<PAGE>
CONFORMED
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 OR 15(d) of the Securities Exchange Act of
1934 [Fee Required] for the fiscal year ended December 31, 1997
[_] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required] for the transition period from ____ to ____
Commission file number 33-23786-LA
AMDL, Inc.
(Name of small business issuer in its charter)
Delaware 87-0188822
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14272 Franklin Ave., Suite 106
Tustin, California 92780-7039
------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (714) 505-4460
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
-- --
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
State Issuer's revenues for its most recent fiscal year $42,436
The aggregate market value of the approximately 33,504,567 shares of the
Company's voting stock held by non-affiliates, computed at the bid price of such
stock of $0.16 in the over-the-counter market, as quoted on the Electronic
Bulletin Board on May 29, 1998, was $5,360,730. Such figures do not take into
account the limited nature of the trading market for the Company's common stock
or apply any discount to the current market price for volume. See Item 5.
As of May 29, 1998, the Registrant had outstanding 33,754,903 shares of its
common stock, par value $0.001.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure
Format (Check one):
Yes .... No ..X.
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TABLE OF CONTENTS
Item Number and Caption Page
GLOSSARY OF MEDICAL AND SCIENTIFIC TERMS .................................. 2
PART I ................................................................ 7
1. DESCRIPTION OF BUSINESS ............................................... 7
2. DESCRIPTION OF PROPERTY ............................................... 11
3. LEGAL PROCEEDINGS ..................................................... 11
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................... 12
PART II ............................................................... 13
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .............. 13
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ............. 15
7. FINANCIAL STATEMENTS .................................................. 17
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ................................ 17
PART III .............................................................. 17
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ..................... 17
10. EXECUTIVE COMPENSATION ................................................ 20
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ................................................. 22
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................ 23
13. EXHIBITS AND REPORTS ON FORM 8-K ...................................... 26
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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GLOSSARY OF MEDICAL AND SCIENTIFIC TERMS
AFP:
Alpha-fetoprotein, a plasma protein reaching elevated levels indicating liver
diseases such as cancer, cirrhosis and viral hepatitis. A marker for liver
cancer.
Allergy:
A state of hypersensitivity induced by exposure to a particular antigen
(allergen) resulting in harmful immunologic reactions on subsequent exposures;
usually used to refer to hypersensitivity to an environmental antigen or to drug
allergy.
Anaplasia:
A loss of differentiation of cells and of their orientation to one another and
to their axial framework and blood vessels, a characteristic of tumor tissue.
Anaplastic:
Undifferentiated, characterized by anaplasia or reversed development; said of
cells.
Antibody:
An immunoglobulin molecule that has a specific amino acid sequence by virtue of
which it interacts only with the antigen that induced its synthesis in cells of
the lymphoid series (especially plasma cells), or with an antigen closely
related to it.
Antigen:
Any substance which is capable, under appropriate conditions, of inducing a
specific immune response and of reacting with the products of that response.
Bacteria:
Plural of bacterium.
Bacterium:
Any of the unicellular prokaryotic microorganisms that commonly multiply by cell
division (fission) and whose cell is typical contained within a cell wall.
Cancer:
A new and abnormal cell growth the natural course of which is fatal. Cancer
cells, unlike benign tumor cells, exhibit the properties of invasion and
metastasis and are highly anaplastic.
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CEA:
Carcinoembryonic antigen. A tumor-marker used in detection of colorectal,
gastric, breast and bronchial cancer.
Clinical:
Used in the treatment of patients as opposed to academic or theoretical
applications.
Diabetes:
A chronic syndrome of impaired carbohydrate, protein and fat metabolism owing to
insufficient secretion of insulin or to target tissue insulin resistance.
Diagnosis:
The determination of the nature of the disease. The art of distinguishing one
disease from another.
Diagnostic:
Pertaining to or subserving diagnosis; distinctive of or serving as a criterion
of a disease, as signs and symptoms.
DR-70(TM):
The name of the Company's lung cancer tumor-marker.
ELISA:
Enzyme-Linked Immuno Sorbent Assay.
Enzyme:
A protein molecule that catalyzes chemical reactions of other substances without
itself being destroyed or altered upon completion of the reactions.
HCG:
Human chorionic gonadotropin. A marker for pregnancy. Also used as a marker for
testicular tumors.
Helicobacter Pylori (H. Pylori):
A gram-negative, helical shaped bacterium that colonizes the mucus lining of the
stomach and is associated with gastric and peptic ulcers.
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Hepatitis:
Inflammation of the liver. Several categories exist, i.e., A, B, C, D and E,
varying in seriousness and symptoms.
Hormone:
A chemical substance, produced in the body by an organ, by cells of an organ, or
by scattered cells, carried by the blood, which has a specific regulatory effect
on the activity of a certain organ or organs on cell types.
Immune:
Protected against infectious disease by either specific or nonspecific
mechanisms.
Immunoassay:
Any of several methods for the quantitative determination of chemical substances
that utilize the highly specific binding between an antigen or hapten and
homologous antibodies, including radioimmunoassay, enzyme immunoassay, and
fluoroimmunoassay.
Immunoglobulin:
Any of the structurally related glycoproteins that function as antibodies,
protecting the body's defense system against foreign substances, divided into
five classes (M,G,A,D,E).
Insulin:
A substance produced in the pancreas that controls the blood sugar level.
Lymphoid:
Resembling or pertaining to lymph or tissue of the lymphoid system.
Malignant:
Cancerous, having the properties of uncontrolled growth, invasion, and the
ability to move within the body and grow in new locations.
Malignant cells:
Cancer cells.
Metastasis:
The transfer of disease from one organ or part to another not directly connected
with it.
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Non-invasive:
Does not involve puncture or incision of the skin or insertion of an instrument
or foreign material into the body.
OncoChek(TM):
The name of the Company's cancer tumor marker.
Plasma:
The fluid portion of the blood in which the particulate components are
suspended. Plasma is to be distinguished from serum, which is the cell-free
portion of the blood from which the fibrinogen has been separated in the process
of clotting.
Prokaryotic:
Cellular organisms lacking a true nucleus and nuclear membrane. Their nuclear
material consists of a single double-stranded DNA molecule, not associated with
basic proteins.
Protein:
Any of a group of complex organic compounds which contain carbon, hydrogen,
oxygen, nitrogen, and usually sulfur, the characteristic element being nitrogen.
Proteins are the principal constituents of the protoplasm of all cells.
PSA:
Prostate specific antigen. A marker for prostrate cancer.
PyloriProbe(TM):
A trademark for AMDL's ELISA kit for measuring antibody to Helicobacter pylori.
An indicator of infection caused by H. pylori bacteria.
Ring-shaped particle (RSP):
High molecular weight substance believed to be released in significant amounts
by all malignant cells but not by non-malignant cells.
Sensitivity:
The lowest concentration of tumor-marker a given test can detect. When used in
the context of analyzing cancer testing data, the percentage of malignant
samples correctly identified as malignant.
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Serum:
Clear liquid that separates from blood on clotting.
Specificity:
When used in the context of analyzing cancer testing data, the percentage of
non-malignant samples correctly identified as non-malignant.
Substrate:
A substance upon which an enzyme acts.
Tumor:
Swelling, one of the cardinal signs of inflammation, morbid enlargement. A new
growth of tissue in which the multiplication of cells is uncontrolled and
progressive; called also neoplasm.
Tumor-marker:
A biochemical substance indicative of neoplasia, ideally specific, sensitive,
and proportional to tumor load, used variously to screen, diagnose, assess
prognosis, follow response to treatment, and monitor for recurrence.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business
AMDL, Inc., the Registrant (hereinafter referred to as "AMDL" or the "Company")
offers for sale various immunodiagnostic kits. Since the founding of the Company
in 1989 until 1997, the Company was primarily engaged in the commercial
development of, and obtaining various governmental regulatory approvals for the
marketing of a proprietary diagnostic tumor-marker test kit to detect the
presence of lung cancer. In 1997 and continuing into 1998, the Company broadened
its scope and product line and offers a selection of diagnostic test kits for
allergy, autoimmune, cancer markers, clinical chemistry, drugs of abuse,
fertility, gastrointestinal disease, infectious disease, pregnancy, serology,
serum proteins, thyroid, urine chemistry and other immunoassays.
The Company is in the development stage and has not generated any significant
revenues from product sales. The Company has accumulated a significant deficit
since inception and expects to incur a significant loss during the 1998 fiscal
year. The Company will require substantial additional funding for continuing
research and development, obtaining regulatory approval and for
commercialization of its products.
Products
AMDL's products include non-proprietary diagnostic test kits for allergy,
autoimmune, cancer markers, clinical chemistry, drugs of abuse, fertility,
gastrointestinal disease, infectious disease, pregnancy, serology, serum
proteins, thyroid, urine chemistry and miscellaneous immunoassays. AMDL's
proprietary tests include DR-70(TM) for lung cancer detection, OncoChek(TM) for
breast cancer detection, and PyloriProbe(TM) for the detection of H. pylori.
DR-70(TM) is marketed as a lung cancer tumor-marker and the test involves a
small amount of blood serum drawn from a patient. The test uses a common
microtiter format familiar to most laboratories in the diagnostic industry. The
technology is ELISA and uses a specific antibody which in combination with
substrate produces a visible color in proportion to the amount of DR-70(TM)
antigen in the patient. A study recently published in the Journal of Immunoassay
shows DR-70(TM) able to detect 13 different types of cancer including lung,
stomach, breast, colon, liver, uterus, pancreas and others. DR-70(TM) is only
available from AMDL and this rapid, inexpensive test can be used for both the
diagnosis and monitoring of cancer.
OncoChek(TM), another proprietary cancer tumor marker, is in pre-clinical
trials. These studies were conducted at the University of California, Irvine
Medical Center under the supervision of Dr. Lewis M. Slater. These studies were
designed to investigate 1) the general ability of OncoChek(TM) to detect various
types of cancers including colon, ovary, breast, larynx, lung and lymph and 2)
test result interference by non-cancer diseases. A study published in the
January/February 1998 edition of IVD Technology reports that OncoChek(TM), "when
used together with established organ-specific markers, the overall clinical
performance may be improved."
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PyloriProbe(TM) detects H. pylori, a bacterium associated with chronic gastritis
and ulcers which can possibly lead to stomach cancer if untreated. This is also
an ELISA technology similar to DR-70(TM). Management believes PyloriProbe(TM)
has several advantages over competitors' tests. The advantages include color
coded ready-to-use reagents, superior reproducibility, durable breakaway wells,
elimination of the calibration curve requirement and significantly lower cost.
Other Products
In addition to DR-70(TM), PyloriProbe(TM) and OncoChek(TM), AMDL offers a full
line of non-proprietary cancer tumor markers which include: CEA for colon, PSA
for prostate, AFP for liver and HCG for testicular cancer. Additional tests
include test kits for: allergy, autoimmune, drug abuse, fertility, infectious
disease, pregnancy, febrile infections, thyroid and other hormones and serology
tests.
Marketing
AMDL's strategy is to provide OEM or private label test kits to under-served
international markets through distributor relationships and to domestic markets
through relationships with large diagnostic companies. AMDL will make use of the
Internet, select journals and industry trade shows for its marketing activities.
ICD, L.L.C., ("ICD") AMDL's joint venture with Briana Bio-Tech Inc. ("Briana"),
is responsible for marketing DR-70(TM) worldwide with the exception of the
United States and Canada. AMDL has retained the marketing rights for the United
States and Briana has retained the marketing rights for Canada. Only minimal
revenues have been received from diagnostic product sales to date and there can
be no assurance of any future revenues.
In January 1998, Gary L. Dreher joined the Company as Vice President of Sales
and Marketing. Mr. Dreher, with 27 years of biomedical and diagnostic marketing
experience, is implementing a marketing strategy that includes identifying and
contacting potential worldwide partners for distribution, technology licensing
and OEM product arrangements as well as increasing corporate visibility through
trade show representation and advertising.
Production
AMDL's facility in Tustin, California includes approximately 3,000 square feet
of manufacturing area. The Company intends to produce only DR-70(TM), its lung
cancer tumor-marker diagnostic kit, OncoChek(TM), its breast cancer tumor-marker
diagnostic kit and PyloriProbe(TM), its H. pylori bacterium detection diagnostic
kit at its Tustin facility. These products will be produced in both the ELISA
and rapid test formats. AMDL intends to subcontract on a 'private label' basis,
to established manufacturers, other products with packaging, quality control and
labeling functions occurring at the Tustin facility. Some products will be `drop
shipped' directly from the manufacturer to AMDL's customer.
AMDL is registered with the U.S. Food and Drug Administration as a manufacturer
of in vitro diagnostic kits and has received the FDA's Good Manufacturing
Practices ("GMP") manufacturing credential for its Tustin facility. The GMP
credential is required by various countries seeking to import AMDL's products.
8
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Regulation
The Company's products, to the extent they may be deemed medical devices or
biologics, are governed by the Federal Food, Drug and Cosmetics Act and by the
regulations promulgated thereunder by the FDA as well as the regulations of
state agencies and various foreign government agencies.
DR-70(TM)
The Company has not yet submitted an application to the FDA to sell DR-70(TM) in
the United States. It is anticipated that DR-70(TM) will require a formal
clearance route known as the Premarket Approval Application, or "PMA", in order
to obtain a Biologic Product License to market such a product in the United
States. A PMA for DR-70(TM) would describe the components and the manufacturing
process of the test system, summarize clinical studies which establish
consistent and acceptable specificity and sensitivity levels and provide other
data which demonstrate the efficacy and stability of the product.
The Company has received approval to sell DR-70(TM) in Canada. A clinical trial
protocol for lung cancer was approved in 1993 by the Cross Cancer Institute in
Edmonton, Alberta, Canada under the auspices of the Alberta Cancer Board. The
objective of the clinical trial at the Cross Cancer Institute was to evaluate
the sensitivity and specificity of the AMDL DR-70(TM) lung cancer tumor-marker
and to determine if the level of the tumor-marker correlates with the stage of
lung cancer development and determine its usefulness for monitoring response to
treatment and for predicting recurrence of cancer.
In this clinical trial, 237 patients with newly diagnosed lung cancer and 244
volunteers with no clinical evidence of disease were selected. The DR-70(TM)
tumor-marker was measured in blood serum samples collected from both cancer
patients and the volunteers. The control group was composed of smokers and non-
smokers. The results showed sensitivity of the lung cancer test was 66% and
specificity was 92%. The Company believes these results and data reported in
continued studies at the Cross Cancer Institute demonstrate the value of the DR-
70(TM) lung cancer tumor-marker as a diagnostic test for detecting lung cancer.
In June 1995, the Company received approval from the Cross Cancer Institute to
apply for marketing clearance for its DR-70(TM) lung cancer tumor-marker from
the Health Protection Branch in Ottawa, Canada. In August 1995, the Company
received marketing clearance from the Health Protection Branch. In September
1995, the U.S. Food and Drug Administration ("FDA") certified the Company for
clearance to export the DR-70(TM) lung cancer tumor-marker diagnostic kit to
Canada.
Additional clinical studies of DR-70(TM) were recently completed in Wuhan,
China. The studies determined that the DR-70(TM) immunoassay kit detected a
number of different cancers with a high degree of specificity and sensitivity.
Thirteen different types of cancer, including cancers of the lung, stomach,
breast, colon, liver, uterus and pancreas, were found in the screening process,
indicating that DR-70(TM) has significant usefulness as a cancer-screening tool.
The Company is in the process of applying for regulatory approval to market DR-
70(TM) throughout China.
9
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PyloriProbe(TM)
In July 1996, the Company filed a 510(k) Premarket Notification with the FDA
requesting approval to sell PyloriProbe(TM) in the United States. In November
1996, the FDA requested a withdrawal of AMDL's 510(k) Premarket Notification
Application for PyloriProbe(TM) until additional clinical data is secured. The
Company resubmitted the Application to the FDA in April 1998 although there can
be no assurance that the Company will receive the regulatory approval required
to market PyloriProbe(TM) or that the FDA will review the product within a
predictable period of time.
Other Products
The Company's other diagnostic products have not been approved by the FDA for
sale in the United States.
Patents
The Company's success depends in part on its ability to obtain United States and
foreign patent protection for its products, preserve its trade secrets, and
operate without infringing upon the proprietary rights of third parties. The
Company has four patent applications pending in the United States with respect
to its methodology for detecting the presence of the ring shaped particle and
DR-70(TM) tumor-markers as reliable indicators of the presence of cancer. Two of
the Company's patents describe methods for measuring ring-shaped particles in
extracellular fluid as a means for detecting cancer have been granted and issued
by the United States Patent and Trademark Office. Patents have also been issued
directed to this technology in Taiwan, South Africa, Australia, India, New
Zealand, Philippines, Russia, Israel, Korea and Japan. There can be no assurance
that any additional patents will be issued to the Company or that, if issued,
the breadth or degree of protection of these patents will be adequate to protect
the Company's interests. In addition, there can be no assurance that others will
not independently develop substantially equivalent proprietary information or
obtain access to the Company's know-how or that others will not be issued
patents which may prevent the sale of the Company's test kits or require
licensing and the payment of significant fees or royalties by the Company in
order for it to be able to carry on its business. Further, there can be no
guarantee that any patents issued to or licensed by the Company will not be
infringed by the products of others. Defense and prosecution of patent claims
can be expensive and time consuming, even in those instances in which the
outcome is favorable to the Company. If the outcome is adverse, it could subject
the Company to significant liabilities to third parties, require the Company to
obtain licenses from third parties or require the Company to cease its research
and development activities or sales.
Competition
A large number of companies are in both direct and indirect competition with the
Company, many of which are larger, more firmly established, have significant
marketing and development budgets and have greater capital resources than the
Company. Therefore, there can be no assurance that the Company will be able to
achieve and maintain a competitive position in the diagnostic test
10
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industry. AMDL plans on increasing its chances of success through strategic
alliances with one or more of these companies.
Many major medical device manufacturers including Abbott Diagnostics, Baxter
Healthcare Corp., Beckman Diagnostics, Boehringer Mannheim, Centocor, Diagnostic
Products Corporation, Bio-Rad Laboratories, Roche Diagnostic Systems, Sigma
Diagnostics and others are manufacturers or marketers of diagnostic products.
The Company is not aware of any efforts currently being devoted to development
of products such as the Company's DR-70(TM); however, there can be no assurance
that such efforts are not being undertaken without the Company's knowledge. In
addition, such companies could develop products similar to the Company's
proposed products which are superior to those of the Company and could also
prove to be more successful than the Company in the marketing and manufacturing
of their products.
Environmental Considerations
Compliance with federal, state and local provisions regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, are not anticipated to have a material effect on the capital
expenditures, earnings or competitive position of the Company. The Company's
premises and waste disposal practices are designed to comply with all federal,
state and local statutes applicable to the discharge of materials into the
environment.
Product Liability Insurance
The Company currently produces products for clinical studies and for
investigational purposes. The Company anticipates producing its products in
commercial sale quantities as it receives various regulatory approvals in the
future. There can be no assurance that users will not claim that effects other
than those intended may result from the Company's products, including, but not
limited to claims alleged to be related to incorrect diagnoses leading to
improper or lack of treatment in reliance on test results. In the event that
liability claims arise out of allegations of defects in the design or
manufacture of the products of the Company, one or more claims for damages may
require the expenditure of funds in defense of such claims or one or more
substantial awards of damages against the Company, and may have a material
adverse effect on the Company by reason of its inability to defend against or
pay such claims. The Company is investigating the availability of product
liability insurance for its products and intends to obtain product liability
coverage if it is available on terms acceptable to the Company. However, there
can be no assurance that product liability insurance will be available to the
Company on terms that it can afford, or at all, or that the Company will ever
obtain such insurance.
Employees
The Company currently has 11 full-time employees. The Company from time to time
supplements its permanent staff with temporary laboratory personnel. None of the
employees of the Company is represented by a union or is subject to a collective
bargaining agreement, and the Company considers its relations with its employees
to be favorable. The Company has entered into certain agreements with its
employees regarding their services. See Item 12 below. The Company also utilizes
the services of consultants for research, testing and other services.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's offices, research laboratory and manufacturing facilities
consisting of approximately 6,000 square feet are located at 14272 Franklin
Avenue, Tustin, California. The Company leases such facilities from a non-
affiliate at a rental rate of $9,400 per month, including property taxes,
insurance and maintenance. The lease term is for three years and terminates
November 30, 1999. The lessor has the unilateral right to terminate the lease at
any time by giving the Company a minimum of nine months' notice. The Company has
received no indication that the landlord intends to terminate the lease.
ITEM 3. LEGAL PROCEEDINGS
In February 1996, the Company instituted litigation in the U.S. District Court
for the Central District of California against Roger L. Lallone, Ph.D.
("Lallone") and Dr. Edward L. Stephen ("Stephen") and their corporate affiliates
for misappropriation of trade secrets, breach of contract, conversion and
violation of the Lanham Act relating to Lallone's activities and in particular
the production of a monoclonal antibody using DR-70(TM). The Company sought
delivery of proprietary technology arising out of a Consulting Agreement and a
subsequent Assignment Agreement with Lallone, as well as injunctive relief and a
determination that the royalty provisions of the Assignment Agreement be deemed
revoked. Stephen, a former employee of the Company, entered into a business
relationship with Lallone to develop medical diagnostic products and the Company
claims, among other things, that Stephen deceived the Company during his
employment with the Company by utilizing and exploiting the Company's
proprietary information for his own purposes.
Stephen filed a motion to compel arbitration and to stay the U.S. District Court
proceedings against him and his related companies. That motion was denied and
Stephen and his related companies filed an Answer denying the material
allegations of the Company's complaint. In addition, Stephen asserted
counterclaims against the Company for alleged breach of his employment contract
and interference with prospective economic advantage, claiming damages in excess
of $100,000, as well as punitive damages. In March 1997, the Company settled its
action against Stephen and his related companies by obtaining a permanent
injunction against Stephen from any use of the Company's technology, and
requiring return of the Company's technology and proprietary information. The
Company also settled Stephen's counterclaim by paying Stephen $50,000 in
complete settlement of all salary, expense and other claims asserted by Stephen
against the Company.
Lallone had filed an answer to the Company's complaint and a cross-complaint for
breach of contract, fraud and trade secret misappropriation. Lallone sought
compensatory and punitive damages from the Company. In July 1997, the Company
settled its action against Lallone by obtaining a permanent injunction against
Lallone from any use of the Company's technology, and requiring return of the
Company's technology and proprietary information. The Company also settled
Lallone's counterclaim by paying Lallone $1,500 in complete settlement of all
claims asserted by Lallone against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Registrant's fourth fiscal quarter ended December 31, 1997, no
matters were submitted to a vote of security holders of the Registrant.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded in the over-the-counter market, and is
quoted and is listed on the Electronic Bulletin Board under the symbol "AMDD".
The market for the Company's common stock must be characterized as a limited
market due to the relatively low trading volume. Set forth in the following
table are high and low bid quotations for the Company's common stock for each
quarter during the fiscal years ended December 31, 1996 and 1997 and the 1998
first quarter ended March 31, 1998. The quotations represent inter-dealer
quotations without retail markups, markdowns or commissions and may not
represent actual transactions:
Quarter Ended High Low
- ------------------ ----- -----
March 31, 1996 $1.00 $0.63
June 30, 1996 1.50 0.63
September 30, 1996 1.50 0.59
December 31, 1996 0.59 0.32
March 31, 1997 0.49 0.28
June 30, 1997 0.38 0.15
September 30, 1997 0.29 0.15
December 31, 1997 0.20 0.09
March 31, 1998 0.18 0.08
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SECURITIES TRANSACTIONS
The following table sets forth the Company's securities transactions made
pursuant to exemptions from the Securities Act of 1933, as amended, under
Regulation D or Section 4(2) during the past three (3) years. Except as noted,
none of such sales involved any underwriters, nor the payment of any
underwriting commissions or discounts.
<TABLE>
<CAPTION>
Number of Shares Amount of Cash Amount of
Date of Common Stock Proceeds Cancellation of Debt Explanation
- -------- ----------------- -------------- -------------------- --------------------------------
<S> <C> <C> <C> <C>
07/06/95 32,737 32,266 - Exercise of outstanding warrants
09/19/95 65,000 3,250 - Exercise of outstanding option
10/24/95 133,000 100,000 - Issuance to investor*
11/13/95 10,000 2,500 - Exercise of outstanding warrants
12/31/95 89,127 - 22,282 Issuance to noteholder**
12/31/95 11,200 - 2,800 Issuance to noteholder
12/31/95 65,800 - 16,450 Issuance to noteholder
12/31/95 44,800 - 11,200 Issuance to noteholder**
12/31/95 44,800 - 11,200 Issuance to noteholder**
12/31/95 44,182 - 11,046 Issuance to noteholder**
12/31/95 43,867 - 10,967 Issuance to noteholder
12/31/95 43,722 - 10,931 Issuance to noteholder
12/31/95 44,800 - 11,200 Issuance to noteholder**
12/31/95 110,948 - 27,735 Issuance to noteholder**
03/15/96 10,500 2,625 - Exercise of outstanding warrants
04/22/96 19,500 4,875 - Exercise of outstanding warrants
05/20/96 89,127 - 22,282 Issuance to noteholder**
06/11/96 16,778 - 15,000 Issuance to creditor
07/09/96 13,384 - 11,933 Issuance to creditor
09/30/96 47,333 - 11,833 Issuance to control person
03/31/97 80,000 20,000 - Exercise of outstanding warrants
03/31/97 20,000 5,000 - Exercise of outstanding warrants
06/20/97 100,000 - - Compensation for services***
12/11/97 25,000 - - Settlement with former option holder
</TABLE>
*5% commission paid in cash and 6,667 warrants exercisable at $1.00
**10% commission paid in cash and various warrants exercisable at $0.25 per
share
*** Quoted market value at date of grant was $17,000.
Holders
There were approximately 3,350 holders of record of the common stock as of April
30, 1998, including shares held of record by brokerage houses and clearing
corporations on behalf of their customers.
Dividends
The Company has not paid dividends with respect to its common stock and does not
anticipate that it will pay dividends in the foreseeable future.
14
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This "Management's Discussion and Analysis or Plan of Operation" should be read
in conjunction with the Company's annual audited financial statements, the notes
thereto and the other financial data included elsewhere herein and includes
forward-looking statements which involve risks and uncertainties which are based
upon the Company's beliefs, and assumptions and information currently available
to the Company. The Company's actual results may differ materially from the
results indicated by such forward-looking statements due to various factors,
including, but not limited to, those risks and uncertainties which are discussed
below.
General
Since inception, the Company has been in the development stage and has devoted
its resources to research and development, obtaining regulatory approval and the
commercialization of its proposed diagnostics for cancer and other diseases. As
of March 31, 1998 the Company has received only minimal revenues from sales of
products and historically its income has come from the sale of licenses,
royalties and options to purchase marketing rights. The Company has incurred
losses since inception and expects to incur a significant operating loss during
the fiscal year ending December 31, 1998. The Company will require substantial
additional funding for continuing research and development, obtaining regulatory
approval and for commercialization of its products. There can be no assurances
that the Company will be able to obtain such funding when needed or at all, or
if available, what the terms thereof will be.
Liquidity and Capital Resources
The Company has generated only minimal revenues from sales of products and
historically its income has come from the sale of licenses, royalties and
options to purchase marketing rights. Operations have been funded principally
through private placements of its equity securities, and income received from
the sale of licenses, royalties and options to acquire marketing rights. The
Company expects to incur continued losses in the near-term as it continues
development of its test kit systems, undertakes clinical trials and other
actions necessary to obtain regulatory approvals and engages in marketing and
sales activities. The amount of expenditures required in the future for
administrative costs and commercialization expenditures for products far exceeds
existing cash. The availability of sources of cash for such expenditures is
presently unknown. From December 31, 1996 to December 31, 1997, the Company's
cash, cash equivalents and short-term investments decreased to approximately
$1,498,000 as a result of working capital requirements. The Company is also
hopeful of obtaining revenues from product sales, but there is no commitment by
any person for purchase of any of the Company's products. In the absence of
significant sales and profits, the Company may seek to raise additional funds to
meet its working capital needs principally through the additional sales of its
securities. However, there is no assurance that the Company will be able to
obtain sufficient additional funds when needed, or that such funds, if
available, will be obtainable on terms satisfactory to the Company. The Company
can make no prediction as to when, if ever, it will be profitable.
The Company believes that its present cash and cash equivalents balances to be
sufficient only for operations through the third quarter of 1998, assuming the
Company is able to extend forbearance of collection efforts on its outstanding
indebtedness. However, certain scheduled activities will be
15
<PAGE>
curtailed after the second quarter unless additional operating capital is
obtained. The Company's efforts during the next 12 months will be dedicated to
raising sufficient capital to finance continuing operations and to providing
assistance to ICD in connection with international market development for
DR-70(TM), international and domestic market development for the Company's other
products, development and commercialization of new products and obtaining the
required regulatory approvals. There can be no assurance as to the success of
these efforts.
Currently, the Company does not anticipate any significant changes in the number
of employees. The Company may not be able to retain its present employees if
additional financing is not obtained. If such financing is obtained, the Company
may also seek to add employees to further its efforts to commercialize its
products.
At December 31, 1997, the Company was indebted for $583,647 for accrued salaries
payable to five persons who are officers and other employees and former
employees, four of whom agreed to payments equal to their proportionate share of
5 % of sales revenues, if any, of the Company, but not less than $500 per month
per person. See Item 12. At December 31, 1997, the Company also had total notes
payable outstanding of $25,000.
During the 12 months ended December 31, 1997, the Company received gross cash
proceeds of $25,000 from the exercise of warrants. The warrants were issued as
part of notes payable in 1992. During 1997, the Company also issued 100,000
shares of common stock as partial compensation for a services agreement and
25,000 shares of common stock as settlement with a holder of options.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996. During
- ----------------------------------------------------------------------
the year ended December 31, 1997, the Company received only minimal revenues of
$42,436 from product sales. The Company also received $121,932 interest income
on short-term investments. Total operating expenses for the year ended December
31, 1997 were $1,888,743 compared to total operating expenses for the year ended
December 31, 1996 of $1,750,652. Expense categories reflecting increases over
the prior year include payroll, laboratory and rent expense, none of which
individually were extraordinary. Expense categories reflecting decreases over
the prior year include consulting and miscellaneous. The decrease resulted from
conscious cost cutting due to limited cash resources. In 1997, the Company's
loss was $1,747,414, compared to a loss of $1,622,380 in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995. During
- ----------------------------------------------------------------------
the year ended December 31, 1996, the Company received no revenues for product
sales. The Company received a $43,138 partial payment of the ICD marketing
rights fees from Briana. The Company also received $85,134 interest income on
short-term investments. Total operating expenses for the year ended December 31,
1996 were $1,750,652 compared to total operating expenses for the year ended
December 31, 1995 of $1,734,027. Operating expenses in 1995 included recognition
of $300,000 to reflect the cancellation of a raw materials royalty agreement
with Briana which occurred incident to the formation of ICD. Expense categories
reflecting increases over the prior year include payroll and laboratory expense.
Expense categories reflecting decreases over the prior period include interest
expense, amortization and depreciation expense.
In 1996, the Company's loss was $1,622,380, compared to a loss of $1,457,470 in
1995.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements starting with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Year First
Name Age Positions With the Company Became Director
- ---- --- -------------------------- ---------------
<S> <C> <C> <C>
William M. Thompson III, 70 Chairman of the Board of Directors and 1989
M.D. Director
That T. Ngo, Ph.D. 54 President, Chief Executive Officer and 1994
Director
Harry Berk 57 Vice President - Finance and Chief Financial -
Officer, Secretary and Treasurer
Douglas C. MacLellan 42 Director 1992
Gary L. Dreher 51 Vice-President - Sales and Marketing -
Axel J. Kutcher 46 Director 1997
Edward R. Arquilla, M.D., 75 Director 1997
Ph.D.
</TABLE>
A director's regular term is for a period of one year or until the next annual
meeting of stockholders and his successor is duly elected and qualified. An
officer's regular term is for a period of one year, expiring at the next annual
meeting of the board of directors or when his successor is elected and
qualified.
Dr. William M. Thompson, III has been a Director of the Company since June 1989.
His responsibilities include corporate and scientific planning, liaison to the
clinical medicine community and advisor on FDA and medico-legal affairs. From
1969 to the present, Dr. Thompson has been a practicing General Surgeon in
Orange County, California. From October 1995 to the present, he also has been
Vice President for Medical Affairs and Medical
17
<PAGE>
Director of Beech Street, Irvine, California. He has been a founder of two
managed medical care companies, Beech Street and August International, serving
as National Medical Director and Board member from 1980 to 1990. More recently
he was Vice President of August Healthcare Services from 1990-91. He was a
founding Director of OSCAP, owner of SCPIE, the physician-owned malpractice
insurance carrier, and serves as Chairman of the Claims Committee. He was the
principal architect in organizing, implementing and directing a county-wide
emergency medical care system in Orange County, California. He was the founding
Director of the Trauma Service at Fountain Valley Regional Hospital, serving
from 1980 to 1989. He is Assistant Clinical Professor of Surgery at the
University of California, Irvine College of Medicine. Prior to his medical
career, Dr. Thompson worked for 13 years in the pharmaceutical industry in
research and development, law and senior management. He has devoted almost 30
years to hospital medical staff administration, serving as an officer or
department chief at four hospitals and having been elected president of a
national organization of hospital Chief-of-Staffs. He has also spent almost 30
years in service to organized medicine as an officer, Board member, and
Committee Chairman at the county and state levels. He has served as an officer
or Board member of numerous charitable, professional and business organizations.
That T. Ngo, Ph.D., President, Chief Executive Officer and Director, brings to
AMDL nearly 20 years experience in research and development, general management,
manufacturing, marketing and sales. A leading international authority in
commercial applications of immunology, enzymology and bioprocessing, he was
previously Chairman and Chief Executive Officer of StressGen Biotechnologies
Corp., Victoria, British Columbia. Before that he was founding President, Chief
Executive Officer, and most recently, Chairman of Tustin, California based
BioProbe International, Inc. until its sale in 1992 to UniSyn Fibertec of San
Diego, California. A Fellow of the American Institute of Chemists, Dr. Ngo has
published more than 130 scientific articles and has edited five books on
immunodiagnostics, bioseparation and plant biotechnology. He has served on the
editorial boards of five international journals. After earning a Ph.D. in
biochemistry from the University of Saskatchewan, Canada, he completed a
postdoctoral. fellowship at the University of Ottawa, Albert Einstein College of
Medicine and Clinical Research Institute in Montreal.
Harry Berk became Chief Financial Officer of the Company in September 1992. From
1990 to 1992, Mr. Berk was Chief Financial Officer for HQ Office Supplies
Warehouse, a public corporation operating multiple branch retail stores. From
1984 to 1990, Mr. Berk was the Chief Financial Officer for Tam's Stationers, a
privately-held corporation operating multiple branch retail stores. Mr. Berk
received his B.S. degree in Accounting from California State University at
Northridge. He also completed all graduate course requirements for a M.S. degree
in Management from the same University.
Douglas C. MacLellan became a Director of the Company in September 1992. Mr.
MacLellan is currently President and CEO of The MacLellan Group, Inc., a
privately held financial advisory firm since May 1992. He is also a co-founder
and member of the Board of Directors of Datalex Corporation, a Canadian based
millennium software solution provider since May 1997. From November 1996 until
February 1998, Mr. MacLellan was a member of the Board of Directors and
Investment Committee of the Strategic East European Fund. From November 1995
until March 1998, Mr. MacLellan was President, Chief Executive Officer and
Director of PortaCom Wireless, Inc., a publicly held Canadian company engaged as
a developer and operator of cellular and wireless telecommunications ventures in
selected developing world markets. From 1993 to
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<PAGE>
1995, Mr. MacLellan was a Principal and co-founder of Maroon Bells Capital
Partners, Inc., a U.S. based merchant bank which specializes in providing
corporate finance services to companies in the international and domestic
telecommunications and media industries. Mr. MacLellan is also a former member
of the Board of Directors and co-founder of the InterAmericas Communications
Corporation, an international telecommunications company which operates a
competitive access fiber and satellite network in Latin America and is a former
co-founder and Director of Great Bear Technology, Inc., a Bulgaria and
California based multi-media software development company. Mr. MacLellan is also
a member of the Board of Directors of Albion Offset Group, privately held
international trade advisory firm. Mr. MacLellan was educated at the University
of Southern California in economics and finance, with advanced training in
classical economic theory.
Edward R. Arquilla, M.D. Ph.D. has been a Director of the Company since February
1997. His responsibilities include corporate and scientific planning, and
liaison to the clinical and academic medical community. From 1959 until 1994,
Dr. Arquilla was a full time faculty member of the Departments of Pathology at
the University of Southern California, University of California at Los Angeles
and University of California, Irvine, ("UCI") respectively. He served as
Professor and Chair of Pathology at UCI and Chief of Pathology services at UCI
Medical Center ("UCIMC") from 1968 until 1986. In this capacity he established
the UCI Pathology referral services. He has had an active interest in the
application of immunology to diagnostic tests for the past fifty years and was
among the first to develop immunological tests for the measurement of proteins
and hormones. Dr. Arquilla has been very active in the two major volunteer
diabetes organizations; the American Diabetes Association and the Juvenile
Diabetes Foundation International. In 1977 he was appointed to a three year term
as a charter member of the National Diabetes Advisory Board by the Secretary of
Health and Human Services. The Board was charged to review and evaluate the
implementation of a long range plan to combat Diabetes Mellitus. He has also
participated on several National Institutes of Health Study sections concerned
with the extramural funding of Diabetes Research in general and the immunology
of Diabetes in particular. Dr. Arquilla's academic and professional
responsibilities, in addition to the Chair and Chief of Pathology Services at
UCI, include a two year term as Chief of Staff at UCIMC from 1975 to 1977 and
President of the Academic Senate of the College of Medicine at UCI from 1978 to
1980. He received his undergraduate B.S. degree at Northern Illinois University
in 1947, and M.S. in Physiology from the University of Illinois in 1949, and
M.D. from Western Reserve University in 1955, a Ph.D. in Anatomy from Western
Reserve University in 1957, completed his residency in Pathology in 1959 and was
Board Certified in Anatomic Pathology in 1963. He is licensed to practice
Medicine in Ohio and California.
Axel J. Kutscher became a Director of the Company in February 1997. Mr. Kutscher
was a founding partner of EURO-AMERICAN Beteiligungsverniitlungsgesellschaft
GmbH, an investment banking firm investing in start-up biomedical companies and
is also a sales manager and Vice President of the firm. Mr. Kutscher currently
serves as the Chairman of the Board of Directors of GlukoMediTech, AG of Mainz,
Germany, a medical device company emphasizing the development of in vivo glucose
monitoring sensors, a Director of Sangui Biotech AG in Mainz, Germany, a company
dealing with blood substitute research and development and a Director of Sangui
Biotech, Inc. of Santa Ana, California, a start-up biotech company specializing
in blood substitute products, esoteric immunodiagnostic products and
environmental sensors. Mr. Kutscher was a sales manager of Euro-Pacific
Securities Services GmbH of Dusseldorf, an account executive at Hetkamp und
Partner GmbH in Gelshenkirchen, Germany and a salesman at
19
<PAGE>
Deutsch-Amerikanische Marketing Corp. and International Stock Broker Corp. of
Essen, Germany.
Gary L. Dreher joined AMDL in January 1998 as Vice President of Sales and
Marketing. He brings 27 years of accomplishment in the biomedical and diagnostic
industry with him. Mr. Dreher has had extensive training in sales, marketing and
sales management from Fortune 500 companies earlier in his career. Mr. Dreher,
until joining AMDL, was President of Medical Market International, Yorba Linda,
Ca., a marketing and management services company he co-founded. Medical Market
International was responsible for the rapid introduction and promotion of U.S.-
made medical products in international markets, including Southeast Asia, South
America, Mexico and other developing countries. Mr. Dreher was Vice President of
Sales and Marketing for Apotex Scientific, Arlington, Texas, a division of
Canada's largest pharmaceutical company. Mr. Dreher oversaw the global marketing
of autoimmune and other diagnostic kits, as well as securing significant
revenues from sales to large U.S. commercial reference laboratories. Previously,
as Vice President of Sales for Ventrex Laboratories, Portland, Maine, Mr. Dreher
was responsible for the sales and marketing of that company's diagnostic tests
and its capital equipment, significantly increasing sales. Mr. Dreher will
establish an overall sales and marketing plan and develop distribution
worldwide. Mr. Dreher, a graduate of California State University, Long Beach,
earned his B. S. degree in Microbiology and Lab Technology.
ITEM 10. EXECUTIVE COMPENSATION
Officers' Compensation
The following table sets forth all cash compensation paid by the Company to its
only executive officer during the year ended December 31, 1997 whose
compensation exceeded $100,000:
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------
Name and Position Year Salary Bonus Other
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
That T. Ngo
President and Chief Executive Officer 1997 $222,000 -0- -0/(1)/
1996 $185,000 -0- -0/(1)/
1995 $144,000 -0- -0/(1)/
</TABLE>
(1) Substantial salaries from prior years are accrued and represent a
substantial portion of the Company's current liabilities. In 1997 the
Company made payments on accrued unpaid salaries to Dr. Ngo of $6,000 in
addition to the amount shown above. The current base salary of Dr. Ngo is
$222,000 per annum.
Directors' Compensation
Certain members of the Board of Directors received cash compensation only for
their services on special committees. Total cash compensation paid to all
members of the Board of Directors during 1997 was $72,000.
20
<PAGE>
Stock Compensation Programs
On April 22, 1992, the Company adopted its 1992 Stock Option Plan (the "1992
Plan"). Effective April 22, 1992, the Company made specific option grants to
certain key employees and consultants to purchase an aggregate of 2,622,500
shares of the Company's Common Stock at a price of $0.25 per share (the
"Specified Options"). It was provided in the Specified Options that exercise
could occur if certain conditions were satisfied.
All of the Specified Options had option terms of three years and expired in
1995, except the options to purchase 380,000 shares to Richard Anderson, which
options have a ten-year term. Of the options to purchase 380,000 shares, options
to purchase 136,000 shares will become exercisable if the Company has annual
gross revenues from product sales of a minimum of $1,000,000. Options to
purchase 136,000 shares will become exercisable if the Company has annual net
income before taxes of a minimum of $1,000,000, and options to purchase 108,000
shares will become exercisable if the Company has annual net income before taxes
of a minimum of $5,000,000. In 1994, the Company terminated the 1992 Plan,
except with respect to options which had previously been granted.
Subsequent to the adoption of the 1992 Plan, the Company granted options and
warrants to various persons. Grants to officers and directors of the Company are
more particularly described in Item 11.
In 1995, the Company adopted its Stock Bonus Plan pursuant to which the Company
may select employees or consultants to receive a bonus of shares of the
Company's common stock. This Plan was to be administered by the Board of
Directors, or by a Committee selected by the Board (the "Administrators"). The
Administrators had the authority to select the persons to receive a bonus of
shares of Common Stock, the number of shares of Common Stock to be issued, and
the time in which the Common Stock is to be issued. The total number of shares
authorized was 500,000. The Administrators reserved 100,000 shares for issuance
to That T. Ngo, the Company's President. The actual number of shares to be
issued to Dr. Ngo, and the timing for this occurrence were to be determined by
the Administrators. The Stock Bonus Plan terminated on June 30, 1997.
In addition, the Company issued stock options pursuant to various employment
agreements and agreements for services. See "Certain Relationships and Related
transactions."
Two other stock option plans, the 1994 Stock Option Plan and the 1988 Stock
Option Plan, were terminated on March 7, 1997. No options were issued under
either plan.
21
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Set forth in the following table is information regarding beneficial ownership
of the Company's Common Stock as of April 30, 1998, by each person known to the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock, by each officer and director, and by all officers and directors as
a group. Except as otherwise indicated, all shares are held beneficially and of
record, and each stockholder has sole voting, investment and dispositive power.
<TABLE>
<CAPTION>
Number of
Name Shares Owned Percent
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Officers and Directors
Edward R. Arquilla, M.D., Ph.D. 60,000 0.2%
Harry Berk 236,250 (1) 0.7%
Gary L. Dreher 31,250 (2) 0.1%
Axel J. Kutscher 20,000 (3) 0.1%
Douglas C. MacLellan 50,336 0.1%
That T. Ngo, Ph.D. 2,090,000 (4) 5.8%
William M. Thompson, III, M.D. 90,000 0.3%
All Officers and Directors as a Group (7 persons) 2,577,836 (1)-(4) 7.1%
</TABLE>
(1) Includes 6,250 shares of common stock granted pursuant to an employment
agreement. Also includes options to purchase 100,000 shares of common stock
at $0.97 per share exercisable until December 31, 1999 and options to
purchase 100,000 shares of common stock at $0.44 per share exercisable until
December 31, 2000.
(2) Includes options to purchase 31,250 shares of common stock at $0.13 per
share exercisable until December 31, 2002.
(3) Mr. Kutscher does not own any shares of record of common stock, but may be
deemed to be the beneficial owner of the shares of Euro-American GMBH. Mr.
Kutscher is the Sales Manager and a Vice President of Euro-American GMBH.
(4) Includes options to purchase 650,000 shares of common stock at $1.375 per
share and 150,000 shares of common stock at $1.25 exercisable until June 30,
1999. Also includes options to purchase 1,200,000 shares of common stock at
$0.657 per share exercisable until September 30, 2001.
22
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1996, the Company entered into a two year employment agreement with
Dr. That T. Ngo, President and Chief Executive Officer. The agreement specifies
an annual base salary of $222,000. Dr. Ngo also received options to purchase up
to 1,500,000 shares of the Company's common stock at the exercise price of
$0.657 per share exercisable until September 2001. Options to purchase 750,000
shares vested upon execution of the agreement. The options to purchase the
remaining 750,000 shares will vest in quarterly installments of 90,000 each over
the next seven calendar quarters and 120,000 in the eighth calendar quarter. The
agreement contains a severance provision. Dr. Ngo shall be entitled to a
severance payment equal to six months salary. The employment agreement also
includes provisions for customary medical insurance, vacation, sick leave,
nondisclosure and covenants not to compete. If the Company creates an executive
bonus plan, Dr. Ngo shall be entitled to participate in such a plan.
In January 1997, the Company entered into a one year employment agreement with
Mr. Berk. The agreement specifies an annual base salary of $80,000. Mr. Berk
also received options to purchase up to 100,000 shares of the Company's common
stock at an exercise price equal to the closing bid price on the date of
approval of the agreement, $0.44 per share, until December 31, 2000. The options
vest in installments of 25,000 each at the end of each of the following four
calendar quarters. The agreement contains a severance provision. If he is
terminated without cause, Mr. Berk shall be entitled to a severance payment
equal to three months salary. The employment agreement also includes provisions
for customary medical insurance, vacation, sick leave, nondisclosure and
covenants not to compete. If the Company creates an executive bonus plan, Mr.
Berk shall be entitled to participate in such a plan.
In October 1996, the Company entered into a two year employment agreement with
Dr. Ronald J. Moore, Vice President of Operations. The agreement specifies an
annual base salary of $80,000. Dr. Moore also received options to purchase up to
100,000 shares of the Company's common stock at the exercise price of $0.563 per
share exercisable until September 2001. In May 1997, Dr. Moore's annual base
salary was increased to $90,000. Dr. Moore tendered his resignation effective
March 31, 1998.
In May 1997, the Company entered into a two year employment agreement with
Donald C. Swanson, Director of Manufacturing. The agreement specifies an annual
base salary of $70,000. Mr. Swanson also received options to purchase up to
50,000 shares of the Company's common stock at the exercise price of $0.35 per
share exercisable until April 2002. The options will vest in installments of
6,250 each at the end of each three month period of the first two years of
continuous employment. The agreement contains a severance provision. If Mr.
Swanson is terminated without cause, he shall be entitled to a severance payment
equal to two months salary.
In January 1998, the Company entered into a two year employment agreement with
Gary L. Dreher, Vice President of Sales and Marketing. The agreement specifies
an annual base salary of $100,000. The agreement also specifies the payment of a
quarterly commission calculated on the net year to date sales receipts as of the
end of each calendar quarter. The commission rates are four percent on year to
date sales receipts up to $1,000,000, five percent on amounts between $1,000,001
and $2,000,000, and six percent on amounts in excess of $2,000,000. Mr. Dreher
also received options to purchase up to 250,000 shares of the Company's
23
<PAGE>
common stock at the exercise price of $0.13 per share exercisable until December
2002. The options will vest in installments of 31,250 each at the end of each of
the following eight calendar quarters. The agreement contains a severance
provision. If Mr. Dreher is terminated without cause, he shall be entitled to a
severance payment equal to two months salary.
The Company has been unable to meet a substantial portion of the salary
obligations due to its employees, including officers and directors. At December
31, 1997, the Company was indebted for $583,647 for accrued salaries payable to
five persons who are officers and other employees and former employees. The
Company has made payment arrangements with four persons who are current or
former employees who are owed an aggregate of $452,200 at December 31, 1997. The
Company has agreed to pay each of these persons their proportionate share of
five percent of sales revenues, if any, of the Company, but not less than $500
per month per person. In addition, if a person currently employed by the Company
is terminated under certain circumstances, the minimum monthly payment would be
increased. All amounts must be paid no later than February 28, 2001. In January
1997, the Company paid the accrued salary of an officer who had not agreed to a
payment arrangement as part of a separation agreement. The Company has had
various communications with the other employee concerning possible alternative
arrangements. There can be no assurance as to the success of these efforts.
In January 1997, Robert R. Guerrero, Ph.D., Vice President of Research and
Development and a director, resigned his positions with the Company. In February
1997, Axel J. Kutcher, a principal in Euro-American GMBH, and Edward R.
Arquilla, M.D., Ph.D., were invited to become members of the Company's Board of
Directors. Both individuals accepted the invitations and were approved by the
other members. In February 1997, Donald E. Rounds, Ph.D., the Company's former
Chief Scientist, resigned his position as a director. In June 1997, John G.
Tkachuk, President of AMDL Canada, Inc. ("AMDL Canada"), a subsidiary of Briana,
resigned his position as director. In February 1997, the Company began cash
compensation payments to certain directors for special services to the Company.
Payment arrangements to certain directors were made retroactive to November
1996. The payments range in amounts from $1,000 per month to $2,500 per month
and will continue through December 1998.
In January 1989, the Company entered into a licensing agreement (the "Licensing
Agreement") with AMDL Canada Inc. formed for the purpose of entering into the
Licensing Agreement. Pursuant to the terms of the Licensing Agreement, the
Company granted to AMDL Canada an exclusive license to market and sell the
Company's proposed cancer detection product, DR-70(TM), in Canada directly or
through agents, distributors or other representatives. Pursuant to the terms of
the Licensing Agreement, as amended, AMDL Canada has paid the Company an
aggregate of $120,000 and agreed to pay the Company an additional $500,000 in
the form of a $1 surcharge on each of the first 500,000 test kits sold by or
through AMDL Canada in Canada. Dr. Robert R. Guerrero, then an officer and
director of the Company, was a director of Briana Resources, Ltd., an affiliate
of Briana, from February 1989 to August 1990, although he abstained from voting
with respect to the Licensing Agreement or the amendments thereto. In February
1995, the Company and Briana created a joint venture, ICD, LLC, as a limited
liability company under Delaware law ("ICD"). ICD was formed to market and
license the Company's technology throughout the world, exclusive of the United
States and its territories and possessions and Canada. The Company and Briana
are the two members of ICD. Three managers conduct the business of ICD. The
Company and Briana each selected one manager. The manager selected by the
Company is the Company's President, That T. Ngo. The manager selected by
24
<PAGE>
Briana is John G. Tkachuk, the President of AMDL Canada Inc. The third manager
will be selected by the two managers at a later date.
Initial capital contributions to ICD were made by the Company and Briana of $650
and $350, respectively. Additional contributions are to be made from the members
by unanimous consent. Any amounts in addition to the initial capital
contributions required by ICD are to be contributed in proportion to the
members' respective percentage interest. Profits and losses of ICD were to be
allocated in accordance with percentage interests, which are 65% to the Company
and 35% to Briana. The Company and Briana agreed that their percentage interests
in ICD would be changed to 50 % each if the Company failed to satisfy either of
the two following tests as determined by the Cross Cancer Institute and could
not reverse such determination within nine months thereof. The first requirement
was that clinical trial testing done on DR-70(TM) at the Cross Cancer Institute
result in a finding that DR-70(TM) has a sensitivity and specificity sufficient
to qualify DR-70(TM) as a commercial grade tumor-marker test for lung cancer to
be approved for use in the Canadian market by either the Cross Cancer Institute
or the Health Protection Branch. The second requirement was that within six
months after the Company's receipt of the second installment of the marketing
rights fee from Briana (which occurred in April, 1995), the Company shall cause
its technology to (i) have developed to the level where the Company can
demonstrate the efficacy of such technology with lung and ovarian tumors and/or
(ii) be at a stage where the Company can demonstrate marketable level accuracy
on the basis of well characterized sera test results to make a valid assessment.
The Company believes that these requirements were met on a timely basis.
The purchase price for each product developed from the Company's technology sold
to ICD will be equal to the costs incurred by the Company in producing such
product. The Company has agreed to supply Briana with sufficient product for the
Canadian market, as determined by Briana, as well as make all reasonable efforts
to supply ICD with sufficient product for markets outside Canada and the United
States on a timely basis. The Company cannot unreasonably withhold supply of
product to Briana or ICD. In the event that supply requirements cannot be met to
fill bona fide purchase orders for the product within a reasonable time frame,
product will be supplied to all markets on a pro-rata basis. If the Company
cannot supply product then Briana will have the right to have the product
produced by an independent third party.
Briana was required to make marketing rights fee installment payments totaling
$1,000,000 to the Company. If an installment was unpaid, Briana's percentage
interests were to be reduced. As of December 31, 1996, the Company had received
$367,253 of this fee from Briana. In January 1997, AMDL, Inc. provided Briana
Bio-Tech Inc., with written notice of default in payment of the marketing fee
affecting percentage ownership interest in ICD. In accordance with terms of the
Operating Agreement, Briana's percentage ownership interest in ICD, L.L.C. has
been reduced from 35 percent to 12.85 percent. AMDL's percentage ownership
interest in ICD, L.L.C. has been increased from 65 percent to 87.15 percent.
25
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Certificate Of Incorporation of the Company, previously filed as an
Exhibit to the Company's Report On Form 10-K for the year ended December
31, 1989, is incorporated herein by this reference.
3.2 Bylaws of the Company, previously filed as an Exhibit to the Company's
Report On Form 10-K for the year ended December 31, 1991, is incorporated
herein by this reference.
10.1 Amendments To License Agreement Between the Company and AMDL Canada,
Inc., Dated September 20, 1989, June 16, 1990 and July 5, 1990,
previously filed as an Exhibit to the Company's Report on Form 10-K for
the year ended December 31, 1990, is incorporated herein by this
reference.
10.2 Option For Marketing Rights Between the Company and Biotech Marketing
Group, Inc., Dated June 29, 1990, As Amended November 20, 1990,
previously filed as an Exhibit to the Company's Report On Form 10-K for
the year ended December 31, 1990, is incorporated herein by this
reference.
10.2(a)Second Amendment Between AMDL, Inc. and Biotech Marketing Group, Inc.,
Dated February 4, 1991, previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December 31, 1991, is incorporated
herein by this reference.
10.3 Agreement Between the Company and AMDL Canada, Inc., Dated January 21,
1992, previously filed as an Exhibit to the Company's Report on Form 10-K
for the year ended December 31, 1991, is incorporated herein by this
reference.
10.4 The Company's Incentive Stock Option Plan, adopted in 1988, previously
filed as an Exhibit to the Company's Report on Form 10-K for the year
ended December 31, 1990, is incorporated herein by this reference.
10.5 The Company's 1992 Stock Option Plan, previously filed as an Exhibit to
the Company's Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by this reference.
10.6 Research Agreement Between The Company, The Alberta Cancer Board And AMDL
Canada, Inc., Dated September 10, 1991, previously filed as an Exhibit to
the Company's Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by this reference.
10.7 Employment Agreement Between The Company And Dr. Robert R. Guerrero,
Dated September 1, 1991, previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December 31, 1991, is incorporated
herein by this reference.
26
<PAGE>
10.8 Employment Agreement Between The Company And Dr. Donald E. Rounds, Dated
September 1, 1991, previously filed as an Exhibit to the Company's Report
on Form 10-K for the year ended December 31, 1991, is incorporated herein
by this reference.
10.9 Restated Employment Agreement Between 'Me Company And Louis R. Dilts,
Dated August 22, 1991, previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December 31, 1991, is incorporated
herein by this reference.
10.10 Agreement For The Termination of Employment Between The Company And Dr.
Richard Anderson, Dated September 1, 1991, previously filed as an Exhibit
to the Company's Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by this reference.
10.11 Agreement For The Termination Of Employment Between The Company And
Thomas V. Tilton, Dated September 1, 1991, previously filed as an Exhibit
to the Company's Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by this reference.
10.12 Contract for Performance of Services Between the Company and Glen R.
Justice, M.D., Dated May 15, 1991, is amended by letter dated May 26,
1992, previously filed as an Exhibit to the Company's Report on Form 10-K
for the year ended December 31, 1991, is incorporated herein by this
reference.
10.13 Contract for Performance of Services Between the Company and Sally Ann
Kraensel, Dated May 15, 1991, as amended by letter dated June 30, 1992,
previously filed as an Exhibit to the Company Report on Form 10-KSB for
the year ended December 31, 1992, is incorporated herein by this
reference.
10.14 Employment Agreement between the Company and Edward L. Stephen, D. V. M.,
dated January 15, 1993, previously filed as an Exhibit to the Company
Report on Form 10-KSB for the year ended December 31, 1992, is
incorporated herein by this reference.
10.15 Employment Agreement between the Company and William M. Thompson, III,
M.D., dated February 22, 1993, previously filed as an Exhibit to the
Company Report on Form 10-KSB for the year ended December 31, 1992, is
incorporated herein by this reference.
10.16 Employment Agreement between the Company and Harry Berk, dated March 10,
1993, previously filed as an Exhibit to the Company Report on Form 10-KSB
for the year ended December 31, 1992, is incorporated herein by this
reference.
10.17 1994 Stock Option Plan, previously filed as an Exhibit to the Company
Report on Form 10-KSB for the year ended December 31, 1993, is
incorporated herein by this reference.
10.18 Independent Contract Agreement between the Company and Roger Lallone
doing business as Brookwood Biomed, previously filed as an Exhibit to the
Company Report on Form 10-KSB for the year ended December 31, 1993, is
incorporated herein by this reference.
27
<PAGE>
10.19 Assignment Agreement between Roger Lallone, doing business as Brookwood
Biomedical, and the Company dated December 22, 1993, previously filed as
an Exhibit to the Company Report on Form 10-KSB for the year ended
December 31, 1993, is incorporated herein by this reference.
10.20 Employment Agreement between the Company and That T. Ngo, dated June 1,
1994./(1)/
10.21 Employment Agreement between the Company and Robert R. Guerrero, dated
September 1, 1994./(1)/
10.22 Employment Agreement between the Company and Harry R. Berk, dated
January 3, 1995./(1)/
10.23 Operating Agreement of ICD, L.L.C./(1)/
10.24 Letter Agreement between the Company and Briana Bio-Tech, Inc. and AMDL
Canada, Inc., dated February 7, 1995./(1)/
10.25 Sub-Lease Agreement between UniSyn Technologies, Inc., and the Company,
dated February 1995, regarding the premises located at 14272 Franklin
Avenue, Tustin, California./(1)/
10.26 Nonstatutory Stock Option Agreement between the Company and Donald E.
Rounds, dated March 16, 1994./(1)/
10.27 The Company's Stock Bonus Plan./(2)/
10.28 Form of International Distribution Agreement of ICD, L.L.C./(2)/
10.29 Employment Agreement Between the Company and Harry Berk, Dated January 1,
1996./(2)/
10.30 Form of Accrued Salary Payment Agreement Between the Company and Various
Employees and Former Employees Dated September 20, 1996./(3)/
10.31 Employment Agreement Between the Company and That T. Ngo, Dated October
1, 1996./(3)/
10.32 Employment Agreement Between the Company and Ronald J. Moore, Dated
October 23, 1996./(3)/
10.33 Employment Agreement Between the Company and Harry Berk, Dated January 1,
1997./(3)/
10.34 Employment Agreement Between the Company and Donald C. Swanson, Dated May
5, 1997.
10.35 Employment Agreement Between the Company and Gary L. Dreher, Dated
January 15, 1998.
22 Subsidiaries./(3)/
27 Financial Data Schedule
28
<PAGE>
(1) Previously filed as an Exhibit to the Company Report on Form 1O-KSB for the
year ended December 31, 1994, is incorporated herein by this reference.
(2) Previously filed as an Exhibit to the Company Report on Form 1O-KSB for the
year ended December 31, 1995, is incorporated herein by this reference.
(3) Previously filed as an Exhibit to the Company Report on Form 10-KSB for the
year ended December 31, 1996, is incorporated herein by this reference.
Reports on Form 8-K
During the last quarter of the fiscal year ended December 31, 1997, the
Registrant filed no reports on Form 8-K.
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
Report of Independent Public Accountants F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-8
Notes to Financial Statements F-9
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders of AMDL, Inc.:
We have audited the accompanying balance sheets of AMDL, INC. (a Delaware
corporation), a development stage company, as of December 31, 1997 and 1996, and
the related statements of operations and cash flows for each of the three years
ended December 31, 1997, 1996 and 1995 and for the period of inception (July 10,
1987) to December 31, 1997, and the related statements of stockholders' equity
from inception to date. 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 AMDL, INC. as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years ended December 31, 1997, 1996 and 1995 and for the period from
inception (July 10, 1987) to December 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is a development stage company which has
experienced significant losses since inception with no significant revenues.
These factors and other factors discussed in Note 1 to the financial statements
raise a substantial doubt about the ability of the Company to continue as a
going concern. Management's plans in regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Orange County, California
February 13, 1998
- F-1 -
<PAGE>
AMDL, INC.
----------
(A development stage company)
BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
-------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,498,540 $3,504,660
OTHER ASSETS 7,863 7,863
----------- -----------
$ 1,506,403 $ 3,512,523
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Notes payable $ 25,000 $ 25,000
Accounts payable and accrued expenses 125,748 192,736
Accrued payroll and related expenses 674,669 924,079
Capital lease obligation - 18,668
Customer deposit 32,235 -
----------- -----------
Total current liabilities 857,652 1,160,483
----------- -----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares
authorized, no shares issued or
outstanding at December 31, 1997 and 1996 - -
Common stock, $.001 par value-
50,000,000 shares authorized, 33,754,903
and 33,529,903 shares issued and outstanding
at December 31, 1997 and 1996, respectively 33,755 33,530
Additional paid-in capital 11,909,699 11,865,799
Deficit accumulated during the development stage (11,294,703) (9,547,289)
------------ -----------
648,751 2,352,040
------------ -----------
$ 1,506,403 $ 3,512,523
============ ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
- F-2 -
<PAGE>
AMDL, INC.
----------
(A development stage company)
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, AND THE PERIOD
--------------------------------------------------------------------
FROM INCEPTION (JULY 10, 1987) TO DECEMBER 31, 1997
---------------------------------------------------
<TABLE>
<CAPTION>
Inception
(July 10, 1987)
Year Ended Year Ended Year Ended To
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 42,436 $ - $ - $ 42,436
COST OF SALES 23,039 - - 23,039
----------- ----------- ----------- ------------
Gross Profit 19,397 - - 19,397
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Research and
development 906,814 863,875 574,845 5,893,638
General and
administrative 981,929 886,777 1,159,182 6,720,698
----------- ----------- ----------- ------------
1,888,743 1,750,652 1,734,027 12,614,336
----------- ----------- ----------- ------------
LOSS FROM
OPERATIONS (1,869,346) (1,750,652) (1,734,027) (12,594,939)
----------- ----------- ----------- ------------
OTHER INCOME
(EXPENSE):
Interest expense - - (47,558) (561,016)
Interest income 121,932 85,134 - 209,716
Other - 43,138 324,115 1,651,536
----------- ----------- ----------- ------------
121,932 128,272 276,557 1,300,236
----------- ----------- ----------- ------------
Net Loss $(1,747,414) $(1,622,380) $(1,457,470) $(11,294,703)
=========== =========== =========== ============
BASIC AND DILUTED
LOSS PER SHARE $ (0.05) $ (0.06) $ (0.07)
=========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 33,660,588 29,134,105 20,041,548
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-3 -
<PAGE>
AMDL, INC.
----------
(A development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------
FROM INCEPTION (JULY 10, 1987) TO DECEMBER 31, 1997
---------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
Common Stock Subscribed Additional
------------------- ----------- Paid-in
Shares Amount Shares Amount Capital
---------- ------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, Inception (July, 10, 1987) - $ - - $ - $ -
Common stock issued 1,275 1,275 - - -
Net loss - - - - -
---------- ------- ------------ ------ --------
BALANCE, December 31, 1988 1,275 1,275 - - -
Restatement due to merger 8,865,307 7,591 - - 48,201
Common stock issued 1,347,880 1,348 - - 54,994
Net loss - - - - -
---------- ------- ------------ ------ --------
BALANCE, December 31, 1989 10,214,462 10,214 - - 103,195
Common stock issued for cash at $0.114 451,000 451 - - 217,676
Common stock issued at $0.25 to three
officers in lieu of salary 300,000 300 - - 74,700
Common stock issued for services at $1.00 30,000 30 - - 29,970
Common stock issued for services at $0.50 14,000 14 - - 6,986
Common stock issued for cash at $0.25 230,000 230 - - 57,270
Common stock issued at $0.04 to a member
of the board of directors 90,000 90 - - 3,510
Common stock issued for cash at $0.04 15,000 15 - - 585
Common stock issued for services at $0.25 500,000 500 - - 124,500
Common stock issued for consulting
services at $1.00 50,000 50 - - 49,950
Net loss - - - - -
---------- ------- ------------ ------ --------
BALANCE, December 31, 1990 11,894,462 11,894 - - 668,342
Common stock issued for consulting
services at $0.12 50,000 50 - - 5,950
Common stock issued at $0.25 for payment
of loan 10,000 10 - - 2,490
Net loss - - - - -
---------- ------- ------------ ------ --------
BALANCE, December 31, 1991 11,954,462 11,954 - - 676,782
<CAPTION>
Deficit
Accumulated
during the
Development
Stage Total
------------- ----------
BALANCE, Inception (July, 10, 1987) $ - $ -
<S>
Common stock issued - 1,275
Net loss (37,323) (37,323)
----------- -----------
BALANCE, December 31, 1988 (37,323) (36,048)
RestatEment due to merger - 55,792
Common stock issued - 56,342
Net loss (241,479) (241,479)
----------- -----------
BALANCE, December 31, 1989 (278,802) (165,393)
Common stock issued for cash at $0.114 - 218,127
Common stock issued at $0.25 to three
officers in lieu of salary - 75,000
Common stock issued for services at $1.00 - 30,000
Common stock issued for services at $0.50 - 7,000
Common stock issued for cash at $0.25 - 57,500
Common stock issued at $0.04 to a member
of the board of directors - 3,600
Common stock issued for cash at $0.04 - 600
Common stock issued for services at $0.25 - 125,000
Common stock issued for consulting
services at $1.00 - 50,000
Net loss (107,415) (107,415)
----------- -----------
BALANCE, December 31, 1990 (386,217) 294,019
Common stock issued for consulting
services at $0.12 - 6,000
Common stock issued at $0.25 for payment
of loan - 2,500
Net loss (1,044,395) (1,044,395)
----------- -----------
BALANCE, December 31, 1991 (1,430,612) (741,876)
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-4 -
<PAGE>
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Subscribed Additional during the
------------------- ----------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
---------- ------- ------------ ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in exchange for
notes payable and accrued interest
at $0.25 1,363,019 $ 1,363 - $ - $ 339,393 $ - $ 340,756
Exercise of warrants at $0.001 1,422 1 - - - - 1
Exercise of warrants at $0.500 57,140 58 - - 28,512 - 28,570
Common stock issued to related party
pursuant to private placement
at $0.894 640,000 640 - - 571,520 - 572,160
Warrants issued in connection with debt
offering - - - - 312,000 - 312,000
Warrants issued for services - - - - 518,285 - 518,285
Net loss - - - - - (2,083,984) (2,083,984)
---------- ------- ------------ ------ ---------- ----------- -----------
BALANCE, December 31, 1992 14,016,043 14,016 - - 2,446,492 (3,514,596) (1,054,088)
Common stock issued to related party and
others pursuant to a private placement
at $0.894 1,478,185 1,479 - - 1,320,012 - 1,321,491
Exercise of warrants at $0.894 11,184 11 - - 9,989 - 10,000
Common stock issued in exchange for
notes payable and accrued interest
at $0.894 243,147 243 - - 217,135 - 217,378
Net loss - - - - - (1,348,254) (1,348,254)
---------- ------- ------------ ------ ---------- ----------- -----------
BALANCE, December 31, 1993 15,748,559 15,749 - - 3,993,628 (4,862,850) (853,473)
Common stock issued to related party
pursuant to a private placement
at $0.894 500,000 500 - - 446,500 - 447,000
Exercise of warrants at $0.25 150,000 150 - - 37,350 - 37,500
Common stock issued to various creditors
at $0.894 158,728 158 - - 141,744 - 141,902
Exercise of options at $0.05 535,000 535 - - 26,215 - 26,750
Exercise of options at $1.00 16,000 16 - - 15,984 - 16,000
Common stock issued for note payable and
accrued interest at $0.894 346,011 346 - - 305,249 - 305,595
Exercise of warrants at $1.00 40,000 40 - - 39,960 - 40,000
Common stock issued to related party
pursuant to a private placement at $0.25 180,000 180 - - 44,820 - 45,000
Net loss - - - - - (1,604,589) (1,604,589)
---------- ------- ------------ ------ ---------- ----------- -----------
BALANCE, December 31, 1994 17,674,298 17,674 - - 5,051,450 (6,467,439) (1,398,315)
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-5 -
<PAGE>
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Subscribed Additional during the
------------------- -------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
---------- ------- ------------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued for cash at
$0.25 1,000,000 $ 1,000 - $ - $ 249,000 $ - $ 250,000
Exercise of warrants at $0.45 500,000 500 - - 224,500 - 225,000
Common stock issued for cash at
$0.30 1,000,000 1,000 - - 299,000 - 300,000
Exercise of warrants at $0.50 500,000 500 - - 249,500 - 250,000
Exercise of warrants at $0.986 32,737 33 - - 32,233 - 32,266
Exercise of options at $0.05 65,000 65 - - 3,185 - 3,250
Common stock issued for cash at
$0.752 133,000 133 - - 99,867 - 100,000
Exercise of warrants at $0.25 10,000 10 - - 2,490 - 2,500
Common stock issued for cash at
$0.40 750,000 750 - - 299,250 - 300,000
Common stock issued in exchange
for convertible notes
payable and accrued interest at
$0.25 543,246 543 - - 135,268 - 135,811
Common stock subscribed at $0.60
(Note 9) - - 500,000 300,000 - - 300,000
Net loss - - - - - (1,457,470) (1,457,470)
---------- ------- ------------ ----------- ----------- ---------- ----------
BALANCE, December 31, 1995 22,208,281 22,208 500,000 300,000 6,645,743 (7,924,909) (956,958)
Common stock issued for cash at
$0.35 4,500,000 4,500 - - 1,570,500 - 1,575,000
Common stock issued for cash at
$0.40 1,000,000 1,000 - - 399,000 - 400,000
Common stock issued for cash at
$0.475 4,000,000 4,000 - - 1,896,000 - 1,900,000
Exercise of warrants at $0.62 1,125,000 1,125 - - 696,375 - 697,500
Common stock issued for cash at
$0.35 500,000 500 - - 174,500 - 175,000
Exercise of warrants at $0.25 10,500 11 - - 2,614 - 2,625
Exercise of warrants at $0.25 19,500 20 - - 4,855 - 4,875
Common stock issued to various
creditors at $0.894 30,162 30 - - 26,903 - 26,933
Common stock issued at $0.25 for
converted notes payable
and accrued interest 136,460 136 - - 33,979 - 34,115
Warrants issued for services - - - - 115,330 - 115,330
Common stock subscribed at $0.60
(Note 9) - - (500,000) (300,000) 300,000 - -
Net loss - - - - - (1,622,380) (1,622,380)
---------- ------- ------------ --------- ----------- ---------- ----------
BALANCE, December 31, 1996 33,529,903 $33,530 - - 11,865,799 (9,547,289) 2,352,040
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-6 -
<PAGE>
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Subscribed Additional during the
-------------------- ------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
---------- ------- ---------- ------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Exercise of warrants at $0.25 100,000 $ 100 - $ - $ 24,900 $ - $ 25,000
Common stock issued for services at
$0.17 100,000 100 - - 16,900 - 17,000
Common stock issued as settlement with
former option holder 25,000 25 - - 2,100 - 2,125
Net loss - - - - - (1,747,414) (1,747,414)
---------- ------- ---------- ------ ----------- ------------ -----------
BALANCE, December 31, 1997 33,754,903 $33,755 - $ - $11,909,699 $(11,294,703) $ 648,751
========== ======= ========== ====== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-7 -
<PAGE>
AMDL, INC.
----------
(A development stage company)
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
AND THE PERIOD FROM INCEPTION (JULY 10, 1987) TO DECEMBER 31, 1997
------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception
(July 10, 1987)
Year Ended Year Ended Year Ended To
December 31, December 31, December 31, December 31,
1997 1996 1995 1997
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,747,414) $(1,622,380) $(1,457,470) $(11,294,703)
Adjustments to reconcile net loss to net cash used in operating
activities-
Depreciation and amortization - 10,000 267,265 497,288
Amortization of deferred interest - - - 312,000
Common stock subscribed - - 300,000 300,000
Common stock issued for services 19,125 - - 312,541
Warrants issued for services - 115,330 - 661,529
Increase in other assets - (7,863) - (7,863)
Increase (decrease) in accounts payable and accrued expenses (66,988) (31,084) (28,052) 151,203
Increase (decrease) in accrued payroll and related expenses (249,410) (31,531) 87,610 674,669
Increase in customer deposit 32,235 - - 32,235
Decrease in due to related party - (43,646) (7,860) -
Increase (decrease) in accrued interest - (97,808) 30,925 -
----------- ----------- ----------- ------------
Net cash used in operating activities (2,012,452) (1,708,982) (807,582) (8,361,101)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment - (10,000) (18,517) (225,930)
Expenditures for patents - - - (154,682)
----------- ----------- ----------- ------------
Net cash used in investing activities - (10,000) (18,517) (380,612)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under notes payable, net - (222,385) (44,500) 59,115
Repayments under capital lease obligation (18,668) (35,379) (32,404) (116,676)
Proceeds from issuance of common stock 25,000 4,755,000 1,598,827 10,240,747
Net effect of merger with CVI - - - 57,067
----------- ----------- ----------- ------------
Net cash provided by financing activities 6,332 4,497,236 1,521,923 10,240,253
----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,006,120) 2,778,254 695,824 1,498,540
CASH AND CASH EQUIVALENTS, beginning of period 3,504,660 726,406 30,582 -
----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,498,540 $ 3,504,660 $ 726,406 $ 1,498,540
=========== =========== =========== ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1997, the Company issued 125,000 shares of
common stock to non-employees for services. The fair value of the stock
issued was $19,125.
During the years ended December 31, 1996 and 1995, the Company issued 136,460
and 543,246 shares of common stock, respectively, to cancel notes payable
and related accrued interest.
During the year ended December 31, 1996, the Company issued 225,000 warrants
to non-employees for services. The fair value of the warrants issued was
$115,330.
During the year ended December 31, 1996, the Company repaid $26,933 of
accounts payable through the issuance of common stock.
The accompanying notes are an integral part of these financial statements.
- F-8 -
<PAGE>
AMDL, INC.
----------
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997
-----------------
1. Nature of Business and Summary of Significant Accounting Policies
-----------------------------------------------------------------
a. Organization and Nature of Business
-----------------------------------
AMDL, INC. (formerly Advanced Medical Diagnostic, Ltd.) (the Company) was
incorporated July 10, 1987, in the state of Delaware; however, no financial
activity occurred until 1988.
On January 16, 1989, the officers/stockholders of the Company entered into
a share exchange agreement (the Agreement) with California Ventures, Inc.
(CVI) and its officers which provides for the combining of the two
companies in a transaction accounted for as a reverse acquisition. CVI was
a development stage enterprise located in Colorado that was formed on May
3, 1988, for the purpose of engaging in mergers with or acquiring a single
or small number of private firms.
Under the Agreement, the principal officers/stockholders of the Company
exchanged all of their shares of common stock for 113,000,000 shares
(shares indicated do not reflect the reverse stock split on a 1-for-15
basis in 1989) of previously unissued and unregistered shares of CVI common
stock. Subsequently, the domicile of CVI was changed to Delaware and its
name was changed to AMDL, Inc.
Even though CVI is the legal entity surviving the transaction, the Company
is considered to be the acquiring company for accounting purposes because
the former stockholders of the Company hold the majority of the outstanding
shares of the combined companies. This transaction was treated as a
reverse acquisition for financial reporting purposes, wherein substantively
the Company acquired CVI. No goodwill arose as a result of the
transaction.
In connection with the transaction, the Company received approximately
$57,000 in cash.
Since inception, the Company has primarily been engaged in the commercial
development of, and the obtaining of various governmental regulatory
approvals for the marketing of its proprietary diagnostic tumor-marker test
kit (DR-70) to detect the presence of lung cancer. In 1997, the Company
broadened its scope and product line and has a selection of diagnostic test
kits for several types of cancer, infectious diseases, endocrinology,
diabetes, nephrology and allergy. The Company is in the development stage
and has not generated significant revenues from product sales.
- F-9 -
<PAGE>
In February 1995, the Company and AMDL Canada Inc. (AMDL Canada), a
Canadian corporation and a wholly-owned subsidiary of Briana Bio-Tech Inc.
(a significant shareholder of the Company), executed a joint venture
agreement forming, ICD, L.L.C. (ICD), to pursue world-wide marketing
(excluding Canada and the United States) of DR-70. The operating agreement
established the initial capital contribution for the Company at 65 percent
and requires AMDL Canada to pay the Company a marketing rights fee of
$1,000,000 (see Note 4 for additional discussion of the marketing rights
fee). The operations of ICD during fiscal years 1997, 1996 and 1995 were
insignificant and are therefore not consolidated in the accompanying
financial statements.
b. Development Stage Company
-------------------------
The Company is in the development stage and has not generated significant
revenues from operations and has no assurance of any future revenues. The
Company will require substantial additional funding for continuing research
and development, obtaining regulatory approval, and for the
commercialization of its products. There is no assurance that the Company
will be able to obtain sufficient additional funds when needed, or that
such funds, if available, will be obtainable on terms satisfactory to the
Company.
Management has taken action to address these matters. They include:
- Retention of experienced management personnel with particular skills in
the commercialization of similar products.
- Attainment of technology to develop additional diagnostic products for
detecting cancer and other diseases.
- Raising additional funds through the sale of equity securities at terms
below market price quotations.
The Company's products, to the extent they may be deemed medical devices or
biologics, are governed by the Federal Food, Drug and Cosmetics Act and by
the regulations of state agencies and various foreign government agencies.
The Company's proposed diagnostic test systems for use with humans are
subject to certain clearance procedures administered by the above
regulatory agencies. There can be no assurance that the Company will
receive the regulatory approvals required to market its proposed products
elsewhere or that the regulatory authorities will review the product within
the average period of time.
The Company hopes to obtain revenues from product sales, but there is no
commitment by any person for purchase of any of the Company's products. In
the absence of significant sales and profits, the Company may seek to raise
additional funds to meet its working capital needs principally through the
additional sales of its securities. However, there is no assurance that
the Company will be able to obtain sufficient additional funds when needed,
or that such funds, if available, will be obtainable on terms satisfactory
to the Company.
- F-10 -
<PAGE>
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
c. Revenue Recognition
-------------------
Revenue is recognized upon shipment of products to customers.
d. Cash Equivalents
----------------
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.
e. Equipment
---------
Prior to 1995, equipment was depreciated on a straight-line basis over five
years, which was the estimated useful life of the related assets. In 1995,
the Company elected to depreciate the remaining book value
(approximately $156,000) on its equipment. During the years ended December
31, 1997 and 1996, the Company purchased an insignificant amount of
equipment. The Company elected to expense these purchases immediately.
f. Patents
-------
The Company has expended funds for patents that are in various stages of
the filing and approval process. Prior to 1995, patents were amortized on
the straight-line basis over an estimated useful life of 10 years. In
1995, the Company elected to amortize the remaining book value on its
patents. During 1997 and 1996, the Company expended approximately $40,000
each year on patents. The Company elected to expense these expenditures
immediately.
g. Common Stock Issued for Services Rendered
-----------------------------------------
The Company periodically issues common stock for services rendered. Common
stock issued is valued at the estimated fair market value, as determined by
management and the board of directors of the Company. Management and the
board of directors consider market price quotations and other factors in
determining fair market value for purposes of valuing the common stock.
h. Accounting for Stock Based Compensation
---------------------------------------
The Company accounts for stock-based compensation issued to employees using
the intrinsic value based method as prescribed by APB Opinion No. 25
"Accounting for Stock Issued to Employees" (APB No. 25). Under the
intrinsic value based method, compensation is the excess, if any, of the
fair value of the stock at the grant date or other measurement date over
the amount an employee must pay to acquire the stock. Compensation, if
any, is recognized over the applicable service period, which is usually the
vesting period.
- F-11 -
<PAGE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 Accounting for Stock-Based
Compensation (SFAS No. 123). This standard, if fully adopted, changes the
method of accounting for employee stock-based compensation plans to the
fair value based method. For stock options and warrants, fair value is
determined using an option pricing model that takes into account the stock
price at the grant date, the exercise price, the expected life of the
option or warrant and the annual rate of quarterly dividends. Compensation
expense, if any, is recognized over the applicable service period, which is
usually the vesting period.
The adoption of the accounting methodology of SFAS No. 123 is optional and
the Company has elected to continue accounting for stock-based compensation
issued to employees using APB No. 25; however, pro forma disclosures, as if
the Company adopted the cost recognition requirements under SFAS No. 123,
are required to be presented (see Note 6).
i. Basic and Diluted Loss Per Share
--------------------------------
The Company has adopted Financial Accounting Standard No. 128 "Earnings Per
Share" (SFAS No. 128). SFAS No. 128 changes the methodology of calculating
earnings per share and renamed the two calculations, basic earnings per
share (formally primary) and diluted earnings per share (formally fully
diluted). The calculations differ by eliminating any common stock
equivalents (such as stock options, warrants, etc.) from basic earnings per
share and changes certain calculations when computing diluted earnings per
share. The adoption of SFAS No. 128 has not materially impacted the
Company's financial position or results of operations.
Basic and diluted loss per share were computed based on the weighted
average number of shares outstanding for the period. Basic and diluted
loss per share are the same as the effect of stock options and warrants on
loss per share are antidilutive and thus not included in the diluted loss
per share calculation.
j. Income Taxes
------------
The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes".
k. Licensing Agreements
--------------------
The Company recognized as other income the sale of options to Briana Bio
Tech Inc. and/or AMDL Canada to purchase the marketing rights of its
proposed cancer detection products.
- F-12 -
<PAGE>
l. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of 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.
m. Reclassifications
-----------------
Certain reclassifications have been made to the 1996 financial statements
in order to conform to classifications used in the current year.
2. Income Taxes
------------
The Company has experienced net losses since inception. As such, no provision
for income tax has been made for the three years ended December 31, 1997. At
December 31, 1997, the Company has available for federal and state income tax
purposes, net operating loss carryforwards of approximately $11,100,000 and
$3,800,000 which expire in the years 2003 through 2012 and 1998 through 2002,
respectively. The net operating loss carryforward is also available for
financial reporting purposes. Events which may cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50 percent
over a three year period. At December 31, 1997, the effect of such limitations
if imposed, has not been determined.
3. Licensing Agreements
--------------------
Effective January 1989 and revised in May and October 1989, the Company entered
into a licensing agreement with AMDL Canada to market and sell the Company's DR-
70 in Canada, directly or through agents, distributors, etc. The Company has
the right to receive $1.00 for each of the first 500,000 DR-70 test kits sold
for a maximum of $500,000 in licensing fees. The Company received approximately
$120,000 as an initial, nonrefundable licensing fee in 1989.
ICD is responsible for marketing DR-70 worldwide with the exception of the
United States and Canada (the Company and AMDL Canada retains the marketing
rights for the United States and Canada, respectively). As of December 31,
1997, ICD has six agreements for the distribution of DR-70 to the following
countries: Indonesia, China, Philippines, Poland, Taiwan and Malaysia.
4. Related-Party Transactions
--------------------------
In 1995, the Company received $324,115 from Briana Bio-Tech Inc. (parent of AMDL
Canada) as partial payment for the $1,000,000 marketing rights fee (with respect
to the ICD joint venture, see Note 1). In 1996, the Company received an
additional installment of $43,138 from Briana Bio-Tech Inc. These amounts were
included in other income in the accompanying statements of operations.
- F-13 -
<PAGE>
On January 13, 1997, the Company provided AMDL Canada with written notice of
default in payment of a marketing fee affecting percentage ownership interest in
ICD. In accordance with terms of the joint venture agreement, AMDL Canada's
percentage ownership interest in ICD has been reduced from 35 percent to 12.85
percent. The Company's percentage ownership interest in ICD has subsequently
been increased from 65 percent to 87.15 percent. This change had no material
effect on the financial statements for the Company for the years ended December
31, 1997.
Axel J. Kutscher became a Director of the Company in January 1997. Mr. Kutscher
is a sales manager and Vice President of Euro-American GMBH (Euro-America), a
German investment banking firm. During the year ended December 31, 1996 and
1995, the Company received $4,572,500 and $1,625,000 from the sale of 10,625,000
and 4,250,000 shares, respectively, of common stock to Euro-America. There were
no sales of common stock to Euro-America during the year ended December 31,
1997.
5. Commitments
-----------
a. Operating Lease
---------------
In October 1996, the Company executed a three year real estate lease of
6,547 square feet of office, laboratory and manufacturing space at its
facility in Tustin, California. The lease commenced December 1, 1996 and
ends November 30, 1999. The minimum lease payments are as follows:
Year
----
1998 $ 94,359
1999 86,495
--------
$180,854
========
Rent expense was approximately $113,000, $106,000 and $92,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
b. Employment Agreements
---------------------
In October 1996, the Company entered into a two year employment agreement
with Dr. Ngo. The agreement specifies an annual base salary of $222,000.
Among other provisions, Dr. Ngo received options to purchase up to
1,500,000 shares of the Company's common stock at the exercise price of
$0.657 per share exercisable until September 2001. The options vest over a
two year period. The agreement contains a severance provision which
provides a severance payment equal to six months salary.
In October 1996, the Company entered into a two year employment agreement
with Dr. Ronald J. Moore, Vice President of Operations. The agreement
specifies an annual base salary of $80,000. Among other provisions, Dr.
Moore received options to purchase up to 100,000 shares of the Company's
common stock at the exercise price of $0.563 per share exercisable until
September 2001. The options vest over a two year period. The agreement
contains a severance provision which provides a severance payment equal to
two months salary.
- F-14 -
<PAGE>
In May 1997, the Company entered into an employment agreement with Donald
C. Swanson as Director of Manufacturing. The agreement specifies an annual
base salary of $70,000. Among other provision, Mr. Swanson received
options to purchase up to 50,000 shares of the Company's common stock at
the exercise price of $0.35 per share exercisable until May 2000. The
agreement contains a severance provision which provides a severance payment
equal to two months salary if employment is terminated, as defined, before
May 1998.
The stock options granted in the above employment agreements did not result
in compensation expense as the exercise price of the stock options was
equal to the quoted market price of the Company's stock on the date of
grant.
c. Accrued Payroll and Related Expenses
------------------------------------
Accrued payroll and related expenses consists primarily of amounts incurred
during the years ended December 31, 1995, 1994 and 1993 by officers and
other employees and former employees (collectively referred to as
"employees"). The Company has made payment arrangements with most of these
employees by agreeing to pay each employee their proportionate share of
five percent of sales revenues, if any, of the Company, but not less than
$500 per month per employee. In addition, if an employee currently
employed by the Company is terminated under certain circumstances, the
minimum monthly payment would be increased. All amounts must be paid no
later than February 28, 2001.
6. Stock Based Compensation Plans
------------------------------
In 1992, the Company adopted the 1992 Stock Option Plan (the Plan). Under the
Plan, incentive stock options and nonqualified options may be granted to
officers and key employees of the company for the purchase of up to 2,622,500
shares of the Company's common stock. Additionally, specific option grants may
also be made. Expiration dates for the grants may not exceed 10 years from the
date of grant. In October 1994, the Company terminated the Plan. However,
380,000 options to purchase common stock were outstanding under the Plan and the
Company elected not to cancel these options prior to their expiration dates.
From time to time, the Company issues stock options pursuant to various
employment agreements (see Notes 5 and 10) and other compensatory arrangements.
The following is a status of the stock options outstanding at December 31, 1997,
1996 and 1995 and the changes during the years then ended:
- F-15 -
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beg.
of year 5,610 $0.915 3,910 $1.022 7,033 $0.801
Granted 150 0.410 1,700 0.670 - -
Exercised - - - - (65) 0.050
Expired/forfeited (1,110) 1.230 - - (3,058) 0.533
------ ------ ----- ------ ------ ------
Outstanding, end
of year 4,650 $0.824 5,610 $0.915 3,910 $1.022
====== ====== ===== ====== ====== ======
Exercisable at
end of year 4,263 $0.843 4,850 $0.958 3,760 $1.008
====== ====== ===== ====== ====== ======
Wtd avg fair value
of options granted $0.312 $0.507
====== ======
</TABLE>
3,830,000 of the options outstanding at December 31, 1997 have exercise prices
between $0.25 and $1.00, with a weighted average exercise price of $0.712 and a
weighted average remaining contractual life of 2.7 years. 3,443,000 stock
options are exercisable and have a weighted average exercise price of $0.723.
The remaining 820,000 options have exercise prices between $1.01 and $1.50, with
a weighted average exercise price of $1.349 and a weighted average remaining
contractual life of 1.5 years. All of these options are exercisable.
The fair value of each option granted during 1997 and 1996 to employees and
directors is estimated using the Black-Scholes option-pricing model on the date
of grant using the following assumptions: (i) no dividend yield, (ii) average
volatility of 105.2 percent and 96.7 percent, respectively, (iii) weighted-
average risk-free interest rate of approximately 6.3 percent, and (iv) expected
life of 5 years.
Had compensation cost for the Company's 1997 and 1996 options been determined
consistent with SFAS No. 123, the Company's net loss and net loss per share for
the year ended December 31, 1997 and 1996 would approximate the pro forma
amounts below:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
As Reported Pro Forma As Reported Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $(1,747,414) $(1,996,838) $(1,622,380) $(2,118,584)
=========== =========== =========== ===========
Basic and
diluted loss
per share $ (0.05) $ (0.06) $ (0.06) $ (0.07)
=========== =========== =========== ===========
</TABLE>
- F-16 -
<PAGE>
7. Warrants
--------
The following represents a summary of the warrants outstanding for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beg.
of year 2,426 $0.741 5,282 $0.793 5,790 $0.818
Granted - - 5,272 0.898 1,605 0.580
Exercised (100) 0.250 (1,145) 0.614 (1,053) 0.484
Expired/forfeited (437) 0.442 (6,983) 0.921 (1,060) 0.918
----- ------ ------ ------ ------ ------
Outstanding, end
of year 1,889 $0.836 2,426 $0.741 5,282 $0.793
===== ====== ====== ====== ====== ======
</TABLE>
The warrants outstanding at December 31, 1997 have exercise prices between
$0.250 and $1.375. All of the warrants are exercisable and have a weighted
average remaining contractual life of 1.1 years.
The outstanding warrants at December 31, 1997 are held by consultants and other
service providers, shareholders, and current and former note holders.
8. Common Stock Issued
-------------------
During the year ended December 31, 1997, the Company received $25,000 for the
exercise of 100,000 warrants. Additionally, the Company issued 125,000 shares
of common stock for services totaling $19,125.
During the year ended December 31, 1996, the Company received $4,050,000 cash
proceeds from the sale of 10,000,000 shares of common stock, subject to certain
restrictions, and warrants to purchase 5,000,000 additional shares of common
stock between $0.62 and $0.70 per share. The Company received $697,500 for the
exercise of 1,125,000 of these warrants. The expiration dates of these warrants
were between March 31 and November 26, 1996.
9. Common Stock Subscribed
-----------------------
In 1995, the Company and AMDL Canada agreed that in consideration of AMDL
Canada's cancellation of its royalty interest in sales to the United Kingdom for
which it paid $300,000 (under a previous licensing agreement), the Company would
issue 500,000 shares of the Company's common stock. AMDL Canada had agreed to
reserve these shares for incentives to executive officers of the Company. For
the year ended December 31, 1995, the Company recorded an expense of $300,000
for this transaction since the amount had previously been recognized as income
in 1993 when the rights were originally sold. An offsetting entry of $300,000
was recorded to common stock subscribed as the shares had not been issued as of
December 31, 1995.
During 1996, the Company and AMDL Canada agreed not to issue the 500,000 shares
of the Company's common stock to AMDL Canada. As a result, the Company credited
additional paid-in capital for $300,000 as of December 31, 1996.
- F-17 -
<PAGE>
10. Subsequent Events
-----------------
In January 1998, the Company entered into a two year employment agreement with
Gary L. Dreher as Vice President of Marketing and Sales. The agreement
specifies an annual base salary of $100,000 plus commissions, as defined, based
on a percent of net sales receipts. Among other provisions, Mr. Dreher received
options to purchase up to 250,000 shares of the Company's common stock at the
exercise price of $0.13 per share (quoted market price of the Company's stock on
the date of grant) exercisable until December 31, 2002 or 30 days after
termination of employment, as defined. The options vest over a two year period.
The agreement contains a severance provision which provides a severance payment
equal to two months salary if terminated, as defined, before January 2000.
In January 1998, the Company issued 50,000 options to an independent contractor
at an exercise price of $0.13 (quoted market price of the Company's stock on the
date of grant). The options vest quarterly over two years and expire in January
2003.
In February 1998, the Company made a $7,500 investment in a newly formed entity.
This newly formed entity is currently raising capital in order to fund its
operations.
- F-18 -
<PAGE>
SIGNATURES
In accordance with the requirements of Sections 13 or 15(d) of the Exchange
Act of 1934, as amended, the Registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
"Registrant"
AMDL, INC.
Dated May 26, 1998 By: /s/ That T. Ngo
------------------------------------
That T. Ngo, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ That T. Ngo Chief Executive Officer May 26, 1998
- ------------------------ President and Director
That T. Ngo
/s/ Harry Berk Vice President Finance and May 26, 1998
- ------------------------ Chief Financial Officer
Harry Berk
Supplemental Information To Be Furnished With Reports Filed Pursuant to
Section 15(d) Of The Securities Exchange Act Of 1934, As Amended, By Non-
Reporting Issuers.
(c) No annual report or proxy material has been sent to security holders.
31
<PAGE>
EXHIBIT 10.34
Exhibit 10.34 Employment Agreement Between the Company and
Donald C. Swanson Dated May 5, 1997.
May 1, 1997
Donald C. Swanson
6736 E. Waterton Ave.
Orange, CA 92867
Dear Don:
On behalf of AMDL, Inc. we are pleased to offer you the position of Director,
Manufacturing, reporting to the Vice President of Operations. In this capacity,
functions reporting to you will include raw materials/production planning,
reagent production, labeling, vialing and kit assembly. Although our current
manufacturing organizational structure is still being finalized, you will
initially have three positions reporting directly to you.
With respect to compensation, your annual salary will be $70,000 per year,
including the following benefits:
. Paid Employee Group Medical Insurance (effective after 90 days)
. Vacation time accrued at the rate of:
1st through 3rd year; 1 day per month not to exceed 10 days.
4th and 5th year; 11/2 days per month not to exceed 15 days.
. Stock Options for 50,000 shares of AMDL common stock; vesting in eight
equal installments at the close of each 3 month period of the 1st two
years of continuous employment; having a strike price equal to the
closing bid price on May 1, 1997; and having a term of 3 years from the
date of vesting. These options will be offered under a plan 01 on other
terms to be approved by AMDL's Board of Directors.
. If AMDL in its sole discretion (other than for conduct amounting to
fraud, dishonesty or acts of moral turpitude; behavior inimical to the
interests of the AMDL; or any acts or omissions to act which are
determined by the Board of Directors to constitute gross negligence or
flagrant misconduct) terminates this employment relationship during the
1st year of its term, AMDL shall pay a severance amount equal to two
months salary.
We are all convinced that you could make a significant and key contribution to
AMDL's business strategy, particularly in the areas of quality assurance and GMP
compliance. We look forward to your joining the AMDL management team on May 5,
1997.
Best wishes,
- --------------------------
Ronald J. Moore, Ph.D.
Vice President, Operations
Agreed to and accepted by:
- --------------------------- --------------
Donald C. Swanson Date
32
<PAGE>
EXHIBIT 10.35
Exhibit 10.35 Employment Agreement Between the Company and
Gary L. Dreher Dated January 15, 1998.
AMDL, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into
effective as of the 15th day of January 1998 by and between AMDL, Inc., a
Delaware corporation, (the "Company") and Gary L. Dreher (the "Employee").
RECITAL
The Company desires to employ the Employee, and the Employee desires to be
employed by the Company, upon the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, the parties agree as follows:
ARTICLE 1
EMPLOYMENT, TERMS AND DUTIES
1.1 Term. The Company agrees to employ the Employee and Employee hereby
accepts such employment' in accordance with the terms of this Agreement, for a
period of two (2) years commencing on January 15, 1998, unless the Agreement is
earlier terminated as provided herein.
1.2 Services and Exclusivity of Services. So long as this Agreement shall
continue in effect, Employee shall devote Employee's full business time, energy
and ability exclusively to the business, affairs and interests of the Company
and matters related thereto; shall use Employee's best efforts and abilities to
promote the Company's interests; and shall perform the services contemplated by
this Agreement in accordance with policies established by Board of Directors of
the Company (the "Board"), and under the direction of the President. Without the
prior express written authorization of the Board, Employee shall not, directly
or indirectly, during the term of this Agreement: (a) render services to any
other person or firm for compensation, or (b) engage in any activity competitive
with or adverse to the Company's business, whether alone, as a partner, officer,
director, employee or significant investor of or in any other entity. (An
investment of greater than 5% of the outstanding capital or equity securities of
an entity shall be deemed significant for these purposes).
1.2a Other Business Activities. Company and Employee acknowledge that
Employee is a member of the Board of Directors of Optimumcare, Inc. with
33
<PAGE>
an equity interest that may exceed 5% if employee exercises his stock options.
Optimumcare, Inc. is involved with the care of Psychiatric patients, and is
deemed to be an association which is not competitive with AMDL, Inc., and which
will not require any commitment of employee's business time or effort. Company
and Employee also acknowledge that Employee's company Medical Market
International LLC, is and will continue to be involved in testing of wine grapes
and wine for sugar. This work will be performed by others, and will not require
any of Employee's business time or effort.
1.2b Current Accounts. Company and Employee acknowledge and agree
that Employee is bringing certain accounts and customers which are currently
doing business with Medical Market International Inc. to Company to become
Company customers. In the event that Employee's employment with Company ceases
for any reason what so ever, Employee shall have the right to solicit these
accounts on behalf of whatever business Employee shall then join. A
comprehensive list of these accounts is attached hereto as Exhibit D.
1.3 Duties and Responsibilities. During the term of this Agreement,
Employee shall serve as Vice President of Marketing and Sales of the Company;
shall discharge the obligations and responsibilities normally associated with
such office; and shall use his best efforts to promote the interests of the
Company and refrain from acts which may adversely affect the reputation or
business of the Company.
1.4 Return of Proprietary Property. The Employee agrees that all property
in the Employee's possession belonging to the Company including without
limitation, all documents, reports, manuals, memoranda, computer print-outs,
customer lists, credit cards, keys, identification, products, access cards and
all other property relating in any way to the business of the Company is the
exclusive property of the Company, even if the Employee authored, created or
assisted in authoring or creating, such property. The Employee shall return to
the Company all such documents (and copies and summaries thereof) and property
immediately upon termination of employment or at any time upon the request of
the Company. All personal property brought by Employee to Company shall be
returned to Employee.
1.5 Intellectual Property. Employee acknowledges and agrees to the terms of
the Proprietary Information and Inventions Agreement attached hereto as Exhibit
C.
34
<PAGE>
ARTICLE 2
COMPENSATION AND BENEFITS
2.1 Base Salary. During the term of this Agreement, the Company will pay
the Employee a base salary at the rate of Eight Thousand Three Hundred Thirty
Three and 33/100 Dollars ($8,333.33) per month (the "Base Salary") commencing on
January 15, 1998, payable in accordance with the Company's usual payroll
practice.
2.2 Quarterly Commission. Effective March 31, 1998, the Employee will be
entitled to receive a quarterly Commission equal to the percentage of net sales
receipts set forth in Exhibit A hereto. Such Commission will be paid no later
than thirty (30) days after the end of each calendar quarter.
2.3 Additional Benefits. Employee and Company agree and acknowledge that
Employee has declined participation in Company's medical insurance program.
2.4 Vacation. The Employee shall be entitled to fifteen, (15), days paid
vacation each year during the term of this Agreement. Vacation time shall accrue
at the rate of 1.5 days per month until 15 days have been accrued.
2.5 Overall Qualification. The Company reserves the right to modify,
suspend or discontinue any and all benefits at any time (whether before or after
termination of employment) without notice to or recourse by Employee so long as
such action is taken generally with respect to all other senior level executives
and does not single out Employee.
2.6 Long Term Incentive Options. Concurrently with the execution hereof,
the Company will grant an option to Employee to purchase 250,000 shares of the
Company's common stock at a price equal to the closing bid price of the common
stock at January 15, 1998 (the "Option") . The Option shall be vested at the
times, and in the amounts set forth in the Option schedule attached as Exhibit B
hereto. Options which have vested shall be exercisable until the first to occur
of either of the following: a) December 31, 2002, or b) thirty days after
termination of employment whether for cause or without cause.
35
<PAGE>
ARTICLE 3
TERMINATION
3.1 This Agreement and all obligations hereunder (except the obligations
contained in Article 5, which shall survive any termination hereunder) shall
terminate upon the earliest to occur of any of the following:
(a) Expiration of Term; Resignation. The expiration of the term
provided for in Section 1.1 or the voluntary termination or resignation by
Employee or retirement from the Company in accordance with the normal retirement
policies of the Company or the mutual agreement of the Company and Employee. In
the event of any termination under this Section 3.1 (a), Employee will not be
entitled to receive any further payments or benefits from the Company and the
Company shall be released from any and all obligations under this Agreement.
(b) Death or Disability of the Employee. The death or any illness,
disability or other incapacity of Employee that results in Employee being unable
to perform Employee's duties with the Company on a full-time basis for a period
of three (3) consecutive months, or for shorter periods aggregating ninety (90)
or more days in any twelve (12)-month period. If Employee shall become ill,
disabled or incapacitated as set forth above, Employee's employment may be
terminated by written notice from the Company to Employee, after which Employee
will not be entitled to receive any further payments or benefits from the
Company and the Company shall be released from any and all obligations under
this Agreement.
(c) For Cause. The Company may, by delivering written notice to
Employee, terminate Employee's employment and all of the Employee's rights to
receive Base Salary, Quarterly Commission and any benefits hereunder for cause.
Such written notice shall be effective upon delivery to Employee. For purposes
of this Agreement, the term "cause" shall be defined as any of the following:
(i) Employee's material breach of any of the duties and
responsibilities under this Agreement (other than as a
result of illness, incapacity or disability), which breach
is not cured within ten (10) days after written notice
thereof to Employee, or engaging in any activities
competitive with or injurious to the Company, in either case
in the good faith reasonable judgment of the Board of
Directors;
36
<PAGE>
(ii) Employee's conviction by, or entry of a plea of guilty or
nolo contendere in, a court of competent and final
jurisdiction for a felony or a misdemeanor involving moral
turpitude (other than minor traffic violations or similar
offenses);
(iii) Employee's commission of an act of fraud upon the Company
or personal dishonesty, or willful or negligent misconduct;
(iv) Employee's willful failure or refusal to perform Employee's
duties or responsibilities under this Agreement or
Employee's material violation of any duty of loyalty to the
Company or a breach of Employee's fiduciary duty involving
personal profit.
In the event Employee's employment is terminated at any
time with cause, Employee will not be entitled to any
further payments or benefits from the Company and the
Company shall be immediately released from any and all
obligations under this Agreement.
(d) Without Cause. Notwithstanding any other provision of this
Section 3.1, the Company shall have the right to terminate Employee's employment
with the Company without cause at any time. If Employee is so terminated without
cause, then the Company shall pay to the Employee, within thirty (30) days after
the date of such termination, a lump sum equal to two (2) month's worth of the
Employee's Base Salary plus any unpaid sales commissions at the time of
termination in lieu of all rights of Employee hereunder, all of which shall
terminate upon the payment of such lump sum. The Company agrees, however, that
notwithstanding anything to the contrary in the preceding sentence, the rights
of Employee under the Option Agreement attached as Exhibit B hereto shall remain
in effect and such rights may be exercised by Employee in accordance with the
terms of the Option Agreement.
3.2 Exclusive Remedy. Employee agrees that the payments expressly provided
and contemplated by Section 3 of this Agreement shall constitute the sole and
exclusive obligation of the Company in respect of Employee's employment with and
relationship to the Company and that the payment thereof shall be the sole and
exclusive remedy for any breach of contract claim which may be brought as a
result of any termination of Employee's employment.
37
<PAGE>
ARTICLE 4
BUSINESS EXPENSES
4.1 Business Expenses. During the term of this Agreement, to the extent
that such expenditures satisfy the criteria under the Internal Revenue Code for
deductibility for federal income tax purposes as ordinary and necessary business
expenses, the Company shall reimburse Employee promptly for reasonable business
expenditures, including travel, entertainment and parking, made and
substantiated in accordance with policies, practices and procedures established
from time to time by the Company and incurred in the pursuit and furtherance of
the Company's business and goodwill.
4.2 Car Allowance. Company and Employee acknowledge that Employee will
need to use his personal automobile for business travel and hereby agree that
the sum of $500.00 to be paid monthly shall constitute complete and proper
reimbursement for this usage.
ARTICLE 5
CONFIDENTIAL INFORMATION
5.1 Confidentiality. Employee agrees to be bound by the provisions of the
Employee Proprietary Information and Inventions Agreement ("Proprietary
Information Agreement") attached hereto as Exhibit C.
5.2 Solicitation of Employees. In consideration and recognition of the
fact that Employee's position with the Company is an executive position
involving fiduciary responsibility to the Company and access to the Company's
confidential, proprietary information, Employee agrees that Employee will not,
directly or indirectly, solicit or take away any employees of the Company for
employment by any enterprise that competes with, or is engaged in a
substantially similar business to, the business of the Company as presently
conducted or proposed to be conducted. This Section 5.2 shall survive for a
period of one (1) year from the date of termination of this Agreement.
5.3 Representation by Employee. Employee represents and warrants that
Employee is under no restriction or disability by reason of any prior contract
or otherwise which would prevent Employee from entering into and performing
Employee's duties and obligations under this Agreement.
38
<PAGE>
ARTICLE 6
DISPUTE RESOLUTION
6.1 Disputes Subject to Arbitration. Except as to any action which
requires ex parte relief, expeditious orders of court, restraining orders,
---------
injunctive relief or the like in order to maintain the status quo or protect a
party's interest, any controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance or breach of
this Agreement or otherwise arising out of the execution hereof including any
claim based on contract, tort or statute, shall be resolved, at the request of
any party, by submission to binding arbitration at the Orange County, California
offices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"), and any
judgment or award rendered by JAMS shall be final, binding and unappealable, and
judgment may be entered by any state or federal court having jurisdiction
thereof. Any party can initiate arbitration by sending written notice of
intention to arbitrate (the "Demand") by registered or certified mail to all
parties and to JAMS. The Demand shall contain a description of the dispute, the
amount involved, and the remedy sought. If and when a Demand for arbitration is
made by any party, the parties agree to execute a Submission Agreement, provided
by JAMS, setting forth the rights of the parties and the rules and procedures to
be followed at the arbitration hearing (the "Rules"). Any controversy concerning
whether a dispute is an arbitrable dispute or as to the interpretation or
enforceability of this Section 6.1 shall be determined by the arbitrator. The
arbitrator shall be a retired or former judge agreed to between the parties from
the JAMS' panel. If the parties are unable to agree, JAMS shall provide a list
of three available judges and each party may strike one. The remaining judge
shall serve as the arbitrator. The parties shall be entitled to full rights of
discovery as set forth in the Code of Civil Procedure for civil actions tried in
the Superior Courts of the State of California, subject to such orders as may be
entered by JAMS. Each party hereto intends that the provisions to arbitrate set
forth herein shall be valid, enforceable and irrevocable. The designation of a
situs or a governing law for this undertaking or the arbitration shall not be
deemed an election to preclude application of the Federal Arbitration Act, if it
would be applicable. In his or her award, the arbitrator shall allocate, in his
or her discretion, among the parties to the arbitration all costs of the
arbitration, including the fees of the arbitrator and reasonable attorneys fees,
costs and expert witness expenses of the parties. The parties hereto agree to
comply with any award made in any such arbitration proceedings that has become
final in accordance with the Rules and agree to the entry of a judgment in any
jurisdiction upon any award rendered in such proceeding becoming final under the
Rules. the arbitrator shall be entitled, if appropriate, to award any remedy in
such proceedings permitted in a civil proceeding under the laws of the State of
California including, if appropriate, monetary damages, specific performance and
all other forms of legal and equitable relief. In the event JAMS is no longer in
business and there is no comparable successor, then the parties shall use the
services of the American Arbitration Association, Inc. ("AAA"), subject to AAA's
Commercial Arbitration Rules and the provisions of this Section 6.1. In the
event the AAA is no longer in business and there is no comparable
39
<PAGE>
successor, then the parties shall agree upon another arbitrator within ten (10)
calendar days after receipt of the Demand. If the parties cannot agree upon
another arbitrator, then a single neutral arbitrator shall be appointed pursuant
to Section 1281.6 of the California code of Civil Procedure.
ARTICLE 7
MISCELLANEOUS
7.1 Modifications. This Agreement supersedes all prior agreements and
understandings between the parties relating to the employment of the Employee by
the Company, and it may not be changed or terminated orally. No modification,
termination, or attempted waiver of any other provisions of this Agreement will
be valid unless in writing signed by both parties hereto.
7.2 Enforceability and Severability. If any term of this Agreement is
deemed void, voidable, invalid or unenforceable for any reason by an arbitrator
or a court of competent jurisdiction, such term will be deemed severable from
all other terms of this Agreement, which will continue in full force and effect.
In the event that any term is held by an arbitrator or a court of competent
jurisdiction to over broad as written, the term will be deemed amended to narrow
its application to the extent necessary to make the term enforceable.
7.3 Withholding. To the extent required by any applicable law, including,
without limitation, any federal or state income tax or excise tax law or laws,
the Federal Insurance Contributions Act, the Federal Unemployment Tax Act or any
comparable federal, state or local laws, the Company retains the right to
withhold such portion of any amount or amounts payable to the Employee under
this Agreement as the Company deems necessary.
7.4 Captions. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.5 Governing Law. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of California, and any and every legal proceeding
(other than arbitration proceedings conducted in accordance with Article 6
hereof) arising out of or in connection with this Agreement shall be brought in
the appropriate courts of the State of California, each of the parties hereby
consenting to the exclusive jurisdiction of said courts for this purpose.
40
<PAGE>
7.6 Succession. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns and any such successor
or assignee shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" and "assignee" shall
include any person, firm, corporation or other business entity which at any
time, whether by purchase, merger or otherwise, directly or indirectly acquires
the stock of the Company or to which the Company assigns this Agreement by
operation of law or otherwise. The obligations and duties of Employee hereunder
are personal and otherwise not assignable. Employee's obligations under Sections
1.4, 3.2, 5.1, 5.2 and 6.1 of this Agreement will survive the termination of
Employee's employment, regardless of the manner of such termination.
7.7 Waivers. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
hereunder preclude any other further exercise thereof or the exercise of any
right or remedy granted hereby or by law.
7.8 Injunctive Relief. The Employee acknowledges and agrees that any
breach or threatened breach of this Agreement or the Proprietary Information
Agreement might cause irreparable harm to the Company and that in such case, the
Company would have no adequate remedy at law. In the event of a breach or
threatened breach by the Employee of this Agreement or the Proprietary
Information Agreement, the Company may, in addition to any other rights and
remedies it may have pursuant to this Agreement, immediately seek any judicial
action that the Company may deem necessary or appropriate, including without
limitation, the obtaining of injunctive relief against the Employee without the
necessity of posting a bond or other security and without prejudice to any other
remedies which may be available to the Company at law or in equity.
7.9 Entire Agreement. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior or contemporaneous agreements or understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
7.10 Representation by Counsel; Interpretation. The Company and Employee
each acknowledges that each party to this Agreement has been represented by
counsel in connection with this Agreement and the matters contemplated by this
Agreement. Accordingly, any rule of law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of the parties.
41
<PAGE>
7.11 Notices. All notices, requests, demands or other communications
under this Agreement shall be in writing and shall be validly given or made to
another party if given by personal delivery, telex, facsimile, telegram, or if
deposited in the United States mail, certified or registered, postage prepaid,
return receipt requested. If such notice, demand or other communication is given
by personal delivery, telex, facsimile or telegram, service shall be
conclusively deemed made at the time of receipt. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
If to Company: AMDL, Inc.
14272 Franklin Avenue, Suite 106
Tustin, California 92780-7039
If to Employee:
-------------------------------
-------------------------------
-------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
"EMPLOYEE" "COMPANY"
AMDL, Inc.
By:
- ------------------------------ -----------------------------
Gary L. Dreher Its:
-----------------------------
42
<PAGE>
EXHIBIT A
Quarterly Commission
The quarterly commission will be calculated and paid based upon the net year
to date sales receipts as of the end of each calendar quarter. Within 30 days
after the close of each calendar quarter the commission shall be paid on sales
receipts for that quarter based on the table set forth below:
Year to Date Net Sales
Receipts: $U.S. Commission
--------------- ----------
0 - 1,000,000 4% on amounts between 0 and $1,000,000
1,000,001 - 2,000,000 5% on amounts between $1,000,001
and $2,000,000
2,000,001 - 6% on amounts in excess of $2,000,000
43
<PAGE>
EXHIBIT B
Schedule for vesting of Stock Options
Date Number of Options Vesting
March 31, 1998 31,250
June 30, 1998 31,250
September 30, 1998 31,250
December 31, 1998 31,250
March 31, 1999 31,250
June 30, 1999 31,250
September 30, 1999 31,250
December 31, 1999 31,250
44
<PAGE>
EXHIBIT C
---------
AMDL, INC.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
I recognize that AMDL, Inc., a Delaware corporation (the "Company"),
is engaged in a continuous program of research, development and production
respecting its business, present and future.
I understand that:
A. As part of my employment by the Company I am (or may be) expected
to make new contributions and inventions of value to the Company;
B. My employment creates a relationship of confidence and trust
between me and the Company with respect to any information:
(1) Applicable to the business of the Company; or
(2) Applicable to the business of any client or customer of the
Company, which may be made known to me by the Company or by any client or
customer of the Company, or learned by me during the period of my employment;
and
C. The Company possesses and will continue to possess information
that has been created, discovered, developed or otherwise become known to the
Company (including without limitation information created, discovered, developed
or made known by me during the period of or arising out of my employment by the
Company) or in which property rights have been assigned or otherwise conveyed to
the Company, which information has commercial value in the business in which the
Company is engaged. All such information is hereinafter called "Proprietary
Information." By way of illustration, but not limitation, Proprietary
Information includes trade secrets; processes, formulas, data, know-how,
improvements, discoveries, developments, designs, inventions, techniques,
marketing plans, strategies, forecasts, new products, unpublished financial
statements, budgets, projections, licenses, prices, costs and customer and
supplies lists.
In consideration of my employment or continued employment, as the case
may be, and the compensation received by me from the Company from time to time,
I hereby agree as follows:
1. Recognition of Company's Rights: Nondisclosure. All Proprietary
-----------------------------------------------
Information shall be the sole property of the Company and its assigns, and the
Company and its assigns shall be the sole owner of all patents, copyrights and
other rights in connection therewith. I hereby assign to the Company any rights
I may have or acquire in such Proprietary Information. At all times, both
during my employment by the Company and after its termination, I will keep in
strictest confidence and trust all Proprietary Information, and I will not use
or disclose any Proprietary Information or anything relating to it without the
written consent of the Company,
45
<PAGE>
except as may be necessary in the ordinary course of performing my duties as an
employee of the Company.
2. Other Activities. I agree that during the period of my employment
----------------
by the Company I will not, without the Company's express written consent, engage
in any employment or business other than for the Company, and for the period of
my employment by the Company and for one (1) year after the date of termination
of my employment by the Company I will not (i) induce any employee of the
Company to leave the employ of the Company; or (ii) solicit the business of any
client or customer of the Company (other than on behalf of the Company).
3. Return of Company Documents. In the event of the termination of
---------------------------
my employment by me or by the Company for any reason, I will deliver to the
Company all documents, notes, drawings, specifications, programs and data and
other materials of any nature pertaining to my work with the Company and I will
not take with me any of the foregoing or any reproduction of any of the
foregoing or any Proprietary Information.
4. Disclosure of Inventions. I will promptly disclose to the Company
------------------------
(or any persons designated by it) all discoveries, developments, designs,
improvements, inventions, formulas, processes, techniques, know-how and data,
whether or not patentable or registerable under copyright or similar statutes,
made or conceived or reduced to practice or learned by me, either alone or
jointly with others, during the period of my employment (all such discoveries,
developments, designs, improvements, inventions, formulas, processes,
techniques, know-how and data are hereinafter referred to as "Inventions").
5. Assignment of Inventions. I agree that all Inventions shall be
------------------------
the sole property of the Company and its assigns, and the Company and its
assigns shall be the sole owner of all patents, copyrights and other rights in
connection therewith. I hereby assign to the Company any rights I may have or
acquire in such Inventions. I further agree as to all such Inventions to assist
the Company in every way (but at the Company's expense) to obtain and from time
to time enforce patents, copyrights and other rights and protections relating to
said Inventions in any and all countries and to that end I will execute all
documents for use in applying for and obtaining such patents, copyrights and
other rights and protections on and enforcing such Inventions, as the Company
may desire, together with any assignments thereof to the Company or persons
designated by it. My obligation to assist the Company in obtaining and
enforcing patents, copyrights and other rights and protections relating to such
Inventions in any and all countries shall continue beyond the termination of my
employment, but the Company shall compensate me at a reasonable rate after my
termination for time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable, after reasonable effort, to secure
my signature on any document or documents needed to apply for or prosecute any
patent, copyright, or other right or protection relating to an Invention,
whether because of my physical or mental incapacity or for any other reason
whatsoever, I hereby irrevocably designate and appoint the Company and its duly
authorized officers and agents as my agent and attorney-in-fact, to act for and
in my behalf and stead to execute and file any such application or applications
and to do all other lawfully permitted acts to further the prosecution and
issuance of patents, copyrights or similar protections thereon with the same
legal force and effect as if executed by me.
46
<PAGE>
6. Exclusion of Certain Inventions. Any provision contained in this
-------------------------------
Agreement requiring me to assign my rights in any Invention does not apply to an
Invention that qualifies fully under the provisions of Section 2870 of the
California Labor Code. That section provides that the requirement to assign
shall not apply to an invention for which no equipment, supplies, facility or
trade secret information of the employer was used and which was developed on the
employee's own time and (a) which does not at the time of conception or
reduction to practice relate to the business of the employer or to the
employer's actual or anticipated research or development or (b) which does not
result from any work performed by employee for the employer.
I understand that I bear the full burden of proving to the Company
that an Invention qualifies fully under Section 2870. By signing this
Agreement, I acknowledge receipt of a copy of this Agreement and of written
notification of the provisions of Section 2870. Notwithstanding the foregoing,
I also assign to the Company (or as directed by it) any rights I may have or
acquire in any Invention, full title to which is required to be in the United
States by a contract between the Company and the United States or any of its
agencies.
7. Prior Inventions. As a matter of record I have identified on
----------------
Exhibit A-1 attached hereto all inventions or improvements relevant to the
subject matter of my employment by the Company which have been made or conceived
or first reduced to practice by me alone or jointly with others prior to my
engagement by the Company, which I desire to remove from the operation of this
Agreement; and I covenant that such list is complete. If there is no such list
on Exhibit A-1, I represent that I have made no such inventions and improvements
at the time of signing this Agreement.
8. No Conflicting Obligations. I represent that my performance of
--------------------------
all the terms of this Agreement and as an employee of the Company does not and
will not breach any agreement to keep in confidence proprietary information
acquired by me in confidence or in trust prior to my employment by the Company.
I have not entered into, and I agree I will not enter into, any agreement,
either written or oral, in conflict with this Agreement.
9. No Improper Use of Materials. I understand and agree that I have
----------------------------
not brought and will not bring with me to the Company or use in the performance
of my responsibilities at the Company any materials or documents of a former
employer that are not generally available to the public, unless I have obtained
express written authorization from the former employer for their possession and
use. Accordingly, this is to advise the Company that the only materials or
documents of a former employer which are not generally available to the public
that I will bring to the Company or use in my employment are identified on
Exhibit A-1 attached hereto, and as to each item I represent that I have
obtained prior to the effective date of my employment with the Company written
authorization for their possession and use in my employment with the Company.
I also understand that, in my employment with the Company, I am not to
breach any obligation of confidentiality that I have to former employers, and I
agree that I shall fulfill all such obligations during my employment with the
Company.
10. Legal and Equitable Remedies. Because my services are personal
----------------------------
and unique and because I may have access to and become acquainted with the
Proprietary Information of the Company, the Company shall have the right to
enforce this Agreement and any of its provisions
47
<PAGE>
by injunction, specific performance or other equitable relief, without bond,
without prejudice to any other rights and remedies that the Company may have for
a breach of this Agreement.
11. Governing Law. This Agreement will be governed by and construed
-------------
according to the laws of the State of California. Exclusive venue for any
dispute arising out of this Agreement will be Superior Court for Orange County
in the State of California and United States District Court, Central District in
Santa Ana, California.
12. Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Company and me relating to the subject matter of
this Agreement and supersedes all prior discussions between us. No modification
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing signed by the party to be
charged. Any subsequent change or changes in my duties, salary or compensation
will not affect the validity or scope of this Agreement. As used in this
Agreement, the period of my employment includes anytime during which I may be
retained by the Company as a consultant.
13. Severability. If one or more of the provisions in this Agreement
------------
are deemed unenforceable by law, then the remaining provisions will continue in
full force and effect.
14. Survival. The provisions of this Agreement shall survive the
--------
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
15. Employment. I agree and understand that nothing in this
----------
Agreement shall confer any right with respect to continuation of my employment
by the Company, nor shall it interfere in any way with my right or the Company's
right to terminate my employment at any time with or without cause.
16. Waiver. No waiver by the Company of any breach of this Agreement
------
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
17. Successors and Assigns. This Agreement will be binding upon me,
----------------------
my heirs, executors, administrators and other legal representatives and will be
for the benefit of the Company, its successors and assigns.
This Agreement shall be effective as of the first day of my employment
with the Company, namely: January 15, 1998.
Dated: ,
------- ---- ----------------------------------
Gary L. Dreher
ACCEPTED AND AGREED TO;
AMDL, Inc., a Delaware corporation
Dated: , By:
------- ---- -------------------------------
----------------------------------
Print Name and Title
48
<PAGE>
Exhibit C-1
-----------
AMDL, Inc.
14272 Franklin Avenue, Suite 106
Tustin, CA 92780-7039
Gentlemen:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment by AMDL, Inc., (the "Company")
which have been made or conceived or first reduced to practice by me alone or
jointly with others prior to my engagement by the Company:
No inventions or improvements
-----
See below
-----
-----------------------------------------------------------
-----------------------------------------------------------
Additional sheets attached
-----
2. I propose to bring to my employment the following materials and
documents of a former employer which are not generally available to the public,
which materials and documents may be used in my employment:
No materials
-----
See below
-----
-----------------------------------------------------------
-----------------------------------------------------------
Additional sheets attached
-----
The signature below confirms that my continued possession and use of
these materials is authorized.
---------------------------------------
49
<PAGE>
Exhibit D
<TABLE>
<CAPTION>
CUSTOMER: JOB LIST
<S> <C>
Malaysian Bio-Diagnostic Research No. 22, Jalan Kia Peng
50400 Kuala Lumpur
Malaysia
- --------------------------------------------------------------------------------------------------------------
Advanced Bio-Science, Inc. 3180 De La Cruz Boulevard
Suite 101
Santa Clara, CA 95054
- --------------------------------------------------------------------------------------------------------------
AMS Cathay 41 Avenue A, Suite 2B
Manhattan, NY 10009
- --------------------------------------------------------------------------------------------------------------
Associated Equipment Ltd. 118, Triq il - Plejju
Qormi, QRM10
Malta
- --------------------------------------------------------------------------------------------------------------
Babar Medico Diagnostic Division Khan Arcade (Basement)
16 - Edward Road
Lahore, Pakistan
- --------------------------------------------------------------------------------------------------------------
Bio-Diagnostica, Inc. 7200 N.W. 7th Street, 2nd Floor
Miami, FL 33126
- --------------------------------------------------------------------------------------------------------------
BioKwitech, Inc. 4204 Sorrento Valley Boulevard
San Diego, CA 92121
- --------------------------------------------------------------------------------------------------------------
BioTech Laboratorios S.R. LTDA. Ayachucho 455 Of. 407
Trujillo - Peru
- --------------------------------------------------------------------------------------------------------------
CenoGenics Corporation 620 Route 520
Morganville, NJ 07751
- --------------------------------------------------------------------------------------------------------------
Certified Diagnostics 1440 Springside Drive
Weston, FL 33326
- --------------------------------------------------------------------------------------------------------------
Eagle Diagnostics P.O. Box 1237
De Soto, TX 75123
- --------------------------------------------------------------------------------------------------------------
Health Tech International 15721 N.W. 60th Avenue, Suite 203
Miami Lakes, FL 33014
- --------------------------------------------------------------------------------------------------------------
Immunostics, Inc. 3505 Sunset Avenue
Ocean, NJ 07712
- --------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
IntegraGroup Corporation 5901 S.W. 74th Street, Suite 409
S. Miami, FL 33154
- --------------------------------------------------------------------------------------------------------------
J & S Medical Associates 19 Strathmore Road
Natick, MA 01760
- --------------------------------------------------------------------------------------------------------------
LabCorp of America 1447 York Court
Burlington, NC 27215
- --------------------------------------------------------------------------------------------------------------
Lebotex ED. La Concordia Av. 9 De Octobre 1708
Y. Av. Del Ejercito Ler Piso
- --------------------------------------------------------------------------------------------------------------
MicroLabs Ltd. 20 Melmac Avenue
Kingston 5, Jamaica
- --------------------------------------------------------------------------------------------------------------
Medical Marketing Service US, Inc. 5205 N.W. 74th Avenue
Miami, FL 33166
- --------------------------------------------------------------------------------------------------------------
Orientacion Clinica Diagnostica S.A. Edicico Stemo - P.3 - Ofc. 2
Av. Diego Cisneros Los Ruices
Caracas, 1071, Venezuela
- --------------------------------------------------------------------------------------------------------------
Pamir Enterprises 36 - 110 Amin Mansion G.T. Road
Peshawar, Pakistan
- --------------------------------------------------------------------------------------------------------------
Pharma & Health Westraat 64
8800 Roselare (Belgie)
HR 62.710 - B.T.W. BE 45195-4672
- --------------------------------------------------------------------------------------------------------------
Plasmatec Laboratory Products Ltd. Unit 1, Watercleaves
Dottery Near Bridgport
United Kingdom
- --------------------------------------------------------------------------------------------------------------
Pt. Multilabindo/Dr. Eka Tjokrosetio JL. Balai Pustaka Timur 225J/F
Rawamangun, Jakarta Timur 13220
Indonesia
- --------------------------------------------------------------------------------------------------------------
Quest Diagnostics One Malcomv Avenue
Teterboro, NJ 07608
- --------------------------------------------------------------------------------------------------------------
Reactivos Del Uruguay LTDA. General Bajola 2292
Montevideo, Uruguay
- --------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SmithKline Beecham Clinical Laboratory 1201 Collegeville Road.
Collegeville, PA 19426
- --------------------------------------------------------------------------------------------------------------
Tal Ron 1 Shmcza Street
Rehovot 76452
- --------------------------------------------------------------------------------------------------------------
Technical Chemicals & Products 3341 S.W. 15th Street
Pompano Beach, FL 33069
- --------------------------------------------------------------------------------------------------------------
Technoline Ltd. Edgar Bernard Street
Gzira GZR 06
Malta
- --------------------------------------------------------------------------------------------------------------
TechnoMed 70 Osman EBN Affan - Midan
Safir - Helioplis
Cairo Egypt
- --------------------------------------------------------------------------------------------------------------
TECO Diagnostics, Inc. 4925 E. Hunter
Anaheim, CA 92807
- --------------------------------------------------------------------------------------------------------------
Trindrugs Caribbean Co. LTD 260 Eastern Main R.
Laventille, Trinidad West Indies
- --------------------------------------------------------------------------------------------------------------
WAMCO 41, Kais Bin Assem Street
Near Farazdek Street, Malaz
Riyadh 11593, Saudi Arabia
- --------------------------------------------------------------------------------------------------------------
X-Ray Medical Enterprises 35 C. Quezon Avenue
Cordillera Street
Quezon, Philippines
- --------------------------------------------------------------------------------------------------------------
</TABLE>
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,498,540
<SECURITIES> 0
<RECEIVABLES> 7,863
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,506,403
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,506,403
<CURRENT-LIABILITIES> 857,652
<BONDS> 0
0
0
<COMMON> 33,755
<OTHER-SE> 614,996
<TOTAL-LIABILITY-AND-EQUITY> 1,506,403
<SALES> 42,436
<TOTAL-REVENUES> 42,436
<CGS> 23,039
<TOTAL-COSTS> 23,039
<OTHER-EXPENSES> 1,888,743
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (121,932)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,747,414)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
