $253,467; total
assets were lower by $297,503.
Current liabilities were higher at the end of fiscal 1997 by $373,380;
long term liabilities were lower by $138,066.
Fiscal 1996 Compared to Fiscal 1995
Net sales decreased 10% to $4,232,428 in fiscal 1996 from $4,684,664 in
fiscal 1995 following a 29% decline in sales from 1994 to 1995. These
decreases were primarily the result of unsettled market conditions in the
medical device market, and in the health care industry in general, caused by
governmental and insurance company driven health care reform. Many of the
Company's customers, primarily office based physicians, have sold their
practices to hospitals or managed care groups, or have seen their incomes
capped, which caused them to delay investing in capital equipment to enhance
their practices.
Gross margin decreased from 45% in fiscal 1995 to 42% in fiscal 1996, due
to the write-offs and reserves totaling $406,000 for obsolete and discontinued
inventory. Without these write-offs and reserves, the 1996 gross margin would
have improved to 51%.
Selling, general and administrative expense included wages and salaries
of approximately $748,043 in fiscal 1996 (including the severance package of
$85,040 for the previous President), and $762,000 in fiscal 1995 with the
fiscal 1996 decrease attributable primarily to the January 1996 layoffs. The
overall decrease in selling, general and administrative from $3,561,249 in
fiscal 1995 to $2,651,628 in fiscal 1996 is primarily due to January layoffs
and continued efforts to reduce and control costs.
The net loss for fiscal 1996 was $(1,040,418), compared to $(1,988,816)
for fiscal 1995. Management attributes $800,000 of the 1996 loss to the write-
off of and reserves against manufacturing inventory of $406,000, write-offs of
$115,332 of previously capitalized engineering prototype inventory, $194,933 of
bad debts from prior periods, and the severance package of $85,040 for the
Company's previous President. The remaining loss of $240,000 was the result of
disproportionate operating expenses during the first half of the fiscal year
which were substantially reduced during the third and fourth quarters. The
Company generated $43,000 in profit from operations, prior to write-offs and
reserves, during the fourth quarter of fiscal 1996.
Accounts receivable decreased from $643,153 in June 30, 1995 to $547,441
at June 30, 1996. The decrease resulted from decreased revenues and efforts to
expedite collections.
Inventory decreased from $1,208,358 at June 30, 1995 to $749,770 at June
30, 1996. The decrease resulted from efforts to reduce purchases and from
write-offs of certain obsolete inventory and reserves for discontinued product
lines.
Other current assets decreased from $256,678 in fiscal 1995 to $117,095
in fiscal 1996. The decrease is primarily due to the expensing of an un-
collectible note receivable and the elimination of lease deposits as a result
of debt restructuring.
Accrued wages and commissions increased from $93,287 in fiscal 1995 to
$121,014 in fiscal 1996. The increase results from a change to semi-monthly
from bi-weekly payroll.
Research and development costs for fiscal 1996 were approximately
$363,000 compared to approximately $451,000 in fiscal 1995. The fiscal 1996
expenses include $115,000 resulting from write-offs of prototype inventory
charged to engineering development. The decrease is due to the reassignment of
certain engineering personnel.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used $405,790 of cash during fiscal 1997 compared
with $309,453 used during fiscal 1996. In fiscal 1997,
$103,910 was used for capital expenditures compared with $90,459 in fiscal
1996. Cash increased by $36,307 in 1997 and decreased by $17,480 in 1996.
On October 21, 1996, the Company entered into an asset based credit
agreement with Emergent Financial Corporation of Greenville, South Carolina.
Under this agreement, the Company may borrow 80 percent of eligible accounts
receivable (as defined in the agreement) and 30 percent of eligible inventory
(as defined in the agreement) up to a total loan balance of $750,000. Interest
is calculated at an annual percentage rate of Prime plus 2% as defined by
NationsBank of Georgia, N.A., plus additional monthly fees of .75% of the
average daily balance outstanding.
As of October 31, 1996, the Company was released from a fifteen-year
lease with SCANA that represented a future long-term lease liability of
$1,676,272. The payments under the lease annualized were $156,000 and were
scheduled to escalate over the remaining term of the lease. SCANA received 160
shares of the Companys Class A Preferred Stock as payment in full of the
delinquent lease payments of approximately $160,000.
On June 1, 1996, the Company restructured five operating leases with
Syracuse Supply Company of Syracuse, New York into one short-term note. The
note was repaid in 12 monthly installments of $913, accrued interest at 11
percent and was secured by equipment, furniture and fixtures.
On March 12, 1996 the Company restructured eight operating leases and
it's short-term note with Onbank of Syracuse, New York into one long-term note.
The note will be repaid in 48 monthly installments of $2,000, accrued interest
at 11 percent, and is secured by furniture, fixtures, and equipment. The
balance as of June 30, 1997 was $58,731.
During fiscal 1996 the Company was released from a factoring agreement
with Cambridge Capital Management, Inc. of Boca Raton, Florida and entered into
a new factoring agreement with Global Acceptance Corporation of Detroit,
Michigan ("Global") pursuant to which Global has agreed to advance 75% (less
$100) of the Company's eligible accounts receivable. However, in October of
1996 the Company was released from the factoring agreement with Global and
entered into an asset based credit agreement with Emergent Financial (see
above).
In January 1996 the Company sold to Carolina Medical, Inc.,
750,000 shares of Advanced Medical's authorized but un-issued common stock for
$150,000 cash. On March 29, 1996 BioTel International, Inc., a holding company
that owned a majority interest in Carolina Medical's common stock purchased an
additional 1,400,000 shares of Advanced Medical's common stock for $280,000.
These transactions provided $430,000 of cash for working capital purposes.
On July 1, 1996, the Company entered into a loan agreement with Carolina
Medical, the Companys largest shareholder, under which the Company borrowed
$150,000 at 12 percent annual rate of interest. The balance on this note as of
June 30, 1997, including interest due, was $159,482.
During the years ended June 30, 1997 and 1996 the Companys net losses
were approximately $681,000 and $1,040,000. As of June 30, 1997, the
Companys accumulated deficit in earnings was approximately $4,772,000. In
addition, the Company was in violation of loan covenants on its credit line
with Emergent Financial, and a number of vendors have placed the Company on
cash on delivery terms. The Company's independent auditors have provided a
"going concern" opinion regarding the future operations of the Company.
Management is aggressively addressing these matters by reviewing the current
operations of the Company and reducing operating costs wherever possible,
while developing new products to meet the demands of the changing medical
device market. In January 1996, in an effort to cut and control operating
costs, the Company laid off 20 of its non-key personnel and terminated certain
programs such as its performance bonus plan, guaranteed commission to new
sales personnel, and auto allowances. During 1997, the number of employees
was further reduced from 32 to 16. The Company has been under a general wage
and hiring freeze. Manufacturing of the Companys products has been
contracted out wherever possible to reduce manufacturing overhead and improve
cash. Management continues to closely monitor sales, gross margins and
operating expenses, making adjustments where necessary to become profitable.
The Company has continued to invest in technology development,
specifically the development of "Windows 95" software for processing Holter
and blood pressure data, and for the transmission of cardiac data as FTP files
over the Internet. Management believes these developments enhance the
Company's future business opportunities.
On October 20, 1997, the Company entered into a Stock Purchase Agreement
with Carolina Medical to sell an additional 850,000 shares of its common stock
for $263,500. Cash of $183,500 was paid to the Company by November 10, 1997,
and the balance was paid by April 30, 1998. This stock purchase increased
Carolina Medicals ownership in the Company to 50.3% of the issued and
outstanding common stock. The Company believes that internally generated
funds, the revolving credit agreement with Emergent Financial Group, the loan
agreement with Carolina Medical, and the cash received from Carolina Medical
for the purchase of an additional 850,000 shares of common stock, should
provide sufficient working capital to meet immediate needs but not sufficient
to meet longer term working capital requirements. The Company is actively
seeking additional capital sources to provide long term debt or equity funding.
The Company has had discussions with Carolina Medical and others regarding
possible additional investments in the Company, or a possible share exchange.
However there is no assurance that existing shareholders will provide the
Company with any additional funding, or that other sources of funding will be
available if and when needed. The Company does not have any current plans for
major capital expenditures in fiscal 1998.
The ability of automated systems to recognize the date change from
December 31, 1999 to January 1, 2000 is commonly referred to as the Year 2000
matter. Similar to most other organizations, the Company has assessed the
potential impact of the Year 2000 matter on its operations based on current and
foreseeable computer and other automated system applications. The Company
believes and future costs associated with modifying its computer software and
other automated systems for the year 2000 matter will not be material.
Item 7. Financial Statements
Financial information required by this Item is attached to this Report
beginning on page F-1. See also Item 13.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Information with respect to changes in accountants during the
Registrant's two most recent fiscal years or in any subsequent interim period
has been "previously reported" (within the meaning of Rule 12b-2) and,
accordingly, is not disclosed hereunder.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The current directors and executive officers of the Registrant are as
follows:
Name Age Position and Term of Service
L. John Ankney 68 Director since January 1996
James H. Brown 49 Director since September 1986,
George L. Down 57 President since October 1997.
Vice President since April 1996.
Director since September 1986
David A. Heiden 49 Director since January 1996
C. Roger Jones 57 Director since January 1996
Ronald G. Moyer 62 Chief Executive Officer, Treas-
User and Chairman of the Board
Since January 1996; President
From January 1996-October 1997.
Deborah Riente 42 Vice President since December
1993 and Secretary since August 1992
L. John Ankney served as President and Director from 1970 to 1993 for
Transnational Electronic and Funding Corporation, an investment, venture
capital, and management consulting company. From 1968 to 1970 he was Senior
Vice President at Computer Leasing Company, and prior to that time he was
President and Director for Holland Associates. Mr. Ankney served as a director
of Digilog, Inc. from 1974 to 1989.
James H. Brown is a technology and strategy consultant to the Company,
and a Director of the Company and currently supervises the Company's product
development activities, and provides technical support to the Companys
international dealers and OEM customers. Mr. Brown received his Master of
Science degree in electrical engineering from Polytechnic Institute of New York
in 1975 and a Bachelor of Science degree in physics from Georgia Tech in 1970.
Mr. Brown devotes his full-time to the business of the Company.
George L. Down is President and a Director of the Company and currently
oversees the Company's operations. Prior to his appointment to the position as
President in October 1997, Mr. Down was Vice President of Sales and Marketing
for the Company. Until December 1992, and for more than the preceding five
years, he served as the president of Design Realizations, Ltd. ("DRL"), a
closely held corporation founded by Mr. Down, where he performed design and
packaging services for a variety of companies, including the Company. Mr. Down
received a Bachelor of Science in Industrial Design degree from Syracuse
University in 1964. Mr. Down devotes his full time to the affairs of the
Company.
David A. Heiden, is President and CEO of Urological Care America, Inc., a
company focused on enhancing the practice of urology 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
& Marketing. He has been with Carolina Medical since 1961. He has served as
Chairman for Eagle Golf Ball Company, Inc. since 1988.
Ronald G. Moyer is the Chief Executive Officer, Treasurer and Chairman of
the Board of the Company, and from January 1996 until October 1997, he served
as President of the Company. Since 1992 he has been the Chief Executive
Officer and Chairman of Carolina Medical Inc., a manufacturer of medical
instruments. From 1991 to 1992 he served as Director of Mergers and
Acquisitions for Dominion Holdings Group, a Merchant Bank. From 1989 to 1991
he served as Executive Vice President and Chief Operating Officer of CXR
Corporation, an AMEX listed company. Prior to that time since 1969 he was the
President, Chief Executive Officer and Chairman of the Board of Digilog, Inc.,
a NASDAQ listed public company. He received an MS in Aerospace Engineering
from Drexel University in 1963 and completed the Harvard Business School Small
Corporation Management Program in 1981.
Deborah Riente serves as Vice President of Corporate Administration.
From July 1991 until July 1992, Ms. Riente was employed as the Company's Human
Resources Manager, and from 1987 to July 1991, served as an administrative
assistant for the Company. Ms. Riente devotes her full-time to the business of
the Company.
The Company's Board of Directors is comprised of Messrs. Moyer, Ankney,
Brown, Down, Heiden and Jones. The term of office of each Director commences
on the date of the Company's Annual Meeting of Stockholders, and continues for
one year thereafter, or until his successor is duly elected and qualified. The
Company does not compensate its Directors for serving as such, but are and will
be reimbursed for their reasonable out-of-pocket expenses incurred in their
capacities as members of the Board of Directors.
Item 10. Executive Compensation
The following table discloses certain summary information concerning the
compensation paid for services rendered in all capacities to the Company for
the two fiscal years in the period ended June 30, 1997, to the Company's Chief
Executive Officer and its four most highly compensated executive officers other
than the Chief Executive Officer, whose total annual salary and bonus were in
excess of $100,000 (each, a "Named Executive Officer"):
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name Fiscal Other All Other
and Year Annual Compensa-
Principal Ended Salary Bonus Compensation Options tion
Position June 30 ($) ($) ($) (#) ($)
Clarence P. Groff(1) 1996 72,810 -0- -0- -0- 150,579(A)
Former Chief
Executive Officer
Ronald G. Moyer 1997 84,000 -0- -0- -0- -0-
Chief Executive 1996 39,367 -0- -0- -0- -0-
Officer
______________________
(A) Amounts reported reflect the dollar value of the following:
Employer
Contributions
Named Executive Under Profit Severance Car Performance Interest Fre Debt
Officer Year Sharing Plan Package Allowance Plan Loan
Forgiveness
Clarence P. Groff 1996 -0- 85,040 539 -0- 65,000
(1) Resigned as Chief Executive Officer effective January 12, 1996
(2) Elected Chief Executive Officer effective January 25, 1996
There were no grants of stock options during the fiscal year ended June 30,
1997 to the Named Executive Officer.
The following table sets forth information concerning each exercise of stock
options during the fiscal year ended June 30, 1997 by the Named Executive
Officer and the value of unexercised options held by the Named Executive Officer
as of June 30, 1997:
Aggregated Option Exercises in Fiscal 1997 and Fiscal Year-End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options
at FY-End (#) at FY-End ($)
Shares Acquired Value Real- Exercisable/ Exercisable/
Name on Exercise (#) ized (A) ($) Unexercisable (C) Unexercisable(B)
Ronald G. Moyer -0- -0- -0- -0-
Chief Executive
Officer
_____________________
(A) Market value of securities underlying options on the exercise date, less
the exercise price of such options.
(B) Market value of securities underlying "in the money" options at June 30,
1997, less the exercise price of such
options.
Employment Agreements
Effective July 1, 1992, the Company entered into executive employment
agreements with Clarence P. Groff and James H. Brown. Effective January 1,
1993, the Company entered into an employment agreement with George L. Down.
As of the year ended June 30, 1995 and continuing until January 26, 1996,
these employment agreements were in effect. However, coincident with the
investment by Carolina Medical, and the resulting changes in ownership, all
employment agreements have been terminated. There were no employment
agreements in effect on June 30, 1996 or June 30, 1997.
Performance Plan
The Company instituted a Quarterly Performance and Salary Adjustment Plan
(the "Performance Plan") for key management and administrative personnel.
Pursuant to the Performance Plan, each eligible employee's salary was reviewed
on a quarterly basis and could be increased, up to a maximum of 25% of base
salary, in accordance with a formula based upon achieving certain objectives
and goals previously agreed to by the Company and the employee. For fiscal
year ended June 30, 1996, the Company paid an aggregate of $32,117 to non-
officer employees and an aggregate of $23,235 to officers of the Company
pursuant to the Performance Plan. Effective January 19, 1996, this plan was
terminated.
Section 401(k) Plan
During fiscal 1993, the Company's Board of Directors established a
defined contribution profit sharing plan pursuant to Section 401(k) of the Code
[the "401(k) Plan"]. The 401(k) Plan is administered by F.P. Kessler, Jr. and
Associates, of East Syracuse, New York, in conjunction with The New England of
Boston, Massachusetts. The 401(k) Plan permits eligible employees to make
voluntary contributions to the 401(k) Plan up to an annual maximum dollar
amount of $9,500 for the calendar year 1997. The Company may contribute a
discretionary matching contribution on the basis of a $.25 contribution by the
Company for each $1.00 contribution by the employee, up to a maximum of 4% of
the aggregate employee contribution. Benefits under the 401(k) Plan are to be
distributed upon retirement, disability, death or termination of employment.
Each participant's share of the Company's contribution vests beginning after
three full years of service, at the rate of 20% after each of the third through
seventh years of service, at which time the participant becomes fully vested.
During the fiscal year the Company made no matching contributions pursuant to
the 401(k) Plan. Amounts to be contributed by the Company under the 401(k)
Plan are discretionary, and, accordingly,
it is not possible to estimate the amount of benefits that will be payable to
participants upon retirement.
Limitation on Liability of Directors; Indemnification
The Company's Certificate of Incorporation provides that a director of
the Company will not be personally liable to the Company or its shareholders
for monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. However, this provision
does not eliminate or limit the liability of a director of the Company (i) for
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to unlawful payment of dividends or
unlawful stock repurchases or redemptions), (iv) for gaining a financial profit
of other personal advantage to which he or she was not entitled, or (v) for
breaches of a director's responsibilities under the Federal securities laws.
The Company's by-laws provide that the Company shall indemnify its
officers, directors, employees and agents, to the extent permitted by the
General Corporation Law of Delaware.
Stock Option Plan
On January 26, 1987, the Board of Directors of the Company adopted a
Stock Option Plan pursuant to Section 422A (now renumbered Section 422) of the
Internal Revenue Code of 1986 (the "Code"). The Stock Option Plan was amended
on April 10, 1987, and was amended and restated on November 6, 1992. The
amended and restated Stock Option Plan (the "Plan") was approved by the
Stockholders on December 16, 1992.
A description of the Plan is set forth below. Such description is
qualified in its entirety by reference to the full text of the Plan, a copy of
which is available upon written request to the Company.
The Plan has two administration groups, one for non-qualified and one for
qualified stock options. Non-qualified Stock Option Committee members are Mr.
Moyer, Mr. Brown and Mr. Down. Qualified Stock Option Committee members are
Mr. Moyer, Mr. Ankney and Mr. Heiden. Unless otherwise approved by the
Company's stockholders, members of the Committee are eligible to receive
options only pursuant to Section 5(b) of the Plan, which establishes a formula
for the exercise of such options. Options granted under the Plan may be
qualified (incentive options within the meaning of Section 422 of the Code) or
non-qualified. Stock purchased pursuant to the exercise of an incentive option
is subject to repurchase by the Company at the option price thereof in the
event of the termination of employment for any reason of such option-
ee/purchaser within one year of the exercise of such option. Pursuant to Stock
Option Agreements between the Company and optionees of incentive options
granted under the Plan, the Company has a right of first refusal to purchase
shares issued upon the exercise of options during the five year period
commencing on the date of exercise. The maximum term of any option under the
Plan is ten years and the per share option price of incentive options may not
be less than 100% of the fair market value of the Company's Common Stock on the
date the incentive option is granted. However, incentive stock options granted
to persons owning more than 10% of the voting Common Stock of the Company may
not have a term in excess of five years or an option price per share less than
110% of the fair market value of the Common Stock on the date of the grant.
Subject to the foregoing, each Committee determines who shall have
options under the Plan, the number of shares of Common Stock that may be
purchased under each option, the option exercise price and the term of each
option. The Committee may impose additional restrictions and limitations on
the rights of optionees, consistent with the Plan. In the event the Company's
Common Stock is not publicly traded at the time of grant of the option, the
Committee shall make a good faith determination of fair market value. Options
shall be exercisable at such times and in such amounts as the Committee
determines upon the granting thereof. Except as otherwise set forth,
information set forth herein concerning options refers to both qualified and
non-qualified options. Decisions of the Committee are final.
Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution. A total of 750,000 shares may be
issued upon exercise of options granted under the Plan. The Plan will
terminate on November 5, 2002, or on such earlier date as the Board of
Directors may determine. Any option outstanding at the termination date will
remain outstanding until it expires or is exercised in full, whichever first
occurs.
As of June 30, 1997, options to purchase 335,500 shares of Common Stock
under the Plan were outstanding. These options are exercisable at prices
ranging from $.25 to $1.63 per share and expire at various dates through April
2000. During fiscal 1997, options to purchase 275,000 shares were granted, no
options were exercised, and options to purchase an aggregate of 54,850 shares
were terminated in accordance with the terms of the options.
Compensation Committee
During the fiscal year ended June 30, 1996, the Company initiated
a Compensation Committee of outside directors. Mr. Ankney is Chairman and
Mr. Heiden is a member. The Compensation Committee administers the Company's
salary, cash bonus, qualified stock option plan and other compensation plans
for the Company's employees and officers.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 1997 certain information
concerning beneficial ownership of the Company's Common Stock by (i) each
person known to the Company to own 5% or more of the Company's Common Stock,
(ii) each director of the Company and (iii) all directors and officers of the
Company as a group.
Amount and Nature Percent of
Name and Address of Beneficial Ownership (1) Class (2)
Ronald G. Moyer 3,000,000 (3) 50.31
6 Woodcross Drive
Columbia, SC 29212
Carolina Medical Inc. 3,000,000 (3) 50.31
157 Industrial Drive
King, NC 27021
Clarence P. Groff 576,666 9.67
231 N. Woodlake Dr.
Columbia, SC 29223
Nishimoto Sangyo Co., Ltd. 300,000 5.03
2-17-4 Yushima, Bunkyo-Ku
Tokyo, Japan
George L. Down 216,766 (4) 3.64
6 Woodcross Drive
Columbia, SC 29212
James H. Brown 182,058 (5) 3.05
6 Woodcross Drive
Columbia, SC 29212
Officers and Directors as 3,577,248 (3),(4) 60.00
a Group (of 4 persons) (5),(6),(7)
(1) As used herein, the term beneficial ownership with respect to a security
is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power to
dispose or direct the disposition of) with respect to the security through any
contract, arrangement, understanding, relationship or otherwise, including a
right to acquire such power(s) during the next 60 days.
(2) Does not give effect to the issuance of up to 115,000 shares in the event
of exercise of outstanding qualified and non-qualified stock options (except to
the extent Securities and Exchange Commission rules require the table to give
effect to the issuance of such shares).
(3) Ronald G. Moyer as Chairman and controlling shareholder of Carolina
Medical may be deemed to be beneficial owner of shares owned by both Carolina
Medical by virtue of his control over the voting power of those shares. Also,
C. Roger Jones as President and Director of Carolina Medical, may be deemed to
be beneficial owner of the shares owned by Carolina Medical Inc. by virtue of
his control over the voting power of those shares. (See "Description of
Business".
(4) Includes (i) 14,976 shares owned of record by the Helen L. Down Trust
(Helen Down is the mother of Mr. Down), for which Mr. Down serves as trustee
and (ii) 19,576 shares owned of record by members of Mr. Down's family, which
shares are subject to voting proxies held by Mr. Down and (iii) includes 20,000
shares issuable in the event of exercise of currently exercisable stock
options.
(5) Includes 21,000 shares issuable in the event of exercise of currently
exercisable stock options. Also includes (i) 2,342 shares owned of record by
the spouse of Mr. Brown and (ii) 11,900 shares owned of record by Mr. Brown's
sister-in-law, which shares are subject to a voting proxy held by Mr. Brown.
(6) Includes 52,924 shares beneficially owned by the Secretary of the Company
and 80,500 shares issuable in the event of exercise of currently exercisable
stock options granted to such officer.
(7) Includes 45,000 shares issuable in the event of exercise of currently
exercisable stock options granted to directors.
Item 12. Certain Relationships and Related Transactions
Effective September 13, 1989, the Company reverse split its outstanding
Common Stock at the rate of 1:100 and amended its Certificate of Incorporation
so as to (i) reduce the number of shares of Common Stock the Company is
authorized to issue from 500,000,000 to 5,000,000 and (ii) increase the par
value of each such share from $.0001 to $.01. All references to shares and per
share date in this Report give retroactive effect to such reverse split and re-
capitalization. In October 1992, the Company amended its Certificate of
Incorporation so as to authorize 4,000 shares of redeemable Class A Preferred
Stock, and in 1996 the Company increased its authorized common stock to
7,000,000 shares.
Pursuant to a Voting Trust Agreement, Clarence P. Groff was granted the
right to vote 357,200 shares of the Company's Common Stock owned by Dr. Steven
Berkowitz (a parent and promoter of the Company) or his transferees, until the
earlier of (i) October 24, 1996 or (ii) Mr. Groff's sale of all of his shares
in the Company. During the 1993 fiscal year, 7,500 shares issued to the
Company's Secretary were made subject to the provisions of the Voting Trust
Agreement. The Voting Trust was terminated on September 27, 1996.
On January 12, 1996, Clarence P. Groff, the Company's former largest
stockholder resigned as President, Chief Executive Officer, Principal
Accounting Officer, Chief Financial Officer, and Chairman of the Board. At
that time Mr. Groff entered into a termination arrangement with the Company
whereby he agreed to waive his rights and terminate a prior employment
agreement and the Company agreed to pay Mr. Groff $4,368.86 every two (2) weeks
beginning February 2, 1996 and ending December 20, 1996 for the following:
Severance Pay $75,000
Back Pay 11,649
50% of Accrued Car Allowance 4,125
Vacation Pay 10,040
Un-reimbursed Expenses 4,039
On March 31, 1996 the Company repaid a loan from Mr. Groff
in the principal amount of $9,375 plus interest at 9% APR of $751 as stipulated
in the above mentioned termination agreement.
Also as part the agreement, the Company agreed to indemnify
Mr. Groff for actions as an officer, director, employee, and agent of the
Company to the fullest extent permitted under the General Corporation Law of
Delaware. In consideration of the above, Mr. Groff agreed to a Confidentiality
and Non-Disclosure; Non-Compete; No Recruiting Covenant.
Item 13. Exhibits, List and Reports on Form 8-K
(a) The following Exhibits are filed as part of this Report:
3.1 Articles of Incorporation, as amended(1)
3.2 By-Laws(2)
4.1 Specimen Common Stock Certificate(3)
9.1 Voting Trust Agreement(7)
10.1 Employment Agreement with Clarence P. Groff(4)*
10.2 Employment Agreement with James H. Brown(5)*
10.3 Employment Agreement with George L. Down(6)*
10.5 Advanced Medical Products Stock Option Plan(8)
10.6 Preferred Stock Purchase Agreement with Nishimoto Sangyo Company,
Ltd.(9)
10.7 Lease with South Carolina Real Estate Development Company, Inc.(10)
10.8 License Agreement with HealthWatch Technologies,
Inc. (11)
10.9 Distribution Agreement with Nishimoto Sangyo Company, Ltd.(12)
10.10 Agreement for Manufacture of ULTRA PVD?(13)
10.11 Advanced Medical Products 401(k) Plan(14)
10.12 OEM/Distribution Agreement with Kontron Instruments Ltd.(15)
10.13 Distribution Agreement with AMP International, Inc.
10.14 OEM/Distribution Agreement with Multispiro Inc.
10.15 Intellectual Property License Agreement with Carolina Medical, Inc.
(16)
10.16 Subscription Agreement with Carolina Medical, Inc. (17)
10.17 First Amendment to Subscription Agreement with Carolina Medical,
Inc. (18)
10.18 Termination Agreement with Clarence P. Groff (19)
10.19 Termination Agreement with James H. Brown (20)
10.20 Termination Agreement with George L. Down (21)
10.21 First Amendment to Preferred Stock Purchase
Agreement with Nishimoto Sangyo Company, Ltd. (22)
10.22 Amendment to Distribution Agreement with Nishimoto
Sangyo Company, Ltd. (23)
10.23 Preferred Stock Purchase Agreement with Scana
Development Corporation. (24)
10.24 Lease with T & L A Partnership. (25)
10.25 Subscription Agreement with BIOTEL International Inc.
(1) Reference is made to Exhibit 7(a) to the Registrant's Report on Form 8-K
dated October 14, 1992, which is hereby incorporated by reference.
(2) Reference is made to Exhibit 3.1 to the Registrant's Report on Form 10-Q
for the quarter ended December 31, 1988, which is hereby incorporated by
reference.
(3) Reference is made to Exhibit 4.1 to the Registrant's Report on Form 10-K
for the year ended June 30, 1989, which is hereby incorporated by reference.
(4) Reference is made to Exhibit 10.1 to the Registrant's Report on Form 10-K
for the year ended June 30, 1992, which is hereby incorporated by reference.
(5) Reference is made to Exhibit 10.2 to the Registrant's Report on Form 10-K
for the year ended June 30, 1992, which is hereby incorporated by reference.
(6) Reference is made to Exhibit 10.3 to the Registrant's Report on Form 10-K
for the year ended July 2, 1993, which is hereby incorporated by reference.
(7) Reference is made to Exhibit 10.4 to the Registrant's Form S-18
Registration Statement (File No. 33-12559-NY) as filed on March 10, 1987, which
is hereby incorporated by reference.
(8) Reference is made to Exhibit 10.5 to the Registrant's Report on Form 10-K
for the year ended July 2, 1993, which is hereby incorporated by reference.
(9) Reference is made to Exhibit 7(a) to the Registrant's Report on Form 8-K
dated September 18, 1992, which is hereby incorporated by reference.
(10) Reference is made to Exhibit 7(a) to the Registrant's Report on Form 8-K
dated October 7, 1992, which is hereby incorporated by reference.
(11) Reference is made to Exhibit 10.9 to the Registrant's Report on Form 10-K
for the year ended June 30, 1992, which is hereby incorporated by reference.
(12) Reference is made to Exhibit 7(c) to the Registrant's Report on Form 8-K
dated September 18, 1992, which is hereby incorporated by reference.
(13) Reference is made to Exhibit 10.13 to the Registrant's Report on Form 10-
K for the year ended June 30, 1991, which is hereby incorporated by reference.
(14) Reference is made to Exhibit 10.12 to the Registrant's Report on Form 10-
K for the year ended July 2, 1993, which is hereby incorporated by reference.
(15) Reference is made to Exhibit 10.13 to the Registrant's Report on Form 10-
K for the year ended July 1, 1994, which is hereby incorporated by reference.
(16) Reference is made to Exhibit 10.15 to the Registrant's Report on Form 8-K
dated January 12, 1996, which is hereby incorporated by reference.
(17) Reference is made to Exhibit 10.16 to the Registrant's Report on Form 8-K
dated January 12, 1996, which is hereby incorporated by reference.
(18) Reference is made to Exhibit 10.17 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(19) Reference is made to Exhibit 10.18 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(20) Reference is made to Exhibit 10.19 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(21) Reference is made to Exhibit 10.20 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(22) Reference is made to Exhibit 10.21 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(23) Reference is made to Exhibit 10.22 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(24) Reference is made to Exhibit 10.23 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(25) Reference is made to Exhibit 10.24 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(26) Reference is made to Exhibit 10.25 to the Registrants Report on Form 10-
KSB for the year ended June 30, 1997, which is hereby incorporated by
reference.
* Management contract/compensatory plan.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf, by the undersigned, thereunto duly authorized.
ADVANCED MEDICAL PRODUCTS INC.
By:/s/ Ronald G. Moyer
Ronald G. Moyer, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Title Date
/s/Ronald G. Moyer CEO, Treasurer, and 5/18/98
Ronald G. Moyer Chairman of the Board
(Principle Executive Officer
and Principle Financial Officer)
/s/James H. Brown Director 5/18/98
James H. Brown
/s/George L. Down President and Director 5/18/98
George L. Down
/s/C. Roger Jones Director 5/18/98
C. Roger Jones
/s/L. John Ankney Director 5/18/98
L. John Ankney
/s/David Heiden Director 5/18/98
David Heiden
The Registrant has not furnished its 1997 annual report or proxy materials to
securities holders. The Registrant intends to furnish such information to
security holders, and to furnish copies thereof to the Commission, in accordance
with applicable rules and regulations.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant had duly caused this report to be signed
on its behalf, by the undersigned, thereunto duly authorized.
ADVANCED MEDICAL PRODUCTS INC.
By:
Ronald G. Moyer, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Title Date
CEO, Treasurer and
Ronald G. Moyer Chairman of the Board
(Principle Executive Officer and
Principle Financial Officer)
Director
James H. Brown
President and Director
George L. Down
Director
C. Roger Jones
Director
L. John Ankney
Director
David Heiden
The Registrant has not furnished its 1997 annual report or proxy
materials to securities holders. The Registrant intends to furnish such
information to security holders, and to furnish copies thereof to the
Commission, in accordance with applicable rules and regulations.
Advanced Medical Products Inc.
Financial Statements
Years Ended June 30, 1997 and 1996
Advanced Medical Products Inc.
Financial Statements
Years Ended June 30, 1997 and 1996
Report of Independent Certified Public Accountants F-3
Financial Statements
Balance Sheets F-4F-5
Statements of Loss F-6
Statements of Changes in Stockholders Equity (Deficit) F-7
Statements of Cash Flows F-8F-9
Summary of Significant Accounting Policies F-10F-13
Notes to Financial Statements F-14F-24
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Advanced Medical Products Inc.
Columbia, South Carolina
We have audited the accompanying balance sheets of Advanced Medical
Products Inc. as of June 30, 1997 and 1996, and the related statements
of loss, changes in stockholders equity (deficit), and cash flows for
the years then ended. These financial statements are the responsibility
of the Companys 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 Advanced
Medical Products Inc. at June 30, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raises substantial
doubt about its ability to continue as a going concern. Managements
plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Charlotte, North Carolina BDO Seidman, LLP
December 11, 1997, except
for Note 18 which is
dated as of April 28, 1998
June 30, 1997 1996
Assets
Current:
Cash $ 50,938 $ 14,631
Accounts receivable, net (Notes 2, 6, and 7) 554,552 547,441
Inventories (Notes 3 and 7) 512,812 749,770
Other current assets 57,168 117,095
Total current assets 1,175,470 1,428,937
Furniture and equipment, net (Notes 4 and 8) 282,384 345,993
Product software costs, net of accumulated
amortization of $271,422 and $238,950 90,078 77,225
Other assets 8,512 1,792
Total assets $ 1,556,444 $ 1,853,947
See accompanying summary of significant accounting policies and notes to
financial statements.
June 30, 1997 1996
Liabilities and Stockholders Equity (Deficit)
Current liabilities:
Notes payable (Note 7) $ 603,407 $ -
Accounts payable and accrued expenses 510,324 561,753
Accrued wages and commissions 89,949 121,014
Other current liabilities 254,961 390,857
Current portion of long-term debt (Note 8) 24,000 35,637
Total current liabilities 1,482,641 1,109,261
Long-term debt, less current maturities (Note 8) 34,732 251,107
Other liabilities 67,449 -
Dividends payable 61,860 51,000
Total liabilities 1,646,682 1,411,368
Commitments and contingencies (Notes 6, 12, and 16)
Stockholders equity (deficit) (Notes 1, 5, 6, 7,
11, 12, 14, and 18):
Class A preferred stock, no par value; authorized
4,000 shares; issued and outstanding 2,377 and 2,113
shares in 1997 and 1996, respectively 2,289,410 2,026,247
Common stock, $.01 par value; authorized
7,000,000 shares and 5,112,495 outstanding in
1997 and authorized 5,000,000 shares and 4,837,875
shares in 1996, respectively 51,125 48,379
Common stock subscribed - 102,000
Additional paid-in capital 2,340,915 2,356,729
Accumulated deficit (4,771,688) (4,090,776)
Total stockholders equity (deficit) (90,238) 442,579
Total liabilities and stockholders equity
(deficit)
$ 1,556,444 $ 1,853,947
See accompanying summary of significant accounting policies and notes to
financial statements.
Year Ended June 30, 1997 1996
Net sales (Notes 6 and 13) $ 2,976,847 $ 4,232,428
Cost of sales 1,642,960 2,467,976
Gross profit 1,333,887 1,764,452
Costs and expenses:
Selling, general and administrative 1,782,301 2,651,628
Research and development 205,264 363,100
Other expense (income) net, including interest
expense of $65,168 in 1997 and $22,314 in 1996 27,234 (46,139)
Loss from operations before extraordinary
gain on debt restructuring (680,912) (1,204,137)
Extraordinary gain on debt restructuring (Notes 8
and 9) - 163,719
Net loss $ (680,912) $ (1,040,418)
Net loss applicable to common shares $ (795,162) $ (1,201,141)
Loss per common share before extraordinary gain $ - $ (.36)
Net loss per common share $ (.16) $ (.32)
Weighted average common shares outstanding 4,968,841 3,741,658
See accompanying summary of significant accounting policies and notes to
financial statements.
Class A Issued Common Additional
Preferred Common Stock Stock Paid-in Accumulated Notes
Stock Shares Total Subsc. Capital Deficit Receiv.
Treasury
Stock Total
Balance, July 1, 1995
$ - 2,704,190 $27,042 $ - $2,194,415 (3,040,635) $(67,598)
$(27,751) $(914,527)
Accretion of preferred stock
- - - - - (9,723) -
- (9,723)
Issuance of common stock
- 2,149,300 21,493 - 408,507 - -
- 430,000
Dividends on preferred stock
- - - - (151,000) - -
- (151,000)
Reclassification
1,913,247 - - - - - -
- 1,913,247
Issuance of preferred stock
113,000 - - - - - -
- 113,000
Subscription of common stock
- - - 102,000 - - -
- 102,000
Retirement of treasury stock
- (15,615) (156) - (27,595) - -
27,751 -
Notes receivable cancellation
- - - - (67,598) - 67,598
- -
Net loss
- - - - - (1,040,418) -
- (1,040,418)
Balance, June 30, 1996
$2,026,247 4,837,875 48,379 102,000 2,356,729 (4,090,776) -
- 442,579
Issuance of common stock
- - 300,000 3,000 (102,000) 99,000 - -
- -
Retirement of common stock
- - (25,380) (254) - 254 - -
- -
Dividends on preferred stock
- - - - - (115,068) - -
- (115,068)
Issuance of preferred stock in settlement of accrued dividends
104,000 - - - - - -
- 104,000
Issuance of preferred stock in settlement of accrued liability
159,163 - - - - - -
- 159,163
Net loss
- - - - - - (680,912) -
- (680,912)
Balance, June 30, 1997
$ 2,289,410 5,112,495 $ 51,125 $ - $ 2,340,915 $(4,771,688) $ -
$ - $ (90,238)
See accompanying summary of significant accounting policies and notes to
financial statements.
Year Ended June 30, 1997 1996
Cash flows from operating activities:
Net loss $ (680,912) $(1,040,418)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 143,613 100,498
Provision for doubtful accounts 64,507 194,933
Provision for loss on disposition of inventory - 91,438
Gain on debt refinancing - (1,037)
Loss on disposal of fixed assets 11,053 34,749
(Increase) decrease in:
Accounts receivable (71,618) (99,220)
Inventories 236,958 367,150
Other assets 53,207 144,717
Increase (decrease) in:
Accounts payable (51,429) (492,591)
Accrued wages and commissions (31,065) 27,727
Other liabilities (68,655) 362,601
Net cash used in operating activities (394,341) (309,453)
Cash flows from investing activities:
Purchase of furniture and equipment (58,585) (76,379)
Capitalization of product software costs (45,325) (14,080)
Net cash used in investing activities (103,910) (90,459)
See accompanying summary of significant accounting policies and notes to
financial statements.
Year Ended June 30, 1997 1996
Cash flows from financing activities:
Net short-term borrowings 603,407 -
Payments on loan from stockholder - (9,375)
Payments on long-term debt (68,849) (38,193)
Issuance of preferred and common stock - 430,000
Net cash provided by financing activities 534,558 382,432
Net increase (decrease) in cash and equivalents 36,307 (17,480)
Cash, beginning of year 14,631 32,111
Cash, end of year $ 50,938 $ 14,631
See accompanying summary of significant accounting policies and notes to
financial statements.
Business
The Company develops, manufactures (through
subcontractors), assembles and markets diagnostic
equipment primarily for use in physicians offices.
Use of Estimates in Preparing Financial Statements
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, disclosure 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.
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 credit
financial institutions. No losses have been
experienced on such investments. The Company
reviews a customers 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
Inventory is stated at the lower-of-cost determined
by the first-in, first-out (FIFO) method or market.
Furniture, Equipment,and Depreciation
Furniture and equipment are stated at cost.
Depreciation is provided using the straight-line
method for financial reporting purposes and
accelerated methods for income tax purposes over
the estimated useful lives of the related assets
ranging from 5 to 8 years.
Revenue Recognition
Product is shipped directly to the Companys
customers. Revenue on these sales is recognized
when the product is shipped.
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 they are incurred. Other current liabilities
include service contract revenue deferrals of
approximately $125,000 in 1997 and $122,000 in
1996.
Product Development Costs
Costs associated with the development of new
products and changes to existing products are
charged to operations as incurred (except Product
Software Costs).
Product Software Costs
The Company capitalizes certain costs related to
the development of computer software once
technological feasibility of the software has been
established. These costs, which are reported at
the lower-of-unamortized cost or net realizable
value, are amortized principally using the
straight-line method, over the estimated useful
economic life of the software, generally 36 months.
Amortization expense amounted to approximately
$32,000 and $31,000 in 1997 and 1996, respectively.
Long-Lived Assets
In March 1995, Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, was issued. SFAS No.
121 requires that long-lived assets and certain
identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset may
not be recoverable. As of June 30, 1997, the
Company has determined that no impairment loss need
be recognized for applicable assets of continuing
operations.
Income Taxes
The Company accounts for income taxes under the
liability method. Deferred tax assets and
liabilities are based on the difference between the
financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates
which are anticipated to be in effect when these
differences reverse. The deferred tax provision is
the result of the net change in the deferred tax
assets and liabilities. A valuation allowance is
established when it is necessary to reduce deferred
tax assets to amounts expected to be realized.
New Accounting Pronouncements
In February 1997, the Financial Accounting
Standards Board issued SFAS 128, Earnings Per
Share, which established new standards for
computations of earnings per share. SFAS 128 will
be effective for periods ending after December 15,
1997, and will require presentation of:
1. Basic Earnings per Share, computed by dividing
income available to common stockholders by the
weighted average number of common shares
outstanding during the period and
2. Diluted Earnings per Share, which gives effect
to all dilutive potential common shares that
were outstanding during the period, by
increasing the denominator to include the number
of additional common shares that would have been
outstanding if the dilutive potential common
shares had been issued.
Had SFAS 128 been effective for the years ended
June 30, 1997 and 1996, basic and diluted earnings
per share would have been as follows:
June 30, 1997 1996
Basic earnings per share $.16 $.32
Diluted earnings per share $.16 $.32
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.
Reclassifications
Certain 1996 amounts have been reclassified to
conform with the 1997 presentation.
1. Going Concern
During the years ended June 30, 1997 and 1996, the
Companys net losses were $681,000 and $1,040,000.
As of June 30, 1997, the Companys accumulated
deficit was approximately $4,772,000. In addition,
the Company was in violation of bank loan
covenants, and a number of vendors have placed the
Company on cash on delivery terms.
Management is aggressively addressing these matters
by reviewing the current operations of the Company
and reducing operating costs wherever possible
while developing new products to meet the demands
of the changing medical device market. In January
1996, in an effort to cut and control operating
costs, the Company laid off 20 of its non-key
personnel and terminated certain programs such as
its performance bonus plan, guaranteed commission
to new sales personnel, and auto allowances.
During 1997, the number of employees was further
reduced from 32 to 16. The Company has been under
a general wage and hiring freeze. Manufacturing of
the Companys products has been contracted out
wherever possible to reduce manufacturing overhead
and improve cash flow. Management continues to
closely monitor sales, gross margins, and operating
expenses making adjustments where necessary to
become profitable.
The Company has continued to invest in technology
development, specifically the development of
Windows 95 software for processing Holter and
blood pressure data and for the transmission of
cardiac data as FTP files over the Internet.
Management believes these developments enhance the
Companys future business opportunities.
To improve its liquidity, subsequent to June 30,
1997, the Company sold 850,000 shares of common
stock to its largest stockholder, Carolina Medical,
Inc. (Carolina Medical) for $263,500. In addition,
the Company is actively seeking investment capital
from the sale of common or preferred stock, from
other present stockholders, and from potential new
investors. However, no assurance can be given that
the Company will be successful in raising
additional capital.
2. Accounts Receivable
Accounts receivable are summarized as follows:
June 30, 1997 1996
Trade receivables $ 545,908 $ 552,527
Other receivables 39,598 36,960
585,506 589,487
Less allowance for doubtful accounts 30,954 42,046
Net accounts receivable $ 554,552 $ 547,441
3. Inventories
Inventories are summarized as follows:
June 30, 1997 1996
Raw materials $ 248,254 $ 400,995
Work-in-process 56,934 52,854
Finished goods 207,624 295,921
$ 512,812 $ 749,770
4. Furniture and Equipment
Major classes of furniture and equipment consist of
the following:
June 30, 1997 1996
Equipment $ 248,002 $ 253,055
Furniture and fixtures 177,373 228,978
Tooling 614,972 607,765
Leasehold improvements 15,782 3,100
1,056,129 1,092,898
Less accumulated depreciation and amortization 773,745 746,905
$ 282,384 $ 345,993
Depreciation expense amounted to approximately
$112,000 and $78,000 in 1997 and 1996,
respectively.
5. Leases
In fiscal 1996, the Company leased its principal
place of business at an annual rental of $156,100.
In September 1996, the landlord, SCANA, agreed to
terminate the remainder of the Companys 15-year
lease as of October 31, 1996, in exchange for 160
shares of the Companys Class A preferred stock as
payment in full of the accrued rent in arrears of
approximately $160,000. The Company entered into
an agreement to lease another facility beginning
November 1, 1996, for a period of five years.
The Company also leases equipment in varying
monthly amounts. The terms of the leases range
from 36 to 58 months.
Annual minimum rental payments under operating
leases are as follows:
Years Ending June 30,
1998 $ 99,976
1999 89,327
2000 91,392
2001 95,424
2002 32,256
$ 408,375
Rent expense amounted to approximately $91,000 and
$172,000 in 1997 and 1996, respectively.
6. Related Parties
The Company had sales of approximately $320,000 and
$537,000 in 1997 and 1996, respectively, to
Nishimoto Sangyo Company, Ltd., a stockholder. At
June 30, 1997 and 1996, outstanding receivables of
approximately $148,000 and $125,000, respectively,
related to these sales.
Carolina Medical, a stockholder of the Company,
entered into a Licensing Agreement to utilize the
technology embodied in the Companys Ultra PCI
portable hand-held ultrasound product line for
other applications that will not be directly
competitive with the Companys current portable
applications for a fee. Royalties will be paid to
the Company by Carolina Medical on any future sales
of Carolina Medical products utilizing the Ultra
PCI technology.
During 1996, Clarence P. Groff, formerly the
Companys largest stockholder, resigned. At that
time Mr. Groff entered into a termination
arrangement with the Company whereby he agreed to
waive his rights and terminate a prior employment
agreement, and the Company agreed to pay Mr. Groff
a severance package. As part of the agreement, the
Company agreed to indemnify Mr. Groff for actions
as an officer, director, employee, and agent of the
Company to the fullest extent permitted under the
General Corporation Law of Delaware. In
consideration of the above, Mr. Groff agreed to a
confidentiality and nondisclosure, noncompete, no
recruiting covenant. The outstanding balance of
approximately $57,000 as of June 30, 1996, was paid
in fiscal 1997.
7. Notes Payable
As of June 30, 1997, the Company had $453,407
outstanding under a line-of-credit arrangement.
The line-of-credit is limited to the lesser of
$750,000 or the sum of 80 percent of eligible
receivables and 100 percent of eligible inventories
(capped at $130,000). The line bears interest at 2
percent plus the greater of the prime rate or 7
percent, is renewable December 31, 1997, and is
secured by accounts receivable and inventory. The
line was extended to December 31, 1998. However,
the Company is in violation of certain covenants,
including the minimum net working capital and
minimum tangible net worth requirements.
As of June 30, 1997, the Company had $150,000
outstanding on a loan agreement with BIOTEL, a
stockholder. The loan bears interest at a 12
percent annual rate and is payable on or before
January 1, 1998. Interest expense for the year
ended June 30, 1997, approximated $17,000. The
note has been extended to January 1, 1999.
8. Long-Term Debt
On March 2, 1996, the Company restructured the past
due rent under eight operating leases and its
short-term note with Onbank of Syracuse, New York
into one long-term note. As part of the agreement,
approximately $92,000 in delinquent lease payments
were forgiven and have been recorded as an
extraordinary item. The note will be repaid in 48
monthly principal installments of $2,000 plus
interest at 11 percent and is secured by furniture,
fixtures, and equipment. The balance of the note
was $58,732 and $74,964 as of June 30, 1997 and
1996, respectively.
In addition, the Company has $51,041 outstanding as
of June 30, 1997 and 1996, in miscellaneous notes
outstanding related to royalty agreements. The
notes are payable in monthly principal only
installments of $2,981.
On June 1, 1996, the Company restructured the past
due rent under five operating leases with Syracuse
Supply Company in Syracuse, New York into one
short-term note. As part of the agreement,
approximately $8,500 in delinquent lease payments
were forgiven and have been recorded as an
extraordinary item. The outstanding balance of the
note was $0 and $11,637 as of June 30, 1997 and
1996, respectively.
9. Extraordinary Gain on
Debt Restructuring
In addition to the Companys restructuring of its
debt discussed in Note 8, certain trade payable
account balances were settled for amounts less than
reflected in the accounting records in 1996. The
net amount forgiven of approximately $63,500 has
been reflected as an extraordinary item.
10. Income Taxes
The components of the net deferred tax asset were
as follows:
June 30, 1997 1996
Temporary differences relating to:
Inventory $ 81,954 $ 97,776
Accounts receivable 11,750 14,296
Furniture and equipment (41,871) (51,792)
Accruals 24,280 16,827
General business tax credits 170,115 188,195
Software costs (34,193) 26,257
Operating loss carryforwards 1,440,797 690,611
1,652,832 982,170
Less valuation allowance (1,652,832) (982,170)
$ - $ -
The Company had total net operating loss
carryforwards of approximately $3.8 million
available at June 30, 1997, which may be offset
against future taxable income through 2012. As a
result of uncertainties regarding the Companys
ability to realize its deferred tax assets,
valuation allowances equal to the entire amount of
such assets have been recorded at June 30, 1997 and
1996.
11. Stock Options
The Company 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 percent 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 1997 and 1996 is as follows:
Number Option Price
Shares Per Share Total
Outstanding at
June 30, 1996 115,350 $.31$1.63 $ 100,011
Granted 275,000 $.25 68,750
Canceled (55,350) $.31$1.63 (46,566)
Outstanding at
June 30, 1997 335,000 $.25 $1.63 $ 111,150
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 plans.
Had compensation cost for the Companys stock
option plan been determined based on the fair value
at the grant date for awards consistent with the
provisions of SFAS No. 123, the Companys net loss
and loss per share would have been reduced to the
pro forma amounts indicated below:
June 30, 1997
Net loss as reported $ (680,912)
Net loss pro forma $ (693,121)
Loss per share as reported $ (.16)
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:
- - Dividend yield of 0 percent
- - Expected volatility of 106.14 percent
- - Risk free interest rate of 6.94 percent
- - An expected life of 2 years
12. Commitments and Contingencies
The Company has not obtained product liability
insurance to date due to the prohibitive cost. The
nature and extent of liability for product defect
is uncertain. There are no known product liability
claims and management presently believes that there
is no material risk of loss to the Company from
product liability claims against the Company.
During 1993, the Securities and Exchange Commission
(SEC) commenced a private investigation of the
Companys accounting and recordkeeping practices to
determine if violations of Federal securities laws
have occurred. On September 5, 1996, the SEC
accepted an offer of settlement whereby the
Company, James H. Brown, the Companys Vice
President, and Clarence P. Groff, the Companys
former 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. The cease and
desist order provided for in the Order took effect
on the date of the entry of the Commissions Order.
13. Significant Customers and Export Sales
The percentages of the Companys sales to certain
major customers are as follows:
1997 1996
Kontron Instruments, Inc. 7% 16%
Nishimoto Sangyo Company, Ltd. (Note 6) 11% 13%
Export sales, primarily to Japan and the United
Kingdom, totaled approximately $536,000 and
$1,311,000 in 1997 and 1996, respectively.
14. Capital Stock
Transactions
During 1993, the Company authorized 4,000 shares of
Class A Preferred Stock, no par value, of which
2,000 shares were issued to Nishimoto Sangyo
Company, Ltd. (Nishimoto). The Class A Preferred
Stock calls for cumulative dividends of $50 per
share per year and has a liquidation preference of
$1,000 per share. In addition, interest is accrued
on all unpaid dividends at a rate of 10 percent per
annum. The Company is required to pay all
dividends on the preferred stock prior to declaring
or paying a dividend to common stockholders.
Prior to March 31, 1996, the Company could redeem
all but no less than all of the Class A Preferred
Stock at any time with a mandatory redemption date
of October 2002, at a price of $1,000 per share.
Additionally, the Class A preferred stock could be
redeemed at the option of the holder upon
termination of a distribution agreement with the
Company, with the redemption price payable in three
equal annual installments.
Effective March 31, 1996, Nishimoto relinquished
control of all redemption rights on its 2,000
shares of preferred stock and received an
additional 113 shares of preferred stock in lieu of
$113,000 of accrued but unpaid dividends and
accumulated interest. Redemption rights for these
additional shares has also been assigned to the
Company.
The Class A Preferred Stock is recorded at fair
value at the date of issuance. Prior to the
relinquishing of redemption rights, the difference
between the recorded value and the redemption value
was accreted using the interest method over the
life of the issue by charges to retained earnings.
On January 12, 1996, Carolina Medical purchased
750,000 shares of the Companys authorized but
previously unissued common stock for $150,000.
BIOTEL, a holding company that owns a majority
interest in Carolina Medicals stock, purchased an
additional 1,400,000 shares of the Companys common
stock on March 29, 1996, for $280,000. As
discussed in Note 18 subsequent to year-end, BIOTEL
purchased additional shares of the Company. In
addition BIOTEL was merged into Carolina Medical.
Effective March 31, 1996, Nishimoto entered into an
agreement to convert $102,000 of its accrued
dividend and interest into 300,000 shares of $0.01
par common stock at $0.34 per share to be issued by
December 31, 1996. As stockholders representing a
majority of the stock outstanding had signed
agreements to authorize the issuance of these
shares, the amount was classified as common stock
subscribed in the June 30, 1996, financial
statements. Effective December 1996, the Company
increased the number of authorized shares from
5,000,000 to 7,000,000, and the $102,000
subscription was converted to 300,000 common
shares.
On September 20, 1996, the Company issued 160
shares of Class A preferred stock to SCANA as
payment in full of the lease payments in arrears of
approximately $160,000.
On December 31, 1996, the Company issued 104 shares
of Class A preferred stock to Nishimoto in
settlement of dividends earned for calendar 1996.
15. Estimated Fair Value of Financial Instruments
The estimated fair value of financial instruments
have been determined based on available market
information and appropriate valuation
methodologies. However, considerable judgment is
necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily
indicative of the amounts that the Company might
realize in a current market exchange. The use of
different market assumptions and/or estimation
methodologies may have a material effect on the
estimated fair value.
The carrying amounts of cash and cash equivalents,
accounts receivable, short-term notes payable,
accounts payable, and other accrued liabilities are
reasonable estimates of their fair value.
At June 30, 1997, the carrying value of long-term
debt of approximately $70,000 did not differ
materially from its estimated fair value. At June
30, 1996, the carrying value of long-term debt was
approximately $287,000, while the estimated fair
value was $258,000, based upon interest rates
available to the Company for issuance of similar
debt with similar terms and remaining maturities.
The excess of carrying value over fair value in
1996 of $29,000 represents the future interest on
restructured debt, which is required under
generally accepted accounting principles to be
recognized currently as a reduction of the
extraordinary items discussed in Note 8.
The fair value estimates were based on pertinent
information available to management as of June 30,
1997 and 1996. Such amounts have not been
comprehensively revalued for purposes of these
financial statements since those dates, and current
estimates of fair value may differ significantly
from the amounts presented herein.
16. Employee Benefits
The Company has a defined contribution 401(k) plan
covering substantially all employees. Participants
may contribute up to 15 percent of their annual
compensation to the plan. The Company matches 25
percent of a participants contribution up to 4
percent of salary. Contributions for the years
ended June 30, 1997 and 1996, amounted to
approximately $0 and $7,800, respectively.
17. Supplemental Cash
Flow Information
Cash paid for interest consisted of:
Year Ended June 30, 1997 1996
Interest $51,439 $22,314
18. Subsequent Events
In October 1997, the Company entered into a stock
purchase agreement with BIOTEL to sell an
additional 850,000 shares of its common stock to
BIOTEL for $138,500 in cash and an $80,000 note
which was paid in April 1998. Effective with the
issuance of the additional shares, BIOTEL and
Carolina Medical collectively owned 50.3 percent of
the outstanding common stock of the Company. In
December 1997, BIOTEL was merged into Carolina
Medical.
In March 1998, Carolina Medical signed a letter-of-
intent, subject to stockholder approval to merge
with Biosensor Corporation, a publicly traded
company, through a reverse stock merger in which
the stockholders of Carolina Medical would obtain
an 80 percent interest in Biosensor. Carolina
Medical is negotiating with Nishimoto to acquire
its preferred and common stock ownership in the
Company for stock in Carolina Medical.
F-1
Advanced Medical Products Inc.
Contents
F-2
F-3
Advanced Medical Products Inc.
Balance Sheets
F-4
Advanced Medical Products Inc.
Balance Sheets
F-5
Advanced Medical Products Inc.
Statements of Loss
F-7
Advanced Medical Products Inc.
Statements of Changes in Stockholders Equity (Deficit)
Advanced Medical Products Inc.
Statements of Cash Flows
F-10
Advanced Medical Products Inc.
Summary of Significant Accounting Policies
Advanced Medical Products Inc.
Notes to Financial Statements
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 50,938
<SECURITIES> 0
<RECEIVABLES> 585,506
<ALLOWANCES> (30,954)
<INVENTORY> 512,812
<CURRENT-ASSETS> 1,175,470
<PP&E> 372,462
<DEPRECIATION> 143,613
<TOTAL-ASSETS> 1,556,444
<CURRENT-LIABILITIES> 1,482,641
<BONDS> 0
0
2,289,410
<COMMON> 51,125
<OTHER-SE> 2,340,915
<TOTAL-LIABILITY-AND-EQUITY> 1,556,444
<SALES> 2,976,847
<TOTAL-REVENUES> 2,976,847
<CGS> 1,642,960
<TOTAL-COSTS> 1,642,960
<OTHER-EXPENSES> 1,987,565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,234
<INCOME-PRETAX> (680,912)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (680,912)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
