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, 1998
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
Title of Each Class Name of Each Exchange on 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 [ x ] No [ ]
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. [X ]
The Issuer's total revenues for its most recent fiscal year were
$2,191,812.
The aggregate market value, as of September 2, 1998, of voting stock
held by non-affiliates was approximately $228,295.
The number of outstanding shares of common equity on October 12,
1998 was 5,962,495
Transitional Small Business Disclosure format (check one):
Yes [ ] No [ X ]
Total pages = 51 . Exhibit Index Appears on Page 25.
ADVANCED MEDICAL PRODUCTS INC.
INDEX
Item Page
PART I
1. Description of Business 3
2. Description of Property 12
3. Legal Proceedings 12
4. Submission of Matters to a Vote of
Security Holders 12
PART II
5. Market for Common Equity
and Related Stockholder Matters 12
6. Management's Discussion and Analysis 14
7. Financial Statements 17
8. Changes in and Disagreements with
Accountants on Accounting
and Financial Disclosure 18
PART III
9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act 18
10. Executive Compensation 19
11. Security Ownership of Certain Beneficial
Owners and Management 23
12. Certain Relationships and Related
Transactions 24
PART IV
13. Exhibits, List and Reports on Form 8-K 25
Item 1. DESCRIPTION OF THE BUSINESS
Advanced Medical Products Inc. ("Advanced Medical", 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 revenues.
For the two fiscal years ended June 30, 1997 and June 30,
1998, the Registrant generated revenues of $2,976,847, and
$2,191,812, respectively, and incurred net losses of $(680,912), and
$(446,563), respectively.
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.
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). The Company
believes this can make it's products more attractive to the
markets that are 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 re-capitalized 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 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 1997, Nishimoto purchased an
additional 104 shares of preferred stock in exchange for $104,000 in
unpaid dividends. In 1996, South Carolina Pipeline Corporation, a
subsidiary of SCANA Corporation ("SCANA"), purchased 160 shares of
preferred stock in exchange for $160,000 in unpaid rent. 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 issued and outstanding common stock
for $430,000. In November 1997, Carolina Medical purchased an
additional 850,000 common shares for $263,500 (the Company received
$254,915 net of expenses) which increased that company's ownership
in the Registrant's common stock to 3,000,000 shares or 50.3% of the
total outstanding. In May 1998, Carolina Medical purchased 2,217
shares of the Company's preferred stock, including unpaid dividends
totaling $149,648, and 300,000 shares of common stock from
Nishimoto, and purchased 160 shares of the Company's preferred stock
from SCANA. These transactions increased Carolina Medical's
ownership in the Company's securities to 55.3% of the common stock
and 100% of the preferred stock outstanding.
SUBSEQUENT EVENTS
In July 1998, the Company's Board of Directors approved a
Plan of Reorganization and Merger, which plan had been previously
approved by the Board of Biosensor Corporation, authorizing the
merger of a wholly owned subsidiary of Biosensor Corporation,
which has not yet been organized, with and into Advanced Medical
Products, Inc., subject to certain terms and conditions. The
Company and Biosensor are currently preparing a definitive
agreement to combine their cardiac monitor businesses, and to do
business as Advanced Biosensor Inc.
On July 23, 1998, Biosensor acquired all of the outstanding
shares of CMI of Minnesota ("CMI"), a Minnesota corporation,
pursuant to a Plan of Reorganization and Agreement by and between
CMI and Biosensor. Carolina Medical Inc., a North Carolina
corporation which owns 55.3% of the common stock and all of the
preferred stock of the Company, was recently merged with and into
CMI. CMI also owns Braemar, Inc., a North Carolina corporation
operating in Minneapolis, MN that develops, manufactures and
markets tape recording devices for ambulatory ECG monitoring
devices, digital Holter monitors and event recorders. For
accounting purposes, this transaction became effective July 1,
1998. Because the former stockholders of CMI effectively control
the company after the transaction, the transaction will be
recorded as a "reverse acquisition", whereby CMI will be deemed to
have acquired Biosensor. The net assets of Biosensor acquired
will be recorded at fair market value. The historical financial
statements of the Biosensor prior to the acquisition will become
those of CMI. Subsequent to July 1, 1998, the financial
statements of Biosensor will include the operations of the
combined companies, including Carolina Medical, Braemar, and
Advanced Medical Products, Inc.
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 inspected and tested 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 1998, 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 1997 and contributed modestly to sales in 1997 and
1998.
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.
Ultrasound Imager
The Company 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
indications 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.
During 1997 and 1998 the Company attempted to market the
MICROS QV product through its traditional channels to market
(manufacturers representatives and distributors). Although
considerable interest was expressed by potential customers,
particularly in the field of emergency medicine, it became clear to
management that: 1) additional engineering development work needs to
be done on the product to improve it's image quality before the
product can be effectively marketing, and 2.) the present channels
to market for the Company's cardiac monitoring products is not
likely to be effective in reaching the market for this ultrasound
product.
In July 1998 the Board of Directors approved a plan to sell
the MICROS QV product line, including inventory valued at $135,152
and all design rights and intellectual property relating to the
product line, to Carolina Medical, Inc. In exchange for the MICROS
QV product line, Carolina Medical agreed to return to Advanced
Medical all of the 2,377 shares of the Company's Preferred Stock
having a face value $2,377,000, and to forgive all of the accrued
unpaid dividends totaling $162,981.
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.
Nishimoto accounted for 4% of the Company's total revenues in fiscal
1998 and 11% in fiscal 1997; Kontron accounted for 11% in revenues
in 1998 and 7% in 1997.
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.
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
diagnosis 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, 1998 and
June 30, 1997, the Company incurred research and development
expenditures of $154,991, and $205,264, respectively. 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 and the Windows 95 based Analyst I
software.
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 and its ABP Monitors 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 unaffiliated parties using tooling
owned by the Company. Component parts are assembled at and systems
are shipped from the Company's facilities. The Company has, during
fiscal 1998, out-sourced most of its manufacturing 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, 1998 and June 30, 1997, 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.
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?, 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. 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 that 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 and 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.
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 (OTC) 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
as reported from the OTC Bulletin Board 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, 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 3/8 1/8
Third Calendar Quarter, 1997 3/8 1/8
Fourth Calendar Quarter, 1997 1/2 .30
First Calendar Quarter, 1998 .16 .06
Second Calendar Quarter, 1998 .15 .09
As of October 12, 1998, there were approximately 1,881 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.
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. 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 (the Company
received $254,915 net of expenses). 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 Medical's ownership in the Company to 3,000,000
shares or 50.3 percent of the 5,962,495 issued and outstanding
common stock shares.
Registrant has 4,000 shares of authorized Class A Preferred
Stock, no par value, of which 2,377 shares are currently issued and
outstanding. Pursuant to that certain First Amendment to Preferred
Stock Purchase Agreement between Registrant and Nishimoto, effective
as of March 31, 1996 (the "Amendment"), all rights of redemption,
mandatory or otherwise. with respect to all or any part of the
Preferred Stock were assigned to the Company, included all demand
redemption rights as of October 15, 2002.
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. 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 dividend. Nishimoto-Sangyo was
unwilling to convert unpaid dividends into additional common or
preferred shares of Advanced Medical, as they have done in prior
years, but in May 1998 Nishimoto sold their common and preferred
stock in the Company in exchange for shares of Carolina Medical,
Inc. This transaction brought Carolina Medical's ownership in the
Company to 55.3% of the common stock and 93.3% of the preferred
stock of the Company issued and outstanding. In June 1998 Carolina
Medical purchased from SCANA the remaining 160 shares of preferred
stock in the Company. As of June 30, 1998, dividends on the
preferred stock of $162,981 were owed to Carolina Medical by the
Company. In July 1998, the Company's board approved a plan to sell
the Company's MICROS QV product line to Carolina Medical in exchange
for all of the 2,377 shares of Preferred Stock in the Company
(having a face value of $2,377,000), and the unpaid dividends of
$162,981.
Item 6. Management's Discussion and Analysis
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis" of the financial
condition and results of operations, and other sections of this
report, contain various "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995,
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. By their
very nature, forward-looking statements are subject to known and
unknown risks and uncertainties relating to the Company's future
performance that may cause the actual results, performance or
achievements of the Company, or industry results, to differ
materially from those expressed or implied in such "forward-
looking statements". Any such statement is qualified by
reference to the following cautionary statements.
The Company's business operates in highly competitive markets and is
subject to changes in general economic conditions, competition, customer
and market preferences, government regulation, the impact of tax regulation,
foreign exchange rate fluctuations, the degree of market acceptance of the
products, the uncertainties of potential litigation, as well as other risks
and uncertainties detailed elsewhere herein and from time to time in
the Company's Securities and Exchange Commission filings. The Company does
not undertake and assumes no obligation to update any forward-looking statement
that may be made from time to time by or on behalf of the Company.
The following discussion should be read in conjunction with the accompanying
Financial Statements, including the notes thereto, appearing elsewhere herein.
RESULTS OF OPERATIONS
Fiscal 1998 Compared to Fiscal 1997
Net sales declined 26% to $2,191,812 in fiscal 1998 from
$2,976,847 in fiscal 1997. Sales of medical devices to office based
physicians in the Company's 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 Company's international sales were down more than domestic
sales with sales to Nishimoto Sangyo, the Company's distributor in
Japan, off more than 73%. 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.
Gross margins were reduced to 38% in fiscal 1998 from 45% in
1997 resulting in gross profits in 1998 of $836,723 compared to
$1,333,887 in fiscal 1997. This was the result of a combination of
lower sales and higher inventory write-offs in 1998.
Selling, general and administrative expenses of $1,009,287 or
46% of sales were lower by $773,014 in fiscal 1998, 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 1997 were 60% of a
much higher sales level. Some of the marketing and sales cost
reductions implemented in fiscal 1998 undoubtedly contributed to
lower sales in 1998.
Research and development costs for fiscal 1998 of $154,991
were 7% of sales and were lower than in 1997 by approximately $50,000.
Interest expense increased from $65,168 in fiscal 1997 to
$114,135 in fiscal 1998 as a result of increased borrowing against
the revolving credit line established with Emergent Financial Group
during the second quarter of fiscal 1997.
The net loss for fiscal 1998 was $446,563 compared to losses
of $680,912 in fiscal 1997. 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. 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 1998 by $31,149.
Inventory was reduced during the year by $130,599 by continuing
efforts to reduce required stocking levels. In addition, $59,507 was
transferred to capital equipment thus reducing total inventory to $322,706.
Current assets were lower at June 30, 1998 by $392,084; total assets were
lower by $456,142.
Current liabilities were lower at the end of fiscal 1998 by
$169,024; however, long-term liabilities were higher by $5,651.
Fiscal 1997 Compared to Fiscal 1996
Net sales declined 30% to $2,976,847 in fiscal 1997 from
$4,232,428 in fiscal 1996. The Company's international sales were
down more than domestic sales with sales to Nishimoto Sangyo, the
Company's distributor in Japan, off more than 40%. Sales in Germany
were also considerably lower due to general economic conditions in Germany.
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.
Research and development costs for fiscal 1997 of $205,264
were 7% of sales and were lower than in 1996 by $157,836.
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.
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
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $9,971 of cash during fiscal
1998 compared with $394,341, used during fiscal 1997. In fiscal
1998, $11,427 was used for capital expenditures compared with $103,910
in fiscal 1997. Cash increased by $31,149 in 1997 and $36,307 in 1997.
During the years ended June 30, 1998 and 1997 the Company's
net losses were approximately $447,000 and $681,000. As of June
30, 1998, the Company's accumulated deficit in earnings was
approximately $5,218,000. 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. 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.
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.
The Company believes that internally generated funds, the
revolving credit agreement with Emergent Financial Group and the
loan agreement with Carolina Medical should provide sufficient
working capital to meet immediate needs, but not sufficient to meet
longer term working capital requirements. The Company has been
unsuccessful in its efforts to raise additional capital from outside sources.
In July 1998 the Company's Board of Directors approved a
Plan of Reorganization and Merger, which plan had been previously
approved by the Board of Biosensor Corporation, authorizing the
merger of a wholly owned subsidiary of Biosensor Corporation,
which has not yet been organized, with and into Advanced Medical
Products, Inc., subject to certain terms and conditions. The
Company and Biosensor are currently negotiating a definitive
agreement to combine their cardiac monitor businesses, and to do
business as Advanced Biosensor Inc. (see Business, Subsequent Events)
YEAR 2000 IMPACT
The Company has examined the effects that the year 2000 will have
on the operation of its business and on the its customers use and
acceptance of its products. The Company believes that it has a
plan in place that will eliminate or render immaterial any impact
that the year 2000 will have on its business. Internal accounting
and preparation of monthly, quarterly and annual financial
statements is currently performed on personal computers using
accounting and inventory software obtained from Great Plains
running on the Microsoft DOS operating system software. By the
end of calendar 1998 the Company expects to upgrade to the latest
version of Great Plains software running under Windows 95 or
Windows 98 at a total cost estimated to be less than $15,000.
This new software is believed to be Y2K compliant. The Company's
products use microprocessors and imbedded software, and data
captured and stored by these products are processed by software
provided to customers by the Company. Calculations performed by
the imbedded code in the Company's products and by processing
software supplied by the Company do not utilize the year.
Management believes that all of its recorders currently being sold
and those being serviced under warranty will be not be effected by
a change in year from 1999 to 2000 or from 2000 to 2001.
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 69 Director since January 1996
George L. Down 58 President since October 1997.
Vice President since April 1996.
Director since September 1986
David A. Heiden 49 Director since January 1996
C. Roger Jones 60 Director since January 1996
Ronald G. Moyer 62 Chief Executive Officer, Treasurer and
Chairman Since January 1996; President
From January 1996-October 1997.
Deborah Riente 43 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.
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, 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, 1998, 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 $100,000 (each, a "Named Executive Officer"):
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
Fiscal
Name and Year Other Annual All Other
Principal Ended Salary Bonus Compensation Options Compensation
Position June 30 ($) ($) ($) (#) ($)
Ronald G. Moyer 1998 84,000 -0- -0- -0- -0-
Chief Executive 1997 84,000 -0- -0- -0- -0-
Officer
There were no grants of stock options during the fiscal year ended June 30,
1998 to the Named Executive Officer.
The following table sets forth information concerning each
exercise of stock options during the fiscal year ended June 30, 1998
by the Named Executive Officer and the value of unexercised options
held by the Named Executive Officer as of June 30, 1998:
Aggregated Option Exercises in Fiscal 1998 and Fiscal Year-End Option Values
Number of Unexercised
Unexercised In-the-Money
Options Options
At FY-End(#) At FY-End(#)
Shares
Acquired On Value Real- Exercisable/ Exercisable/
Exercise(#) ized (A)($) Unexercisable Unexercisable(B)
Ronald
G. Moyer -0- -0- -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
There were no employment agreements in effect on June 30, 1997
or June 30, 1998.
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 and $10,000 for
1998. 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 descrip-
tion 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 optionee/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, 1998, options to purchase 602,500 shares of
Common Stock under the Plan were outstanding. These options are
exercisable at prices ranging from $.14 to $1.63 per share and
expire at various dates through April 2003. During fiscal 1998,
options to purchase 400,000 shares were granted, no options were
exercised, and options to purchase an aggregate of 132,500 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 September 2, 1998 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 3,300,000 (3) 53.31
6 Woodcross Drive
Columbia, SC 29212
Carolina Medical Inc. 3,300,000 (3) 53.31
157 Industrial Drive
King, NC 27021
George L. Down 216,766 (4) 3.64
6 Woodcross Drive
Columbia, SC 29212
Officers and Directors as 4,112,190 68.98
a Group (of 6 persons) (3),(4),(5),(6)
(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 602,500 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 420,000 shares issuable in the
event of exercise of currently exercisable stock options.
(5) Includes 52,924 shares beneficially owned by the Secretary of
the Company and 77,500 shares issuable in the event of exercise of
currently exercisable stock options granted to such officer.
(6) 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
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 Company's 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, 1998, including interest due,
was $153,000.
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 (the Company received $254,915
net of expenses). 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 Medical's
ownership in the Company to 3,000,000 shares or 50.3 percent of the
5,962,495 issued and outstanding common stock shares. In May 1998
Nishimoto sold their common and preferred stock in the Company in
exchange for shares of Carolina Medical, Inc. This transaction
brought Carolina Medical's ownership in the Company to 55.3% of the
common stock and 93.3% of the preferred stock issued and
outstanding. In June 1998 Carolina Medical purchased from SCANA the
remaining 160 shares of preferred stock. As of June 30, 1998,
dividends on the preferred stock of $162,981 were owed to Carolina
Medical by the Company.
In July 1998, the Company's board approved a plan to sell the
Company's MICROS QV product line to Carolina Medical in exchange for
the 2,377 shares of Preferred Stock in the Company (having a face
value of $2,377,000), and the unpaid dividends of $162,981.
Also in July 1998, the Company's Board of Directors approved
a Plan of Reorganization and Merger which plan had been previously
approved by the Board of Biosensor Corporation. This plan
authorizes the merger of a wholly owned subsidiary of Biosensor
Corporation, which has not yet been organized, with and into
Advanced Medical Products, Inc., subject to certain terms and
conditions. The Company and Biosensor are currently negotiating a
definitive agreement to combine their cardiac monitor businesses,
and to do business as Advanced Biosensor Inc.
On July 23, 1998, Biosensor acquired all of the outstanding
shares of CMI of Minnesota ("CMI"), a Minnesota corporation,
pursuant to a Plan of Reorganization and Agreement by and between
CMI and Biosensor. Carolina Medical Inc., a North Carolina
corporation which owns 55.3% of the common stock and all of the
preferred stock of the Company, was recently merged with and into
CMI. CMI also owns Braemar, Inc., a North Carolina corporation
operating in Minneapolis, MN, a company that develops,
manufactures and markets tape recording devices for ambulatory ECG
monitoring devices, digital Holter monitors and event recorders.
For accounting purposes, this transaction became effective July 1,
1998. Because the former CMI shareholders effectively control the
company after the transaction, the transaction will be recorded as
a "reverse acquisition", whereby CMI will be deemed to have
acquired Biosensor. The net assets of Biosensor acquired will be
recorded at fair market value. The historical financial
statements of the Biosensor prior to the acquisition will become
those of CMI. Subsequent to July 1, 1998, the financial
statements will include the operations of the combined companies,
including Advanced Medical Products, Inc.
PART IV
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)
10.5 Advanced Medical Products Stock Option Plan(8)
10.6 Preferred Stock Purchase Agreement with Nishimoto Sangyo
Company, Ltd.(9)
10.8 License Agreement with HealthWatch Technologies, Inc. (11)
10.9 Distribution Agreement with Nishimoto Sangyo Company, Ltd.(12)
10.11 Advanced Medical Products 401(k) Plan(14)
10.12 OEM/Distribution Agreement with Kontron Instruments Ltd.(15)
10.15 Intellectual Property License Agreement with Carolina Medical,
Inc. (16)
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.
(17) Reference is made to Exhibit 10.16 to the Registrant's Report on
Form 8-K dated October 23, 1998, 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 Registrant's Report
on Form 10-KSB for the year ended June 30, 1997, which is hereby
incorporated by reference.
(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 12/14/98
Ronald G. Moyer Chairman of the Board
(Principle Executive Officer
and Principle Financial Officer)
/s/George L. Down President and Director 12/14/98
George L. Down
/s/C. Roger Jones Director 12/14/98
C. Roger Jones
/s/L. John Ankney Director 12/14/98
L. John Ankney
/s/David Heiden Director 12/14/98
David Heiden
The Registrant has not furnished its 1998 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 12/14/98
Ronald G. Moyer Chairman of the Board
(Principle Executive Officer
and Principle Financial Officer)
President and Director 12/14/98
George L. Down Director
C. Roger Jones Director 12/14/98
L. John Ankney Director 12/14/98
David Heiden Director 12/14/98
The Registrant has not furnished its 1998 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, 1998 and 1997
INDEPENDENT AUDITOR'S REPORT 1998 F-3
1997 F-4
Financial Statements
Balance Sheets F-5-F-6
Statements of Operations F-7
Statements of Changes in Stockholders' Equity (Deficit) F-8
Statements of Cash Flows F-9-F-10
Notes to Financial Statements F-11-F-24
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Advanced Medical Products, Inc.
Columbia, South Carolina
We have audited the accompanying balance sheet of Advanced Medical Products,
Inc. as of June 30, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Medical Products,
Inc. as of June 30, 1998, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 15, under a Plan of Reorganization and Merger the Company
will become a wholly-owned subsidiary of Biosensor Corporation and will no
longer operate as an independent organization.
McGladrey & Pullen, LLP
Charlotte, North Carolina
September 15, 1998, except for the last sentence of Note 7, to
which the date is October 8, 1998.
Report of Independent Certified Public Accountants
To the Board of Directors
Advanced Medical Products Inc.
Columbia, South Carolina
We have audited the accompanying balance sheet of Advanced Medical Products
Inc. as of June 30, 1997, and the related statements of loss, changes in
stockholders' equity (deficit), and cash flows for the year then ended.
These financial statements are the responsibility of the Company's manage-
ment. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of Advanced Medical Products
Inc. at June 30, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
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. Management's plan
regarding 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.
BDO Seidman, LLP
Charlotte, North Carolina
December 11, 1997, except
for information dated through
April 28, 1998, in Note 13
Balance Sheets
June 30, 1998 1997
Assets (Note7)
Current:
Cash $ 82,087 $ 50,938
Accounts receivable, net (Notes 2,6,8 and 13) 342,040 554,552
Inventories (Notes 3 and 8) 322,706 512,812
Other current assets 36,553 57,168
Total current assets 783,386 1,175,470
Furniture and equipment, net (Notes 4 and 8) 250,691 282,384
Product software costs, net of accumulated
amortization of 1998 $319,381; 1997 $271,422 52,751 90,078
Other assets 13,474 8,512
Total assets $ 1,100,302 $ 1,556,444
See notes to financial statements.
Balance Sheets
June 30, 1998 1997
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Notes payable (Note 7) $ 295,798 $ 603,407
Current portion of long-term debt (Note 8) 30,327 24,000
Accounts payable (Note 6) 448,548 510,324
Accrued wages and commissions 73,968 89,949
Accrued expenses 301,995 254,961
Dividends payable 162,981 -
Total current liabilities 1,313,617 1,482,641
Non-Current Liabilities:
Long-term debt, less current maturities (Note 8) 169,692 34,732
Dividends payable - 61,860
Accrued expenses - 67,449
Total non-current liabilities 169,692 164,041
Total liabilities 1,483,309 1,646,682
Commitments and contingencies (Notes 5,11,and 14)
Stockholders' equity (deficit) (Notes 10,11,13 and 15):
Class A preferred stock, 5% cumulative, non-
voting, no par value; authorized 4,000 shares;
issued and outstanding 2,377. 2,289,410 2,289,410
Common stock, $.01 par value; authorized
7,000,000 shares, issued and outstanding
5,962,495 in 1998, and 5,112,495 in 1997. 59,625 51,125
Additional paid-in capital 2,486,209 2,340,915
Accumulated deficit (5,218,251) (4,771,688)
Total stockholders' equity (deficit) (383,007) (90,238)
Total liabilities and stockholders' equity
(deficit) $ 1,100,302 $ 1,556,444
See notes to financial statements.
Statements of Operations
Years Ended June 30, 1998 1997
Net sales (Notes 6 and 12) $ 2,191,812 $ 2,976,847
Cost of sales 1,355,089 1,642,960
Gross profit 836,723 1,333,887
Costs and expenses:
Selling, general and administrative 1,009,287 1,782,301
Research and development 154,991 205,264
Loss from operations (327,555) (653,678)
Non-operating income (expense)
Interest (114,135) (65,168)
Other (4,873) 37,934
Net loss (Note 9) $ (446,563) $ (680,912)
Net loss applicable to common shares $ (547,684) $ (795,162)
Basic and diluted net loss per share $ (.10) $ (.16)
Weighted average common shares outstanding 5,749,995 4,968,841
See notes to financial statements.
Statements of Stockholders' Equity (Deficit)
Years Ended June 30, 1998 and 1997
Class A Issued Common Additional
Preferred Common Stock Stock Paid-in Accumulated
Stock Shares Total Subscribed Capital Deficit Total
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)
Issuance of common stock
- 850,000 8,500 246,415 - 254,915
Dividends on preferred stock
- - - - (101,121) - (101,121)
Net loss
- - - - - (446,563) (446,563)
Balance, June 30, 1998
$2,289,410 5,962,495 $59,625 $ - $2,486,209 $(5,218,251) $(383,007)
See notes to financial statements.
Statements of Cash Flows
Years Ended June 30, 1998 1997
Cash flows from operating activities:
Net loss $ (446,563) $ (680,912)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 139,954 143,613
Provision for doubtful accounts 58,107 64,507
Loss on disposal of fixed assets - 11,053
(Increase) decrease in:
Accounts receivable 154,405 (71,618)
Inventories 130,599 236,958
Other assets 15,653 53,207
Increase (decrease) in:
Accounts payable (26,250) (51,429)
Accrued wages and commissions (15,981) (31,065)
Accrued expenses 47 (68,655)
Net cash provided by (used in) operating activities 9,971 (394,341)
Cash flows used in investing activities:
Purchase of furniture and equipment (795) (58,585)
Capitalization of product software costs (10,632) (45,325)
Net cash used in investing activities (11,427) (103,910)
See notes to financial statements.
Statements of Cash Flows
Years Ended June 30, 1998 1997
Cash flows from financing activities:
Payments on notes payable and long term debt (166,322) 534,558
Issuance of common stock 198,927 -
Net cash provided by financing activities 32,605 534,558
Net increase in cash and equivalents 31,149 36,307
Cash, beginning of year 50,938 14,631
Cash, end of year $ 82,087 $ 50,938
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 113,900 $ 51,439
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Capitalization of demonstration inventory 59,507 -
Declaration of preferred stock dividend 101,121 115,068
Common stock issued in satisfaction of accounts
payable and accrued expenses 55,988 -
Issuance of preferred stock in settlement of
accrued dividends - 104,000
Issuance of preferred stock in settlement of
accrued liability - 159,163
See notes to financial statement
1. Nature of Business and Significant Accounting Policies
Business
The Company develops, manufactures (through subcontractors), assembles and
markets diagnostic equipment primarily for use in physicians'
offices, throughout the United States and Europe.
Parent Company
The Company is a 55.3% owned subsidiary of Carolina Medical, Inc.
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 had sales to foreign
customers of approximately $317,000 and $536,000 in 1998 and 1997,
respectively. The Company reviews a customer's credit history before
extending credit. An allowance for doubtful accounts is established
based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Inventories
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 3 to 8 years.
Revenue Recognition
Product is shipped directly to the Company's 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. Accrued expenses include service contract revenue
deferrals of approximately $167,000 in 1998 and $125,000 in 1997.
Warranty
The products manufactured by the Company are sold with a one-year warranty.
The Company accrues warranty costs based upon historical experiences and
current conditions. The Company also offers an extended warranty to its
customers, under which revenues are initially deferred and recognized to
match the expected related costs incurred over the extended warranty period.
Expense for work performed under the extended warranties are recognized as
incurred.
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-amortized
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 $48,000 and $32,000 in 1998 and 1997, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, whereby
deferred tax assets and liabilities are based on the temporary differences
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 temporary 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, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Net loss per share
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS No. 128), Earnings Per Share, which supersedes APB Opinion No.
15. SFAS No. 128 requires the presentation of earnings per share by all
entities that have common stock or potential common stock, such as options,
warrants, and convertible securities, outstanding that trade in a public
market. Basic per share amounts are computed, generally, by dividing net
income or loss by the weighted-average number of common shares outstanding.
Net loss was increased by $101,121 and $114,250 for preferred stock dividends
declared in 1998 and 1997, respectively. Diluted per share amounts assume
the conversion, exercise, or issuance of all potential common stock instruments
unless the effect is antidilutive, thereby reducing a loss or increasing the
income per common share. The Company initially applied Statement No. 128 for
the year ended June 30, 1998, and as required by the statement, has restated
the per share information for the prior year to conform to the statement. As
described in Note 10, at June 30, 1998 and 1997, the Company had options
outstanding to purchase a total of 602,500 and 335,500 shares of common stock,
respectively, at a weighted-average exercise price of approximately $0.24 and
$.33, respectively. The inclusion of those potential common shares in the
calculation of diluted loss per share would have an antidilutive effect.
Therefore, basic and diluted loss per share amounts are the same in 1998 and
1997.
New AccountingPronouncements
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
and display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 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.
The FASB has issued Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information. Statement No. 131 establishes
standards for the manner in which a publicly held enterprise reports certain
information about operating segments of their business. The information
required to be disclosed for an entity's operating segments not only consists
of financial information, but also certain related disclosures of
the segment's products and services, geographic areas, and major customers.
Statement No. 131 will become effective for the Company's year ending June
30, 1999; however, the impact on disclosures is not anticipated to be
significant.
Advertising
The Company expenses the production costs of advertising, the first time
advertising takes place, except for direct-response advertising
which is capitalized and amortized over its expected period of future benefits.
Direct response advertising consists primarily of brochures and distribution
of brochures that include response cards for the Company's products.
The capitalized costs of the advertising are amortized over a six month
period from the date that the production costs were incurred.
At June 30, 1998 and 1997 approximately $36,000 and $41,000 were reported as
assets, respectively. Advertising expense was approximately $55,000 in
1998 and $101,000 in 1997.
Going Concern Opinion for June 30, 1997
During the year ended June 30, 1997 the Company's net loss was $681,000. As
of June 30, 1997, the Company's accumulated deficit was approximately
$4,772,000. In addition, the Company was in violation of bank loan convenants,
and a number of vendors had placed the Company on cash on delivery terms.
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.
Management is continually 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. The Company has been under a general wage and hiring freeze
and has significantly reduced the number of employees. Manufacturing of the
Company's products has been contracted out wherever possible to reduce
manufacturing overhead and improve cash flow.
Reclassifications
Certain 1997 amounts have been reclassified to conform with the 1998
presentation. These reclassifications have no effect on net loss or
stockholder's equity (deficit).
2. Accounts Receivable
Accounts receivable are summarized as follows:
June 30, 1998 1997
Trade receivables $ 365,540 $ 545,908
Other receivables 1,500 39,598
367,040 585,506
Less allowance for doubtful accounts 25,000 30,954
Net accounts receivable $342,040 $ 554,552
3. Inventories
Inventories are summarized as follows:
June 30, 1998 1997
Raw materials $ 141,799 $ 248,254
Work-in-process 21,008 56,934
Finished goods 159,899 207,624
$ 322,706 $ 512,812
4. Furniture and Equipment
Major classes of furniture and equipment consist of the following:
June 30, 1998 1997
Equipment $ 308,305 $ 248,002
Furniture and fixtures 177,373 177,373
Tooling 614,972 614,972
Leasehold improvements 15,782 15,782
1,116,432 1,056,129
Less accumulated depreciation and amortization 865,741 773,745
$ 250,691 $ 282,384
Depreciation expense amounted to approximately $92,000 and $112,000 in 1998
and 1997, respectively.
5. Leases
The Company leases its current facility under a five year lease agreement
which will expire October 31, 2001.
The Company also leases equipment under agreements with varying monthly
payment amounts. The terms of the leases range from 36 to 60 months.
Annual minimum rental payments under operating leases are as follows:
Years Ending June 30,
1999 $ 97,832
2000 99,897
2001 103,929
2002 40,761
2003 5,670
$ 348,089
Rent expense amounted to approximately $ 116,000 and $91,000 in 1998 and
1997, respectively.
6. Related Parties
The Company had sales of approximately $88,000 and $320,000 in 1998 and 1997,
respectively, to Nishimoto Sangyo Company, Ltd., a stockholder. At
June 30, 1998 and 1997, outstanding receivables were none and approximately
$148,000, respectively, related to these sales.
The Company has entered into a Licensing Agreement with its parent company.
This agreement provides for the parent company to utilize the technology
embodied in the Company's Ultra PCI portable hand-held ultrasound product
line for other applications that will not be directly competitive
with the Company's current portable applications for a fee. Royalties will
be paid to the Company by the parent company on any future sales of
products utilizing the Ultra PCI technology. There were no sales of the
Ultra PCI in 1998 and 1997.
In addition, the Company purchased $240,000 of finished goods from Braemar,
a wholly-owned subsidiary of the parent company. The June 30, 1998 accounts
payable balance to Braemar was approximately $146,000. There were no such
purchases in 1997.
7. Notes Payable
As of June 30, 1998, the Company had $ 295,798 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 (8.50%) or 7 percent. The line is
due on December 31, 1998, and is secured by substantially all assets of the
Company. However, the Company is in violation of certain covenants,
including the minimum net working capital, location of inventory, delivery
of audited financial statements, and minimum tangible net
worth requirements. The lender has waived the covenant violations through
December 31,1998, except for location of inventory.
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. The note will be repaid in 48 monthly installments
of $2,000 including interest at 11 percent and is secured by furniture,
fixtures, and equipment. The balance of the note was $40,279 and $58,732 as
of June 30, 1998 and 1997, respectively.
As of June 30, 1998, and 1997 the Company had $150,000 outstanding on a loan
agreement with Carolina Medical, Inc., the parent company. The loan bears
interest at a 12 percent annual rate and is payable on or before January 1,
2000. The note is secured by accounts receivables and certain inventories.
In addition the Company has $9,740 and $51,041 outstanding as of June 30,
1998 and 1997 in two notes relating to prior royalty agreements. The
notes are payable in monthly installments of principal only of $2,981.
Aggregate maturities of long-term debt as of June 30, 1998 are as follows:
Years Ending June 30, 1999 $ 30,327
2000 169,692
Total $ 200,019
9. Income Taxes
The components of the net deferred tax assets and liabilities were as follows:
June 30, 1998 1997
Deferred tax liabilities:
Excess of tax over book depreciation $ (76,823) $ (41,871)
Software costs (16,427) (34,193)
(93,250) (76,064)
Deferred tax assets:
Capitalized inventory costs and valuation
allowances expensed for financial statement
purposes 43,490 81,954
Reserve for bad debt not deductible for tax
purposes 9,750 11,750
Accrued vacation and other liabilities not
deductible for tax purposes 21,445 24,280
General business tax credits 170,115 170,115
Operating loss carryforwards 1,581,629 1,440,797
1,826,429 1,728,896
1,733,179 1,652,832
Less valuation allowance (1,733,179) 1,652,832
$ - $ -
The Company had total net operating loss carryforwards of approximately
$4.4 million available at June 30, 1998, which may be offset against future
taxable income through 2013. The eventual utilization of these tax loss
carryforwards will be limited due to the changes in the ownership of the
Company. As a result of uncertainties regarding the Company's ability to
realize its deferred tax assets, valuation allowances equal to the entire
amount of such net assets have been recorded at June 30, 1998 and
1997. The increase to the valuation allowance of $ 80,347 was recorded to
reduce the net deferred tax assets to the amount management believes will be
realized. The increase was due to the current year loss and there was no other
activity in the valuation account.
10. 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 1998 and 1997
is as follows:
Exercise Price
Number Weighted average
Shares per share Total
Outstanding at
June 30, 1996 115,350 $ .8670 $ 100,011
Granted 275,000 .2500 68,750
Canceled (55,350) 1.0409 (57,611)
Outstanding at
June 30, 1997 335,000 $ .3318 $ 111,150
Granted 400,000 .1750 70,000
Canceled (132,500) .2583 (34,225)
Outstanding at
June 30, 1998 602,500 $ .2439 $ 146,925
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 Company's stock
option plan been determined based on the fair value at the grant date for
awards consistent with the provisions of SFAS No. 123, the Company's net
loss and loss per share would have been changed to the pro forma amounts
indicated below:
June 30, 1998
Net loss-as reported $(547,684)
Net loss-pro forma $(608,100)
Basic and diluted loss per share-as reported $ (.10)
Basic and diluted loss per share-pro forma $ (.10)
June 30, 1997
Net loss-as reported $(795,612)
Net loss-pro forma $(807,371)
Basic and diluted loss per share-as reported $ (.16)
Basic and diluted loss per share-pro forma $ (.16)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants:
1998 1997
Dividend yield 0 % 0 %
Expected volatility 125 % 106 %
Risk free interest rate 6.3 % 6.9 %
An expected life 5 years 2 years
11. 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 Company's 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, the Company's former President, and the Company's former
Vice President, without admitting or denying any wrongdoing, signed a
consent decree to cease and desist from committing or causing any violations
and any future violations of certain sections of the Securities and Exchange
Act. The cease and desist order provided for in the Order took effect
on the date of the entry of the Commission's Order.
12. Significant Customers
The percentages of the Company's sales to certain major customers are as
follows:
Percent of Sales for years ended June 30, 1998 1997
Customer A 4% 11%
Customer B 11% 7%
Accounts Receivable as of June 30,
Customer A - $ 148,000
Customer B $ 98,000 $ 90,000
13. 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 was 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 100% 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 have 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, Inc. purchased 750,000 shares of the
Company's authorized but previously unissued common stock for $150,000.
Biotel International, Inc. (BII), a holding company that owned a majority
interest in Carolina Medical's stock, purchased an additional
1,400,000 shares of the Company's common stock on March 29, 1996, for $280,000.
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.
In October 1997, the Company entered into a stock purchase agreement with
BII to sell an additional 850,000 shares of its common stock to BII for
$198,927 in cash $55,988 in other consideration. Effective with the
issuance of the additional shares, BII and Carolina Medical collectively
owned 50.3 percent of the outstanding common stock of the Company. In
December 1997, BII was merged into Carolina Medical.
In May 1998, Carolina Medical, Inc. acquired, by the issuance of stock,
300,000 shares of common stock previously owned by Nishimoto increasing
Carolina Medical's ownership to 55.3 percent of the outstanding common stock
of the Company.
During May and June 1998 Carolina Medical, Inc. issued stock to acquire all
of the issued and outstanding preferred stock, totaling 2,377
shares, 2,217 shares previously owned by Nishimoto and 160 shares previously
owned by SCANA, including all unpaid dividends of $162,981.
14. 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 has the discretion to
match 25 percent of a participant's contribution up to 4 percent of
salary. There were no Company contributions for the years ended June 30,
1998 and 1997.
15. Subsequent Events
In July, 1998 Carolina Medical Inc. a majority holder of the Company's common
stock (Note 13) was merged into and with CMI of Minnesota (CMI). CMI
also owns Braemar, Inc. a North Carolina corporation with operations in
Minnesota. On July 23, 1998, all of the outstanding shares of CMI were
acquired by Biosensor Corporation (Biosensor) pursuant to a Plan
of Reorganization and Agreement by and between CMI and Biosensor, dated May
29, 1998. Because the former shareholders of CMI effectively control
Biosensor after the transaction, the transaction will be recorded as a
"reverse acquisition" whereby CMI will be deemed to have acquired Biosensor.
In July 1998 the Company's Board of Directors approved a Plan of
Reorganization and Merger, which plan had been previously approved by the
Board of Biosensor Corporation, authorizing the merger of a
wholly owned subsidiary of Biosensor Corporation, which has not yet been
organized, with and into Advanced Medical Products, Inc., subject to certain
terms and conditions. The Company and Biosensor are currently preparing a
definitive agreement to combine their cardiac monitor businesses, and to do
business as Advanced Biosensor Inc.
F-1
Advanced Medical Products, Inc.
Contents
F-2
Advanced Medical Products, Inc.
Balance Sheets
F-5
F-6
Advanced Medical Products, Inc.
Statements of Operations
F-8
Advanced Medical Products, Inc.
Statements of Stockholders' Equity (Deficit)
Years Ended June 30, 1998 and 1997
Advanced Medical Products, Inc.
Statements of Cash Flows
F-23
Advanced Medical Products, Inc.
Notes to Financial Statements
Advanced Medical Products, Inc.
Notes to Financial Statements
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 92,087
<SECURITIES> 0
<RECEIVABLES> 367,040
<ALLOWANCES> 25,000
<INVENTORY> 322,706
<CURRENT-ASSETS> 783,386
<PP&E> 1,116,432
<DEPRECIATION> 865,741
<TOTAL-ASSETS> 1,100,302
<CURRENT-LIABILITIES> 1,313,617
<BONDS> 0
0
2,289,410
<COMMON> 59,625
<OTHER-SE> (2,732,042)
<TOTAL-LIABILITY-AND-EQUITY> 1,100,302
<SALES> 2,191,812
<TOTAL-REVENUES> 2,191,812
<CGS> 1,355,089
<TOTAL-COSTS> 1,164,278
<OTHER-EXPENSES> 4,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,135
<INCOME-PRETAX> (446,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (446,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (446,563)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
