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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________.
Commission File Number
AMDL, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 87-0188822
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2492 Walnut Avenue, Suite 100, Tustin, California 92780
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(Address of principal executive offices)
(714) 505-4460
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(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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None N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
As been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and will not 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. [ ]
The issuer's revenue for the fiscal year ended December 31, 1999 was $82,713.
The market value of the voting stock held by non-affiliates of the issuer as of
March 20, 2000 was approximately $2,400,000.
The number of shares of the common stock outstanding as of March 20, 2000 was
1,651,124.
Documents incorporated by reference: None.
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
AMDL, Inc. (the "Company") was formed under the laws of the State of
Delaware on July 10, 1987 to engage in the business of developing and offering
for sale various immunodiagnostic kits for the detection of cancer and other
types of diseases. 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. The Company
has recently broadened its scope and product line by developing a selection of
diagnostic test kits for allergy, autoimmune diseases, cancer, drugs of abuse,
fertility, gastrointestinal disease, infectious disease, pregnancy and other
immunoassays. The Company is still in the development stage and has not
generated significant revenues from product sales. The Company requires
substantial additional working capital for continuing research and development,
clinical trials for obtaining regulatory approvals and for commercialization and
marketing of its products.
In January 1989, the officers and 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.
CVI was a development stage enterprise located in Colorado that was formed in
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 shares of CVI common stock. Subsequently, the domicile of CVI was
changed to Delaware and its name was changed to AMDL, Inc.
In October 1998 after a meeting and vote of stockholders, the Company
amended its Certificate of Incorporation to provide for a one for 20 reverse
split of the outstanding shares of its $.001 par value common stock ("Common
Stock"). In March 1999, a majority of the Company's stockholders instructed the
Company to amend its Certificate of Incorporation to provide for a further one
for 10 reverse split of the outstanding shares of Common Stock.
During the period commencing on February 26, 1999 and ending June 30,
1999, the Company conducted a Regulation D, Rule 504 Offering ("Rule 504
Offering") of Common Stock and sold an aggregate of 1,350,002 shares of Common
Stock for cash and cancellation of indebtedness of approximately $1,000,000. In
connection with this Rule 504 Offering, the Company also issued an aggregate of
132,653 shares of Common Stock as payment of finders' fees. The shares issued as
finders' fees were issued pursuant to Rule 506 under the Securities Act of 1933,
as amended (the "1933 Act").
The total shares sold (exclusive of finder's fees) in the Rule 504
Offering represented approximately 82% of the then issued and outstanding shares
of Common Stock as of June 30, 1999 without considering the dilutive effects of
an aggregate of 1,127,151 options and warrants. No individual investor who
participated in the Rule 504 Offering owns more than 10% of the currently issued
and outstanding shares of Common Stock. The total number of purchasers in the
Rule 504 Offering was 13 persons, all of whom represented they were accredited
investors as that term is defined in Rule 501(a) under the 1933 Act.
On February 4, 2000, the Company filed a Certificate of Designations
with respect to its Series A preferred Stock, $.001 par value per share ("Series
A"), which it is currently offering under Rule 506 under the Securities Act of
1933, as amended ("1933 Act"). In the offering, the Company is offering up to
$5.5 million of Series A Preferred Stock at $500 per share. Each share of the
Preferred Stock is convertible at the option of the shareholder into 250 shares
of common stock and all shares of preferred stock shall automatically convert at
such time as the common stock is listed for trading on the Nasdaq Small Cap
Market or Nasdaq National Market System and a registration statement covering
the underlying common stock has been declared effective by the SEC. The
Preferred Stock will pay an annual dividend of 8% payable semi-annually in
shares of common stock. These shares of common stock will be considered
"restricted securities". The Liquidation Preference of the Preferred Stock is
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$500 per share. As of the date hereof, the Company has sold 300 shares of Series
A Preferred Stock for the gross proceeds of $150,000.
The Company's executive offices are located at 2492 Walnut Avenue, Suite
100, Tustin, California 92780, telephone number (714) 505-4460.
Business of the Issuer
Certain terms used herein are defined below in the section "Glossary."
PRODUCTS
In addition to the proprietary test kits described below, the Company's
products include non-proprietary diagnostic test kits for allergy, autoimmune,
cancer markers, clinical chemistry, drugs of abuse, fertility, gastrointestinal
disease, serology, serum proteins, thyroid, urine chemistry and others that are
sold on an OEM basis. Since its inception, the Company has, however, operated
primarily as a research and development company, focusing its operations on the
development of in vitro diagnostic testing kits for the detection of various
diseases including different types of cancer and Helicobacter Pylori ("H.
pylori"), a bacterium associated with gastric and peptic ulcers. The Company's
proprietary test kits include the DR-70 for cancer detection and the PyloriProbe
for the detection of H. pylori.
DR-70. The DR-70 is the Company's proprietary diagnostic test kit which
the Company believes is capable of detecting at least 13 different common
cancers, including cancer of the lungs, breasts, stomach and liver. With just a
small amount of blood serum drawn from a patient, the DR-70 uses a common
microtiter format familiar to most laboratories in the diagnostic industry to
test for the presence of tumors. Management believes that the DR-70 is capable
of detecting different types of cancer with a degree of certainty and
specificity superior to any other cancer marker now on the market. The Company
has received marketing approval from Canada's Health Protection Branch, the
Canadian equivalent of the U.S. Food and Drug Administration ("FDA"). DR-70 is
not approved by the FDA for marketing and sale in the United States.
In 1993, a clinical trial protocol for the DR-70 for lung cancer was
approved 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
DR-70 lung cancer tumor-marker and to determine if the level of the tumor-marker
correlates with the stage of lung cancer development. In the Cross Cancer
Institute clinical trial, 237 patients with newly diagnosed lung cancer and 244
volunteers with no clinical evidence of disease were selected. The DR-70
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, coupled with data
reported in continued studies at the Cross Cancer Institute, demonstrate the
value of the DR-70 lung cancer tumor-marker as a diagnostic test for detecting
lung cancer. These tests also helped determine the usefulness of DR-70 for
monitoring response to treatment and for predicting the recurrence of cancer.
Recent expanded clinical studies of DR-70 were also conducted in Wuhan,
China. The studies determined that the DR-70 immunoassay kit detected a number
of different cancers with a high degree of specificity and sensitivity. In these
tests, DR-70 was found to have an overall specificity of 95% and an overall
sensitivity of 83.8%. 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 has significant usefulness as a
cancer-screening tool.
Pylori Probe. Management believes PyloriProbe has several advantages
over competitors' test kits including color coded ready-to-use reagents,
superior reproducibility, durable breakaway wells, elimination of the
calibration curve requirement and significantly lower cost. In August 1998, the
Company received clearance from the U.S. Food and Drug Administration ("FDA") to
market in the United States its Pylori-Probe diagnostic kit.
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Pylori-Probe is the first and currently the only product manufactured by
the Company to be cleared to market in the United States. Due to its lack of
working capital, however, the Company has not been able to commence active
marketing of this product.
Onco Chek. Onco Chek is another of the Company's proprietary cancer
tumor markers. Onco Chek has been used in pre-clinical trials. The Company has
conducted preliminary studies at the University of California, Irvine Medical
Center to investigate (i) the general ability of Onco Chek to detect various
types of cancer including colon, ovarian, breast, larynx, lung and lymph, and
(ii) to test interference by non-cancer diseases. The Company does not currently
expend any resources on the further development of Onco Chek, but may do so in
the future.
CURRENT OPERATIONS
The Company is currently marketing the DR-70 in Canada, Taiwan, Mainland
China, Central America, South America, and Africa. The Company's current
operations are focused on marketing its existing products in those jurisdictions
in which the Company has obtained, or believes it can expeditiously obtain,
regulatory approval. The Company has already obtained approval from the Canadian
regulatory authorities to market the DR-70 in Canada. Accordingly, the Company
intends to enter into agreements with distributors who will market the DR-70
throughout Canada's provinces. The Company will pursue strategic partners for
the PyloriProbe test in the U.S. and worldwide.
The Company currently produces only DR-70 and Pylori Probe and its OEM
test kits at its Tustin, California facilities. While sales during the recent
past have been primarily from OEM products of other manufacturers, during the
next 12 months sales are expected to consist primarily of DR-70 and Pylori
Probe.
In 1999, the Company entered into a non-binding Memorandum of
Understanding ("Memorandum") with Union Medical & Pharmaceutical Group/Beijing
Union Medical & Pharmaceutical General Corporation ("Union") to establish a
joint venture to market, distribute and manufacture the Company's products in
China. Pursuant to the Memorandum, Union has agreed to assist the Company in
obtaining approval from the Chinese government to import, manufacture and sell
the Company's products in China. In an effort to obtain government approval, the
board of directors of the Company recently authorized the payment of $50,000 to
Union to cover the expenses they expect to incur in conducting clinical trials
on the Company's products in China. Once government approval is obtained, the
Company and Union intend to enter into a joint venture to promote, market and
distribute the Company's proprietary and non-proprietary products throughout
China.
Ultimately, upon the successful introduction of the Company's products
into the Chinese market, the Company and Union intend to set up facilities to
import the Company's products in bulk and to license the manufacturing of the
Company's products in China. The Memorandum, however, is not binding on either
party and, accordingly, there can be no assurance that Union will perform any of
the acts it has agreed to perform, nor will the Company have any recourse
against Union should Union fail to so perform. Accordingly, there can be no
assurance that the Company will be able to obtain the necessary governmental
approvals to import, manufacture and sell the Company's products in China or
that the Company will ever generate any revenues from its efforts in China.
The Company has recently established distribution in Taiwan and has
started shipping product there. The distribution network includes 133 sites
nationwide for patients to have blood drawn for the proprietary cancer-screening
test, DR-70. Physicians and hospitals in Taiwan can visit the Internet site
dr-70.com.tw to obtain information on the test and where to go to have blood
drawn for the test.
MARKETING
In addition to the activities in Canada, China and Taiwan described in
"Current Operations" above, the Company'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 larger
diagnostic companies. The Company intends to use the Internet, select journals,
and industry trade shows for its marketing activities, subject to the
availability of working capital for such endeavors.
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The Company recently regained worldwide marketing rights to the DR-70.
In February 1995, the Company and AMDL Canada, Inc., a wholly-owned subsidiary
of Briana Bio-Tech, Inc. (a significant stockholder of the Company), had
executed a joint venture agreement which led to the formation of ICD, LLC, a
Delaware limited liability corporation ("ICD"). ICD was granted the exclusive
right to market the DR-70 worldwide, excluding Canada and the United States. The
Company retained the marketing rights of the DR-70 for the United States and
AMDL Canada retained the marketing rights for Canada.
In September 1998, AMDL Canada assigned its interest in ICD and its
Canadian marketing rights for the DR-70 to JGT Management Services, Ltd.
("JGT"), an unrelated party. In July 1999, JGT and the Company agreed to
dissolve ICD and to assign all its marketing rights to the DR-70 back to the
Company. As part of this agreement, the Company agreed to make eighteen monthly
payments of $750 each to JGT commencing October 1998, in addition to a royalty
fee equal to 2.5% of the gross sales of the DR-70 on a quarterly basis. The
agreement expires in August 2008; however, the Company may elect to pay a
$25,000 buy-out fee after October 1, 2003.
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 has been 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. In
February 1999, Mr. Dreher was elected to serve as the Company's President and
CEO. Management believes that when the Company receives additional financing,
sales and marketing will be the areas in which most of the Company's resources
should be expended. Mr. Dreher provides strategic direction in deployment of
those funds.
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. The Company has not yet submitted an application to the FDA to
sell DR-70 in the United States. Due to the absence of sufficient working
capital, the Company has no plans at present to pursue FDA approval of the
DR-70. Recent FDA regulations will provide an opportunity for the Company to
market DR-70 to certain clinical reference laboratories in the United States in
2000 through the use of labeling stating that the product is for research only.
In June 1995, the Company received approval from the Cross Cancer
Institute in Canada to apply for marketing clearance for its DR-70 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 Canada. In September 1995, the U.S. Food and Drug Administration ("FDA")
certified the Company for clearance to export the DR-70 lung cancer tumor-marker
diagnostic kit to Canada.
PyloriProbe. In July 1996, the Company filed a 510(k) Premarket
Notification with the FDA requesting approval to sell PyloriProbe in the United
States. In August 1998, the Company received clearance from the FDA to market in
the United States its Pylori-Probe diagnostic kit. Pylori-Probe is the first
product manufactured by the Company to be cleared to market in the United
States.
The Company has moved to 2492 Walnut Ave. in Tustin and has received
certification from the State of California to produce its proprietary products
and OEM products at that location. AMDL, Inc. can now begin selling its FDA
approved H pylori test, PyloriProbe, in the United States. The Company can also
begin selling the DR-70 cancer test, properly labeled as a research only test,
in the United States.
There can be no assurance that the Company will be able to obtain other
necessary regulatory approvals or clearances for DR-70 in the United States or
for other products developed in the future on a timely basis or at all, and
delays in receipt of or failure to receive such approvals, the loss of
previously received approvals, or failure to
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comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
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 tumor-markers as reliable indicators of the presence of
cancer. Two of the Company's patents, which 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, the Philippines, Russia, Israel, Korea
and Japan.
There can be no assurance, however, 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. Further, there can be no assurance 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. Finally, 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 these companies 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 industry.
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; however, there can be no
assurance that such efforts are not being undertaken without the Company's
knowledge. The Company believes that most of the diagnostic products currently
manufactured by other companies are complimentary to the DR-70. In addition,
such companies could develop products similar to the Company's 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.
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, however, 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
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its products and intends to obtain product liability coverage, if 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 four full-time employees. The Company from
time to time supplements its permanent staff with temporary 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 10, "Executive
Compensation." The Company also utilizes the services of consultants for
research, testing and other services.
GLOSSARY OF MEDICAL AND SCIENTIFIC TERMS
ANTIBODY:
An immunoglobulin molecule that has a specific ammo 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.
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.
CLINICAL:
Used in the treatment of patients as opposed to academic or theoretical
applications.
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:
Refers to DR-70(TM), the name of the Company's lung cancer tumor-marker.
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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ONCO CHEK:
Refers to the Company's cancer tumor marker test under investigation but not
currently being marketed.
PYLORIPROBE:
Refers to the PyloriProbe, a trademark for the Company's ELISA kit for measuring
antibody to Helicobacter pylori. An indicator of infection caused by H. pylori
bacteria.
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.
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.
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.
ITEM 2. PROPERTIES
The Company's offices, research laboratory and manufacturing facilities
consist of 4,395 square feet and are located at 2492 Walnut Avenue, Suite 100,
Tustin, California. The Company has entered into a five year lease for these
facilities, with a rental rate of $5,757 per month, including property taxes,
insurance and maintenance.
ITEM 3. LITIGATION
There have been no legal proceedings to which the Company or any of its
officers or directors have been a party or to which the property of the Company
has been subject over the last two years.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the security holders of the Company
during the fourth quarter of fiscal year 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock was listed on the OTC Bulletin Board
(OTCBB)under the symbol "AMDD" until August 1999. Since August 1999, the
Company's Common Stock has been listed only on the "pink sheets". The Company
was delisted from the OTCBB on August 2, 1999 as a result of a change in the
filing requirements for listing. Having received confirmation of its Form-10SB
to become a fully reporting company from the Securities and Exchange Commission,
the Company filed for re-listing on the OTCBB with the NASD, and was re-listed
effective March 23, 2000.
Set forth in the following table are high and low bid quotations for the
Company's Common Stock for each quarter during the 1998 and 1999 fiscal years.
Where necessary share prices have been adjusted to provide for both the one for
20 reverse split that was effected in October 1998 and the one for 10 reverse
split that was effected in March 1999 (i.e. they have been increased 200 times
to compare them to current prices). The Company considers its Common stock to be
thinly traded and that any reported bid or sale prices may not be a true
market-based valuation of the Common Stock. The quotations represent
inter-dealer quotations without retail markups, markdowns or commissions and may
not represent actual transactions.
<TABLE>
<CAPTION>
1998
Quarter Ended High Bid Low Bid
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<S> <C> <C>
March 31, 1998 $26.00 $16.00
June 30, 1998 $40.00 $22.00
September 30, 1998 $22.00 $18.00
December 31, 1998 $ 7.50 $ 2.50
1999
Quarter Ended High Bid Low Bid
------------- -------- -------
March 31, 1999 $ 7.50 $ 7.50
June 30, 1999 $ 7.50 $ 0.88
September 30, 1999 $ 3.81 $ 1.88
December 31, 1999 $ 2.00 $ 1.75
</TABLE>
As of March 20, 2000, there were approximately 800 record holders of the
Company's Common Stock.
The Company has not paid any cash dividends since its inception and does
not contemplate paying dividends in the foreseeable future. It is anticipated
that earnings, if any, will be retained for the operation of the Company's
business.
RECENT SALES OF UNREGISTERED SECURITIES. During the fiscal year ended
December 31, 1999, the Company sold unregistered shares of its Common Stock in
the following transactions:
A. Between February 26 and June 30, 1999, the Company conducted a
private placement of Common Stock. In the private placement, the Company sold an
aggregate of 1,350,002 shares of Common Stock for cash and cancellation of
indebtedness totaling approximately $1,000,000. The placement was conducted
pursuant to Rule 504 under the 1933 Act. The Company utilized finders in the
private placement and issued a total of 132,653 shares of Common Stock as
finder's fees. The finder's fee shares were issued pursuant to Section 4(2) of
the 1933 Act.
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B. In February 2000, the Company commenced a private placement of shares
of its Series A Preferred Stock at a price of $500 per share. As of March 20,
2000, the Company has sold a total of 300 shares of Series A Preferred Stock to
two investors for the gross proceeds of $150,000. The issuance was conducted
pursuant to Rule 506 under the 1933 Act. The Company utilized finders in the
private placement and paid 30 shares of Series A Preferred Stock to the finders
in the offering. There was no underwriter involved in this issuance.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 raising of working capital. For the fiscal year ended December 31, 1999,
the Company generated $82,713 in net sales of products. Historically, the
Company's income has come from the sale of licenses, royalties and options to
purchase marketing rights. The Company has incurred losses since inception,
including an operating loss of $1,180,888 for the fiscal year ended December 31,
1999. From July 10, 1987 (inception) through December 31, 1999 the Company has
had a cumulative loss of $13,520,833.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant funding for continued operations,
development of its test kits, clinical trials and other actions necessary to
obtain regulatory approvals and to engage in continued marketing and sales
activities. The amount of expenditures required to maintain operations and to
continue product development far exceeds existing cash, which was $75,867 at
December 31, 1999.
During 1999 the Company conducted a Regulation D, Rule 504 Offering
("Rule 504 Offering") of its Common Stock. As part of the Rule 504 Offering,
throughout the year the Company sold 1,350,002 shares of Common Stock (adjusted
for a stock split effected March 29, 1999) for cash consideration and
cancellation of indebtedness aggregating $825,093 (net of offering costs of
$174,907) all of which was received on or before October 12, 1999. . In
connection with this Rule 504 offering, the Company also issued an aggregate of
132,653 shares of Common Stock as payment of finders' fees.
In February 2000, the Company commenced an offering of shares of its
Series A Preferred Stock pursuant to Rule 506 under the 1933 Act. In its Rule
506 offering, the Company is offering up to $5,500,000 of its Series A Preferred
Stock at a price of $500 per share. As of the date of this report, the Company
has sold a total of 300 shares of Series A Preferred Stock and realized gross
proceeds of $150,000.
During most of 1999, the Company suspended production of products due to
lack of working capital. The Company resumed production of its products in late
1999.
In June 1999, the Board of Directors of the Company approved a debt
restructuring with certain holders of accrued salaries and other forms of
indebtedness. The Company entered into debt restructuring agreements with eight
current and former officers, directors and employees of the Company
(collectively referred to as the "Holders"). Pursuant to these agreements, the
Holders agreed to cancel accrued salaries and other forms of indebtedness
totaling $865,357 in exchange for cash consideration in the aggregate amount of
$84,412 and warrants to purchase an aggregate of 510,937 shares of Common Stock
at an exercise price of $.68 per share (estimated to be the fair market value
with a total value of $281,015). The Company recognized an extraordinary gain of
$499,930 as a result of this transaction. As of December 31, 1999, $14,069 of
the cash payments had not been made and were included in accrued expenses. The
amount was paid in full January 2000. The warrants may be exercised at any time
prior to July 1, 2004.
From December 31, 1998 to December 31, 1999, the Company's cash and cash
equivalents increased only by $1,301 as a result of suspended operations. As of
March 1, 2000, cash is being depleted at the rate of approximately $85,000 per
month. The Company is hopeful of obtaining some additional revenues from product
sales, but there is no commitment by any person or company for the purchase of
any of the Company's products. In
9
<PAGE> 11
the absence of significant sales and profits, the Company believes that its
present cash and cash equivalents balances are sufficient only for operations
through April 2000. The Company is seeking to raise additional funds to meet its
working capital needs principally through the sales of its securities. The
Company has just started a private placement of Series A Preferred Stock from
which it has received $135,000 of the $5.5 million offering. The Company
believes that it needs to raise at least $1,000,000 from its private placement
of Series A Preferred Stock in order to fund its operations over the next 12
months. In the event the Company is unable to raise $1,000,000 from the private
placement, the Company will be required to raise money from other sources, on
whatever terms are available at that time. 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 available on terms satisfactory to the
Company. The Company can make no prediction as to when, if ever, it will be able
to conduct its operations on a profitable basis.
Total outstanding indebtedness of the Company, including accounts
payable, was $480,963 at December 31, 1999. The Company is continuing its
efforts to expand its operations, including international market development for
the Company's products and obtaining the required regulatory approvals. There
can be no assurance, however, as to the success of these efforts, or, if
successful, what the cost or terms thereof will be. The report of the Company's
independent accountants for the fiscal year ended December 31, 1999 states that
due to recurring losses from operations, the absence of significant operating
revenues and the Company's limited capital resources, there is substantial doubt
about the Company's ability to continue as a going concern.
Although 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. The loss of the Company's key employees
could have a material adverse effect upon the operations of the Company. If such
financing is obtained, the Company may also seek to add employees to further its
efforts to commercialize its products.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
NET REVENUE. During the year ended December 31, 1999, the Company
received revenues of $82,713 from product sales compared to revenues from
product sales of $155,157 in the prior year period. The Company also realized
interest income of $15,739 compared to $32,078 of interest income for the
equivalent period in the prior year. The reason for the decrease in product
sales was the curtailment of operations during 1999. The decrease in interest
income was due to a reduction in available funds for investments.
RESEARCH AND DEVELOPMENT AND GENERAL AND ADMINISTRATIVE EXPENSES.
Research and development expenses for the year ended December 31, 1999 were
$307,688, a decrease of $379,157 as compared to the $686,845 reported for the
year ended December 31, 1998. Expense categories reflecting decreases during
1999 include the research and development expenses associated with the now
completed development of the DR-70 test, laboratory expense, and the research
and development portion of payroll, reflecting the Company's attempt to reduce
these costs. General and administrative expenses declined by $58,552 to $901,455
for the year ended December 31, 1999 as compared to the $960,007 reported for
the year ended December 31, 1998 due to curtailment of administrative and
product development activities as the Company focused its efforts on the raising
of working capital.
NET LOSS. In 1999, the Company's net loss was $671,725, compared to a
net loss of $1,554,405 in 1998, due to the reasons described above and the
$499,930 extraordinary gain (see above).
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements made by the Company involve
10
<PAGE> 12
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from the forward looking statements include, but
are not limited to, risks associated with lack of significant operating history,
demand for the Company's products, international business operations, dependence
on licensees, governmental regulations, technological changes, intense
competition, and dependence on management. Given these uncertainties, readers
are cautioned not to place undue reliance on such forward-looking statements.
The Company's management disclaims any obligation to forward-looking statements
contained herein to reflect any change in the Company's expectation with regard
thereto or any change in events, conditions, circumstances or assumptions
underlying such statements.
11
<PAGE> 13
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report...............................................................F-1
Balance Sheet as of December 31, 1999......................................................F-2
Statements of Operations for the years ended December 31, 1999
and 1998 and for the period from July 10, 1987 (date of inception)
through December 31, 1999................................................................F-3
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1999 and 1998 and for the period from July 10, 1987
(date of inception) through December 31, 1999...........................................F-4
Statements of Cash Flows for the years ended December 31, 1999 and
1998 and for the period from July 10, 1987 (date of inception)
through December 31, 1999...............................................................F-13
Notes to Financial Statements ............................................................F-15
</TABLE>
12
<PAGE> 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On July 6, 1999 Arthur Andersen LLP ("Arthur Andersen") and the Company
agreed that Arthur Andersen would no longer be retained as the Company's
independent accountants for the fiscal year ended December 31, 1998.
Accordingly, the client-independent accountant relationship was terminated as of
that date. Arthur Andersen's report on the Company's financial statements for
the years ended December 31, 1997 and 1996 did not contain any adverse opinion
or a disclaimer of opinion, or was not qualified, but contained an explanatory
paragraph as to the Company's ability to continue as a going concern. During the
Company's fiscal years ended December 31, 1997 and 1996 and subsequent interim
periods, there were no disagreements with Arthur Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
Arthur Andersen, would have caused Arthur Andersen to make a reference to the
subject matter of the disagreement(s) in connection with its reports.
On July 7, 1999 a new independent accounting firm, Corbin & Wertz,
Irvine, California, was engaged as the Company's independent accountants. During
the Company's fiscal years ended December 31, 1997 and 1996 and subsequent
interim periods, the Company did not consult Corbin & Wertz regarding (i) either
the application of accounting principles to a specified transaction or the type
of audit opinion that might be rendered on the Company's financial statements,
or (ii) any matter that was the subject of a disagreement or was a reportable
event.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The executive officers and directors of the Company the positions held by them
and their ages as of March 20, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William M. Thompson III, Ph.D. 72 Chairman of the Board of Directors
Gary L. Dreher 53 President, Chief Executive Officer, and Director
Douglas C. MacLellan 43 Director
Edward R. Arquilla, M.D., Ph.D. 77 Director
Vivian B. Frazier 39 Chief Financial Officer and Secretary
</TABLE>
Dr. Thompson has been a director of the Company since June 1989. From
1969 to the present, Dr. Thompson has been a practicing General Surgeon in
Orange County, California. From 1975 to the present, Dr. Thompson has also
served as Vice President for Medical Affairs and as a director of Beech Street
in Irvine, California.
Mr. Dreher joined the Company in January 1998 as Vice President of Sales
and Marketing. Mr. Dreher has served as President of the Company and as a member
of its board of directors since February 1999. From 1993 to 1997, Mr. Dreher
served as President of Medical Market International of Yorba Linda, California,
a marketing and management services company he co-founded. From 1991 to 1993,
Mr. Dreher served as Vice President of Sales and Marketing for Apotex Scientific
of Arlington, Texas, a division of Canada's largest pharmaceutical company. Mr.
Dreher also currently serves on the board of directors of Optimum Care
Corporation.
Mr. MacLellan has been a director of the Company since September 1992.
From May 1992 to the present, Mr. MacLellan has served as President and Chief
Executive Officer of The MacLellan Group, Inc., a privately held financial
advisory firm. Since May 1997, Mr. MacLellan has also served as a director and
co-founder of Datalex Corporation, a Canadian based millennium software solution
provider. From November 1996 to February 1998,
13
<PAGE> 15
Mr. MacLellan was a member of the Board of Directors and Investment Committee of
the Strategic East European Fund. From November 1995 to March 1998, Mr.
MacLellan was President, Chief Executive Officer and a director of PotraCom
Wireless, Inc., a publicly held Canadian company engaged in the business of
developing and operating cellular and wireless telecommunications ventures. From
1993 to 1995, Mr. MacLellan was a principal and co-founder of Maroon Bells
Capital Partners, Inc., a U.S. based merchant bank. Mr. MacLellan is also
currently a member of the Board of Directors of Albion Offset Group, a privately
held international trade advisory firm.
Dr. Arquilla has been a director of the Company since February 1997.
From 1959 until 1994, Dr. Arquilla was a full time faculty member in the
Department of Pathology at the University of Southern California, the University
of California at Los Angeles and the University of California, Irvine, ("UCI").
From 1968 to 1986, Dr. Arquilla also served as Professor and Chair of Pathology
at UCI and Chief of Pathology services at the UCI Medical Center.
Ms. Frazier joined the Company as its Chief Financial Officer in
June1999. From 1983 to 1988, Ms. Frazier was with the New York and Irvine
offices of Ernst & Whinney. From 1988 to 1993, she served as Controller for two
privately held national real estate developers. Except for a 15 month period
during 1995 and 1996 when Ms. Frazier returned to public accounting as a Senior
Manager for Ernst & Young LLP, for more than the last seven years she has been
an independent financial consultant for private clients. Ms. Frazier is a
certified public accountant, licensed in California and New York and received
her Bachelor of Science degree in accounting from New York University.
Each director holds office until his successor is elected and qualified
or until his earlier resignation in the manner provided in the Bylaws of the
Company. The Board of Directors has established a Compensation Committee
consisting of Dr. Thompson and Mr. MacLellan. The Compensation Committee reviews
and recommends to the Board of Directors the compensation and benefits of all
officers of the Company and reviews general policy matters relating to
compensation benefits of employees of the Company. The Board of Directors has
also established an Audit Committee consisting of Mr. MacLellan, Dr. Thompson
and Mr. Dreher. Mr. MacLellan serves as the Chairman of the Audit Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the officers and directors of the Company and those persons who
beneficially own more than 10% of the outstanding shares of common stock of the
Company to file reports of securities ownership and changes in such ownership
with the Securities and Exchange Commission ("the commission"). Officers,
directors and greater than 10% beneficial owners are also required by rules
promulgated by the Commission to furnish the Company with copies of all Section
16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that during 1999 all Section 16(a) filing requirements
applicable to the officers, directors and greater than 10% beneficial owners of
the Company were complied with.
ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
CASH COMPENSATION OF EXECUTIVE OFFICERS. The following table sets forth
the total compensation earned by the Chief Executive Officer and all other
executive officers who earned in excess of $100,000 per annum during any of the
Company's last three fiscal years ended December 31, 1999, 1998 and 1997.
14
<PAGE> 16
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------- ------------------------------------------
Restricted Common Shares
Other Stock Underlying
Annual Awards Granted Options Granted All Other
Name and Position Year Salary Bonus Compensation ($) (# Shares) Compensation
- ----------------- ---- ------ ------ ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary L. Dreher, 1999 $150,000(2) -0- 6,000(3) -0- 250,000 -0-
President and 1998 $100,000 -0- 11,791(3) -0- 1,250 -0-
CEO(1) 1997 N/A -0- -0- -0- -0- -0-
That T. Ngo, 1999 $ 37,000(6) -0- 138,710(7) -0- 100,000 -0-
President and 1998 $222,000(5) -0- -0- -0- -0- -0-
CEO(4) 1997 $222,000 -0- -0- -0- -0- -0-
</TABLE>
- -----------------
(1) Mr. Dreher served as Vice President of Sales and Marketing of the Company
from January 1998 to February 1999 with an annual salary of $100,000.
Effective February 26, 1999, Mr. Dreher became the President and Chief
Executive Officer of the Company with an annual salary of $160,000.
(2) At December 31, 1999, $40,000 of Mr. Dreher's salary had been accrued and
was owing to him. Effective January 1, 2000, Mr. Dreher's compensation was
also raised to $222,000 per annum.
(3) Represents commissions of $5,791 and a car allowance of $6,000 earned by
Mr. Dreher in 1998 and a car allowance of $6,000 earned in 1999. At
December 31, 1999, $2,179 of the commissions and $6,000 of the car
allowances were accrued and owing to Mr. Dreher.
(4) Dr. Ngo resigned from his positions as President and director of the
Company effective February 26, 1999.
(5) Although Dr. Ngo earned $222,000 in 1998, he was actually paid only
$180,500 in 1998. The remaining unpaid portion was eventually canceled in
July 1999 as part of the Company's debt restructuring. For a more complete
description of the Company's debt restructuring, see Item 12, "Certain
Relationships and Related Transactions".
(6) Although Dr. Ngo earned $37,000 in 1999, he was actually paid only $21,062
in 1999. The remaining unpaid portion was eventually canceled on July 1,
1999 as part of the Company's debt restructuring. For a more complete
description of the Company's debt restructuring, see Item 12, "Certain
Relationships and Related Transactions." Dr. Ngo was engaged as a
consultant to the Company on October 1, 1999.
(7) Represents $27,710 of vacation pay paid to Dr. Ngo in 1999 and $111,000 of
salary continuation per his employment agreement which was accrued and
eventually canceled in July 1999 as part of the Company's debt
restructuring. For a more complete description of the Company's debt
restructuring, see Item 12, "Certain Relationships and Related
Transactions".
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<PAGE> 17
Option /SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ------------------ ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Gary Dreher, 250,000 65%* 0.68 6/30/04
President and CEO
</TABLE>
- ---------------
* Exclusive of warrants issued on July 1, 1999 for debt restructuring
agreements with certain former employees and others.
Aggregated Options Exercised in Last Fiscal year and Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of Unexercised
Options/SARs at In-the-Money Option/SARs
FY-End(#) at FY-End($)
Acquired Value --------------- ------------------------
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexerciseable
- --------------- ----------- -------- --------------- ------------------------
<S> <C> <C> <C> <C>
Gary Dreher, 0 0 251,250/0 $267,500/$0(1)
President and CEO
</TABLE>
(1) Based on a price of $1.75 per share as quoted on the "pink sheets" on
December 31, 1999.
DIRECTOR COMPENSATION
Certain members of the Board of Directors receive cash compensation for
their services. Effective January 1, 1999, until further notice, payment to
Directors for their services was suspended. However, the total of $81,000
accrued through June 30, 1999 was canceled in July 1999 as part of the Company's
debt restructuring. For a more complete description of the Company's debt
restructuring, see Item 12,"Certain Relationships and Related Transactions".
Director fees have accrued at a rate of $6,000 per month since July, 1999.
EMPLOYMENT AGREEMENTS
In January 1998, the Company entered into a two year employment
agreement with Gary L. Dreher to serve as Vice President of Sales and Marketing.
That agreement terminated by its own terms when Mr. Dreher assumed the positions
of President and Chief Executive Officer of the Company in February 1999.
However, pursuant to that January 1998 employment agreement, Mr. Dreher received
options to purchase up to 1,250 shares of the Company's Common Stock at the
exercise price of $28.00 per share exercisable until December 2002. The options
vest in installments of 157 each at the end of each of the eight calendar
quarters after January 1, 1998. On November 23, 1999, the Company entered into a
new employment agreement with Mr. Dreher. The agreement, which has a term of
five years, provides for an annual base salary of $222,000 effective January 1,
2000. Among other provisions, the agreement also provides for an annual cash
bonus for the years 2000 through 2003 subject to meeting certain sales goals.
The annual bonus is to be computed as the difference between the average bid
price of the Company's common stock and $0.68 multiplied by 100,000, but not to
exceed 10% of net sales of the Company during the year in which the bonus was
earned. The average bid price for a given year is equal to the average of the
bid prices for the Common Stock on the 15th and 30th day of each month for the
months July through December for each bonus year.
16
<PAGE> 18
INDEMNIFICATION OF DIRECTORS
As permitted by Section 145 of the Delaware General Corporation Law, the
Company's certificate of incorporation includes a provision that eliminates the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duty as directors. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Company's bylaws
provide that it may, in its discretion, indemnify its directors, officers,
employees and agents and persons serving in these capacities in other business
enterprises at its request, to the fullest extent permitted by Delaware law. The
Company's bylaws also allow it to advance expenses, as incurred, to its
directors and officers in connection with defending a proceeding.
The Company's policy is to enter into indemnification agreements with
each of its directors and officers that provide the maximum indemnity allowed to
directors and officers by Section 145 of the Delaware General Corporation Law
and the bylaws as well as additional procedural protections.
The indemnification provisions in the bylaws and the indemnification
agreements the Company enters into with its directors and officers may be
sufficiently broad to permit indemnification of its directors and officers for
liabilities arising under the U.S. federal securities laws. However, the Company
is aware that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed under the U.S. federal
securities laws and is therefore unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock as of March 20, 2000 by (i)
each person who is known by the Company to be the beneficial owner of more than
five percent (5%) of the issued and outstanding shares of Common Stock, (ii)
each of the Company's directors and executive officers and (iii) all directors
and executive officers as a group. Except as otherwise indicated, each
stockholder listed below has sole voting power and investment power with respect
to the shares beneficially owned by such person.
<TABLE>
<CAPTION>
Number of Percentage
Name and Address(1) Shares Owned
- ------------------- ---------- ----------
<S> <C> <C>
William M. Thompson III, M.D. 203,807(2) 8.0%
Douglas C. MacLellan 69,083(3) 2.7%
Gary L. Dreher 551,350(4) 21.8%
Edward R. Arquilla, M.D., Ph.D. 57,633(5) 2.3%
Vivian B. Frazier --(6) --
All Directors and Officers
as a group (5 persons) 881,873 34.8%
</TABLE>
- ------------------
(1) Address is 2492 Walnut Avenue, Suite 100, Tustin, California, 92780.
(2) Includes 188,283 shares of Common Stock issuable upon the exercise of
currently outstanding warrants and options at an exercise price of $.68 per
share and 15,000 shares of Common Stock issuable upon the exercise of
options at $1.75 per share.
(3) Includes 53,583 shares of Common Stock issuable upon the exercise of
currently outstanding warrants and options at an exercise price of $.68
per share and 15,000 shares of Common Stock issuable upon the exercise
of options at $1.75 per share.
(4) Includes 1,250 shares of Common Stock issuable upon the exercise of
currently outstanding options at an exercise price of $28.00 per share,
250,000 shares of Common Stock issuable upon the exercise of options at
$0.68 per share, and 300,000 shares of Common Stock issuable upon the
exercise of options at $1.75 per share.
17
<PAGE> 19
(5) Includes 42,333 shares of Common Stock issuable upon the exercise of
currently outstanding warrants and options at an exercise price of $.68 per
share and 15,000 shares of Common Stock issuable upon the exercise of
options at $1.75 per share.
(6) Does not include options to purchase up to 15,000 shares of Common Stock
issuable upon the exercise of outstanding options that are subject to
vesting.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CANCELLATION OF INDEBTEDNESS
In June 1999, the Board of Directors of the Company approved a debt
restructuring with certain holders of accrued salaries and other forms of
indebtedness. The Company entered into debt restructuring agreements with eight
current and former officers, directors and employees of the Company
(collectively referred to as the "Holders"). Pursuant to these agreements, the
Holders agreed to cancel accrued salaries and other forms of indebtedness
totaling $865,357 in exchange for cash consideration in the aggregate amount of
$84,412 and warrants to purchase an aggregate of 510,937 shares of Common Stock
at an exercise price of $.68 per share (estimated by the Company to be the fair
market value with a total value of $281,015). As of December 31, 1999, $14,069
of the cash payments had not been made and were included in accrued expenses.
The amount was paid in full January 2000. The Company recognized an
extraordinary gain of $499,430 as a result of this transaction. The warrants may
be exercised at any time commencing on July 1, 1999 and expiring on July 1,
2004.
LICENSING AGREEMENTS
In February 1995, the Company and AMDL Canada, Inc. ("AMDL Canada"), a
Canadian corporation and a wholly-owned subsidiary of Briana Bio-Tech, Inc.,
executed a joint venture agreement forming ICD, L.L.C. ("ICD"), to pursue
worldwide marketing (excluding Canada and the United States) of DR-70. During
1998, the Company entered into an agreement with AMDL Canada to dissolve the ICD
joint venture and assign their respective worldwide marketing rights, excluding
those to the United States and Canada, to JGT Management Services, Inc. ("JGT").
Pursuant to the agreement, the Company agreed to make eighteen monthly payments
of $750 to JGT commencing October 1998, in addition to a royalty fee equal to
2.5% of gross sales on a quarterly basis. The agreement expires in August 2008;
however, the Company may elect to pay a $25,000 buy-out fee after October 1,
2003.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Index to Exhibits
<TABLE>
Exhibit No.
- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(2)
3.3 Certificate of Amendment(3)
4.1 Specimen of Common Stock Certificate (12)
4.2 Certificate of Designations
10.1 Amendments to License Agreement between the Company and AMDL Canada,
Inc., dated September 20, 1989, June 16, 1990 and July 5, 1990(4)
10.2 Option for Marketing Rights between the Company and Biotech Marketing
Group, Inc., dated June 29, 1990, as amended November 20, 1990(4)
</TABLE>
18
<PAGE> 20
<TABLE>
<S> <C>
10.2(a) Second Amendment between the Company and Biotech Marketing Group,
Inc., dated February 4, 1991(2)
10.3 Agreement between the Company and AMDL Canada, Inc., dated January 21,
1992(2)
10.4 The Company's 1988 Incentive Stock Option Plan(4)
10.5 The Company's 1992 Stock Option Plan(2)
10.6 Research Agreement between the Company, The Alberta Cancer Board and
AMDL Canada, Inc., dated September 10, 1991(2)
10.7 Employment Agreement between the Company and Dr. Robert R. Guerrero,
dated September 1, 1991(2)
10.8 Employment Agreement between the Company and Dr. Donald E. Rounds,
dated September 1, 1991(2)
10.9 Restated Employment Agreement between the Company and Louis R. Dilts,
dated August 22, 1991(2)
10.10 Agreement for the Termination of Employment between the Company and
Dr. Richard Anderson, dated September 1, 1991(2)
10.11 Agreement for the Termination of Employment between the Company and
Thomas V. Tilton, dated September 1, 1991(2)
10.12 Contract for Performance of Services between the Company and Glen R.
Justice, M.D., dated May 15, 1991, as amended by letter dated May 26,
1992(2)
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(5)
10.14 Employment Agreement between the Company and Edward L. Stephen, D.V.M.
dated January 15, 1993(5)
10.15 Employment Agreement between the Company and William M. Thompson III,
M.D., dated February 22, 1993(5)
10.16 Employment Agreement between the Company and Harry Berk, dated March
10, 1993(5)
10.17 The Company's 1994 Stock Option Plan (6)
10.18 Independent Contract Agreement between the Company and Roger Lallone
doing business as Brookwood Biomed(6)
10.19 Assignment Agreement between Roger Lallone, doing business as
Brookwood Biomedical, and the Company dated December 22, 1993(6)
10.20 Employment Agreement between the Company and That T. Ngo, dated June
1, 1994(7)
10.21 Employment Agreement between the Company and Robert R. Guerrero, dated
September 1, 1994(7)
10.22 Employment Agreement between the Company and Harry R. Berk, dated
January 3, 1995(7)
10.23 Operating Agreement of ICD, L.L.C.(7)
10.24 Letter Agreement between the Company and Banana Bio-Tech, Inc. and
Canada, Inc., dated February 7, 1995(7)
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(7)
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C>
10.26 Nonstatutory Stock Option Agreement between the Company and Donald E.
Rounds, dated March 16, 1994(7)
10.27 The Company's Stock Bonus Plan(8)
10.28 Form of International Distribution Agreement of ICD, L.L.C.(8)
10.29 Employment Agreement between the Company and Harry Berk, dated January
1, 1996(8)
10.30 Form of Accrued Salary Payment Agreement between the Company and
Various Employees and Former Employees dated September 20, 1996(9)
10.31 Employment Agreement between the Company and That T. Ngo, dated
October 1, 1996(7)
10.32 Employment Agreement between the Company and Ronald J. Moore, dated
October 23, 1996(9)
10.33 Employment Agreement between the Company and Harry Berk, dated January
1, 1997(9)
10.34 Employment Agreement between the Company and Donald C. Swanson, dated
May 5, 1997(10)
10.35 Employment Agreement between the Company and Gary L. Dreher, dated
January 15, 1998(10)
10.36 Salary Continuation Agreement between the Company and That T. Ngo,
Ph.D., dated May 21, 1998(11)
10.37 Salary Continuation Agreement between the Company and Thomas V.
Tilton, dated May 21, 1998(11)
10.38 Salary Continuation Agreement between the Company and Harry Berk,
dated May 21, 1998(11)
10.39 Salary Continuation Agreement between the Company and Gary L. Dreher,
dated May 21, 1998(11)
10.40 Agreement between the Company and William M. Thompson, M.D., dated May
21, 1998(11)
10.41 Amendment No. 1 to Employment Agreement with That T. Ngo, Ph.D., dated
July 1, 1998 (11)
10.42 Agreement Relating to Salary deferral between the Company and Thomas
V. Tilton, dated July 1, 1998(11)
10.43 Agreement Relating to Salary deferral between the Company and Harry
Berk, dated July 1, 1998(11)
10.44 Securities Purchase Agreement between the Company and the Purchasers
listed on the Purchaser Signature Pages attached thereto, dated
February 17, 1999. (12)
10.45 The Company's 1999 Stock Option Plan. (12)
10.46 Agreement Regarding Cancellation of Indebtedness between the Company
and William M. Thompson, III, M.D., dated July 1, 1999. (12)
10.47 Agreement Regarding Cancellation of Indebtedness between the Company
and Harry Berk, dated July 1, 1999. (12)
10.48 Agreement Regarding Cancellation of Indebtedness between the Company
and Edward Arquilla, M.D., dated July 1, 1999. (12)
10.49 Agreement Regarding Cancellation of Indebtedness between the Company
and Thomas V. Tilton, dated July 1, 1999. (12)
10.50 Agreement Regarding Cancellation of Indebtedness between the Company
and Donald Rounds, dated July 1, 1999. (12)
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C>
10.51 Agreement Regarding Cancellation of Indebtedness between the Company
and That T. Ngo, Ph.D, dated July 1, 1999. (12)
10.52 Agreement Regarding Cancellation of Indebtedness between the Company
and Gary L. Dreher, dated July 1, 1999. (12)
10.53 Agreement Regarding Cancellation of Indebtedness between the Company
and Douglas C. MacLellan, dated July 1, 1999. (12)
10.54 Employment Agreement of Gary L. Dreher dated November 23, 1999.
10.55 Consulting Agreement with That T. Ngo dated October 1, 1999.
10.56 Securities Purchase Agreement between the Company and the Purchasers
listed on the Purchaser Signature Pages attached thereto dated
February 9, 2000.
21.1 Subsidiaries(9)
27.1 Financial Data Schedule
</TABLE>
- -----------------------------
(1) Incorporated by reference to the Company's Report on Form 10-K for the
year ended December 31, 1989.
(2) Incorporated by reference to the Company's Report on Form 10-K for the
year ended December 31, 1991.
(3) Incorporated by reference to the Company's Report on Form 10-QSB for the
period ended September 30, 1998.
(4) Incorporated by reference to the Company's Report on Form 10-K for the
year ended December 31, 1990.
(5) Incorporated by reference to the Company's Report on Form 10-K for the
year ended December 31, 1992.
(6) Incorporated by reference to the Company's Report on Form 10-KSB for the
year ended December 31, 1993.
(7) Incorporated by reference to the Company's Report on Form 10-KSB for the
year ended December 31, 1994.
(8) Incorporated by reference to the Company's Report on Form 10-KSB for the
year ended December 31, 1995.
(9) Incorporated by reference to the Company's Report on Form 10-KSB for the
year ended December 31, 1996.
(10) Incorporated by reference to the Company's Report on Form 10-KSB for the
year ended December 31, 1997.
(11) Incorporated by reference to the Company's Report on Form 10-QSB for the
period ended June 30, 1998.
(12) Incorporated by reference to the Company's Registration Statement on Form
10-SB dated October 15, 1999.
(b) Reports on Form 8-K
There were no reports on Form 8-K
21
<PAGE> 23
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report...............................................................F-1
Balance Sheet as of December 31, 1999......................................................F-2
Statements of Operations for the years ended December 31, 1999
and 1998 and for the period from July 10, 1987 (date of
inception) through December 31, 1999.....................................................F-3
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1999 and 1998 and for the period from July 10, 1987
(date of inception) through December 31, 1999...........................................F-4
Statements of Cash Flows for the years ended December 31, 1999
and 1998 and for the period from July 10, 1987 (date of inception)
through December 31, 1999...............................................................F-13
Notes to Financial Statements ............................................................F-15
</TABLE>
22
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
AMDL, Inc.
We have audited the accompanying balance sheet of AMDL, Inc. (the "Company") as
of December 31, 1999, and the related statements of operations, stockholders'
equity (deficit) and cash flows for each of the years in the two-year period
ended December 31, 1999 and for the period from July 10, 1987 (date of
inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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,
1999, and the results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 1999 and for the period from July 10,
1987 (date of inception) to December 31, 1999 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
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.
CORBIN & WERTZ
Irvine, California
February 29, 2000
F-1
<PAGE> 25
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 75,867
Accounts receivable, net of allowance for
doubtful accounts of $4,000 15,401
Prepaid expenses 5,757
Other current assets 3,250
------------
Total current assets 100,275
Other assets 5,758
------------
$ 106,033
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 25,000
Accounts payable and accrued expenses 325,845
Accrued payroll and related expenses 124,318
Customer deposit 5,800
------------
Total current liabilities 480,963
------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, 10,000,000 shares authorized; no
shares issued or outstanding --
Common stock, $.001 par value; 50,000,000 shares
authorized; 1,651,124 shares issued and outstanding 1,651
Additional paid-in capital 13,144,252
Deficit accumulated during development stage (13,520,833)
------------
Total stockholders' deficit (374,930)
------------
$ 106,033
============
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-2
<PAGE> 26
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
July 10, 1987
(Date of
Years Ended Inception)
------------------------------ Through
December 31, December 31, December 31,
1999 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenues $ 82,713 $ 155,157 $ 280,306
Cost of sales 54,458 124,857 202,354
----------- ------------ ------------
Gross profit 28,255 30,300 77,952
----------- ------------ ------------
Operating expenses:
Research and development 307,688 686,845 6,888,171
General and administrative 901,455 960,007 8,582,160
----------- ------------ ------------
1,209,143 1,646,852 15,470,331
----------- ------------ ------------
Loss from operations (1,180,888) (1,616,552) (15,392,379)
----------- ------------ ------------
Other income (expense):
Interest expense (6,506) (27,331) (594,853)
Interest income 15,739 32,078 257,533
Other -- 57,400 1,708,936
----------- ------------ ------------
9,233 62,147 1,371,616
----------- ------------ ------------
Net loss before extraordinary item (1,171,655) (1,554,405) (14,020,763)
----------- ------------ ------------
Extraordinary item:
Gain on forgiveness of debt 499,930 -- 499,930
----------- ------------ ------------
Net loss $ (671,725) $ (1,554,405) $(13,520,833)
=========== ============ ============
Basic and diluted loss available to common
shareholders per common share:
Net loss before extraordinary item $ (1.64) (9.21)
Extraordinary item $ 0.70 --
----------- ------------
$ (0.94) (9.21)
=========== ============
Weighted average common shares outstanding 713,831 168,775
=========== ============
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-3
<PAGE> 27
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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>
Balance, July 10, 1987 (date of inception) -- $ -- -- $ -- $ -- $ -- $ --
Common stock issued 6 -- -- -- 1,275 -- 1,275
Net loss -- -- -- -- -- (37,323) (37,323)
------ ---- ---- ----- -------- --------- ---------
Balance, December 31, 1988 6 -- -- -- 1,275 (37,323) (36,048)
Restatement due to merger 44,326 44 -- -- 55,748 -- 55,792
Common stock issued 6,739 7 -- -- 56,335 -- 56,342
Net loss -- -- -- -- -- (241,479) (241,479)
------ ---- --- ----- -------- --------- ---------
Balance, December 31, 1989 51,071 51 -- -- $113,358 (278,802) (165,393)
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-4
<PAGE> 28
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 $96.73 2,255 2 -- -- 218,125 -- 218,127
Common stock issued at $50.00 to three
officers in lieu of salary 1,500 2 -- -- 74,998 -- 75,000
Common stock issued for services at $200.00 150 -- -- -- 30,000 -- 30,000
Common stock issued for services at $100.00 70 -- -- -- 7,000 -- 7,000
Common stock issued for cash at $50.00 1,150 1 -- -- 57,499 -- 57,500
Common stock issued at $8.00 to a member
of the board of directors 450 -- -- -- 3,600 -- 3,600
Common stock issued for cash at $8.00 75 -- -- -- 600 -- 600
Common stock issued for services at $50.00 2,500 3 -- -- 124,997 -- 125,000
Common stock issued for consulting
services at $200.00 250 -- -- -- 50,000 -- 50,000
Net loss -- -- -- -- -- (107,415) (107,415)
------ ---- ---- ---- ------- -------- --------
Balance, December 31, 1990 59,471 59 -- -- 680,177 (386,217) 294,019
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-5
<PAGE> 29
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 consulting services
at $24.00 250 -- -- -- 6,000 -- 6,000
Common stock issued at $50.00 for payment
of loan 50 -- -- -- 2,500 -- 2,500
Net loss -- -- -- -- -- (1,044,395) (1,044,395)
------ ---- ---- ---- --------- ---------- ----------
Balance, December 31, 1991 59,771 59 -- -- 688,677 (1,430,612) (741,876)
Common stock issued in exchange for notes
payable and accrued interest at $50.00 6,815 7 -- -- 340,749 -- 340,756
Exercise of warrants at $0.20 7 -- -- -- 1 -- 1
Exercise of warrants at $99.90 286 -- -- -- 28,570 -- 28,570
Common stock issued to related party pursuant
to private placement at $178.80 3,200 3 -- -- 572,157 -- 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 70,079 69 -- -- 2,460,439 (3,514,596) (1,054,088)
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-6
<PAGE> 30
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 to related party and
others pursuant to a private placement
at $178.80 7,391 7 -- -- 1,321,484 -- 1,321,491
Exercise of warrants at $178.57 56 -- -- -- 10,000 -- 10,000
Common stock issued in exchange for notes
payable and accrued interest at $178.76 1,216 1 -- -- 217,377 -- 217,378
Net loss -- -- -- -- -- (1,348,254) (1,348,254)
------ ---- ---- ---- --------- ---------- ----------
Balance, December 31, 1993 78,742 77 -- -- 4,009,300 (4,862,850) (853,473)
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-7
<PAGE> 31
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 to related party pursuant
to a private placement at $178.80 2,500 3 -- -- 446,997 -- 447,000
Exercise of warrants at $50.00 750 1 -- -- 37,499 -- 37,500
Common stock issued to creditors at $178.72 794 1 -- -- 141,901 -- 141,902
Exercise of options at $10.00 2,675 3 -- -- 26,747 -- 26,750
Exercise of options at $200.00 80 -- -- -- 16,000 -- 16,000
Common stock issued for note payable and
accrued interest at $176.64 1,730 2 -- -- 305,593 -- 305,595
Exercise of warrants at $200.00 200 -- -- -- 40,000 -- 40,000
Common stock issued to related party pursuant
to a private placement at $50.00 900 1 -- -- 44,999 -- 45,000
Net loss -- -- -- -- -- (1,604,589) (1,604,589)
------ ---- ---- ---- --------- ---------- ----------
Balance, December 31, 1994 88,371 88 -- -- 5,069,036 (6,467,439) (1,398,315)
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-8
<PAGE> 32
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 $50.00 5,000 5 -- -- 249,995 -- 250,000
Exercise of warrants at $90.00 2,500 2 -- -- 224,998 -- 225,000
Common stock issued for cash at $60.00 5,000 5 -- -- 299,995 -- 300,000
Exercise of warrants at $100.00 2,500 3 -- -- 249,997 -- 250,000
Exercise of warrants at $196.74 164 -- -- -- 32,266 -- 32,266
Exercise of options at $10.00 325 -- -- -- 3,250 -- 3,250
Common stock issued for cash at $150.38 665 1 -- -- 99,999 -- 100,000
Exercise of warrants at $50.00 50 -- -- -- 2,500 -- 2,500
Common stock issued for cash at $80.00 3,750 4 -- -- 299,996 -- 300,000
Common stock issued in exchange for convertible
notes payable and accrued interest at $50.00 2,716 3 -- -- 135,808 -- 135,811
Common stock subscribed at $120.00 -- -- 2,500 300,000 -- -- 300,000
Net loss -- -- -- -- -- (1,457,470) (1,457,470)
------- ---- ----- ------- --------- ---------- ----------
Balance, December 31, 1995 111,041 111 2,500 300,000 6,667,840 (7,924,909) (956,958)
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-9
<PAGE> 33
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 $70.00 22,500 23 -- -- 1,574,977 -- 1,575,000
Common stock issued for cash at $80.00 5,000 5 -- -- 399,995 -- 400,000
Common stock issued for cash at $95.00 20,000 20 -- -- 1,899,980 -- 1,900,000
Exercise of warrants at $124.00 5,625 5 -- -- 697,495 -- 697,500
Common stock issued for cash at $70.00 2,500 2 -- -- 174,998 -- 175,000
Exercise of warrants at $49.53 53 -- -- -- 2,625 -- 2,625
Exercise of warrants at $49.74 98 -- -- -- 4,875 -- 4,875
Common stock issued to various creditors
at $178.36 151 -- -- -- 26,933 -- 26,933
Common stock issued at $50.02 for converted
notes payable and accrued interest 682 1 -- -- 34,114 -- 34,115
Warrants issued for services -- -- -- -- 115,330 -- 115,330
Common stock subscribed at $120.00 -- -- (2,500) (300,000) 300,000 -- --
Net loss -- -- -- -- -- (1,622,380) (1,622,380)
------- ---- ------ -------- ---------- ---------- ----------
Balance, December 31, 1996 167,650 167 -- -- 11,899,162 (9,547,289) 2,352,040
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-10
<PAGE> 34
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 $50.00 500 1 -- -- 24,999 -- 25,000
Common stock issued for services at $34.0 500 1 -- -- 16,999 -- 17,000
Common stock issued as settlement with former
option holder 125 -- -- -- 2,125 -- 2,125
Net loss -- -- -- -- -- (1,747,414) (1,747,414)
------- ---- ---- ---- ---------- ----------- ----------
Balance, December 31, 1997 168,775 169 -- -- 11,943,285 (11,294,703) 648,751
Warrants issued for services -- -- -- -- 19,548 -- 19,548
Options issued for consulting services -- -- -- -- 5,294 -- 5,294
Net loss -- -- -- -- -- (1,554,405) (1,554,405)
------- ---- ---- ---- ---------- ----------- ----------
Balance, December 31, 1998 168,775 169 -- -- 11,968,127 (12,849,108) (880,812)
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-11
<PAGE> 35
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<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 $0.15,
net of offering costs of $15,155 100,000 100 -- -- 134,745 -- 134,845
Common stock issued for cash at $0.68,
net of offering costs of $159,752 1,382,655 1,382 -- -- 688,866 -- 690,248
Options issued for consulting services -- -- -- -- 71,499 -- 71,499
Warrants issued in debt/equity settlement -- -- -- -- 281,015 -- 281,015
Adjustment for fractional shares
in stock splits (306) -- -- -- -- -- --
Net loss -- -- -- -- -- (671,725) (671,725)
--------- ------ ---- ---- ----------- ------------ ---------
Balance, December 31, 1999 1,651,124 $1,651 -- $ -- $13,144,252 $(13,520,833) $(374,930)
========= ====== ==== ==== =========== ============ =========
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-12
<PAGE> 36
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
July 10, 1987
(Date of
Years Ended Inception)
----------------------------- Through
December 31, December 31, December 31,
1999 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(671,725) $(1,554,405) $(13,520,833)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization -- -- 497,743
Amortization of deferred interest -- -- 312,000
Common stock issued for services -- -- 312,541
Warrants and options issued for services 71,499 24,842 757,870
Equity loss in investment in SAM -- 7,500 7,500
Gain on forgiveness of debt (499,930) -- (499,930)
Changes in operating assets and liabilities:
Accounts receivable, net (4,802) (10,599) (15,401)
Prepaid expenses (5,757) -- (5,757)
Other current assets (3,250) -- (3,250)
Other assets 2,105 -- (5,758)
Accounts payable and accrued expenses 23,411 92,273 266,432
Accrued payroll and related expenses 262,322 52,685 989,676
Customer deposit 2,335 (28,770) 5,800
--------- ----------- ------------
Net cash used in operating activities (823,792) (1,416,474) (10,901,367)
--------- ----------- ------------
Cash flows from investing activities:
Purchase of equipment -- -- (225,930)
Expenditures for patents -- -- (154,682)
Investment in SAM -- (7,500) (7,500)
--------- ----------- ------------
Net cash used in investing activities -- (7,500) (388,112)
--------- ----------- ------------
</TABLE>
See independent auditors' report and accompanying
notes to financial statements.
F-13
<PAGE> 37
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
<TABLE>
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings (repayments) under notes payable, net -- -- 59,115
Repayments under capital lease obligation -- -- (116,676)
Proceeds from issuance of common stock,
net of offering costs of $174,907 825,093 -- 11,365,840
Net effect of merger with CVI -- -- 57,067
-------- ----------- ------------
Net cash provided by financing activities 825,093 -- 11,365,346
-------- ----------- ------------
Net change in cash and cash equivalents 1,301 (1,423,974) 75,867
Cash and cash equivalents at beginning of period 74,566 1,498,540 --
-------- ----------- ------------
Cash and cash equivalents at end of period $ 75,867 $ 74,566 $ 75,867
======== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ -- $ -- $ 561,016
======== =========== ============
Cash paid during the year for taxes $ 800 $ 800 $ 10,400
======== =========== ============
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
See related notes to financial statements for non-cash investing and
financing activities.
See independent auditors' report and accompanying
notes to financial statements.
F-14
<PAGE> 38
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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 and other types of cancer, and its
proprietary test kit (Pylori Probe) designed to detect antibodies to H pylori, a
bacterium associated with chronic gastritis and ulcers which, if left untreated,
may lead to stomach cancer. The Company has recently 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.
The Company and AMDL Canada, Inc. ("AMDL Canada"), a Canadian
corporation and a wholly-owned subsidiary of Briana Bio-Tech, Inc. (a
stockholder of the Company), executed a joint venture agreement forming ICD, LLC
("ICD"), to pursue worldwide marketing (excluding Canada and the United States)
of DR-70. The operations of ICD during fiscal year 1998 were insignificant and
are therefore not consolidated in the accompanying financial statements.
Effective September 11, 1998, AMDL Canada assigned its interest in ICD to JGT
Management Services, Inc. ("JGT"), an unrelated party. In July 1999 JGT and the
Company agreed to dissolve ICD and to assign all marketing rights of DR-70 back
to the Company (see Note 3).
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; and
- Raising additional funds through the sale of equity securities at
terms below market price quotations.
F-15
<PAGE> 39
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
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.
REVENUE RECOGNITION
Revenue is recognized upon shipment of products to customers.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.
INVESTMENT IN SINO-AMERICAN MEDICAL INC.
The board of directors authorized the Company to make a $7,500
investment in a newly-formed entity, Sino-American Medical, Inc. ("SAM"). This
investment was made in April 1998. One of the Company's employees has been
authorized by the board of directors to divide some of his employment time at
AMDL for SAM-related activities. Certain office and labor costs were charged to
SAM in 1998 and 1999 in the amounts of $11,651 and $14,549 respectively of
which, $11,700 is included in Accounts Receivable at December 31, 1999. At
September 30, 1998, the Company maintained a 17 percent ownership in SAM. Due to
the Company's significant presence at SAM, the investment has been accounted for
under the equity method. Among other provisions, the equity method requires the
Company to recognize unrealized gains/losses for their proportionate ownership
share of the net income/losses of SAM. Unrealized losses are limited to the
investment made by the Company in SAM. For the years ended December 31, 1999 and
1998, the Company's proportionate share of the loss in SAM was in excess of
$7,500. Accordingly, $7,500 was included in operating expenses on the statement
of operations for the year ended December 31, 1998.
F-16
<PAGE> 40
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EQUIPMENT
Equipment is stated at cost. Depreciation is computed using the
straight-line method over the useful life of 5 years. During the years ended
December 31, 1999 and 1998, the Company purchased an insignificant amount of
equipment. The Company elected to expense these purchases immediately.
Betterments, renewals, and extraordinary repairs that extend the lives
of the assets are capitalized; other repairs and maintenance charges are
expensed as incurred. The cost and related accumulated depreciation applicable
to assets retired are removed from the accounts, and the gain or loss on
disposition is recognized in current operations.
PATENTS
The Company has expended funds for patents that are in various stages of
the filing approval process. During 1999 and 1998, the Company expended
approximately $6,900 and $20,000, respectively, on patents. The Company elected
to expense these expenditures immediately due to their uncertain realizability.
IMPAIRMENT OF LONG-LIVED ASSETS
During 1995, the FASB issued Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of," which requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In accordance with
the provisions of SFAS 121, the Company regularly reviews long-lived assets and
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Based on
its analysis, the Company believes that no impairment of the carrying value of
its long-lived assets existed at December 31, 1999.
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, recent stock offering
prices and other factors in determining fair market value for purposes of
valuing the common stock.
COMMON STOCK - REVERSE STOCK SPLITS
In September 1998, the Company's board of directors approved a
one-for-twenty reverse stock split. Par value remained at $0.001 per share as a
result. In March, 1999 the Company's board of directors approved a one-for-ten
reverse stock split. All references throughout these financial statements to
number of shares, per share amounts, stock option data and market prices of the
Company's common stock have been restated to reflect both reverse stock splits.
F-17
<PAGE> 41
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 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.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 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 123 is optional and
the Company has elected to continue accounting for stock-based compensation
issued to employees using APB 25; however, pro forma disclosures, as if the
Company adopted the cost recognition requirements under SFAS 123, are required
to be presented (see Note 5).
BASIC AND DILUTED LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128 "Earnings Per Share" ("SFAS 128"). 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.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under
SFAS 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
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.
F-18
<PAGE> 42
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair
Value of Financial Instruments." SFAS 107 requires disclosure of fair value
information about financial instruments when it is practicable to estimate that
value. The carrying amount of the Company's cash, receivables, trade payables,
accrued expenses and note payable approximates their estimated fair values due
to the short-term maturities of those financial instruments.
RISKS AND UNCERTAINTIES
The Company is a research and development company subject to the
substantial business risks and uncertainties inherent to such an entity,
including the potential risk of business failure.
YEAR 2000
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The potential
effect of the Year 2000 issue on the Company and its business partners will not
be fully determinable until the Year 2000 and thereafter. If Year 2000
modifications are not properly completed either by the Company or entities with
which the Company conducts business, the Company's revenues and financial
condition could be adversely impacted.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial
statements in order to conform to classifications used in the current year.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The adoption of SFAS 130
has not materially impacted the Company's financial position or results of
operations as the Company has no items of comprehensive income.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company has adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues and its major customers. The adoption of SFAS 131 has not
materially impacted the Company's financial position or results of operations as
the Company currently operates in one segment.
F-19
<PAGE> 43
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company has adopted Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
at their fair value. This statement, as amended by SFAS 137, is effective for
financial statements for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The adoption of this SFAS 133 has not materially impacted the
Company's results of operations, financial position or cash flows as it
currently does not engage in any derivative or hedging activities.
START UP ACTIVITIES
The Company has adopted Statement of Position No. 98-5 ("SOP 98-5"),
"Reporting the Costs of Start-Up Activities." SOP 98-5 requires that all
non-governmental entities expense the costs of start-up activities, including
organization costs as those costs are incurred. The adoption of this standard
has not materially impacted the Company's results of operations, financial
position or cash flows
NOTE 2 - INCOME TAXES
The tax effects of temporary differences that give rise to deferred
taxes at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset:
Net operating loss carryforward $ 4,867,000
Expenses recognized for granting of options and warrants 120,000
-----------
Total gross deferred tax asset 4,987,000
Less valuation allowance (4,987,000)
-----------
Net deferred tax asset $ --
===========
</TABLE>
F-20
<PAGE> 44
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 2 - INCOME TAXES, CONTINUED
The valuation allowance increased by approximately $257,000 during the
year ended December 31, 1999. No current provision for income taxes for the
years ended December 31, 1999 and 1998 is required, except for minimum state
taxes, since the Company incurred taxable losses during such years.
The provision for income taxes for fiscal 1999 was $800 and differs from
the amount computed by applying the U.S. Federal income tax rate of 34% to loss
before income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computed tax benefit at federal statutory rate $(228,000) $(529,000)
State income tax benefit, net of federal effect (45,000) (104,000)
Increase in valuation allowance 257,000 632,000
Other 16,800 1,800
--------- ---------
$ 800 $ 800
========= =========
</TABLE>
As of December 31, 1999 the Company had net operating loss carryforwards
of approximately $13,320,000 and $5,081,000 for federal and state income tax
reporting purposes, which expire at various dates through 2013 and 2003,
respectively.
NOTE 3 - LICENSING AGREEMENTS
The Company has an agreement to make eighteen monthly payments of $750
to JGT commencing October 1998, in addition to a royalty fee equal to 2.5% of
gross sales on a quarterly basis. The agreement expires in August 2008; however,
the Company may elect to pay a $25,000 buy-out fee after October 1, 2003. During
1999 and 1998 the Company paid $6,000 and $2,250, respectively, in connection
with this agreement. As of December 31, 1999, the remaining balance of $5,250
was included in accrued expenses.
F-21
<PAGE> 45
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 4 - COMMITMENTS
OPERATING LEASE
The Company leases its laboratory and manufacturing space under a
non-cancelable operating lease agreement that expires on July 31, 2004 and
requires monthly lease payments of $5,757 increasing up to a maximum of $6,373
over the term of the lease. Future minimum commitments under this lease
agreement are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $ 70,188
2001 72,825
2002 75,242
2003 76,473
2004 44,609
--------
$339,337
========
</TABLE>
Rent expense was approximately $87,000 and $90,000 for the years ended
December 31, 1999 and 1998, respectively.
EMPLOYMENT AGREEMENT
On November 23, 1999, the Company entered into an employment agreement
with Gary L. Dreher, president and chief executive officer. The agreement, which
has a term of five years, provides for an annual base salary of $222,000
effective January 1, 2000. Among other provisions, the agreement also provides
for an annual cash bonus for the years 2000 through 2003 subject to meeting
certain sales goals. The annual bonus is to be computed as the difference
between the average bid price of the Company's common stock and $0.68 multiplied
by 100,000, but not to exceed 10% of net sales of the Company during the year in
which the bonus was earned. The average bid price for a given year is equal to
the average of the bid prices for the Common Stock on the 15th and 30th day of
each month for the months July through December for each bonus year.
CONSULTING AGREEMENTS
The Company has various agreements with consultants whereby the
consultants perform corporate development services of attracting investors.
Pursuant to the agreements, the Company will pay the consultants varying amounts
of cash, options and/or stock for services rendered when capital amounts are
raised. During 1999, the Company raised capital pursuant to two of these
agreements and paid $174,907 in cash and issued 132,653 shares of common stock
(See Note 7).
Effective October 1, 1999, the Company entered into a one year
consulting agreement with its former president to review and analyze new
technologies and supervise continued testing of existing products and such other
services related to diagnostic technology as the Board of Directors may request
for a monthly payment of not to exceed $4,800. As of December 31, 1999, $14,400
was recorded and paid on this contract.
F-22
<PAGE> 46
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 5 - STOCK-BASED COMPENSATION PLANS
The Company has previously 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
13,113 (adjusted for reverse stock splits in 1999 and 1998) 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, 1,900 options
(adjusted for reverse stock splits in 1999 and 1998) to purchase common stock
were outstanding under the Plan and the Company elected not to cancel these
options prior to their expiration dates through April 2002.
Effective June 30, 1999, the Company adopted the 1999 Stock Option Plan
(the "Plan"). Under the Plan, incentive stock options and nonqualified options
may be granted to officers and employees of the Company for the purchase of up
to 750,000 shares of the Company's common stock. The plan was amended subsequent
to December 31, 1999 (see Note 10). The exercise price per share under the
incentive stock option plan shall not be less than 100% of the fair market value
per share on the date of grant. The exercise price per share under the
non-qualified stock option plan shall not be less than 85% of the fair market
value per share on the date of grant. Expiration dates for the grants may not
exceed 10 years from the date of grant. The Plan terminates on June 30, 2009.
Under the terms of the Plan, the Company granted options to purchase 187,058
shares of the Company's common stock under incentive stock option agreements and
granted options to purchase 402,941 shares of the Company's common stock under
non-qualified stock option agreements. All options granted have an exercise
price equal to the fair market value at the date of vest on various dates
through June 30, 2002 and expire five years from the date of grant. Pursuant to
SFAS 123, total compensation expense to be recognized over the vesting period
for options issued to directors and consultants during 1999 will be $112,749, of
which $71,499 was recognized during the year ended December 31, 1999.
From time to time, the Company issues stock options pursuant to various
agreements and other compensatory arrangements. Under the terms of a consulting
agreement with an outside consultant, in 1998, the Company issued options to
purchase 250 shares of the Company's common stock at an exercise price equal to
the fair market value at the date the option was granted (estimated by the
Company to be $26 at January 1, 1998). The option vested on the date of grant
and is exercisable through December 31, 2001. Total consulting expense of $5,294
was recognized through December 31, 1998. There were no options issued for
services during the year ended December 31, 1999.
F-23
<PAGE> 47
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 5 - STOCK-BASED COMPENSATION PLANS, CONTINUED
The following is a status of the stock options outstanding at December
31, 1999 and 1998 and the changes during the years then ended:
<TABLE>
<CAPTION>
1999 1998
---------------------- ---------------------
WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE
------- -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 24,465 $ 156.48 23,250 $ 164.80
Granted 589,999 0.68 1,500 28.00
Expired/forfeited (12,500) (208.70) (285) (160.40)
------- -------- ------ --------
Outstanding,
end of year 601,964 $ 2.69 24,465 $ 156.48
======= ======== ====== ========
Exercisable at end
of year 436,964 $ 3.50 23,805 $ 159.90
======= ======== ====== ========
Wtd avg fair value
of options granted $ 0.55 $ 26.00
======== ========
</TABLE>
11,965 of the options outstanding at December 31, 1999 have exercise prices
between $26 and $132, with a weighted average exercise price of $102.24 and a
weighted average remaining contractual life of 1.96 years. All of these options
are exercisable. The remaining 589,999 options have an exercise price of $0.68
with a weighted average exercise price of $0.68 and a weighted average remaining
contractual life of 4.5 years. 424,999 of these options are exercisable.
The fair value of each option granted during 1999 and 1998 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 110 percent, (iii) weighted-average risk-free interest rate of
approximately 6.5 percent and 6.25 percent, respectively, and (iv) expected life
of 5 years.
Had compensation cost for the Company's 1999 and 1998 options been determined
consistent with SFAS No. 123, the Company's net loss and net loss per share for
the year ended December 31, 1999 and 1998 would approximate the pro forma
amounts below:
<TABLE>
<CAPTION>
1999 1998
--------------------------- -------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (671,725) $ (833,975) $ (1,554,405) $ (1,741,849)
========== ========== ============ ============
Basic and diluted loss
per share $ (0.94) $ (1.17) $ (9.21) $ (10.32)
========== ========== ============ ============
</TABLE>
F-24
<PAGE> 48
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
NOTE 6 - WARRANTS
From time to time, the Company issues warrants pursuant to various
consulting agreements and other compensatory arrangements. During 1999, the
Company issued 510,937 warrants in connection with the settlement of accrued
payroll and related expenses due to employees and former employees (See Note 9).
Total consulting expense of $19,548 was recognized at December 31, 1998 for
warrants issued.
The fair value of each warrant granted during 1999 and 1998 to
consultants and other service providers 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 110 percent, (iii)
weighted-average risk-free interest rate of approximately 6.5 percent and 6.25
percent, respectively, and (iv) expected life of 5 years.
The following represents a summary of the warrants outstanding for the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------- --------------------
WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE
------- ---------- ------ --------
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 1,750 $ 92.57 9,445 $ 167.20
Granted 510,937 0.68 750 32.00
Expired/forfeited (1,000) (150.00) (8,445) (158.60)
------- -------- ------ --------
Outstanding, end of year 511,687 $ 0.70 1,750 $ 92.57
======= ======== ====== ========
Wgt avg fair value
of warrants granted $ 0.55 $ 26.00
======== ========
</TABLE>
750 of the warrants outstanding at December 31, 1999 have an exercise
price of $32 and a weighted average remaining contractual life of 1.42 years.
The remaining 510,937 warrants have an exercise price of $0.68 and a weighted
average remaining contractual life of 4.5 years. All the warrants are
exercisable at December 31, 1999.
The outstanding warrants at December 31, 1999 are held by consultants
and other service providers, shareholders, and current and former note holders.
NOTE 7 - EQUITY
During the year ended December 31, 1999, the Company conducted a
Regulation D, Rule 504 Offering ("Rule 504 Offering") of the common stock. As
part of the Rule 504 Offering, the Company issued 1,482,655 shares of common
stock (including 132,653 shares issued to consultants for offering costs) for
aggregate cash consideration of $825,093 (net of issuance costs of $174,907).
The Company is authorized to issue 10,000,000 shares of preferred stock,
of which the Board has designated 11,000 shares as Series A Convertible
Preferred Stock ("Preferred Stock"). On October 22, 1999 the board of directors
approved a private placement of the 11,000 shares of Series A Convertible
Preferred Stock at a price of $500 per share. Each share of the Preferred Stock
is convertible at the option of the shareholder into 250
F-25
<PAGE> 49
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
shares of common stock and all shares of preferred stock shall automatically
convert at such time as the common stock is listed for trading on the Nasdaq
Small Cap Market or Nasdaq National Market System and a registration statement
covering the underlying common stock has been declared effective by the SEC. The
Preferred Stock will pay a dividend of 20 shares of common stock twice per year.
These shares of common stock will be considered "restricted securities". The
Preferred Stock is redeemable at the option of the Company at any time upon
thirty days written notice at a redemption price of 110% of the Liquidation
Preference plus all accrued and unpaid dividends. The Liquidation Preference of
the Preferred Stock is $500 per share. As of December 31, 1999, no shares of
preferred stock had been sold or issued (see Note 10).
NOTE 8 - EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Numerator for basic and diluted earnings per share:
Net loss before extraordinary item charged to
common shareholders $(1,171,655) $(1,554,405)
Extraordinary item $ 499,930 $
----------- -----------
Net loss $ (671,725) $(1,554,405)
=========== ===========
Denominator for basic and diluted earnings per share:
Weighted average shares 713,831 168,775
----------- -----------
Basic and diluted loss per share:
Net loss before extraordinary item $ (1.64) $ (9.21)
Extraordinary item 0.70 --
----------- -----------
Net loss $ (0.94) $ (9.21)
=========== ===========
</TABLE>
NOTE 9 - DEBT/EQUITY SETTLEMENT
Effective July 1 1999, the Company entered into various mutual release
agreements with eight individuals (which consisted of officers, employees and
former employees) whereby deferred salaries and other related liabilities in the
amount of $865,357 were exchanged for cash payments of $84,412 and warrants to
purchase 510,937 shares of the Company's common stock at the fair market value
on the date of grant (estimated by the Company to be $.68 per share) totaling
$281,015 under SFAS 123 (see Note 6). The Company recognized an extraordinary
gain of $499,930 as a result of this transaction. As of December 31, 1999,
$14,069 of the cash payments had not been made and were included in accrued
expenses. The amount was paid in full in January, 2000.
NOTE 10 - SUBSEQUENT EVENTS
On January 17, 2000, the board of directors amended the 1999 Stock
Option Plan to increase the authorized number of shares of common stock from
750,000 to 1,000,000. The Company also granted 300,000
F-26
<PAGE> 50
AMDL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
FOR THE PERIOD FROM JULY 10, 1987 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
non-qualified stock options to the President and CEO of the Company and 45,000
non qualified stock options to various members of the board of directors with an
exercise price of $1.75 per share (equal to the market price on that date). The
options vested immediately and expire on January 17, 2005. Total SFAS 123
compensation expense to be recognized in 2000 on options granted to board
members is $63,900.
On February 25, 2000, 300 shares of the Series A Preferred Stock were
issued for cash consideration of $135,000 (net of issuance cost of $15,000). An
additional 30 shares of Series A Preferred Stock were issued to consultants for
finders fees.
F-27
<PAGE> 51
\
SIGNATURES
In accordance Section 13(a) or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMDL, INC.
By: /s/ Gary L. Dreher
--------------------------------------
Gary L. Dreher
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Gary L. Dreher President and Chief Executive Officer March 27, 2000
- ------------------------------------ and Director (principal executive
Gary L. Dreher officer)
/s/ Vivian B. Frazier Chief Financial Officer (principal March 27, 2000
- ------------------------------------ financial and accounting officer)
Vivian R. Frazier
/s/ William M. Thompson III, M.D. Chairman of the Board March 27, 2000
- ------------------------------------
William M. Thompson III, M.D.
/s/ Edward R. Arquilla, M.D. Director March 27, 2000
- ------------------------------------
Edward R. Arquilla, M.D.
/s/ Douglas C. MacLellan Director March 27, 2000
- ------------------------------------
Douglas C. MacLellan
</TABLE>
<PAGE> 1
EXHIBIT NO. 4.2
CERTIFICATE OF DESIGNATIONS
OF
AMDL, INC.
A DELAWARE CORPORATION
The undersigned, Gary Dreher and Vivian Frazier, hereby certify that:
1. They are the duly elected and acting President and Secretary of AMDL,
Inc., a Delaware corporation (the "Corporation").
2. The Corporation, in its Certificate of Incorporation, has authorized
10,000,000 shares of preferred stock. By resolution, the Board of Directors of
the Corporation has designated 11,000 shares of preferred stock authorized by
the Certificate of Incorporation as "Series A Preferred Stock." No shares of
Preferred Stock have been issued.
3. Pursuant to authority given by the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation has duly adopted the
following recital and resolution:
WHEREAS, Article IV of the Certificate of Incorporation of the
Corporation authorizes this Corporation to issue 10,000,000 shares of preferred
stock, $.001 par value per share, issuable from time to time in one or more
series (the "Preferred Stock").
RESOLVED, the Board of Directors hereby determines that it is in the
best interests of this Corporation to designate 11,000 shares of the Preferred
Stock as "Series A" upon the following terms and conditions:
Section 1. Designation. The initial series of Preferred Stock shall be
designated and known as "Series A Preferred Stock." The number of authorized
shares constituting such series shall be 11,000. The Series A Preferred Stock
shall have a par value of $.001 per share.
Section 2. Definitions. For the purposes of this Certificate of
Designations, the following terms shall have the meanings indicated:
"Common Stock" shall mean the Corporation's $.001 par value common
stock.
"Conversion Price" has the meaning assigned to such term in Section
7(a).
"Initial Conversion Price" shall mean $2.00 per share of Series A
Preferred Stock.
"Junior Stock" shall mean any capital stock of the Corporation,
including without limitation the Common Stock, ranking junior to the Series A
Preferred Stock with respect to dividends, distribution in liquidation or any
other preferences, rights and powers.
"Liquidation Preference" shall mean $500 per share of Series A
Preferred Stock.
"Parity Stock" shall mean any capital stock of the Corporation
ranking on a parity with the Series A Preferred Stock with respect to dividends,
distributions in liquidation and all other preferences, rights or powers.
<PAGE> 2
"Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Public Offering" shall mean any offering of the Common Stock to the
public pursuant to an effective registration statement under the Securities Act
of 1933, as then in effect, or any comparable statement under any similar
federal statute then in force, in which the aggregate gross proceeds shall be at
least $10,000,000.
"Registration Statement" shall mean a registration statement under
the Securities Act of 1933, as then in effect, or any comparable statement under
any similar federal statute then in force.
"Senior Stock" shall mean any capital stock of the Corporation
ranking senior to the Series A Preferred Stock with respect to dividends,
distribution in liquidation or any other preference, right or power.
Section 3. Ranking. The Series A Preferred Stock shall, with respect to
rights on liquidation, dissolution or winding up, rank senior to all other
equity securities of the Corporation, including the Common Stock and any other
series or class of the Corporation's preferred or common stock, now or hereafter
authorized.
Section 4. Dividends. The holders of shares of Series A Preferred Stock
shall be entitled to receive dividends at the rate of eight percent (8%) per
annum of the Liquidation Preference per share, payable semi-annually
("Dividends"). The Dividends shall commence to accrue on the date of purchase of
such shares of Series A Preferred Stock and shall be payable commencing July 15,
2000 and on January 15 and July 15 of each year thereafter (each a "Dividend
Date"), to holders of record on December 31 and June 30 of each year,
respectively. The Dividends shall be payable in shares of Common Stock at the
rate of one share of Common Stock for the equivalent dollar amount of the
Conversion Price in effect on the applicable Dividend Date. No fractional shares
of Common Stock will be issued in connection with the payment of Dividends. In
lieu of fractional shares of Common Stock, the Corporation shall issue one (1)
additional share of Common Stock to each holder of Series A Preferred Stock
entitled to the portion of the Dividend equal to a fraction of a share of common
stock. The Corporation shall declare and pay the Dividend on a current basis.
Section 5. Voting Rights.
(a) The holder of each share of Series A Preferred Stock shall have
the right to one vote for each share of Common Stock into which such holder's
shares of Series A Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and the holders of
Series A Preferred Stock shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Corporation and shall be entitled
to vote thereon together with the holders of shares of Common Stock.
(b) Unless the consent or approval of a greater number of shares
shall then be required by law, the affirmative vote of the holders of more than
50% of the outstanding shares of the Series A Preferred Stock shall be necessary
to (i) authorize, increase the authorized number of shares of or issue
(including on conversion or exchange of any convertible or exchangeable
securities or by reclassification) any shares of any class or classes of Senior
Stock or Parity Stock or any additional shares of Series A Preferred Stock, (ii)
authorize, adopt or approve any amendment to the Articles of Incorporation, the
Bylaws or this Certificate of Designations that would increase or decrease the
par value of the shares of the Series A Preferred Stock, alter or change the
powers, preferences or rights of the shares of Series A Preferred Stock or alter
or change the powers, preferences or rights of any other capital stock of the
Corporation if after such alteration or change such capital stock would be
Senior Stock or Parity Stock, (iii) amend, alter or repeal the Articles of
Incorporation or this Certificate of Designations so as to affect the shares of
Series A Preferred Stock adversely, including, without limitation, by granting
any voting right to any holder of notes, bonds, debentures or other debt
obligations of the Corporation, or (iv) authorize or issue any security
convertible into, exchangeable for or evidencing the right to purchase or
otherwise receive any shares of any class or classes of Senior Stock or Parity
Stock.
-2-
<PAGE> 3
Section 6. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, before any distribution or payment
to holders of Junior Stock may be made, the holder of each share of Series A
Preferred Stock shall be entitled to be paid an amount equal to the Liquidation
Preference of such share, plus all accrued or declared but unpaid dividends on
such shares of Series A Preferred Stock pro rated for the number of days from
the last Dividend Date to the date of declaration by the Board of Directors of
the winding up of the Corporation.
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to the
holders of Series A Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of the
Series A Preferred Stock shall be distributed among and paid to such holders
ratably in proportion to the amounts that would be payable to such holders if
such assets were sufficient to permit payment in full. The consolidation or
merger of the Corporation into or with another corporation or corporations and
the sale of all or substantially all of the assets of the Corporation to another
corporation or any other entity shall be deemed a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 6.
Section 7. Conversion of Preferred Stock into Common Stock.
(a) Right to Convert. The outstanding shares of Series A Preferred
Stock shall be convertible, at any time at the option of the holders thereof,
subject to the restrictions set forth in Section 7(c), into fully paid and
nonassessable shares of Common Stock at the Initial Conversion Price, subject to
adjustment as set forth in this Section 7 (the "Conversion Price").
(b) Number of shares of Common Stock Issuable upon Conversion. The
number of shares of Common Stock to be issued upon conversion of shares of
Series A Preferred Stock shall be equal to the product of (X) and (Y), where (X)
is a fraction, the numerator of which is the Liquidation Preference and the
denominator of which is the applicable Conversion Price and (Y) is the number of
shares of Series A Preferred Stock to be converted.
(c) Automatic Conversion. The outstanding shares of Series A
Preferred Stock shall be automatically converted into shares of Common Stock at
the Conversion Price at such time as (i) the Common Stock is listed for trading
on the Nasdaq Small Cap Market or Nasdaq National Market System and (ii) a
Registration Statement covering the Common Stock issuable upon conversion of the
Series A Preferred Stock has been declared effective by the Securities and
Exchange Commission ("SEC").
(d) Restrictions on Conversion. Notwithstanding the provisions of
Section 7(a) above, in the event of a Public Offering, shares of Series A
Preferred Stock may not be converted into shares of Common Stock during the
period of time commencing on the date the Corporation files a Registration
Statement with the SEC covering the Common Stock until the date which is the
earlier of (i) 270 days following the filing of the Registration Statement with
the SEC, or (ii) 180 days following the closing of the Public Offering.
(e) Antidilution Adjustments. The Conversion Price of the Series A
Preferred Stock shall be adjusted from time to time in certain cases as follows:
(i) Dividend, Subdivision, Combination or Reclassification of
Common Stock. If the Corporation shall, at any time or from time to time, (A)
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (B) subdivide the outstanding Common Stock, (C)
combine the outstanding Common Stock into a smaller number of shares, or (D)
issue any shares of its capital stock in a reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation), then in each
such case, the Initial Conversion Price or the Conversion Price in effect at the
time of the record date for such dividend or at the effective date of such
-3-
<PAGE> 4
subdivision, combination or reclassification shall be adjusted to that price
which will permit the number of shares of Common Stock into which the Series A
Preferred Stock may be converted to be increased or reduced in the same
proportion as the number of shares of Common Stock are increased or reduced in
connection with such dividend, subdivision, combination or reclassification. Any
such adjustment shall become effective immediately after the record date of such
dividend or the effective date of such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur. In the event, if a dividend is declared, such dividend
is not paid, the Conversion Price shall be adjusted to the Conversion Price in
effect immediately prior to the record date of such dividend.
(ii) De Minimis Adjustments. No adjustment of the Conversion
Price shall be made if the amount of such adjustment would result in a change in
the Conversion Price per share of less than $.05 but in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment,
which together with any adjustment so carried forward, would result in a change
in the Conversion Price in excess of $.05 per share. All calculations under this
Section 7(e) shall be made to the nearest cent, or the nearest 1/100th of a
share, as the case may be. If the Corporation shall, at any time or from time to
time, issue Common Stock by way of dividends on any stock of the Corporation or
subdivide or combine the outstanding shares of the Common Stock, such amount of
$.05 (as theretofore increased or decreased, if such amount shall have been
adjusted in accordance with the provisions of this clause) shall forthwith be
proportionately increased in the case of a combination or decreased in the case
of a subdivision or stock dividend so as appropriately to reflect the same.
Notwithstanding the provisions of the first sentence of this Section 7(e)(iii),
any adjustment postponed pursuant to this Section 7(e)(ii) shall be made no
later than the earlier of (a) two years from the date of the transaction that
would, but for the provisions of the first sentence of this Section 7(e)(ii),
have required such adjustment and (b) the date of any redemption or conversion
of the shares of Series A Preferred Stock.
(iii) Fractional Shares. Notwithstanding any other provision of
this Certificate of Designations, the Corporation shall not be required to issue
fractions of shares upon conversion of any shares of Series A Preferred Stock or
to distribute certificates which evidence fractional shares. In lieu of
fractional shares of Common Stock, the Corporation shall pay therefore, at the
time of any conversion of shares of Series A Preferred Stock as herein provided,
an amount in cash equal to such fraction multiplied by the Conversion Price then
in effect.
(f) Reorganization and Reclassification Adjustment. If there occurs
any capital reorganization or any reclassification of the Common Stock of the
Corporation, then each share of Series A Preferred Stock shall thereafter be
convertible into the same kind and amounts of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to the
holders of outstanding Common Stock of the Corporation upon such reorganization
or reclassification in respect of that number of shares of Common Stock into
which such shares of Series A Preferred Stock might have been converted
immediately prior to such reorganization or reclassification; and, in any such
case, appropriate adjustments (as determined in good faith by the Board of
Directors of the Corporation) shall be made to assure that the provisions set
forth herein (including provisions with respect to changes in, and other
adjustments of, the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be practicable, in relation to any securities or other assets
thereafter deliverable upon the conversion of the Series A Preferred Stock.
(g) Mechanics of Conversion. The option to convert shall be exercised
by surrendering for such purpose to the Corporation, certificates representing
the shares to be converted, duly endorsed in blank or accompanied by proper
instruments of transfer, and at the time of such surrender, the Person in whose
name any certificate for shares of Common Stock shall be issuable upon such
conversion shall be deemed to be the holder of record of such shares of Common
Stock on such date, notwithstanding that the share register of the Corporation
shall then be closed or that the certificates representing such Common Stock
shall not then be actually delivered to such person.
(h) Certificate as to Adjustments. Whenever the Conversion Price or
the securities or other property deliverable upon the conversion of the Series A
Preferred Stock shall be adjusted pursuant to the provisions hereof, the
Corporation shall promptly give written notice thereof to each holder of shares
of Series A
-4-
<PAGE> 5
Preferred Stock at such holder's address as it appears on the transfer books of
the Corporation and shall forthwith file, at its principal executive office and
with any transfer agent or agents for the shares of Series A Preferred Stock and
the Common Stock, a certificate, signed by the Chairman of the Board, Chief
Executive Officer or one of the Vice Presidents of the Corporation, and by its
Chief Financial Officer, its Treasurer or one of its Assistant Treasurers,
stating the adjusted Conversion Price and the securities or other property
deliverable per share of Series A Preferred Stock calculated to the nearest cent
or to the nearest one one-hundredth of a share and setting forth in reasonable
detail the method of calculation and the facts requiring such adjustment and
upon which such calculation is based. Each adjustment shall remain in effect
until a subsequent adjustment hereunder is required.
(i) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available for issuance upon the conversion of the shares of
Series A Preferred Stock, the maximum number of its authorized but unissued
shares of Common Stock as is reasonably anticipated to be sufficient to permit
the conversion of all outstanding shares of Series A Preferred Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if at any time there shall be insufficient authorized but unissued shares
of Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Series A Preferred Stock.
(j) No Conversion Charge or Tax. The issuance and delivery of
certificates for shares of Common Stock upon the conversion of shares of Series
A Preferred Stock shall be made without charge to the holder of shares of Series
A Preferred Stock for any issue or transfer tax, or other incidental expense in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Corporation.
Section 8. No Redemption of Series A Preferred Stock. The Corporation
shall not have the right to redeem the Series A Preferred Stock.
Section 9. Notice of Certain Events. In case the Corporation shall
propose at any time or from time to time (A) to declare or pay any dividend
payable in stock of any class to the holders of Common Stock or to make any
other distribution to the holders of Common Stock, (B) to offer to the holders
of Common Stock rights or warrants to subscribe for or to purchase any
additional shares of Common Stock or shares of stock of any class or any other
securities, rights or options, (C) to effect any reclassification of its Common
Stock, (D) to effect any consolidation, merger or sale, transfer or other
disposition of all or substantially all of the property, assets or business of
the Corporation which would, if consummated result in the mandatory conversion
of shares of Series A Preferred Stock, or (E) to effect the liquidation,
dissolution or winding up of the Corporation, then, in each such case, the
Corporation shall mail to each holder of shares of Series A Preferred Stock via
first class mail at such holder's address as it appears on the transfer books of
the Corporation, a written notice of such proposed action, which shall specify
(1) the date on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants or, if a record is not to be taken, the date
as of which the holders of shares of Common Stock of record to be entitled to
such dividend, distribution or rights are to be determined, or (2) the date on
which such reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up is expected to become effective, and such
notice shall be so given as promptly as possible but in any event at least ten
(10) business days prior to the applicable record, determination or effective
date, specified in such notice.
Section 10. Certain Remedies. Any registered holder of shares of Series
A Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Certificate of Designations and to enforce
specifically the terms and provisions of this Certificate of Designations in any
court of the United States or any state thereof having jurisdiction, this being
in addition to any other remedy to which such holder may be entitled at law or
in equity.
Section 11. Method of Election. For purposes of this Certificate of
Designations, any election required or allowed to be made by the majority of the
holders of Series A Preferred Stock shall be effective upon receipt by the
Corporation of the written consent of a majority of such holders.
-5-
<PAGE> 6
Section 12. Status of Reacquired Shares. Shares of Series A Preferred
Stock which have been issued and converted shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the status of
authorized and unissued shares of Preferred Stock issuable in series
undesignated as to series and may be redesignated and reissued.
The undersigned President and Secretary of AMDL, Inc. hereby declare and
certify under penalty of perjury that the foregoing Certificate is the act and
deed of the Corporation and that the facts herein stated are true.
Executed at Tustin, California on December ___, 1999.
________________________________________
GARY L. DREHER President
________________________________________
VIVIAN FRAZIER, Secretary
-6-
<PAGE> 1
EXHIBIT NO. 10.54
AMDL, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made this 23rd day of
November, 1999 by and between AMDL, INC., a Delaware corporation (the "Company")
and Gary L. Dreher, (the "Employee").
RECITALS
A. The Company desires to employ the Employee and the Employee desires
to be employed by the Company as of the "Effective Date" hereof, upon the terms
and conditions set forth in this Agreement.
B. Effective October 1, 1999, the Company and Employee entered into a
"Salary Continuation Agreement," which Salary Continuation Agreement shall be
cancelled and of no further force or effect as of the Effective Date.
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 five (5) years commencing on January 1, 2000 (the "Effective Date"),
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 the
Board of Directors of the Company (the "Board"). 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.)
1.2.1 OTHER BUSINESS ACTIVITIES. Company and Employee acknowledge
that Employee is a member of the Board of Directors of Optimumcare Corporation
with an equity interest that may exceed 5% if Employee exercises his stock
options. Optimumcare Corporation is involved with the care of psychiatric
patients, and is deemed to be an association which is not competitive with the
Company, and will not require any commitment of employee's business time or
effort. Company and Employee also acknowledge that Employee's wholly owned
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.
<PAGE> 2
1.3 DUTIES AND RESPONSIBILITIES. During the term of this Agreement,
Employee shall serve as President and Chief Executive Officer 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.
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 Eighteen Thousand Five Hundred and
00/100 Dollars ($18,500.00) per month (the "Base Salary") commencing on January
1, 2000, payable in accordance with the Company's usual payroll practice.
2.2 STOCK OPTIONS. The Company has previously granted to Employee
options to purchase an aggregate of 250,000 shares of the Company's common stock
at an exercise price of $.68 per share (the "Options") pursuant to the Company's
1999 Stock Option Plan. The Options are represented by an Incentive Stock Option
Agreement dated June 30, 1999 and a Non-Qualified Stock Option Agreement dated
June 30, 1999. Nothing shall prevent the Company from granting additional stock
options to Employee in the future.
2.3 BONUS. The Company shall pay to Employee an annual cash bonus (the
"Bonus") equal to the amount computed hereinbelow (the "Performance Share
Amount") for each of the calendar years, 2000, 2001, 2002 or 2003, (each, a
"Bonus Year") as the case may be, subject to meeting the Company's "Sales Goal"
(as that term is defined below) for the applicable Bonus Year. The Performance
Share Amount shall equal 100,000 times the difference between: (i) the "Average
Bid Price" (as defined below) for the applicable Bonus Year, and (ii) $.68;
provided, however, in any Bonus Year, the maximum Bonus payable to Employee
shall not exceed ten percent (10%) of net sales of the Company for such Bonus
Year. The Bonus shall be payable as follows: On January 31 of each Bonus Year,
an amount equal to eighty percent (80%) of the Bonus shall be paid to Employee
based upon the internal unaudited financial statements of the Company for the
prior year. The balance of the Bonus for such Bonus Year (as adjusted for the
actual amount of Bonus computed based the final year end audited financial
statements of the Company) shall be paid when such financial statements are
available, but without interest, provided, however, if the audited financial
statements are not available by April 15 of the next year, Company shall pay the
balance of the Bonus computed on the basis of the unaudited internal financial
statements, and the parties shall adjust any amounts due to or from Employee
therefor when the audited financial statements become available.
2.3.1 The "Average Bid Price" shall mean for any fiscal (calendar)
year the average of the Bid Price of the Company's Common Stock as quoted on
NASDAQ, the OTC Bulletin Board or on the "pink sheets" published by the National
Daily Quotation Bureau, as the case may be, on the trading day nearest the 15th
and 30th day of each month (each, a "Quote Date") for the months of July through
December for such Bonus Year. Assuming the Sales Goal is met for 2000, the
following is an example of the calculation of the Bonus for Bonus Year 2000:
The Bid Prices on each Quote Date are summed and the sum is
divided by 12. If the Average Bid Price for the months of July through December
2000 was $4.12, then the Performance Share Amount for 2000 shall be $344,000
[($4.12 - $.68) x 100,000].
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2.3.2 The Sales Goal for 2000 shall be $2,000,000. The Sales Goal
for 2001 shall be $4,000,000. The Sales Goal for 2002 shall be $6,000,000. The
Sales Goal for 2003 shall be $9,000,000. "Sales Goal" is defined as net sales as
that term is defined by generally accepted accounting standards, (i.e. gross
sales, less returns and allowances) of medical, diagnostic, cosmetic or
therapeutic products or devices and related services, whether sold by the
Company as an OEM for other manufacturers or distributors or manufactured and
distributed directly by the Company.
2.3.3 The Bonus payable to Employee shall be due and payable only if
Employee is employed on the last day of each fiscal year; provided, however, if
Employee is terminated by the Company without "cause," then the Bonus shall be
payable for such year regardless of the date of termination, assuming the Sales
Goal is met for such Bonus Year.
2.4 TERMINATION FOLLOWING A CHANGE IN CONTROL. The Company and Employee
have entered into that certain Salary Continuation Agreement dated October 1,
1999 ("Continuation Agreement") that provides for the payment to Employee of
Termination Benefits following a Termination Event and a Change in Control (as
defined in Section 2.4.1 below). After a Change in Control (as defined in
Section 2.4.1) of the Company and the occurrence of a Termination Event (as
defined in Section 2.4.2), the Employee shall be entitled to Termination
Benefits (as defined in Section 2.4.3) during the term of this Agreement, all as
provided in this Agreement.
2.4.1 DEFINITION OF "CHANGE IN CONTROL." A "Change in Control" of
the Company shall be deemed to have occurred upon the occurrence of any one or
more of the following events:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than the Employee or a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, hereafter becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities;
(b) during any period (other than any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board and any new directors (other than directors designated by a
person who has entered into an agreement with the Company to effect a
transaction described in paragraph (a) or (c) of this Section 2.4.1) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least a majority of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 51% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
2.4.2 DEFINITION OF "TERMINATION EVENT." A Termination Event shall
be deemed to have occurred upon the occurrence of any one or more of the
following events:
(a) Termination by the Company of Employee's employment for a
reason other than the Employee's willful and continued failure to substantially
perform the duties with the Company (other than any such failure resulting from
incapacity due to physical or mental illness or any such actual or anticipated
failure by the Employee for reasons set forth in Section 2.4.2(b) below) after a
written demand for substantial performance
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is delivered to the Employee by the Board, which demand specifically identifies
the manner in which the Board believes that the Employee has not substantially
performed his duties.
For purposes of this Section 2.4.2(a), no act, or failure to
act, on the part of the Employee shall be deemed "willful" unless done, or
omitted to be done, not in good faith and without reasonable belief that such
action or omission was in the best interest of the Company.
(b) The occurrence of any of the following events described in
subparagraphs (i) - (vii) of this paragraph (b), without the express written
consent of the Employee. Notwithstanding any other provision of this Agreement,
the Employee's continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting a Termination Event as
described in this Section 2.4.2(b).
(i) the assignment of any duties inconsistent with the
Employee's status as President of the Company or a substantial adverse
alteration in the nature or status of his responsibilities from those in
effect immediately prior to the Change in Control of the Company;
(ii) a reduction of the Employee's annual salary by the
Company as in effect on the date thereof or as the same may be increased
from time to time except for across-the-board salary reductions
similarly affecting all senior executives of the Company and all senior
executives of any person in control of the Company;
(iii) the relocation of the Company's principal executive
offices to a location more than fifty (50) miles from the location of
such offices immediately prior to the Change in Control of the Company
or the Company's requirement that the Employee be based anywhere other
than the Company's principal executive offices except for required
travel on the Company's business to an extent substantially consistent
with the Employee's present business travel obligations;
(iv) the failure by the Company, without the consent of
the Employee, to pay any portion of the Employee's current compensation
except pursuant to an across-the-board compensation deferral similarly
affecting all senior executives of the Company and all senior executives
of any person in control of the Company, within seven days of the date
such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which the Employee participates immediately prior
to the Change in Control of the Company which is material to the
Employee's total compensation, including but not limited to the
Company's profit sharing plan, or any substitute plans adopted prior to
the Change in Control of the Company, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company to continue the
Employee's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Employee's
participation relative to other participants, as existed at the time of
the Change in Control of the Company;
(vi) the failure by the Company to continue to provide the
Employee with benefits substantially similar to those currently enjoyed
under any of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Employee was participating at
the time of the Change in Control of the Company, the taking of any
action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Employee of any material
fringe benefit enjoyed by the Employee at the time of the Change in
Control of the Company, or the failure by the Company to provide the
Employee with the number of paid vacation days to which the Employee is
entitled on the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the time of the
Change in Control of the Company; or
(vii) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 3.1.
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(c) The term "date of termination" used in this Agreement
shall mean the date on which a Termination Event is deemed to have occurred.
2.4.3 DEFINITION OF "TERMINATION BENEFITS;" PAYMENT OF TERMINATION
BENEFITS.
(a) The term "Termination Benefits" shall mean the payment or
provision of all of the following at such times as provided below:
(i) salary through the date of termination at the rate in
effect at that time, plus all other amounts to which the Employee is
entitled under any compensation plan of the Company, shall be paid at
the time such payments are due, but in any event no later than six (6)
months after the date of termination;
(ii) a severance payment (in an amount equal to twelve
(12) months' salary at the rate in effect on the termination date
(hereinafter, "Severance Payment") shall be paid in twelve (12) equal
monthly payments after the date of termination; provided, however, that
the Severance Payment will be reduced to the maximum amount, determined
under Section 280G(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), which may be paid to the Employee and not be deemed
"excess parachute payments" (as defined in Section 280G(b) of the Code),
if any;
(iii) the Company shall pay all legal fees and expenses
incurred by the Employee as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section
280G(b) of the Code, to any payment or benefit provided hereunder),
within five days after request for payment by the Employee accompanied
with such evidence of fees and expenses incurred as the Company
reasonably may require; and
(iv) any and all options to purchase securities of the
Company held by Employee on the date of termination (whether issued
prior to or after the date hereof and whether or not fully vested and
immediately exercisable) shall be fully vested and immediately
exercisable by the Employee from and after the date of termination.
(b) The Employee shall not be required to mitigate the amount
of any payment provided for in this Section 2.4.3 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 2.4.3 be reduced by any compensation earned by the Employee as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Employee to the Company, or
otherwise.
(c) The Company will vigorously and diligently defend any
contest or dispute between the Employee or the Company and the Internal Revenue
Service in connection with any tax audit or proceeding to the extent
attributable to the application of Section 280G(b) of the Code to the payments
made or to be made to the Employee pursuant to this Section 2.4. The Company
agrees to indemnify and hold the Employee harmless from any loss or expense
experienced by the Employee as the result of the failure by the Company to fully
perform its obligation under this Section 2.4.
2.4.4 TERMINATION IN THE ABSENCE OF A CHANGE IN CONTROL. The
Employee hereby acknowledges and agrees that the rights and benefits provided
under this Agreement shall be triggered to benefit the Employee only after a
Change in Control of the Company and the occurrence of a Termination Event and
shall not be triggered to benefit the Employee in the absence of a Change in
Control of the Company. These provisions have been entered into solely to
address the legitimate concerns of the Company arising as the result of a
possible Change in Control of the Company, all as summarized in the Recitals to
this Agreement. The provisions of this Agreement are not intended to and do not
purport to provide any assurances or rights to the Employee's continued
employment with the Company.
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2.4.5 SALARY CONTINUATION AGREEMENT. The Salary Continuation
Agreement is hereby terminated effective as of the Effective Date of this
Agreement.
2.5 ADDITIONAL BENEFITS. Employee and Company agree and acknowledge that
Employee shall be entitled to participate in Company's medical insurance
program, as it exists from time to time for all employees.
2.6 VACATION. Employee shall be entitled to twenty-five (25) days paid
vacation each year during the term of this Agreement. Vacation time shall accrue
at the rate of 2.08 days per month until 25 days have been accrued.
2.7 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.
2.8 LIFE INSURANCE. The Company, at the Company's expense, subject to
Employee's insurability, will obtain term life insurance on the life of Employee
in the amount of $2 million; $1 million of the benefits shall be payable to the
Company and $1 million of the benefits shall be payable to Employee's estate.
Employee acknowledges that a portion or all of the cost of such insurance may be
deemed compensation to Employee.
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:
3.1.1 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 3.1.1, 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.
3.1.2 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,
disable 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.
3.1.3 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, Bonus 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;
(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);
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<PAGE> 7
(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 for
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.
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.
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 $750.00 to be paid monthly shall constitute complete and proper
reimbursement for this usage and maintenance expense. No vouchers need be
supplied by Employee.
ARTICLE 5
CONFIDENTIAL INFORMATION
5.1 CONFIDENTIAL INFORMATION. At all times during and after the
expiration of this Agreement, the Employee will hold in strict confidence and,
without the express prior written authorization of the Company's Board of
Directors, the Employee shall not disclose to any person or entity, any
financial or marketing data of the Company (including, without limitation,
financial statements of the Company), or any technique, process, formula,
developmental or experimental work, work in progress, business methods, business
or marketing plans or trade secrets of or used in the business of the Company,
or any other proprietary or confidential information relating to the Company or
the services, business affairs of the Company, including, without limitation,
any information relating to inquiries made by the Company (collectively, the
"Confidential Information"). The Employee agrees that the Employee will not make
use of any of the Confidential Information during the term of this Agreement
other than for the exclusive benefit of the Company and that the Employee shall
not make any use whatsoever of the Confidential Information at any time after
termination of the Employee's employment with the Company. Upon termination of
such employment, the Employee shall deliver to the Company (i) all documents,
records, notebooks, work papers and all similar repositories containing any
Confidential Information or any other information concerning the Company,
whether prepared by the Employee, the Company or anyone else and (ii) all
tangible personal property belonging to the Company that is in the Employee's
possession. The foregoing restrictions shall not apply to (i) information which
is or becomes, other than as a result of a breach of this Agreement, generally
available to the public, (ii) information related to the terms of the Employee's
compensation or benefits as an employee of the Company, (iii) information known
to the Employee prior to the effective date of this Agreement or (iv) the
disclosure of information required pursuant to a subpoena or other legal
process; provided that the Employee
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<PAGE> 8
shall notify the Company, in writing, of the receipt of any such subpoena or
other legal process requiring such disclosure immediately after receipt thereof
and the Employee shall assist the Company in any efforts it may undertake to
quash such subpoena or other legal process or obtain an appropriate protective
order prior to any such disclosure by the Employee.
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.
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
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.
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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 5
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.
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, 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.
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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.
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.
2492 Walnut Avenue, Suite 100
Tustin, California 92780-7039
If to Employee: Gary L. Dreher
6301 Acacia Hill Drive
Yorba Linda, California 92886
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
"EMPLOYEE"
______________________________________________
Gary L. Dreher
"COMPANY"
By: __________________________________________
Vivian B. Frazier, Chief Financial Officer
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EXHIBIT NO. 10.55
INDEPENDENT CONSULTANT AGREEMENT
THIS INDEPENDENT CONSULTANT AGREEMENT ("Agreement") is entered into
effective as of October 1, 1999 by and between AMDL, Inc., a Delaware
corporation, ("AMDL"), and That T. Ngo, Ph.D., an individual, ("Consultant").
AMDL wishes to engage the services of Consultant in accordance with the
terms and conditions of this Agreement, and in consideration of the covenants
and agreements set forth below, the parties agree as follows.
1. Engagement; Consultant Services. Consultant is requested to provide
continuing consulting services to review and analyze new technologies and
supervise continued testing of existing products and such other services related
to diagnostic technology as the Board of Directors may request. AMDL hereby
engages consultant to provide the services described in this Agreement and
Consultant hereby accepts the engagement, upon the terms and conditions set
forth in this Agreement. Consultant shall provide these consulting services at
the time and place as AMDL may reasonable request, ("Services"). Consultant
shall devote such reasonable time, effort and attention to the performance of
the "Services" as may be required subject to Consultant's availability.
Consultant agrees to make an average of at least eight hours per week available.
2. Term. The engagement of Consultant shall commence on the date of this
Agreement and shall terminate on September 30, 2000 unless terminated earlier in
accordance with this Agreement.
3. Best Efforts. Consultant will use his best efforts in the performance
of the obligations and duties arising out of this agreement.
4. Independent Contractor.
(a) Consultant and AMDL acknowledge and agree (i) that nothing in
this Agreement shall be considered to create an employer-employee relationship
between AMDL and Consultant; and (ii) that Consultant shall not be deemed to be
an employee of AMDL for any purpose whatsoever, including, but not limited to,
eligibility for (1) inclusion in any retirement benefit plan for the employees
of AMDL, (2) sick pay, (3) paid non-working holidays, (4) paid vacation or leave
days, (5) participation in any plan or program offering life, accident or health
insurance for the employees of AMDL or (6) participation in any medical
reimbursement plan of other fringe benefit plan for the employees of AMDL except
as provided herein.
(b) Consultant is not authorized to waive any right or to enter into,
incur, assume or create any debt, obligation, contract or release of any kind in
the name or on behalf of AMDL.
(c) Consultant is solely responsible for the payment of any and all
self-employment taxes and assessments resulting from the payment of compensation
to, or the performance of Services by Consultant pursuant to this Agreement
including, without limitation, any California unemployment insurance tax,
federal, state and foreign income taxes, federal Social Security (FICA) payments
and California disability insurance taxes.
5. Fees, Expenses and Other Compensation. AMDL specifically agrees that
Consultant shall receive a consulting fee for each calendar month, commencing
with the month of October 1999, ("Calendar Month") of the agreement equal to the
greater of $4,800 or $150 per hour times the number of hours, rounded to the
next hour, with a target of 40 hours per month ("Consulting Fee").
6. Food, Lodging and Travel Expenses. AMDL shall reimburse for
reasonable and necessary expenses incurred by Consultant for food,
transportation, and lodging in connection with the performance of the Services
for AMDL provided that such expenses are properly documented and submitted to
AMDL.
<PAGE> 2
7. Other Expenses. AMDL shall reimburse for such other expenses,
including capital expenses, supplies, telephone, mail, copying services,
equipment and other tangible personal property to be purchased by Consultant
("Other Costs"), provided that such Other Costs are approved in advance of
purchase by AMDL. Such approval may take the form of a written notice of
approval, or telephonic approval followed by written confirmation. The amount to
be reimbursed for such Other Costs shall not exceed the amount approved in
advance by AMDL.
8. Payment. Payment of the Consulting Fee, food, lodging and travel
expenses shall be received by Consultant on or before seven calendar days
subsequent to receipt by AMDL of an invoice of same from Consultant.
9. Confidential Information. Consultant agrees and acknowledges that
rendering Services under this Agreement Consultant will have access to certain
information and data of AMDL, (including, without limitation, business plans,
financial statements and other financial information, projections and budget
information, internal memoranda, customer lists, technology, marketing and sales
information, methods of conducting business, legal matters, confidential
communications and information developed by Consultant under this agreement for
AMDL) and that such information and data constitutes valuable special and unique
property of AMDL (the foregoing collectively referred to as "Confidential
Information"). Accordingly, Consultant agrees that during the term of this
agreement and for one year after termination hereof, Consultant shall not
impart, disclose or reveal to any other person or entity any Confidential
Information in any manner, or for any purpose, without the prior written consent
of AMDL. Consultant agrees that all items of Confidential Information are
proprietary to AMDL and shall remain the sole property of AMDL notwithstanding
that Consultant may have participated or will participate in the development of
Confidential Information.
10. Return of Confidential and Proprietary Information. Upon expiration
or termination or this Agreement, Consultant shall immediately return to AMDL
all copies of Confidential Information obtained in connection with the
performance of Services and developed in connection with the performance of
Services.
11. Intellectual Property Rights. All inventions or improvements,
trademark / service mark concepts, designs, or the like, or published materials
premised upon information received or work done by Consultant pursuant to this
Agreement or within one year after the termination of this agreement, whether
patentable, registrable, copyrightable or not, shall be solely for the benefit
of AMDL as "works made for hire" as appropriate. Consultant shall assign all
right, title and interest in any inventions or improvements to AMDL or its
nominee, and shall assist AMDL or its nominee in obtaining and maintaining
whatever protection thereon AMDL or its nominee may deem appropriate, both in
the United States and abroad. Any patent applications filed by AMDL inventions
attributable to work performed under this Agreement will list the names of all
inventors who contributed to the claims of the patent application in accordance
with the requirement of Title 35 of the United States Code.
12. Termination of Agreement. Consultant may terminate this Agreement
for any reason with or without cause, upon ninety days written notice of
termination to AMDL. AMDL may terminate this Agreement for any reason with or
without cause, upon ninety days written notice of termination to Consultant.
13. Limited Liability. Consultant will not be liable to AMDL, or to
anyone who may claim any right due to a relationship with AMDL, for any acts or
omissions ("Acts") in the performance of Service under the terms of this
Agreement or on the part of the employees or agents of Consultant unless those
Acts or omissions are due to willful misconduct. AMDL will indemnify and hold
Consultant free and harmless from any obligations, costs, claims, judgments,
attorneys' fees and attachments arising from, growing out of, or in any way
connected with the services rendered to AMDL under the terms of this Agreement,
unless Consultant's Acts are adjudicated to be the result of willful misconduct
14. Notices. All notices, requests or other communications (collectively
"Notices") which are given with respect to this Agreement must be in writing and
must be either personally delivered or mailed by first class mail, to the
recipient at the address indicated below:
2
<PAGE> 3
To Consultant: That T. Ngo, Ph.D.
15 Deer Creek
Irvine, CA 92604-3070
To AMDL: 2492 Walnut Ave Suite 100
Tustin, CA 92780
Or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this agreement will be deemed to have been given when so delivered
or mailed.
15. Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with, the internal laws of the State of California
applicable to agreements made and to be performed wholly within the State of
California. The sole forum for resolving disputes arising under or relating to
this Agreement shall be the Municipal and Superior Courts for the County of
Orange, California, or the Federal District Court for the Central District of
California and all related appellate courts, and the parties hereby consent to
the jurisdiction of such courts and agree that venue shall be in Orange County,
California.
16. Modifications, Amendments, Waivers and Extensions. This Agreement
may not be modified, changed or supplemented, nor may any obligations hereunder
be waived or extensions of time for performance granted, except by written
instrument signed by both parties to this Agreement or as otherwise expressly
permitted herein. No waiver of any breach of any agreement or provision of this
Agreement shall be deemed a waiver of any preceding or succeeding breach thereof
or of any other agreement or provision contained in this Agreement. No extension
of time for performance of any obligations or acts shall be deemed an extension
of the time for performance of any other obligations or acts.
17. Attorneys' Fees. In the event any action in law or equity is brought
for the enforcement of this Agreement or in connection with any of the
provisions of this Agreement, the prevailing party shall be entitled to receive
from the other party all costs and expenses, including reasonable attorneys'
fees, reasonable incurred in connection with such action.
18. Assignment. This Agreement may not be assigned or delegated by
either party without the prior written consent of the other party.
19. Partial Invalidity. Any provision of this Agreement which is found
to be invalid or unenforceable by any court in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability, and the invalidity or unenforceability of such provision shall
not affect the validity or enforceability of the remaining provisions of this
Agreement.
20. Miscellaneous: This Agreement.
(a) Constitutes the entire agreement and supersedes all prior
written or oral, and all contemporaneous oral agreements, understandings and
negotiations between the parties with respect to the subject matter of this
Agreement;
(b) May be executed in counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument;
3
<PAGE> 4
(c) Is not intended to confer upon any person other than the parties
to this Agreement any rights or remedies under this Agreement.
The parties have executed this Agreement as of the day and year first
above written.
Consultant AMDL, Inc.
An Individual a Delaware Corporation
By: _______________________________ By: ______________________________
That T. Ngo, Ph.D. Gary L. Dreher
Title: Consultant Title: President
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EXHIBIT NO. 10.56
AMDL, INC.
SECURITIES PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
1. PURCHASE AND SALE OF SHARES..........................................................1
1.1 Certificate of Designations...................................................1
1.2 Purchase and Sale of Series A Preferred Stock.................................1
1.3 Separate Agreements...........................................................2
1.4 Deliveries by Purchasers......................................................2
2. CLOSING(S)...........................................................................2
2.1 Date and Time.................................................................2
2.2 Deliveries....................................................................2
2.3 Each Closing Identical........................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................2
3.1 Organization and Good Standing................................................2
3.2 Capitalization................................................................3
3.3 Validity of Transactions......................................................3
3.4 No Violation..................................................................3
3.5 SEC Reports and Financial Statements..........................................3
3.6 Subsidiaries..................................................................4
3.7 Litigation....................................................................4
3.8 Taxes.........................................................................4
3.9 Securities Law Compliance.....................................................4
3.10 Use of Proceeds...............................................................4
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.....................................5
4.1 Legal Power...................................................................5
4.2 Due Execution.................................................................5
4.3 Receipt and Review of SEC Reports.............................................5
4.4 Restricted Securities.........................................................5
4.5 Purchaser Sophistication and Ability to Bear Risk of Loss.....................6
4.6 Purchases by Groups...........................................................6
5. CONDITIONS TO CLOSING................................................................6
5.1 Conditions to Obligations of the Purchaser....................................6
5.2 Conditions to Obligations of the Company......................................7
6. REGISTRATION RIGHTS..................................................................8
6.1 Definitions...................................................................8
6.2 Securities Subject to the Registration Rights.................................9
6.3 Shelf Registration............................................................9
6.4 Piggyback Registration.......................................................10
6.5 Holdback and Lock-Up Agreements..............................................11
6.6 Expenses and Procedures......................................................11
6.7 Indemnification..............................................................13
6.8 Rule 144.....................................................................15
6.9 Underwritten Registrations...................................................16
7. MISCELLANEOUS.......................................................................16
7.1 Governing Law................................................................16
7.2 Successors and Assigns.......................................................16
7.3 Entire Agreement.............................................................16
7.4 Separability.................................................................16
7.5 Amendment and Waiver.........................................................17
7.6 Notices......................................................................17
7.7 Titles and Subtitles.........................................................17
EXHIBITS:
A. Certificate of Designations
B. AMDL SEC Reports: Form 10-SB dated October 15, 1999
</TABLE>
i
<PAGE> 3
AMDL, INC.
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement ("Agreement") is made as of October
29, 1999, but is only effective as of the date of acceptance of each "Purchaser
Signature Page" by and between AMDL, Inc., a Delaware corporation (the
"Company"), with its principal office at 2492 Walnut Avenue, Tustin, California
92680 and the Purchasers (described herein). When each of the purchasers who
become signatories hereto (individually, a "Purchaser" and collectively, the
"Purchasers") execute a Purchaser Signature Page hereto, it shall form a
separate agreement between such Purchaser.
R E C I T A L S
A. The Company desires to obtain funds from the Purchasers in order to
further the operations of the Company.
B. In order to obtain such funds, the Company is offering (the
"Offering") up to 11,000 shares of Series A Preferred Stock, $.001 par value per
share ("Series A Preferred Stock"), on the terms and subject to the conditions
set forth herein.
A G R E E M E N T
It is agreed as follows:
1. PURCHASE AND SALE OF SHARES.
1.1 Certificate of Designations. The Company shall adopt and file
with the Secretary of State of Delaware on or before the Closing (as defined
herein) a Certificate of Designations in the form attached hereto as Exhibit A
(the "Certificate of Designations").
1.2 Purchase and Sale of Series A Preferred Stock. In reliance upon
the representations and warranties of the Company and each Purchaser contained
herein and subject to the terms and conditions set forth herein, each Purchaser
hereby agrees to purchase, and the Company hereby agrees to sell and issue to
each Purchaser, the number of shares of Series A Preferred Stock set forth on
the Purchaser Signature Page bearing such Purchaser's name at a purchase price
of $500 per share (the "Purchase Price"); provided, however, that each Purchaser
agrees to purchase a minimum of five (5) shares of Series A Preferred Stock at
the Purchase Price, unless the Company, in its sole discretion, permits
subscriptions of a lesser amount. Each Purchaser shall severally, and not
jointly, be liable only for the purchase of the number of shares of Series A
Preferred Stock that relates to the subscription of such Purchaser as set forth
on the Purchaser Signature Page.
1.3 Separate Agreements. The Company's agreement with each of the
Purchasers is a separate agreement, and the sale of the shares of Series A
Preferred Stock to each of the Purchasers is a separate sale.
1.4 Deliveries by Purchasers.
1.4.1 Each Purchaser shall deliver an executed completed
Purchaser Signature Page;
1.4.2 Each Purchaser shall deliver a check or wire transfer to
the general account of the Company in the amount of the Purchase Price for each
share of Series A Preferred Stock purchased.
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<PAGE> 4
2. CLOSING(S).
2.1 Date and Time. The closing of the sale of shares of Series A
Preferred Stock contemplated by this Agreement (each a "Closing") shall take
place at the offices of the Company or at such other place as the Company and
Purchasers shall agree in writing, on or before the date which is sixty (60)
days following the date the Company's common stock, $.001 par value per share
("Common Stock"), is first re-listed for trading on the OTC Bulletin Board,
unless otherwise extended by the Company (the "Final Closing Date").
2.2 Deliveries. At the Closing, or as soon thereafter as practicable,
the Company will cause to be issued to each Purchaser the certificates
representing the shares of Series A Preferred Stock purchased by the Purchaser
against payment of the Purchase Price. Each such share shall be in definitive
form and registered in the name of each Purchaser, as set forth on the Purchaser
Signature Page, against delivery to the Company by the Purchaser of the items
set forth in paragraphs 1.4.1 and 1.4.2 above.
2.3 Each Closing Identical. Each Closing shall be upon substantially
identical terms and conditions to those contained herein. Each Closing may be
effected at the Company's sole election until 11,000 shares of Series A
Preferred Stock have been sold, provided that all of such Closings are held on
or prior to the Final Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As a material inducement to the Purchasers to enter into this Agreement
and to purchase the shares of Series A Preferred Stock, the Company represents
and warrants that the following statements are true and correct in all material
respects as of the date hereof and will be true and correct in all material
respects at Closing, except as expressly qualified or modified herein.
3.1 Organization and Good Standing. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full corporate power and authority to enter into and perform
its obligations under this Agreement, and to own its properties and to carry on
its business as presently conducted and as proposed to be conducted. The Company
is duly qualified to do business as a foreign corporation in every jurisdiction
in which the failure to so qualify would have a material adverse effect upon the
Company.
3.2 Capitalization. The Company is authorized to issue 50,000,000
shares of Common Stock of which, as of October 15, 1999, approximately 1,651,430
shares are issued and outstanding. The Company is also authorized to issue
10,000,000 shares of preferred stock, $.001 par value per share of which, 11,000
shares have been designated Series A Preferred Stock, up to all of which will be
sold pursuant to this Agreement. The rights, privileges and preferences of the
Series A Preferred Stock will be as stated in the Certificate of Designations.
All outstanding shares of Common Stock have been duly authorized and validly
issued, and are fully paid, nonassessable, and free of any preemptive rights.
Except for (i) the conversion privileges of the Series A Preferred Stock, and
(ii) as is set forth in the SEC Reports (as hereinafter defined), at Closing,
there will not be outstanding, nor will the Company be subject to any agreement
under which there may become outstanding, any right to purchase, or security
convertible into or exchangeable for, any capital stock of the Company,
including, but not limited to, options, warrants, or rights. Except as set forth
herein, the Company is under no obligation (contingent or otherwise) to purchase
or otherwise acquire or retire any of its securities. There are no agreements in
existence which require the Company to elect any person to its Board of
Directors or otherwise pertain to the voting of any capital stock of the
Company.
3.3 Validity of Transactions. This Agreement, and each document
executed and delivered by the Company in connection with the transactions
contemplated by this Agreement, have been duly authorized, executed and
delivered by the Company and is each the valid and legally binding obligation of
the Company, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency reorganization and moratorium laws and other
laws affecting enforcement of creditor's rights generally and by general
principles of equity.
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<PAGE> 5
3.4 No Violation. The execution, delivery and performance of this
Agreement has been duly authorized by the Company's Board of Directors and, to
the extent necessary, the shareholders of the Company, will not violate any law
or any order of any court or government agency applicable to the Company, as the
case may be, or the Certificate of Incorporation or Bylaws of the Company, and
will not result in any breach of or default under, or, except as expressly
provided herein, result in the creation of any encumbrance upon any of the
assets of the Company pursuant to the terms of any agreement or instrument by
which the Company or any of its assets may be bound. Except for the filing of
the Certificate of Designations with the Delaware Secretary of State, no
approval of or filing with any governmental authority is required for the
Company to enter into, execute or perform this Agreement.
3.5 SEC Reports and Financial Statements. The Company has delivered
to the Purchaser its Registration Statement on Form 10-SB dated October 15, 1999
filed with the U.S. Securities and Exchange Commission (the "SEC Reports"), a
copy of which is attached hereto as Exhibit "B." The information in the SEC
Reports, taken as a whole, is true and correct in all material respects and does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.6 Subsidiaries. Except as set forth in the SEC Reports, the Company
does not own, directly or indirectly, any equity or debt securities of any
corporation, partnership, or other entity.
3.7 Litigation. Except as set forth in the SEC Reports, there are no
suits or proceedings (including without limitation, proceedings by or before any
arbitrator, government commission, board, bureau or other administrative agency)
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its subsidiaries which, if adversely determined, would have a
material adverse effect on the consolidated financial condition, results of
operations, prospects or business of the Company, and neither the Company nor
any of its subsidiaries are subject to or in default with respect to any order,
writ, injunction or decree of any federal, state, local or other governmental
department.
3.8 Taxes. Federal income tax returns and state and local income tax
returns for the Company and its subsidiaries have been filed as required by law,
except that no state or federal income tax returns have been prepared or filed
for the year ended December 31, 1998; all taxes as shown on such returns or on
any assessment received subsequent to the filing of such returns have been paid,
and there are no pending assessments or adjustments or any income tax payable
for which reserves, which are reasonably believed by the Company to be adequate
for the payment of any additional taxes that may come due, have not been
established. All other taxes imposed on the Company and its Subsidiaries have
been paid and any reports or returns due in connection herewith have been filed.
3.9 Securities Law Compliance. Assuming the accuracy of the
representations and warranties of Purchasers set forth in Section 4 of this
Agreement, the offer, issue, sale and delivery of the shares of Series A
Preferred Stock will constitute an exempted transaction under the Securities Act
of 1933, as amended and now in effect ("Securities Act"), and registration of
the shares of Series A Preferred Stock or the shares of Common Stock issuable
upon conversion of the Series A Preferred Stock ("Underlying Common Stock")
under the Securities Act is not required. The Company shall make such filings as
may be necessary to comply with the Federal securities laws and the Blue Sky
laws of any state, which filings will be made in a timely manner prior to the
offer and sale of the shares of Series A Preferred Stock.
3.10 Use of Proceeds. The Company represents, warrants and covenants
that it shall use the proceeds from this offering for research and development
expenses, sales and marketing expenses and working capital.
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4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents, warrants and covenants with the
Company as follows:
4.1 Legal Power. Purchaser has the requisite individual, corporate,
partnership, trust or fiduciary power, as appropriate, and is authorized, if
Purchaser is a corporation, partnership or trust, to enter into this Agreement,
to purchase the shares of Series A Preferred Stock hereunder, and to carry out
and perform its obligations under the terms of this Agreement.
4.2 Due Execution. This Agreement has been duly authorized, if
Purchaser is a corporation, partnership, trust or fiduciary, executed and
delivered by Purchaser, and, upon due execution and delivery by the Company,
this Agreement will be a valid and binding agreement of Purchaser.
4.3 Receipt and Review of SEC Reports. Each Purchaser represents that
Purchaser has received and reviewed the SEC Reports and has been given full and
complete access to the Company for the purpose of obtaining such information as
the Purchaser or its qualified representative has reasonably requested in
connection with the decision to purchase shares of the Company's Series A
Preferred Stock. Each Purchaser represents that such Purchaser has been afforded
the opportunity to ask questions of the officers of the Company regarding its
business prospects and the shares of the Company's Series A Preferred Stock, all
as Purchaser or Purchaser's qualified representative have found necessary to
make an informed investment decision to purchase the shares of the Company's
Series A Preferred Stock.
4.4 Restricted Securities. Purchaser has been advised that the Series
A Preferred Stock has not been registered under the Securities Act or any other
applicable securities laws and that the Series A Preferred Stock is being
offered and sold pursuant to Section 4(2) of the Securities Act and Rule 506
thereunder, and that the Company's reliance upon Section 4(2) and Rule 506 is
predicated in part on Purchasers' representations as contained herein.
4.4.1 The Purchasers and their beneficial owners are "accredited
investors" as defined under Rule 501 under the Securities Act.
4.4.2 Purchaser acknowledges that neither the Series A Preferred
Stock nor the Underlying Common Stock have been registered under the Securities
Act or the securities laws of any state and are being offered, and will be sold,
pursuant to applicable exemptions from such registration for nonpublic offerings
and will be issued as "restricted securities" as defined by Rule 144 promulgated
pursuant to the Securities Act. The Series A Preferred Stock and the Underlying
Common Stock may not be resold in the absence of an effective registration
thereof under the Securities Act and applicable state securities laws unless, in
the opinion of the Company's counsel, an applicable exemption from registration
is available.
4.4.3 Purchaser is acquiring the Series A Preferred Stock for its
own account, for investment purposes only and not with a view to, or for sale in
connection with, a distribution, as that term is used in Section 2(11) of the
Securities Act, in a manner which would require registration under the
Securities Act or any state securities laws.
4.4.4 Purchaser understands and acknowledges that the Series A
Preferred Stock and the Underlying Common Stock will bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREOF UNDER
THE SECURITIES ACT OF 1933 AND/OR THE SECURITIES ACT OF ANY STATE HAVING
JURISDICTION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.
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4.4.5 Purchaser acknowledges that an investment in the Series A
Preferred Stock is not liquid and is transferable only under limited conditions.
Purchaser acknowledges that such securities must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser is aware of the provisions of Rule 144
promulgated under the Securities Act, which permits limited resale of securities
purchased in a private placement subject to the satisfaction of certain
conditions and that such Rule is not now available and, in the future, may not
become available for resale of the Series A Preferred Stock or the Underlying
Common Stock.
4.5 Purchaser Sophistication and Ability to Bear Risk of Loss.
Purchaser acknowledges that it is able to protect its interests in connection
with the acquisition of the Series A Preferred Stock and Underlying Common Stock
and can bear the economic risk of investment in such securities without
producing a material adverse change in Purchaser's financial condition.
Purchaser otherwise has such knowledge and experience in financial or business
matters that Purchaser is capable of evaluating the merits and risks of the
investment in the Series A Preferred Stock and Underlying Common Stock.
4.6 Purchases by Groups. Each Purchaser represents, warrants and
covenants that it is not acquiring the shares of Common Stock as part of a group
within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended;
5. CONDITIONS TO CLOSING.
5.1 Conditions to Obligations of the Purchaser. Each Purchaser's
obligation to purchase the shares of Series A Preferred Stock at the Closing is
subject to the fulfillment, at or prior to such Closing, of all of the following
conditions:
5.1.1 Representations and Warranties True; Performance of
Obligations. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects at the Closing with
the same force and effect as if they had been made on and as of said date; and
the Company shall have performed all obligations and conditions herein required
to be performed by it on or prior to the Closing.
5.1.2 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchaser.
5.1.3 Qualifications, Legal and Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States including "blue sky" filings in any state that are required
in connection with the lawful sale and issuance of the shares of Series A
Preferred Stock pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the shares of Series A Preferred Stock or the Company's
Common Stock shall have been issued and no proceedings for such purpose shall be
pending or, to the knowledge of the Company, threatened by the SEC, or any
commissioner of corporations or similar officer of any state having jurisdiction
over this transaction. At the time of the Closing, the sale and issuance of the
shares of Series A Preferred Stock shall be legally permitted by all laws and
regulations to which the Purchaser and the Company are subject.
5.2 Conditions to Obligations of the Company. The Company's
obligation to issue and sell the shares of Series A Preferred Stock at the
Closing is subject to the fulfillment to the Company's satisfaction, on or prior
to the Closing, of the following conditions:
5.2.1 Representations and Warranties True. The representations
and warranties made by each Purchaser in Section 4 hereof shall be true and
correct at the Closing with the same force and effect as if they had been made
on and as of the Closing.
5.2.2 Performance of Obligations. Each Purchaser shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by them on or before the Closing,
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and each Purchaser shall have delivered payment to the Company in respect of its
purchase of shares of Series A Preferred Stock.
5.2.3 Qualifications, Legal and Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States including "blue sky" filings in any state that are required
in connection with the lawful sale and issuance of the shares of Series A
Preferred Stock pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of the shares of Series A Preferred Stock shall have been
issued and no proceedings for such purpose shall be pending or, to the knowledge
of the Company, threatened by the SEC, or any commissioner of corporations or
similar officer of any state having jurisdiction over this transaction. At the
time of the Closing, the sale and issuance of the shares of Series A Preferred
Stock shall be legally permitted by all laws and regulations to which each
Purchaser and the Company are subject.
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6. REGISTRATION RIGHTS.
6.1 Definitions.
As used in this Section 6, the following terms shall have the
following meanings:
6.1.1 Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
6.1.2 Losses: See Section 6.7 hereof.
6.1.3 Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Securities Act Rule 430A), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
6.1.4 Registration Expenses: All reasonable expenses incurred by
the Company in complying with Sections 6.3 and 6.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, accountants' expenses (including,
without limitation, any special audits or "comfort" letters incidental to or
required by any such registration), any fees or disbursements of underwriters
customarily paid by issuers or sellers of securities (but excluding underwriting
discounts and commissions) and blue sky fees and expenses in all states
reasonably designated by the Holders.
6.1.5 Registrable Securities: The Underlying Common Stock and any
Common Stock issued or issuable in respect of the Underlying Common Stock
pursuant to any stock split, stock dividend, recapitalization, or similar event.
6.1.6 Registration Statement: Any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
6.1.7 Rule 144: Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC (excluding Rule 144A).
6.1.8 Shares: The shares of Series A Preferred Stock issued to
the Purchasers pursuant to this Agreement.
6.1.9 SEC: The Securities and Exchange Commission.
6.1.10 Securities Act: The Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
6.1.11 Shelf Registration: See Section 6.3.1 hereof.
6.1.12 Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
6.2 Securities Subject to the Registration Rights.
The securities entitled to the benefits of the Registration
Rights set forth in this Section 6 are the Registrable Securities.
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<PAGE> 10
6.3 Shelf Registration.
6.3.1 Shelf Registration. In the event the gross proceeds to the
Company from the sale of shares of Series A Preferred Stock pursuant to the
terms of this Agreement is at least $2,000,000, the Company shall, not later
than sixty (60) days after the Final Closing Date (the "Filing Date"), prepare
and file with the SEC a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 (or any appropriate similar rule that may
be adopted by the SEC) under the Securities Act covering the Registrable
Securities (the "Shelf Registration"). The Shelf Registration shall initially be
on a Form S-1 or Form SB-2 permitting registration of such Registrable
Securities for resale by such holders thereof in the manner or manners
reasonably designated by them (including, without limitation, one or more
underwritten offerings) and shall be converted to a Shelf Registration on Form
S-3 as soon as the Company is eligible for use of such Form S-3.
6.3.2 Effectiveness. The Company shall use its best efforts to
cause the Shelf Registration to become effective under the Securities Act as
soon as practicable following the Filing Date. The Company shall use its best
efforts to keep the Shelf Registration current and continuously effective until
the earlier of (i) the sale of all Registrable Securities by the holders thereof
or (ii) two (2) years following the Final Closing Date.
6.3.3 Payments by the Company. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable but, in any event, no later than 120 days after the Final Closing
Date (the "Registration Deadline"). If the Registration Statement covering the
Registrable securities required to be filed by the Company pursuant to Section
6.3.1 hereof is not filed with the SEC by the Filing Date or declared effective
by the SEC on or before the Registration Deadline, then the Company will make
payments to the Purchasers in such amounts and at such times as shall be
determined pursuant to this Section 6.3.3 as partial relief for the damages to
the Purchasers by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedy available at law or equity). The Company shall pay to each
Purchaser an amount equal to three percent (3%) of the Purchase Price per share,
payable monthly on the last day of each month during which the Registration
Statement is not effective. Such amount shall be payable in cash or, at each
Holder's option, in shares of Series A Preferred Stock at the Purchase Price.
6.3.4 Priority on Shelf Registration. If any of the Registrable
Securities to be registered pursuant to the Shelf Registration are to be sold,
in whole or in part, in a firm commitment underwritten offering, and if the
managing underwriters advise the Company and the holders of such Registrable
Securities that in their good faith opinion the amount of Registrable Securities
proposed to be sold in such offering exceeds the amount of Registrable
Securities which can be sold in such offering, there shall be included in such
firm commitment underwritten offering the amount of such Registrable Securities
requested to be included in such registration which in the good faith opinion of
such underwriters can be sold, and such amount shall be allocated pro rata among
the holders of such Registrable Securities requested to be included in such
registration on the basis of the number of shares of Common Stock represented by
Registrable Securities requested to be included therein by such holders.
6.4 Piggyback Registration. The Company agrees that, if at any time
prior to two (2) years following the Final Closing Date, the Company proposes to
register any of its equity securities under the Securities Act, either for its
own account or for the account of others (unless already covered by Section 6.3
hereof), in connection with the public offering of such equity securities solely
for cash, on a registration form that would also permit the registration of
Registrable Securities, the Company shall, each such time, promptly give each
holder of Registrable Securities written notice of such proposal (a "Piggyback
Registration Notice"). Within thirty (30) days after the Piggyback Registration
Notice is given, such holders of Registrable Securities shall give notice as to
the number of shares of Registrable Securities, if any, which such holders
request be registered simultaneously with such registration by the Company
("Piggyback Registration"). The Company shall use its best efforts to include
any Registrable Securities in such registration statement (or in a separate
registration statement concurrently filed) which such holders of Registrable
Securities thereof request to be so included and to cause such registration
statement to become effective with respect to such Registrable Securities in
accordance with the registration procedures set forth in Section 6.6 hereof.
Notwithstanding the foregoing, if at any time after giving written notice of its
intention to register equity securities and before the effectiveness of the
registration statement filed in connection with such registration, the Company
determines
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<PAGE> 11
for any reason either not to effect such registration or to delay such
registration, the Company may, at its election, by delivery of prior written
notice to each holder of Registrable Securities, (i) in the case of a
determination not to effect registration, relieve itself of its obligation to
register the Registrable Securities under this Section 6.4 in connection with
such registration, or (ii) in the case of a determination to delay registration,
delay the registration of such Registrable Securities under this Section 6.4 for
the same period as the delay in the registration of such other equity
securities. Each holder of Registrable Securities requesting inclusion in a
registration pursuant to this Section 6.4 may, at any time before the effective
date of the registration statement relating to such registration, revoke such
request by delivering written notice of such revocation to the Company;
provided, however, that if the Company, in consultation with its financial and
legal advisors, determines that such revocation would require a recirculation of
the prospectus contained in the registration statement, then such holder of
Registrable Securities shall have no right to revoke its request.
6.5 Holdback and Lock-Up Agreements.
6.5.1. Restrictions on Public Sale by Holders of Registrable
Securities. Each holder of Registrable Securities whose Registrable Securities
are covered by a Registration Statement filed pursuant to Section 6.3 hereof
agrees, if requested by the managing underwriters in an underwritten offering
(to the extent timely notified in writing by the Company or the managing
underwriters), not to effect any public sale or distribution of securities of
the Company of any class included in such Registration Statement, including a
sale pursuant to Rule 144 (except as part of such underwritten offering), during
the 10-day period prior to, and the 180-day period beginning on, the effective
date of any underwritten offering made pursuant to such Registration Statement;
provided, however, the foregoing prohibition shall only apply if all Registrable
Securities requested by such holder to be covered by such Registration Statement
are included in such Registration Statement.
6.5.2 The foregoing provisions shall not apply to any holder of
Registrable Securities if such holder is prevented by applicable statute or
regulation from entering into any such agreement; provided, however, that any
such holder shall undertake in its request to participate in any such
underwritten offering not to effect any public sale or distribution of the class
of Registrable Securities covered by such Registration Statement (except as part
of such underwritten offering) during such period unless it has provided five
(5) business days prior written notice of such sale or distribution to the
managing underwriters.
6.6 Expenses and Procedures.
6.6.1 Expenses of Registration. All Registration Expenses
(exclusive of underwriting discounts and commissions) shall be borne by the
Company. Each holder of Registrable Securities shall bear all underwriting
discounts, selling commissions, sales concessions and similar expenses
applicable to the sale of the Registrable Securities sold by such holder.
6.6.2 Registration Procedures. In the case of the registration,
qualification or compliance effected by the Company pursuant to Section 6.3
hereof, the Company will keep the holders of Registrable Securities advised as
to the initiation of registration, qualification and compliance and as to the
completion thereof. At its expense, the Company will furnish such number of
Prospectuses and other documents incident thereto as the holders or underwriters
from time to time may reasonably request.
6.6.3 Information. The Company may require each seller of
Registrable Securities as to which any registration is being effected to furnish
such information regarding the distribution of such Registrable Securities as
the Company may from time to time reasonably request and the Company may exclude
from such registration the Registrable Securities of any seller who unreasonably
fails to furnish such information after receiving such request.
6.6.4 Delay or Suspension. Notwithstanding anything herein to the
contrary, the Company may, at any time, delay the filing of the Shelf
Registration for a period of up to 60 consecutive days following the Filing Date
or suspend the effectiveness of any Registration Statement for a period of up to
60 consecutive days or 90 days in the aggregate in any calendar year, as
appropriate (a "Suspension Period"), by giving notice to each holder of
Registrable Securities to be included in the Registration Statement, if the
Company shall have
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<PAGE> 12
determined, after consultation with its counsel, that the Company is required to
disclose any material corporate development which the Company determines could
reasonably be expected to have a material effect on the Company. Each holder of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of a Suspension Period, such
holder shall forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus until such holder (i) is
advised in writing by the Company that the use of the applicable Prospectus may
be resumed, (ii) has received copies of a supplemental or amended prospectus, if
applicable, and (iii) has received copies of any additional or supplemental
filings which are incorporated or deemed to be incorporated by reference in such
Prospectus. The Company shall prepare, file and furnish to each holder of
Registrable Securities immediately upon the expiration of any Suspension Period,
appropriate supplements or amendments, if applicable, to the Prospectus and
appropriate documents, if applicable, incorporated by reference in the
Registration Statement. The Company agrees to use its best efforts to cause any
Suspension Period to be terminated as promptly as possible.
6.6.5 Blue Sky. The Company will, as expeditiously as possible,
use its best efforts to register or qualify the Registrable Securities covered
by a Registration Statement under the securities or blue sky laws of such
jurisdictions as the holders of such Registrable Securities or, in the case of
an underwritten public offering, the managing underwriter shall reasonably
request, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business in any jurisdiction where it
is not so qualified or to take any action which would subject it to taxation or
service of process in any jurisdiction where it is not otherwise subject to such
taxation or service of process.
6.6.6 Notification of Material Events. The Company will, as
expeditiously as possible, immediately notify each holder of Registrable
Securities under a Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing and, as expeditiously as possible, amend or
supplement such prospectus to eliminate the untrue statement or the omission.
6.6.7 Opinions. The Company will use its best efforts (if the
offering is underwritten) to furnish, at the request of any holder of
Registrable Securities, on the date that Registrable Securities are delivered to
the underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to such holder, stating that
such Registration Statement has become effective under the Securities Act and
that (A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, (B) the
Registration Statement, the related prospectus, and each amendment or supplement
thereof, comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need express no opinion as to financial
statements and financial and statistical data contained therein) and (C) to such
other effects as may reasonably be requested by counsel for the underwriters or
by such holder or its counsel, and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such holder, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
Registration Statement or the Prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to the registration in respect of which such letter is being given
as such underwriters or holder may reasonably request.
6.7 Indemnification.
6.7.1 Indemnification by Company. The Company shall, without
limitation as to time, indemnify and hold harmless, to the full extent permitted
by law, each holder of Registrable Securities, its officers, directors, agents
and employees, each person who controls such holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act), and the
officers, directors, agents or employees of any such
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<PAGE> 13
controlling person, from and against all losses, claims, damages, liabilities,
costs (including, without limitation, all reasonable attorneys' fees) and
expenses (collectively "Losses"), as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein in light of the circumstances under which they were made
(in the case of any Prospectus) not misleading, except insofar as the same are
based solely upon information furnished to the Company by such holder for use
therein; provided, however, that the Company shall not be liable in any such
case to the extent that any such Loss arises out of or is based upon an untrue
statement or alleged untrue statement or omission made in any preliminary
prospectus or Prospectus if (i) such holder failed to send or deliver a copy of
the Prospectus or Prospectus supplement with or prior to the delivery of written
confirmation of the sale of Registrable Securities and (ii) the Prospectus or
Prospectus supplement would have corrected such untrue statement or omission. If
requested, the Company shall also indemnify underwriters, selling brokers,
dealer managers and similar securities industry professionals participating in
the distribution, their officers, directors, agents and employees and each
person who controls such persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) to the same extent as provided
above with respect to the indemnification of the holders of Registrable
Securities.
6.7.2 Indemnification by Holder of Registrable Securities. In
connection with any Registration Statement in which a holder of Registrable
Securities is participating, such holder of Registrable Securities shall furnish
to the Company in writing such information as the Company may reasonably request
for use in connection with any Registration Statement or Prospectus. Such holder
hereby agrees to indemnify and hold harmless, to the full extent permitted by
law, the Company, and its officers, directors, agents and employees, each person
who controls the Company (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act), and the officers, directors, agents or
employees of any such controlling person, from and against all losses, as
incurred, arising out of or based upon any untrue statements or alleged untrue
statement of material fact contained in any Registration Statement, Prospectus
or preliminary prospectus, or arising out of or based upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made (in the case of
any Prospectus) not misleading, to the extent, but only to the extent, that such
untrue statement or omission is contained in any information so furnished in
writing by such holder to the Company for use in such Registration Statement,
Prospectus or preliminary prospectus. The Company shall be entitled to receive
indemnities from accountants, underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution to
the same extent as provided above with respect to information so furnished by
such persons specifically for inclusion in any Registration Statement,
Prospectus or preliminary prospectus, provided, that the failure of the Company
to obtain any such indemnity shall not relieve the Company of any of its
obligations hereunder. Notwithstanding any provision of this Section 6.7 to the
contrary, the liability of a holder of Registrable Securities under this Section
6.7 shall not exceed the purchase price received by such holder for the Shares
sold pursuant to a Registration Statement or Prospectus.
6.7.3 Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation or inquiry) shall be
brought or any claim shall be asserted against any person entitled to indemnity
hereunder (an "indemnified party"), such indemnified party shall promptly notify
the party from which such indemnity is sought (the "indemnifying party") in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses incurred in connection with the defense
thereof. All such fees and expenses (including any fees and expenses incurred in
connection with investigation or preparing to defend such action or proceeding)
shall be paid to the indemnified party, as incurred, within 20 days of written
notice thereof to the indemnifying party; provided, however, that if, in
accordance with this Section 6.7, the indemnifying party is not liable to the
indemnified party, such fees and expenses shall be returned promptly to the
indemnifying party. Any such indemnified party shall have the right to employ
separate counsel in any such action, claim or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be the
expense of such indemnified party unless (a) the indemnifying party has agreed
to pay such fees and expenses, (b) the indemnifying party shall have failed
promptly to assume the defense of such action, claim or proceeding and to employ
counsel reasonably satisfactory to the indemnified party in any such action,
claim or proceeding, or (c) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and the indemnifying party, and such indemnified party shall have been
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<PAGE> 14
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the indemnifying
party (in which case, if such indemnified party notifies the indemnifying party
in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action, claim or proceeding on behalf of such indemnified
party, it being understood, however, that the indemnifying party shall not, in
connection with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for all such
indemnified parties, unless in the opinion of counsel for such indemnified party
a conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such action, claim or proceeding, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels). No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the release of such indemnified party
from all liability in respect to such claim or litigation without the written
consent (which consent will not be unreasonably withheld) of the indemnified
party. No indemnified party shall consent to entry of any judgment or enter into
any settlement without the written consent (which consent will not be
unreasonably withheld) of the indemnifying party from which indemnify or
contribution is sought.
6.7.4 Contribution. If the indemnification provided for in this
Section 6.7 is unavailable to an indemnified party under Section 6.7.1 or 6.7.2
hereof (other than by reason of exceptions provided in those Sections) in
respect of any Losses, then each applicable indemnifying party in lieu of
indemnifying such indemnified party shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions, statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact, has been taken or made by, or
relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in Section 6.7.3, any legal or other fees
or expenses reasonably incurred by such party in connection with any action,
suit, claim, investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.7.4 were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
6.8 Rule 144.
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and will take such further action as any holder
of Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemption
provided by Rule 144 or Rule 144A. Upon the request of any holder of Registrable
Securities, the Company shall deliver to such holder a written statement as to
whether the Company has complied with such requirements. Notwithstanding the
foregoing, nothing in this Section 6.8 shall be deemed to require the Company to
register any of its securities under any section of the Exchange Act.
6.9 Underwritten Registrations.
If any of the Registrable Securities covered by any Shelf
Registration are to be sold in an underwritten offering, the investment bank or
investment bankers and manager or managers that will administer the offering
will be selected by the Company, provided that such investment banker or manager
shall be reasonably
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<PAGE> 15
satisfactory to the holders of a majority of the Registrable Securities to be
included in the underwritten offering. The Placement Agent is hereby
specifically approved as Managing Underwriter.
No holder of Registrable Securities may participate in any underwritten
registration hereunder unless such person (i) agrees to sell such holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements, and
(ii) completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
7. MISCELLANEOUS.
7.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware.
7.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
7.3 Entire Agreement. This Agreement and the Exhibits hereto and
thereto, and the other documents delivered pursuant hereto and thereto,
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
7.4 Separability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.5 Amendment and Waiver. Except as otherwise provided herein, any
term of this Agreement may be amended, and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and the Purchasers, or,
to the extent such amendment affects only one Purchaser, by the Company and such
individual Purchaser. Any amendment or waiver effected in accordance with this
Section shall be binding upon each future holder of any security purchased under
this Agreement (including securities into which such securities have been
converted) and the Company.
7.6 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be effective when delivered
personally, or sent by telex or telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or when
received by the addressee, if sent by Express Mail, Federal Express or other
express delivery service (receipt requested) in each case to the appropriate
address set forth below:
If to the Company: AMDL, Inc.
2492 Walnut Avenue
Tustin, California 92680
Attention: Gary L. Dreher, President
If to a Purchaser: At the address set forth on each
Purchaser's Signature Page
7.7 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth on the Purchase Signature Page hereto.
PURCHASERS
(By Counterpart Form - SP Pages)
COMPANY
AMDL, INC.
By: ________________________________
Gary L. Dreher, President
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<PAGE> 17
PURCHASER SIGNATURE PAGE
The undersigned Purchaser has read the Securities Purchase Agreement
dated as of October 29, 1999 and acknowledges that execution of this Purchaser
Signature Page shall constitute the undersigned's execution of such agreement.
I hereby subscribe for an aggregate of _________ shares* at $500 per
share and hereby deliver good funds with respect to this subscription for the
shares.
- -------------
*Minimum of five (5) shares
I am a resident of the State of __________________.
________________________________________________________________________________
Please print above the exact name(s) in which the shares of Series A Preferred
Stock are to be held
My address is: ________________________________________________________________
________________________________________________________________
________________________________________________________________
PURCHASERS (PLEASE INITIAL ONE)
Category I __________ The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or
joint net worth with the undersigned's spouse,
presently exceeds $1,000,000.
Explanation. In calculation of net worth the
undersigned may include equity in personal property
and real estate, including the undersigned's principal
residence, cash, short term investments, stocks and
securities. Equity in personal property and real
estate should be based on the fair market value of
such property less debt secured by such property.
Category II __________ The undersigned is an individual (not a partnership,
corporation, etc.) who had an individual income in
excess of $200,000 in 1997 and 1998, or joint income
with the undersigned's spouse in excess of $300,000 in
1997 and 1998, and has a reasonable expectation of
reaching the same income level in 1999.
Category III __________ The undersigned is a bank as defined in Section
3(a)(2) of the Securities Act or any savings and loan
association or other institution as defined in Section
3(a)(5)(A) of the 1933 Act, whether acting in its
individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined
in Section 2(13) of the Securities Act; an investment
company registered under the Investment Company Act of
1940, or a business development company as defined in
Section 2(a)(48) of that Securities Act; Small
Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political
subdivisions, or
SP-1
<PAGE> 18
any agency or instrumentality of a state or its
political subdivisions for the benefit of its
employees, if such plan has total assets in excess of
$5,000,000; an employee benefit plan within the
meaning of the Employee Retirement Income Security Act
of 1974 if the investment decision is made by the plan
fiduciary, as defined in Section 3(21) of such act,
which is either a bank, savings and loan association,
insurance company, or registered investment advisor,
or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons who are
"Accredited Investors" as defined in Section
230.501(a) of the Securities Act.
______________________________________________________
______________________________________________________
(describe entity)
Category IV __________ The undersigned is a private business development
company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
______________________________________________________
______________________________________________________
(describe entity)
Category V __________ The undersigned is an organization described in
Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in
excess of $5,000,000.
______________________________________________________
______________________________________________________
(describe entity)
Category VI __________ The undersigned is a director or executive officer of
the Company.
Category VII __________ The undersigned is a trust, with total assets in
excess of $5,000,000, not formed for the specific
purpose of acquiring the Notes offered, whose purchase
is directed by a "Sophisticated Person" as described
in Section 230.506(b)(2)(ii) of the Securities Act.
Category VIII __________ The undersigned is an entity in which all of the
equity owners are "accredited investors" as defined in
Section 230.501(a) of the Securities Act.
______________________________________________________
______________________________________________________
(describe entity)
Executed this ____ day of _____________________, 1999 at ____________________,
SP-2
<PAGE> 19
SIGNATURES
INDIVIDUAL
Address to Which Correspondence
Should be Directed
____________________________________ ______________________________
Signature (Individual) Name
______________________________
Street address
____________________________________ _______________________________
Signature City, State and Zip Code
All record holders should sign)
____________________________________ _______________________________
Name(s) Typed or Printed Tax Identification or Social
Security Number
(_______)
Telephone Number
CORPORATION, PARTNERSHIP, TRUST, OR OTHER ENTITY
Address to Which Correspondence
Should be Directed:
____________________________________
Name of Entity
____________________________________ ____________________________________
Type of Entity (i.e., corporation, Street Address
partnership, etc.)
____________________________________ ____________________________________
State of Formation of Entity City, State and Zip Code
By: ________________________________ ____________________________________
*Signature Tax Identification or Social
Security Number
( )
Its: _______________________________ ____________________________________
Title Telephone Number
____________________________________
Name Typed or Printed
- --------------
* If shares of Common Stock are being subscribed for by an entity, the
Certificate of Signatory must also be completed.
CERTIFICATE OF SIGNATORY
To be completed if shares of Common Stock are being subscribed for by an
entity.
I,________________________________, am the _________________________ of
________________________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Securities Purchase Agreement and to
purchase and hold the shares of Series A Preferred Stock. The Securities
Purchase Agreement has been duly and validly executed on behalf of the Entity
and constitutes a legal and binding obligation of the Entity.
IN WITNESS WHEREOF, I have hereto set my hand this ______ day of
_____________________, 1999.
____________________________________
Signature
ACCEPTANCE
AGREED AND ACCEPTED:
AMDL, INC.
By: _________________________________
Gary L. Dreher, President
Date: _____________________, 1999
SP-3
<PAGE> 20
<PAGE> 21
EXHIBIT "A"
[CERTIFICATE OF DESIGNATIONS]
<PAGE> 22
EXHIBIT "B"
[AMDL SEC REPORTS]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE
COMPANY'S FORM 10-KSB AS OF DECEMBER 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 75,867
<SECURITIES> 0
<RECEIVABLES> 19,401
<ALLOWANCES> (4,000)
<INVENTORY> 0
<CURRENT-ASSETS> 100,275
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,033
<CURRENT-LIABILITIES> 480,963
<BONDS> 25,000
0
0
<COMMON> 1,651
<OTHER-SE> (376,581)
<TOTAL-LIABILITY-AND-EQUITY> 106,033
<SALES> 82,713
<TOTAL-REVENUES> 82,713
<CGS> 54,458
<TOTAL-COSTS> 54,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,506
<INCOME-PRETAX> (1,171,655)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,171,655)
<DISCONTINUED> 0
<EXTRAORDINARY> 499,930
<CHANGES> 0
<NET-INCOME> (671,725)
<EPS-BASIC> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
