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, 1999
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. [ ]
The Issuer's total revenues for its most recent fiscal year were $2,159,548.
The aggregate market value, as of October 27, 1999, of voting stock
held by non-affiliates was approximately $217,000.
The number of outstanding shares of common equity on October 27, 1999 was
5,962,495
Transitional Small Business Disclosure format (check one):
Yes [ ] No [ X ]
Total pages =50 Exhibit Index Appears on Page 21
ADVANCED MEDICAL PRODUCTS INC.
INDEX
Item Page
PART I 1. Description of Business 3
2. Description of Property 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of 7
Security Holders
PART II 5. Market for Common Equity 7
and Related Stockholder Matters
6. Management's Discussion and Analysis 10
7. Financial Statements 13
8. Changes in and Disagreements with 13
Accountants on Accounting
and Financial Disclosure
PART III 9. Directors, Executive Officers, Promoters 14
and Control Persons; Compliance with
Section 16(a) of the Exchange Act
10. Executive Compensation 15
11. Security Ownership of Certain Beneficial 18
Owners and Management
12. Certain Relationships and Related 19
Transactions
PART IV 13. Exhibits, List and Reports on Form 8-K 21
Item 1. DESCRIPTION OF THE BUSINESS
Advanced Medical Products Inc. ("Advanced Medical", the "Registrant" or
the "Company"), prior to selling its assets on May 12, 1999 under paragraph 363
US11 of the bankruptcy code, developed, manufactured, assembled and marketed
medical diagnostic equipment and software primarily for use in physicians'
offices. Holter monitors (24 hour electrocardiogram (ECG) monitors) and
ambulatory blood pressure (ABP) instruments provided most of the Company's
revenues.
For the two fiscal years ended June 30, 1998 and June 30, 1999, the
Registrant generated revenues of $2,191,812, and $2,159,548, respectively, and
incurred a net loss of $(446,563), and net income of $322,283, respectively.
The net income for the fixed year ended June 30, 1999 included a gain on
restructuring of debt in the amount of $887,052.
On March 23, 1999, after reporting that, for the quarter ended December
31, 1998 the Company had net losses of $373,173 of which $130,000 was as a
result of their distributor in Europe, Kontron Instruments Ltd. filing for
Administrative Receivership, Advanced Medical Products, Inc. filed a motion
with the Federal Bankruptcy Court, District of South Carolina, for an order
authorizing the sale of all assets, including equipment, inventory, and
accounts receivable, outside the ordinary course of business, free and clear
of all liens and encumbrances and other interests, pursuant to 11 U.S.C.
Section 363 of the bankruptcy code. Biosensor Corporation, owner of Carolina
Medical, Inc., who owned 55.3% of the common stock of Advanced Medical
Products, Inc., proposed to purchase the assets and assume all of the secured
debt, employee and commission liabilities, and all customer warranty and
service liabilities of Advanced Medical Products. Advanced Medical Products,
Inc. continued to operate as debtor in possession, pending sale of the assets.
On May 3, 1999, the United State Bankruptcy Court for the District of
South Carolina entered an order approving the Disclosure Statement filed on
March 23, 1999, and on May 11, 1999, pursuant to a court order entered on May
10, 1999 in the Federal Bankruptcy Court for the District of South Carolina,
Advanced Medical Products, Inc. sold all assets, including equipment,
inventory, and accounts receivable, outside the ordinary course of business,
free and clear of all liens and encumbrances and other interests, pursuant to
11 U.S.C. Section 363 of the bankruptcy code. Biosensor Corporation
purchased the assets and assumed all of the secured debt, employee and
commission liabilities, and all customer warranty and service liabilities of
Advanced Medical Products, Inc. As of May 11, 1999 the Company ceased
operations. Filings have been maintained with the Securities and Exchange
Commission and the Company's common stock has continued to trade on the NASDAQ
Bulletin Board.
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 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 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 $149,694, 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.
Carolina Medical Inc., a North Carolina corporation, was merged with and
into CMI of Minnesota, ("CMI"), a Minnesota corporation. CMI also owned
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. On July 23,
1998, Biosensor Corporation, a Minneapolis corporation, acquired all of the
outstanding shares of CMI of Minnesota, pursuant to a Plan of Reorganization
and Agreement by and between CMI and Biosensor. On May 23, 1999 stockholders
of Biosensor Corporation voted to change the name of Biosensor Corporation
to BIOTEL Inc., the company that now owns 55.3% of the common stock of the
Company
PRODUCTS
The Company's products, prior to May 12, 1999, included various solid
state electronic medical diagnostic devices supported by several proprietary
"D.O.S." and "Windows" based software programs that run on personal computers.
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.
Ambulatory Blood Pressure Monitor
The Company also marketed 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. 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 offered 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. 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, domestic sales
of ABP Monitors were predominantly for the combined ECG Holter and ABP Monitor
version of the product.
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 introduced in 1997 a new software product called "MICRO
ANALYST I" for use with the Company's Holter and ambulatory blood pressure
monoitors. This software operates on a PC under the "Windows" or "Windows 95"
operating systems. The Company has 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.
SALES AND MARKETING
Prior to selling its assets, the Company marketed its products through an
in-house network consisting of marketing persons, regional sales managers and
territorial sales assistants. Marketing personnel utilized on-going direct
mail campaigns and selected trade shows to create awareness and generate leads
for its sales force. Sales personnel were compensated primarily on a commission
basis (and, in certain cases, by salary plus commission). The Company also
marketed its products in the U.S. through independent manufacturers'
representatives.
The Company had focused its marketing efforts toward office-based,
primary care physicians, using direct mail and telemarketing to create
awareness and generate interest in the Company's products. The Company sold
its products internationally through foreign distributors.
RESEARCH AND DEVELOPMENT
The Company conducted research and development activities in order to
enhance existing products and develop proposed products. For the two fiscal
years ended June 30, 1999 and June 30, 1998, the Company incurred research and
development expenditures of $121,583, and $154,991, respectively.
The Company had no patents but intended 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.
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. Molded plastic parts for the various products
manufactured by the Company are subcontracted for manufacture to unaffiliated
parties using tooling owned by the Company. The Company during fiscal 1999,
out-sourced most of its manufacturing in order to further reduce in-house fixed
costs. Operations at the Company's facilities included assembly, quality
control, servicing, and shipping. The Company believes that its procedures were
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 completed a review in October 1997.
COMPETITION
The Company's products faced 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 competed with commercial
services, which provide ambulatory ECG and ABP monitoring services to
individual physicians, physicians' group practices and hospitals.
The Company believes that its principal competitors in the office
ambulatory ECG market were 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 products was amenable to patent protection
because such technology is not new, but rather represents innovative uses for
existing technology.
EMPLOYEES
Since May 12, 1999 the Company has had no employees. The Company,
prior to selling its assets and ceasing operations on May 12, 1999, employed 15
full-time persons consisting of its Chief Executive Officer, its President, a
Vice President, a sales and marketing staff of 4, a manufacturing staff of 4
persons, 1 service person and 1 quality control person, 1 product development
engineer, and 1 administrative person. The Company also employed part-time
persons and outside consultants from time to time.
Item 2. DESCRIPTION OF PROPERTY
The Company was a party to a lease agreement (the "Lease") with T & L A
Partnership (the "Landlord"), pursuant to which the Company had leased a 10,080
square foot building located at 6 Woodcross Drive, Columbia, South Carolina
29212. This Lease was for a term of five years, which commenced on November 1,
1996. As of May 12, 1999 Biosensor Corporation assumed all of the Company's
obligations under this lease.
Item 3. LEGAL PROCEEDINGS
The Chapter 11 bankruptcy estate of Advanced Medical Products, Inc.
has been fully administered. The Company has applied to the Court for entry of
a Final Decree closing the bankruptcy case. The application entitled Report of
Substantial Consummation and Application for Final Decree (the "Application")
and the Final Report in Chapter 11 Proceeding was filed with the Court on
October 5, 1999, and served upon the creditors and parties in interest on
October 6, 1999. The Notice provides that the Final Decree will be entered and
the case closed unless an objection to the Application is filed within 30 days
of the date of the Notice.
As of the date of filing of this Form 10KSB, counsel for the Company has
not been served with any objections to the Application, nor does the Court's
docket reflect that any objections to the Application have been filed with the
Clerk of Courts. The Company does not expect that any objections to the
Application will be filed.
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.
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
Bulletin Board under the symbol "ADVA". The Company's Common Stock was de-
listed from NASDAQ Small Cap trading commencing February 2, 1995, due to the
Company's inability to meet NASDAQ capital and surplus requirements. Since
that date, the Company's common stack has been traded on the electronic
bulletin board.
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, 1997 3/8 1/8
Fourth Calendar Quarter, 1997 1/2 0.30
First Calendar Quarter, 1998 0.16 0.06
Second Calendar Quarter, 1998 0.15 0.09
Third Calendar Quarter, 1998 0.13 0.08
Fourth Calendar Quarter, 1998 0.08 0.07
First Calendar Quarter, 1999 0.09 0.02
Second Calendar Quarter, 1999 0.07 0.01
As of October 27, 1999, there were approximately 1,864 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.
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. 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 no shares are currently issued and outstanding. A total of
2,377 Class A Preferred Stock shares had been issued by the Company between
1992 and 1996. 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 had 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.
Carolina Medical Inc., a North Carolina corporation, was merged with and into
CMI of Minnesota, ("CMI"), a Minnesota corporation. CMI also owned 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. On July 23, 1998,
Biosensor Corporation, a Minneapolis corporation, acquired all of the
outstanding shares of CMI of Minnesota, pursuant to a Plan of Reorganization
and Agreement by and between CMI and Biosensor. On May 23, 1999 stockholders
of Biosensor Corporation voted to change the name of Biosensor Corporation to
BIOTEL Inc., the company that now owns 55.3% of the common stock of 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, at original
cost, of $2,377,000), and the unpaid dividends of $162,981. In October 1998
the Plan that had been approved by both companies' Boards was completed, and
all of the shares of the Company's Preferred Stock issued and outstanding were
retired.
On March 23, 1999, after reporting that, for the quarter ended December
31, 1998 the Company had net losses of $373,173 of which $130,000 was as a
result of their distributor in Europe, Kontron Instruments Ltd. filing for
Administrative Receivership, Advanced Medical Products, Inc. filed a motion
with the Federal Bankruptcy Court, District of South Carolina, for an order
authorizing the sale of all assets, including equipment, inventory, and
accounts receivable, outside the ordinary course of business, free and clear
of all liens and encumbrances, pursuant to 11 U.S.C. Section 363 of the
bankruptcy code.
Advanced Medical Products, Inc. continued to operate as debtor in
possession, pending sale of the assets. Emergent Asset Based Lending, L.L.C.,
Advanced Medical's principle secured lender whose loan agreement has been in
default since December, agreed to continue to lend against receivables and
inventory based on Biosensor's guarantee of the debt. As of March 22, 1999, $
253,446 was borrowed by Advanced Medical under this agreement. As of June 30,
there was no balance outstanding this agreement.
On May 3, 1999, the United State Bankruptcy Court for the District of
South Carolina entered an order approving the Disclosure Statement filed on
March 23, 1999, fixing June 11, 1999 as the last day for filing ballots
accepting or rejecting the Plan of Reorganization, and setting June 21, 1999
as the date of the hearing on the confirmation of the Plan. On May 11, 1999,
pursuant to a court order entered on May 10, 1999 in the Federal Bankruptcy
Court for the District of South Carolina, Advanced Medical Products, Inc. sold
all assets, including equipment, inventory, and accounts receivable, outside
the ordinary course of business, free and clear of all liens and encumbrances
and other interests, pursuant to 11 U.S.C. Section 363 of the bankruptcy
code. Biosensor Corporation purchased the assets and assumed all of the secured
debt, employee and commission liabilities, and all customer warranty and
service liabilities of Advanced Medical Products, Inc. In addition, Biosensor
made a payment of $68,000 for certain priority claims and administrative
expenses, and for distribution to outside unsecured creditors. Biosensor and
its subsidiaries agreed not to participate in distribution of payments toward
unsecured claims, although their claims exceeded unsecured claims by all non-
affiliated creditors combined. The assets and liabilities of Advanced Medical
were consolidated with the operating assets and liabilities of Biosensor, and
the assets and liabilities of Diagnostic Monitoring purchased by Biosensor
from Cardiac Science Inc. on December 31, 1998, into Advanced Biosensor, Inc.,
a new wholly owned subsidiary of Biosensor, which also agreed to assume
Advanced Medical's lease obligations and to continue to operate the business
at the present Columbia, SC location.
At a hearing held on June 21, 1999 the Plan of Reorganization, as
amended, was confirmed. The Plan had previously been approved by all classes
of creditors. On June 29, 1999 the United State Bankruptcy Court for the
District of South Carolina entered an order confirming the Plan of
Reorganization.
The Chapter 11 bankruptcy estate of Advanced Medical Products, Inc.
has been fully administered. The Company has applied to the Court for entry of
a Final Decree closing the bankruptcy case. The application entitled Report of
Substantial Consummation and Application for Final Decree (the "Application")
and the Final Report in Chapter 11 Proceeding was filed with the Court on
October 5, 1999, and served upon the creditors and parties in interest on
October 6, 1999. The Notice provides that the Final Decree will be entered and
the case closed within 30 days unless an objection to the Application is
filed.As of the date of filing of this Form 10KSB, counsel for the Company has
not been served with any objections to the Application, nor does the Court's
docket reflect that any objections to the Application have been filed with the
Clerk of Courts. The Company does not expect that any objections to the
Application will be filed.
In October 1999, BIOTEL, Inc. entered into discussions with Loomco
International and others regarding the possibility of BIOTEL selling its
3,300,000 common stock shares of the Registrant. All of the current
Directors of the Registrant have agreed to resign if the sale by BIOTEL of
the majority stock position is completed.
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 1999 Compared to Fiscal 1998
Net sales declined 2% to $2,159,548 in fiscal 1999 from $2,191,812 in
fiscal 1998. 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 domestic sales were up but international sales were down,
with sales to Nishimoto Sangyo, the Company's distributor in Japan down more
than 25% at $60,885 and sales to Kontron Instruments, the Company's distributor
in Europe prior to their filing administrative receivership in December, down
40% at $143,883. Lower international sales effected profits to a greater
degree than did higher domestic sales because of the substantially lower sales
and marketing costs to the Company on international sales through distributors.
Gross margins were improved to 47% in fiscal 1999 from 38% in 1998
resulting in gross profits in 1999 of $1,019,804 compared to $836,723 in fiscal
1998. This was primarily the result of higher percentage of sales going to
domestic customers where gross margins are higher than with international
distributors.
Selling, general and administrative expenses of $1,300,647 or 60% of
sales were higher by $291,360 in fiscal 1999, mostly due to higher commissions
and other selling expenses on the higher domestic sales.
Research and development costs for fiscal 1999 of $121,583 were 6% of
sales and were lower than in 1998 by $33,408.
Interest expense was lower, reduced from $114,135 in fiscal 1998 to
$76,069 in fiscal 1999 as a result of reduced borrowing available to the
Company from its lending sources.
The net loss from operations for the approximately ten and one half
months of fiscal 1999 prior to the sale of the Company's assets on May 11th was
$466,460 compared to a loss of $446,563 in fiscal 1998.
Cash at the end of fiscal 1999 on June 30th was $64,073, which was the
undistributed portion of the $68,000 cash paid to the Company on May 11th for
its assets.
Current liabilities consisted of the obligation of the Debtor in
Possession to distribute $63,241 in cash to administrative expenses of the
bankruptcy and certain priority claims, and $23,707 in State tax claims
(additional priority claims) for which there are no funds available. No funds
were available for distribution to unsecured non-priority claims.
All operations ceased as of June 30, 1999.
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 $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 at 6/30/98 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.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used $448,133 in cash during fiscal 1999 compared
with $9,971 used during fiscal 1998. In fiscal 1999, $9,044 was used for
capital expenditures compared with $11,427 in fiscal 1998. Cash decreased by
$18,014 in 1999 and increased by $31,149 in 1998.
During the years ended June 30, 1999 and 1998 the Company's net
operating losses were approximately $466,000 and $447,000. As of June 30,
1999, the Company's accumulated deficit in earnings was approximately
$4,896,000; the Company had total assets of $64,073 and total liabilities of
$86,948 following the May 11, 1999 sale of its assets free and clear of all
liens and encumbrances and interests pursuant to 11 U.S.C. 363(b)(1) of the
federal bankruptcy code.
The Company ceased operations as of May 11, 1999. The cash available on
June 30, 1999 of $64,073 was insufficient to meet administrative and priority
claims. There are no capital resources available to the Company, and there is
no liquidity.
YEAR 2000 IMPACT
The Company has no operations since May 11, 1999 and as such management
believes the the year 2000 conversion should have no adverse effect on the
Company. The Company's products use microprocessors and imbedded software,
and data captured and stored by these products are processed by software
provided to customers by the Company. Calculations performed by the imbedded
code in the Company's products and by processing software supplied by the
Company do not utilize the year. The Company believes that all of its
recorders currently being sold and those being serviced under warranty will be
not be effected by a change in year from 1999 to 2000 or from 2000 to 2001.
As of May 11, 1999, product warranty obligations of the Company were assumed
by Biosensor Corporation.
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
George L. Down 59 President since October 1997.
Vice President since April 1996.
Director since September 1986
C. Roger Jones 61 Director since January 1996
Ronald G. Moyer 63 Chief Executive Officer,
Treasurer and Chairman
Since January 1996; President
From January 1996-October 1997.
Deborah Riente 44 Vice President since December 1993
and Secretary since August 1992
George L. Down is President and a Director of the Company. 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.
C. Roger Jones, is C.E.O of Carolina Medical and 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 served 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 devoted her full-time to the business of
the Company.
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, 1999, 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 $100,000 (each, a "Named Executive Officer"):
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation/Awards
Name/position Fiscal Year Other Annual Comp. All Other
Ended 6/30 Salary Bonus ($) Options Compensation
George W. Down
President 1999 $ 90,000 -0- -0- -0- -0-
Ronald G. Moyer
CEO 1998 $ 84,000 -0- -0- -0- -0-
1997 $ 84,000 -0- -0- -0- -0-
There were no grants of stock options during the fiscal year ended June
30, 1999 to the Named Executive Officers.
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended June 30, 1999 by the Named Executive
Officer and the value of unexercised options held by the Named Executive
Officer as of June 30, 1999:
Aggregated Option Exercises in Fiscal 1999and Fiscal Year-End Option Values
Number of Value of Unexercised
Unexercised In-the-Money
Options Options
At FY-End (#) at FY-End ($)
Shares Acquired Value Real- Exercisable/ Exercisable/
On Exercise (#) ized (A) ($) Unexerc.(C) Unexerc.(B)
Ronald G. Moyer
C.E.O. -0- -0- -0- -0-
George W. Down
President -0- -0- 420,000 -0-
(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,
1999, less the exercise price of such options.
Employment Agreements
There were no employment agreements in effect on June 30, 1999 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 $10,000. The Company may contribute a discretionary matching
contribution on the basis of a $.25 contribution by the Company for each $1.00
contribution by the employee, up to a maximum of 4% of the aggregate employee
contribution. Benefits under the 401(k) Plan are to be distributed upon
retirement, disability, death or termination of employment. Each participant's
share of the Company's contribution vests beginning after three full years of
service, at the rate of 20% after each of the third through seventh years of
service, at which time the participant becomes fully vested. During the fiscal
year the Company made no matching contributions pursuant to the 401(k) Plan.
Amounts to be contributed by the Company under the 401(k) Plan are
discretionary, and, accordingly, it is not possible to estimate the amount of
benefits that will be payable to participants upon retirement.
Limitation on Liability of Directors; Indemnification
The Company's Certificate of Incorporation provides that a director of
the Company will not be personally liable to the Company or its shareholders
for monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. However, this provision
does not eliminate or limit the liability of a director of the Company (i) for
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to unlawful payment of dividends or
unlawful stock repurchases or redemptions), (iv) for gaining a financial profit
of other personal advantage to which he or she was not entitled, or (v) for
breaches of a director's responsibilities under the Federal securities laws.
The Company's by-laws provide that the Company shall indemnify its
officers, directors, employees and agents, to the extent permitted by the
General Corporation Law of Delaware.
Stock Option Plan
On January 26, 1987, the Board of Directors of the Company adopted a
Stock Option Plan pursuant to Section 422A (now renumbered Section 422) of the
Internal Revenue Code of 1986 (the "Code"). The Stock Option Plan was amended
on April 10, 1987, and was amended and restated on November 6, 1992. The
amended and restated Stock Option Plan (the "Plan") was approved by the
Stockholders on December 16, 1992.
A description of the Plan is set forth below. Such description is
qualified in its entirety by reference to the full text of the Plan, a copy of
which is available upon written request to the Company.
The Plan has two administration groups, one for non-qualified and one for
qualified stock options. Non-qualified Stock Option Committee members are Mr.
Moyer, Mr. Brown and Mr. Down. Qualified Stock Option Committee members are
Mr. Moyer, Mr. Ankney and Mr. Heiden. Unless otherwise approved by the
Company's stockholders, members of the Committee are eligible to receive
options only pursuant to Section 5(b) of the Plan, which establishes a formula
for the exercise of such options. Options granted under the Plan may be
qualified (incentive options within the meaning of Section 422 of the Code) or
non-qualified. Stock purchased pursuant to the exercise of an incentive option
is subject to repurchase by the Company at the option price thereof in the
event of the termination of employment for any reason of such option-
ee/purchaser within one year of the exercise of such option. Pursuant to Stock
Option Agreements between the Company and optionees of incentive options
granted under the Plan, the Company has a right of first refusal to purchase
shares issued upon the exercise of options during the five year period
commencing on the date of exercise. The maximum term of any option under the
Plan is ten years and the per share option price of incentive options may not
be less than 100% of the fair market value of the Company's Common Stock on the
date the incentive option is granted. However, incentive stock options granted
to persons owning more than 10% of the voting Common Stock of the Company may
not have a term in excess of five years or an option price per share less than
110% of the fair market value of the Common Stock on the date of the grant.
Subject to the foregoing, each Committee determines who shall have
options under the Plan, the number of shares of Common Stock that may be
purchased under each option, the option exercise price and the term of each
option. The Committee may impose additional restrictions and limitations on
the rights of optionees, consistent with the Plan. In the event the Company's
Common Stock is not publicly traded at the time of grant of the option, the
Committee shall make a good faith determination of fair market value. Options
shall be exercisable at such times and in such amounts as the Committee
determines upon the granting thereof. Except as otherwise set forth,
information set forth herein concerning options refers to both qualified and
non-qualified options. Decisions of the Committee are final.
Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution. A total of 750,000 shares may be
issued upon exercise of options granted under the Plan. The Plan will
terminate on November 5, 2002, or on such earlier date as the Board of
Directors may determine. Any option outstanding at the termination date will
remain outstanding until it expires or is exercised in full, whichever first
occurs.
As of June 30, 1999, 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 1999, no options to purchase shares were granted, no
options were exercised, and no options were terminated.
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. Since the resignations of Mr..
Ankney and Mr. Heiden from the Board there has not been a Compensation
Committee. As of May 12, 1999, all emoloyees of the Company became employees
of Biosensor Corporation. Pursuant to the terms of the Plan the employee stock
options expire 90 days after the date of employee terminations.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of October 27, 1999 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 (1,2) Class
Ronald G. Moyer 3,300,000 (3) 53.31
6 Woodcross Drive
Columbia, SC 29212
BIOTEL Inc. 3,300,000 (3) 53.31
6 Woodcross Drive
Columbia, SC 27021
George L. Down 216,766 (2,4) 3.64
6 Woodcross Drive
Columbia, SC 29212
Officers and Directors as 3,569,690 59.9
a Group (of 3 persons) (3),(4),(5),
(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 420,000 shares in the event
of exercise of outstanding qualified and non-qualified stock options (except to
the extent Securities and Exchange Commission rules require the table to give
effect to the issuance of such shares).
(3) Ronald G. Moyer as Chairman, Chief Executive Officer, and shareholder of
BIOTEL Inc. may be deemed to be beneficial owner of shares owned by BIOTEL by
virtue of his control over the voting power of those shares.
(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 but (iii) does not
include 420,000 shares issuable in the event of exercise of stock options.
(5) Includes 52,924 shares beneficially owned by the Secretary of the Company,
but does not give effect to 77,500 shares issuable in the event of exercise
of stock options granted to such officer.
Item 12. Certain Relationships and Related Transactions
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. 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 Sangyo 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.
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 was recorded as a
"reverse acquisition", whereby CMI was deemed to have acquired Biosensor. The
net assets of Biosensor acquired were recorded at fair market value. The
historical financial statements of Biosensor prior to the acquisition became
those of CMI. Subsequent to July 1, 1998, the financial statements of
Biosensor include the operations of the combined companies, including Carolina
Medical, Braemar, and Advanced Medical Products, Inc.
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. In October 1998 the Plan that had been
approved by both companies' Boards was completed, and all of the shares of the
Company's Preferred Stock issued and outstanding were retired.
On March 23, 1999, after reporting that, for the quarter ended December
31, 1998 the Company had net losses of $373,173 of which $130,000 was as a
result of their distributor in Europe, Kontron Instruments Ltd. filing for
Administrative Receivership, Advanced Medical Products, Inc. filed a motion
with the Federal Bankruptcy Court, District of South Carolina, for an order
authorizing the sale of all assets, including equipment, inventory, and
accounts receivable, outside the ordinary course of business, free and clear
of all liens and encumbrances and other interests, pursuant to 11 U.S.C.
Section 363 of the bankruptcy code. Advanced Medical Products, Inc. continued
to operate as debtor in possession, pending sale of the assets. Emergent Asset
Based Lending, L.L.C., Advanced Medical's principle secured lender whose loan
agreement has been in default since December, agreed to continue to lend
against receivables and inventory based on Biosensor's guarantee of the debt.
As of March 22, 1999, $ 253,446 was borrowed by Advanced Medical under this
agreement.
On May 3, 1999, the United State Bankruptcy Court for the District of
South Carolina entered and order approving the Disclosure Statement filed on
March 23, 1999, fixing June 11, 1999 as the last day for filing ballots
accepting or rejecting the Plan of Reorganization, and setting June 21, 1999
as the date of the hearing on the confirmation of the Plan. On May 11, 1999,
pursuant to a court order entered on May 10, 1999 in the Federal Bankruptcy
Court for the District of South Carolina, Advanced Medical Products, Inc. sold
all assets, including equipment, inventory, and accounts receivable, outside
the ordinary course of business, free and clear of all liens and encumbrances
and other interests, pursuant to 11 U.S.C. Section 363 of the bankruptcy
code. Biosensor Corporation purchased the assets and assumed all of the secured
debt, employee and commission liabilities, and all customer warranty and
service liabilities of Advanced Medical Products, Inc. In addition, Biosensor
made a payment of $68,000 for certain priority claims and administrative
expenses, and for distribution to outside unsecured creditors. Biosensor and
its subsidiaries agreed not to participate in distribution of payments toward
unsecured claims, although their claims exceeded unsecured claims by all non-
affiliated creditors combined. The assets and liabilities of Advanced Medical
were consolidated with the operating assets and liabilities of Biosensor, and
the assets and liabilities of Diagnostic Monitoring purchased by Biosensor
from Cardiac Science Inc. on December 31, 1998, into Advanced Biosensor, Inc.,
a new wholly owned subsidiary of Biosensor, which also agreed to assume
Advanced Medical's lease obligations and to continue to operate the business
at the present Columbia, SC location. On May 23, 1999 stockholders of
Biosensor Corporation voted to change the name of the Biosensor Corporation
to BIOTEL Inc.
At a hearing held on June 21, 1999 the Plan of Reorganization, as
amended, was confirmed. The Plan had previously been approved by all classes
of creditors. On June 29, 1999 the United State Bankruptcy Court for th
District of South Carolina entered an order confirming the Plan of
Reorganization.
The Chapter 11 bankruptcy estate of Advanced Medical Products, Inc.
has been fully administered. The Company has applied to the Court for entry of
a Final Decree closing the bankruptcy case. The application entitled Report of
Substantial Consummation and Application for Final Decree (the "Application")
and the Final Report in Chapter 11 Proceeding was filed with the Court on
October 5, 1999, and served upon the creditors and parties in interest on
October 6, 1999. The Notice provides that the Final Decree will be entered and
the case closed unless an objection to the Application is filed within 30 days
of the date of the Notice. As of the date of filing of this Form 10KSB,
counsel for the Company has not been served with any objections to the
Application, nor does the Court's docket reflect that any objections to the
Application have been filed with the Clerk of Courts. The Company does not
expect that any objections to the Application will be filed.
In October 1999, BIOTEL, Inc. entered into discussions with Loomco
International and others regarding the possibility of BIOTEL selling its
3,300,000 common stock shares of the Registrant. All of the current
Directors of the Registrant have agreed to resign if the sale by BIOTEL of
the majority stock position is completed.
Item 13. Exhibits, List and Reports on Form 8-K
(a) The following Exhibits are filed by reference 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.
10.26 Plan of Reorganization approved June 29, 1999 by the Federal
Bankruptcy Court, District of SC
10.27 Final Report in Chapter 11 Proceeding
(1) Refefernce is made to Exhibit 10.15 to the Registrant's Report on Form 8-K
dated January 12, 1996, which is hereby incorporated by reference.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11 Reference is made to Exhibit 10.25 to the Registrant's Report on Form 10-
KSB for the year ended June 30, 1996, which is hereby incorporated by
reference.
(12) Reference is made to Exhibit 10.26 to the Registrant's Report on Form 8-
K filed on October 18, 1999 which is hereby incorporated by reference.
(13) Reference is made to Exhibit 10.27 to the Registrant's Report on Form 8-K
filed on October 18, 1999, which is hereby incorporated by reference.
(b) Reports on Form 8-K:
Form 8-K Reports filed with the Securities and Exchange Commission on
April 6, 1999, May 18, 1999, and on October 18, 1999 regarding events related
to the 11 U.S.C. Section 363 bankruptcy which occurred in the forth quarter of
the reporting period covered by this Report are filed by reference as part of
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 10/29/99
Ronald G. Moyer Chairman of the Board
/s/George L. Down President and Director 10/ 29/99
George L. Down
/s/C. Roger Jones Director 10/ 29/99
C. Roger Jones
The Registrant has not furnished its 1999 annual report or proxy materials to
securities holders. The Registrant intends to make such information
available 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 10/29/99
Ronald G. Moyer Chairman of the Board
President and Director 10/29/99
George L. Down
Director 10/29/99
C. Roger Jones
The Registrant has not furnished its 1999 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.
(Debtor-In-Possession)
Financial Statements
Years Ended June 30, 1999 and 1998
Advanced Medical Products Inc.
(Debtor-In-Possession)
Financial Statements
Years Ended June 30, 1999 and 1998
Contents
INDEPENDENT AUDITOR'S REPORT F-3
Financial Statements
Balance Sheets F-4-F-5
Statements of Operations F-6
Statements of Changes in Stockholders'
Equity (Deficit) F-7
Statements of Cash Flows F-8-F-9
Notes to Financial Statements F-10-F-25
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Advanced Medical Products Inc.
Columbia, South Carolina
We have audited the accompanying balance sheets of Advanced Medical Products
Inc. (Debtor-In-Possession) as of June 30, 1999 and 1998, and the related
statements of operations, changes in stockholders' equity (deficit), and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Medical Products
Inc. (Debtor-In-Possession) as of June 30, 1999 and 1998, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
Charlotte, North Carolina
October 22, 1999
Balance Sheets
June 30, 1999 and 1998
June 30, 1999 1998
Assets (Notes 2 and 9)
Current:
Cash $ 64,073 $ 82,087
Accounts receivable, net (Notes 4, 8, and 13) - 342,040
Inventories (Notes 5 and 8) - 322,706
Other current assets - 36,553
Total current assets 64,073 783,386
Furniture and equipment, net (Note 6) - 250,691
Product software costs, net of accumulated
amortization of $319,381 in 1998 - 52,751
Other assets - 13,474
Total assets $ 64,073 $1,100,302
See notes to financial statements.
Balance Sheets
June 30, 1999 and 1998
June 30, 1999 1998
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Notes payable (Notes 2 and 9) $ - $ 295,798
Current portion of long-term debt (Notes 2 and 9) - 30,327
Accounts payable (Notes 2 and 8) - 448,548
Accrued wages and commissions (Note 2) - 73,968
Accrued expenses (Notes 1 and 2) - 301,995
Dividends payable (Note 14) - 162,981
Total current liabilities - 1,313,617
Long-term debt, less current maturities
(Notes 2 and 9) - 169,692
Liabilities subject to compromise (Notes 2 and 3) 86,948 -
Total liabilities 86,948 1,483,309
Commitments and contingencies (Notes 7, 12 and 15)
Stockholders' equity (deficit) (Notes 11, 12, 14 and 16):
Class A preferred stock, 5% cumulative, non-voting,
no par value; Authorized 4,000 shares; issued and
outstanding, none in 1999 and 2,377 shares in 1998. - 2,289,410
Common stock, $.01 par value; authorized 7,000,000
shares, issued and outstanding 5,962,495 in 1999
and 1998. 59,625 59,625
Additional paid-in capital 4,813,468 2,486,209
Accumulated deficit (4,895,968) (5,218,251)
Total stockholders' equity (deficit) (22,875) (383,007)
Total liabilities and stockholders' equity
(deficit) $ 64,073 $ 1,100,302
See notes to financial statements.
Statement of Operations
Years Ended June 30, 1999 and 1998
Year Ended June 30, 1999 1998
Net sales (Notes 8 and 13) $2,159,548 $2,191,812
Cost of sales (Note 8) 1,139,744 1,355,089
Gross profit 1,019,804 836,723
Costs and expenses:
Selling, general and administrative 1,300,647 1,009,287
Research and development 121,583 154,991
Loss from operations (402,426) (327,555)
Non-operating income (expense)
Interest (76,079) (114,135)
Other 12,045 (4,873)
(64,034) (119,008)
Loss before reorganization items and
extraordinary item (466,460) (446,563)
Reorganization items (Note 2):
Professional fees 88,377 -
Administrative fees 9,932 -
98,309 -
Loss before extraordinary item (564,769) (446,563)
Extraordinary item, gain on restructuring of debt
(Notes 2, 9 and 10) 887,052 -
Net income (loss) $ 322,283 $(446,563)
Net income (loss) applicable to common shares $ 322,283 $(547,684)
Basic and diluted net earnings (loss) per share $ .05 $ (.10)
Weighted average common shares outstanding 5,962,495 5,749,995
See notes to financial statements.
Statements of Changes in Stockholders' Equity (Deficit)
Years Ended June 30, 1999 and 1998
Class A Issued Additional
Preferred Common Stock Paid-in Accumulated
Stock Share Total Capital Deficit Total
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)
Sale of product line and inventory in
exchange for the preferred stock and
forgiveness of the accrued unpaid
dividends (Note 14)
(2,289,410) - - 2,327,259 - 37,849
Net income - - - - 322,283 322,283
Balance,
June 30,
1999 $ - 5,962,495 $59,625 $4,813,468 $(4,895,968) $(22,875)
See notes to financial statements.
Statements of Cash Flows
Years Ended June 30, 1999 and 1998
Year Ended June 30, 1999 1998
Cash flows from operating activities:
Net income (loss) $ 322,283 $ (446,563)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
Depreciation and amortization 113,157 139,954
Provision for doubtful accounts 173,170 58,107
Loss on disposal of fixed assets 2,145 -
(Increase) decrease in:
Accounts receivable (163,753) 154,405
Inventories (7,138) 130,599
Other assets 8,892 15,653
Increase (decrease) in:
Accounts payable (204,610) (26,250)
Accrued wages and commissions 26,803 (15,981)
Accrued expenses 1,661 47
Net cash provided by operating activities before
reorganization items 272,610 9,971
Operating cash flows from reorganization items:
Cash received from buyer of net assets in
connection with the Chapter 11 proceeding 68,000 -
Extraordinary item, gain on restructuring debt (887,052) -
Professional and administrative fees for services
in connection with the Chapter 11 proceeding 98,309 -
Net cash (used in) reorganization items (720,743) -
Net cash (used in) provided by operating
activities (448,133) 9,971
Cash flows used in investing activities:
Purchase of furniture and equipment - (795)
Capitalization of product software costs (9,044) (10,632)
Net cash used in investing activities (9,044) (11,427)
See notes to financial statements.
Statements of Cash Flows
Years Ended June 30, 1999 and 1998
Year Ended June 30, 1999 1998
Cash flows from financing activities:
Payments on notes payable and long-term debt $ (164,100) (166,322)
Issuance of common stock - 198,927
Advances from related entities 603,263 -
Net cash provided by financing activities 439,163 32,605
Net (decrease) increase in cash and equivalents (18,014) 31,149
Cash, beginning of year 82,087 50,938
Cash, end of year $ 64,073 $ 82,087
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 84,964 $ 113,900
Supplemental Schedule of Non-Cash Investing and
Financing
Activities:
Capitalization of demonstration inventory $ - $ 59,507
Declaration of preferred stock dividend - 101,121
Common stock issued in satisfaction of accounts
payable and accrued expenses - 55,988
Sale of product line and inventory in exchange
for preferred stock and forgiveness of accrued
unpaid dividends:
Inventory (125,132) -
Dividend payable 162,981 -
Preferred stock 2,289,410 -
Paid-in capital (2,327,259) -
$ - $ -
See notes to financial statements.
Notes to Financial Statements
1. Nature of Business, Ownership and Significant Accounting Policies
The Company, prior to selling its assets on May 12, 1999, pursuant to a Plan
of Reorganization under Chapter 11 of the federal bankruptcy laws,
developed, manufactured (through subcontractors), assembled and marketed medical
diagnostic equipment and software primarily for use in physicians'
offices throughout the United States and Europe.
On March 23, 1999, Advanced Medical Products Inc. (the "Debtor") filed
petitions for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court. Under Chapter 11, certain claims against
the Debtor in existence prior to filing of the petitions for relief under
the federal bankruptcy laws are stayed while the Debtor continues business
operations as debtor-in-possession.
Under the Plan of Reorganization, the Debtor was authorized to sell all
personal property, outside the ordinary course of business to Biosensor
Corporation, owner of Carolina Medical Inc. who owned 55.3% of the common
stock of Advanced Medical Products Inc. Biosensor Corporation assumed all
indebtedness of Advanced Medical Products Inc., except for the general
unsecured debts. Advanced Medical Products Inc. continued to operate as
debtor-in-possession, pending sale of the assets. As of May 11, 1999, the
Company ceased operations. (See Note 2)
Parent Company
At June 30, 1998, the Company was a 55.3% owned subsidiary of Carolina
Medical Inc.
In July 1998, Carolina Medical Inc., a majority holder of the Company's
common stock, 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. Because the former shareholders of
CMI effectively control Biosensor after the transaction, the transaction was
recorded as a "reverse acquisition" whereby CMI is deemed to have
acquired Biosensor.
On May 23, 1999, the stockholders of Biosensor voted to change the name of
Biosensor Corporation to BIOTEL, Inc. Therefore, the Company is a 55.3%
owned subsidiary of BIOTEL, 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 subjected the Company to
concentrations of credit risk consisted principally of temporary cash
investments and trade accounts receivable. The Company placed
its temporary cash investments with high quality credit financial
institutions. No losses had been experienced on such investments. The
Company had sales to foreign customers of approximately $253,000 and $317,000
in 1999 and 1998, respectively. The Company had reviewed a customer's
credit history before extending credit. An allowance for doubtful accounts
was established based upon factors surrounding the credit risk of
specific customers, historical trends and other information.
Inventories
Inventory was stated at the lower-of-cost determined by the first-in,
first-out (FIFO) method or market.
Furniture, Equipment,and Depreciation
Furniture and equipment were stated at cost less accumulated depreciation.
Depreciation was 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 was shipped directly to the Company's customers. Revenue on these
sales was recognized when the product was shipped.
Service Contracts
Amounts billed to customers for service contracts were recognized as income
over the term of the agreements and the associated costs were recognized
as they were incurred. Accrued expenses included service contract revenue
deferrals of approximately $167,000 in 1998.
Warranty
The products manufactured by the Company were sold with a one-year warranty.
The Company accrued warranty costs based upon historical experiences
and current conditions. The Company also offered an extended warranty to
its customers, under which revenues were initially deferred and recognized to
match the expected related costs incurred over the extended warranty period.
Expense for work performed under the extended warranties were recognized as
incurred.
Product Development Costs
Costs associated with the development of new products and changes to existing
products were charged to operations as incurred (except Product Software Costs).
Product Software Costs
The Company capitalized certain costs related to the development of computer
software once technological feasibility of the software had been
established. These costs, which were reported at the lower of unamortized
cost or net realizable value, were amortized principally using the
straight-line method, over the estimated useful economic life of the soft-
ware, generally 36 months. Amortization expense amounted to approximately
$31,000 and $48,000 in 1999 and 1998, respectively.
Income Taxes
The Company accounted for income taxes under the liability method, whereby
deferred tax assets and liabilities were based on the temporary differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which were anticipated to be in effect
when these temporary differences reverse. The deferred tax provision was
the result of the net change in the deferred tax assets and liabilities.
A valuation allowance was established when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets
would not be realized.
Net income (loss) per share
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS No. 128), Earnings Per Share, which supersedes APB Opinion
No. 15. SFAS No. 128 requires the presentation of earnings per share by all
entities that have common stock or potential common stock, such as options,
warrants, and convertible securities, outstanding that trade in a public
market. Basic per share amounts are computed, generally, by dividing net
income or loss by the weighted-average number of common shares outstanding.
Net loss was increased by $101,121 for preferred stock dividends declared
in 1998. There were no preferred stock dividends declared in 1999. 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.
As described in Note 11, at June 30, 1999 and 1998, the Company had options
outstanding to purchase a total of 602,500 shares of common stock, at a
weighted-average price of approximately $.2439. The inclusion of those
potential common shares in the calculation of diluted income (loss) per share
would have an antidilutive effect. Therefore, basic and diluted
income (loss) per share amounts are the same in 1999 and 1998.
Advertising
The Company expensed the production costs of advertising, the first time
advertising took place, except for direct response advertising which was
capitalized and amortized over its expected period of future benefits.
Direct response advertising consisted primarily of brochures and distribution
of brochures that include response cards for the Company's products. The
capitalized costs of the direct response advertising were amortized over a
six month period from the date that the production costs were incurred.
At June 30, 1998, approximately $36,000 was reported as assets. Advertising
expense was approximately $77,000 in 1999 and $55,000 in 1998.
2. Plan of Reorganization
On March 23, 1999, Advanced Medical Products Inc. (the "Debtor") filed
petitions for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court. Under Chapter 11, certain claims against the
Debtor in existence prior to filing of the petitions for relief under the
federal bankruptcy laws are stayed while the Debtor continues business
operations as debtor-in-possession. The remaining unpaid claims are
reported in the June 30, 1999 balance sheet as "liabilities subject to
compromise." Additional claims (liabilities subject to compromise) may arise
subsequent to the filing date resulting from rejection of executory contracts,
including leases, and from the determination by the Court (or agreed
to by parties in interest) of allowed claims for contingencies and other
disputed amounts. Claims secured against the Debtor's assets ("secured
claims") are also stayed, although the holders of such claims have the right
to move the Court for relief from the stay. Secured claims are secured
primarily by liens on the Debtor's assets.
On June 29, 1999, the Bankruptcy Court confirmed the Company's plan of
reorganization. The confirmed plan provided for the following:
Biosensor Corporation, who owns 55.3% of the common stock of Advanced
Medical Products Inc., proposed to purchase the assets and assume all of the
secured debt, employee and commission liabilities, and all customer warranty
and service liabilities of Advanced Medical Products Inc. In addition,
Biosensor proposed to make a payment of $68,000 toward administrative
expenses and the amount owed by Advanced Medical Products Inc. for certain
priority claims and administrative expenses, and for distribution to outside
unsecured creditors. If it was the successful bidder on the assets, Biosensor
and its affiliates agreed not to participate in the distribution of payments
toward unsecured claims. Biosensor's unsecured claims exceeded unsecured
claims by all nonaffiliated creditors combined. Biosensor had been funding
the losses incurred by Advanced Medical Products Inc. and indicated its
inability to continue doing so.
Advanced Medical Products Inc. continued to operate as debtor-in-possession,
pending sale of the assets. Advanced Medical Products Inc.'s principal secured
lender, whose loan agreement has been in default since December, agreed to
continue to lend against receivables and inventory based on Biosensor's
guarantee of the debt.
As a result of the above transaction, the Company recognized a gain of
$887,052 on restructuring of debt. This gain has been recognized as an
extraordinary item in the accompanying statements of operations. There was
no tax effect attributable to this gain.
Upon the final approval of the Company's plan of reorganization, anticipated
to be on November 5, 1999, the Company will cease operating as a debtor-
in-possession.
3. Liabilities Subject to Compromise
Liabilities subject to compromise as of June 30, 1999 consist of the following:
Priority tax claims $ 23,707
Professional fees and administrative expenses 63,241
$ 86,948
4. Accounts Receivable
Accounts receivable are summarized as follows:
June 30, 1998
Trade receivables $ 365,540
Other receivables 1,500
367,040
Less allowance for doubtful accounts 25,000
Net accounts receivable $ 342,040
5. Inventories
Inventories are summarized as follows:
June 30, 1998
Raw materials $ 141,799
Work-in-process 21,008
Finished goods 159,899
$ 322,706
6. Furniture and Equipment
Major classes of furniture and equipment consist of the following:
June 30, 1998
Equipment $ 308,305
Furniture 177,373
Tooling 614,972
Leasehold improvements 15,782
1,116,432
Less accumulated depreciation and amortization 865,741
$ 250,691
Depreciation expense amounted to approximately $82,000 and $92,000 in 1999
and 1998, respectively.
7. Leases
The Company leased its facility under a five year lease agreement which
will expire October 31, 2001. As of May 12, 1999, Biosensor Corporation
assumed all of the Company's obligations under this lease.
The Company also leased equipment under agreements with varying monthly
payment amounts. The terms of the leases ranged from 36 to 60 months.
Rent expense under these operating leases amounted to approximately $91,000
and $116,000 in 1999 and 1998, respectively.
8. Related Parties
The Company had sales of approximately $88,000 in 1998 to Nishimoto Sangyo
Company, Ltd., a former stockholder. At June 30, 1998, there were no
outstanding receivables related to these sales.
The following related party transactions occurred by and between the Company
and Biosensor and its subsidiaries.
The Company purchased approximately $376,000 and $240,000 of finished goods
from Braemar, a wholly-owned subsidiary of Biosensor in 1999 and 1998,
respectively. In addition, approximately $88,000 of receivables from Braemar
were offset against additional overdue amounts owed by the Company to
Braemar. The balance due of approximately $210,000 remained due to Braemar
by the Company under the Plan of Reorganization filed under Chapter 11. The
June 30, 1998 accounts payable balance to Braemer was approximately $146,000.
The Company purchased approximately $145,000 of inventory from Biosensor.
The Company has not paid Biosensor for these inventory purchases. At
various times during 1999, Biosensor extended cash advances and loans to the
Company to enable the Company to meet payroll and other time critical
cash needs. These advances and loans, which were not evidenced by notes,
totaled approximately $248,000. The entire amount of the inventory
purchases, advances and loans remained due to Biosensor by the Company under
the Plan of Reorganization field under Chapter 11.
Biosensor and its subsidiaries agreed not to participate in distributions of
payments toward unsecured claims, although their claims exceeded
unsecured claims by all nonaffiliated creditors combined. Biosensor and
subsidiaries claims totaled approximately $603,000.
9. Notes Payable and Long-Term Debt
As of June 30, 1999, the Company has no outstanding notes payable or
long-term debt. Pursuant to the Plan of Reorganization filed under
Chapter 11, the Company sold all its assets to Biosensor and
Biosensor assumed all of the secured debt of the Company (as noted below).
As of June 30, 1998, the Company had $295,798 outstanding under a
line-of-credit arrangement. The line-of-credit was limited to the lesser of
$750,000 or the sum of 80% of eligible receivables and 100% of eligible
inventories (capped at $130,000). The line bears interest at 2% plus the
greater of the prime rate or 7%. The line was due on December 31, 1998, and
was secured by substantially all assets of the Company. However,
the Company was 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 had
waived the covenant violations through December 31, 1998, except for
location of inventory.
The Company's loan agreement had been in substantial default since December
31, 1998 and the lender had agreed to continue to lend against
receivables and inventory until the sale of assets on the condition that
Biosensor guarantee the post petition debt.
As of June 30, 1998, the Company had $150,000 outstanding on a loan agreement
with Carolina Medical Inc. (which merged into Biosensor). The loan bears
interest at a 12% annual rate and was payable on or before January 1, 2000.
The note was secured by accounts receivables and certain inventories.
The Company had a long-term note in the amount of $40,279 as of June 30, 1998.
The note was to be repaid in 48 monthly installments of $2,000,
including interest at 11% and was secured by furniture and equipment.
In addition, the Company had $9,740 outstanding on two notes as of June 30,
1998 relating to prior royalty agreements. The notes were paid in full
during 1999.
10. Income Taxes
The components of the net deferred tax assets and liabilities were as follows:
June 30, 1999 1998
Deferred tax liabilities:
Excess tax over book depreciation $ - $ (76,823)
Software costs - (16,427)
- (93,250)
Deferred tax assets:
Capitalized inventory costs and
valuation allowances expensed
for financial statement purposes - 43,490
Reserve for bad debt not
deductible for tax purposes - 9,750
Accrued vacation and other
liabilities not deductible for
tax purposes - 21,445
General business tax credits 170,115 170,115
Operating loss carryforwards 1,455,937 1,581,629
1,626,052 1,826,429
1,626,052 1,733,179
Less valuation allowance (1,626,052) (1,733,179)
$ - $ -
The Company had total net operating loss carryforwards of approximately $3.7
million available at June 30, 1999, 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, 1999 and
1998. No income tax expense is reflected in the statement of operations for
1999 due to the utilization of loss carryforwards.
11. Stock Options
The Company has reserved 750,000 shares of authorized common stock for
issuance pursuant to the terms of an Incentive Stock Option Plan.
Stock options are granted at prices not less than 100% of the fair market
value of common shares at the date of the grant and expire five years from
the date of grant. On May 12, 1999, all employees of the Company that were
terminated, became employees of Biosensor. Pursuant to the terms of the
Incentive Stock Option Plan, the employee stock options expired 90 days
after the date of employee termination. Stock option activity during 1999
and 1998 is as follows:
Exercise Price
Number shares Weighted average
per share Total
Outstanding at
June 30, 1997 335,500 $ .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
Outstanding at
June 30, 1999 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
income (loss) and income (loss) per share would have been reduced 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)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants:
1998
Dividend yield 0%
Expected volatility 125%
Risk free interest rate 6.3%
An expected life 5 years
12. Commitments and Contingencies
The Company had 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. As of May 12, 1999, Biosensor
Corporation assumed all of the Company's product liabilities.
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.
13. Significant Customer
The percentages of the Company's sales to certain major customers are as
follows:
1999 1998
Percent of Sales for years ended June 30,
Customer 7% 11%
Accounts Receivable as of June 30,
Customer $ - $ 98,000
14. Capital Stock Transactions
During 1993, the Company authorized 4,000 shares of Class A Preferred Stock,
no par value, of which 2,000 shares were issued to Nishimoto Sangyo
Company, Ltd. (Nishimoto). The Class A Preferred Stock calls for cumulative
dividends of $50 per share per year and has a liquidation preference of
$1,000 per share. In addition, interest is accrued on all unpaid dividends
at a rate of 10% per annum. The Company is required to pay all dividends on
the preferred stock prior to declaring or paying a dividend to common stock-
holders.
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 has also been assigned to the Company.
The Class A Preferred Stock is recorded at fair value at the date of issuance.
Prior to the relinquishing of redemption rights, the difference
between the recorded value and the redemption value was accreted using the
interest method over the life of the issue by charges to retained earnings.
On January 12, 1996, Carolina Medical purchased 750,000 shares of the
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 and other consideration. Effective with the issuance of
the additional shares, BII and Carolina Medical collectively owned
50.3% 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% of the outstanding common stock of the Company.
During May and June 1998, Carolina Medical 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.
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 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. In October 1998, the Plan that had
been approved by both Companies' Boards was completed, and all of the shares of
the Company's Preferred Stock were retired.
In July 1998, Carolina Medical Inc., a majority holder of the Company's
common stock, 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 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 was deemed to have acquired Biosensor.
On May 23, 1999, the stockholders of Biosensor voted to change the name of
Biosensor Corporation to BIOTEL, Inc. Therefore, the Company is a 55.3%
owned subsidiary of BIOTEL, Inc.
15. Employee Benefits
The Company had a defined contribution 401(k) plan covering substantially
all employees. Participants may contribute up to 15% of their annual
compensation to the plan. The Company had the discretion to match 25% of a
participant's contribution up to 4% of salary. There were no Company
contributions for the years ended June 30, 1999 and 1998. On May 12, 1999
all employees of the Company were terminated and became employees of
Advanced Biosensor.
16. Subsequent Events
In October 1999, BIOTEL, Inc. entered into discussions with Loomco
International, Inc. and others regarding the possibility of BIOTEL, Inc.
selling its 3,300,000 common stock shares of the Registrant. All of the
current Directors of the Registrant have agreed to resign if the sale by
BIOTEL of the majority stock position is completed.
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