UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from_______ to________
Commission File Number 33-75236
LONGPORT, INC.
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(Name of small business issuer in its charter)
Delaware 23-2715528
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(State or other jurisdiction of (I.R.S. Employer Id. Number)
incorporation or organization)
791 South Chester Road
Swarthmore, Pennsylvania 19081
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (610) 328-5006
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
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None N/A
Securities registered pursuant to Section 12(g) of the Act:
$.001 Par Value Common Stock
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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 Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the 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. Yes X No
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State issuer's revenues for its most recent fiscal year: $171,786.
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $11,272,446 based upon a price of $1.625 per share on March 27, 1998.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court.
Yes No Not Applicable X
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest applicable date: As of February 28, 1998, there was
15,111,282 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
The Company's ProxyStatement to be filed
Transitional Small Business Disclosure Format (Check one): Yes No X
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
The Company, organized as a Delaware corporation in January, 1993, and operated
a wholly owned subsidiary, Longport Medical, Inc. ("LMI"), until September,
1995. The Company originally marketed medical products for the treatment of
wounds ("wound care") such as wound dressings, pressure relief mattresses,
intermittent compression pumps, hyperbaric oxygen chambers ("HBOs"), and a
variety of other medical supplies. The Company also operated an outpatient wound
healing center ("Wound Healing Center") at the Montclair Community Hospital,
Montclair, New Jersey ("Montclair Center") for the treatment of recalcitrant
wounds. The Company closed the facility in July, 1995. During 1995, the Company
altered its operations by developing a consulting services program for
healthcare facilities to open and operate outpatient wound healing centers and
implement inpatient and home-patient wound healing programs. As part of this
reorganization, the Company ceased its LMI and Montclair Center operations.
The Company intends to generate future revenues by obtaining management services
contracts with healthcare facilities and physicians, to open wound healing
centers and/or implement wound healing programs for inpatients and
home-patients. Under management services contracts, the Company provides
clinical oversight to a client, generally a hospital, with respect to operating
an outpatient wound healing center and/or implementing an inpatient wound
healing program, and receives a monthly fee directly from the contracting party.
As part of these Management Agreements, the Company expects to generate
additional revenues through the rental and sale of Topical Hyperbaric Oxygen
products and supplies sales.
Wound Healing Centers
In July, 1994, the Company opened its first Wound Healing Center within the
Montclair Community Hospital, in Montclair, New Jersey ("Montclair Center"). The
Montclair Center utilized the Company's wound healing products and supplies to
treat patients suffering from acute and chronic wounds on an outpatient basis.
The Company closed the Montclair Center in July, 1995, but Management's review
of the Montclair Center's operations indicated that an outpatient wound center
("Center") could be viable as a profit center if the center had the financial
and physician support of a hospital that integrates the center into its overall
business. A larger healthcare facility, such as a hospital, has the ability to
spread costs over its operations structure, while having purchasing power and a
better financial base. Management believes hospitals will look to open
outpatient facilities to offset lower revenues from decreasing inpatient
populations and that outpatient wound centers could become a growth segment of
the healthcare industry. Based upon the information obtained from operating the
Montclair Center, Management developed the wound center management service
program ("Management Services") the Company presently markets to healthcare
facilities and physicians.
Under the Management Services plan, the Company managed centers function as full
service, multi-disciplinary treatment facilities that offer comprehensive
patient evaluations and aggressive wound therapy. The Company's personnel
provide clinical management and general consulting for the opening and operation
of a wound healing center, including ongoing on-site evaluation of the Center's
operations after the Center has opened. The Company is paid a fee directly from
the client, without the Company's personnel performing direct patient care.
<PAGE>
The Company provides clients, in addition to the clinical training and support
described below, assistance with the Center's marketing campaign, designing the
physical layout of the center, and setting up medical equipment and supplies
purchasing contracts. The Company's level of involvement in the client's
marketing campaign depends upon the capabilities of the client's internal
departments, but can include helping the client create marketing materials. The
Company plans to eventually pool groups of Centers, that are geographically
close, to create combined advertisement campaigns, with the costs being spread
out among all the clients involved. Regarding the physical layout of a Center,
the Company's personnel can assist a client in designing the Center and securing
furniture, and help the client establish a medical supplies and equipment
network, including medical billing systems. The Company, however, does not
directly sell products to the client, or its patients, and does not perform any
insurance or patient billing related to the center's services. Overall, the
client agrees to clinically operate the center in accordance the Company's
assessment and treatment protocols, but the final decisions regarding the
business and operations portion of the Center, such as staffing, advertising and
physical layouts, are made and paid for by the client.
To create a comprehensive Management Services program, the Company developed a
proprietary Wound Healing Manual ("Manual") in coordination with a number
outside clinical researchers and physicians experienced in wound treatment.
These individuals continue to work with the Company's clinical personnel to
review and update the Manual when necessary. As part of a Management Services
agreement ("Services Agreement"), a client will receive a customized copy of the
Manual, training on the assessment and treatment protocols within the Manual,
and updates that contain changes in the Manual.
The Company's Wound Healing Manual contains protocols for the assessment and
treatment of a variety of wounds, from Diabetic Foot Ulcers and Decubitus Ulcers
(bed sores), to post-surgical and other acute wounds. The Company seeks to
provide clinicians with the ability to obtain the most comprehensive assessment
available, so that a treatment protocol can be patient-specific and altered
quickly to match changes in the wound during the healing process. The goal of
the Manual is to make the wound treatments more effective by providing the
physician with more information about the wound. The Company's assessment and
treatment protocols do not focus on a single tool, product or method. Rather,
the protocols utilize a full range of readily available commercial products and
supplies, with recommendations for use being based on when those products are
designed to work most effectively.
The Company's assessment protocols require that all new patients undergo a
complete history and physical, lab work, vascular testing on extremity wounds,
and any other tests deemed necessary. The protocols also call for the wound to
be photographed and eventually receive a scan utilizing the Company's Soft
Tissue Ultrasound Scanner, should the Company obtain an exemption from the FDA
marketing procedures and/or obtain marketing clearance for the device. See
"Medical Equipment Business - Soft Tissue Ultrasound Scanner" and "Government
Regulation". Once these procedures have been completed, the patient begins a
treatment program tailored to meet his or her needs.
The Company managed centers will be capable of treating patients suffering from
a wide range of wounds, including skin ulcerations due to diabetes, vascular
disease, burns and frostbite; post-surgical infections; decubitus ulcers (bed
sores); amputations and infected stumps; and gangrenous lesions. The Company's
assessment protocols utilize numerous diagnostic tools, including an
Ultrasound/Duplex Imager, a Doppler, a Transcutaneous PO2 Monitor, a vascular
testing system, and potentially the Soft Tissue Ultrasound Scanner. The
Company's treatment protocols utilize numerous commercially available,
non-invasive tools, including Therapeutic Ultrasound; Extremity whirlpools;
Compression Therapy; and Topical Hyperbaric Oxygen chambers. The treatment
protocols also utilize specialty wound dressings, topical antibiotics, and
pressure relief devices in a comprehensive program designed to stimulate the
body into the healing process.
<PAGE>
The Company also provides comprehensive training for the client's staff on the
wound assessment and treatment protocols contained within the Manual, including
training on any changes to the protocols that may be made in the future. The
Company's clinical staff will train the client's staff on the use of the
assessment and treatment equipment, products and supplies to be utilized at the
center, including the HBO products. The training is designed to teach the
client's staff about the Company's methods and philosophy towards wound
assessment and healing. The Company considers personnel training to be an
ongoing process, so the Management Services program includes continuous on-site
visits by the Company's clinical staff to ensure compliance with the Company's
protocols, and to be sure the client's staff understand the Company's protocols.
The client can request on-site visits, but beyond a specific number of visits,
as specified in a Services Agreement, the client will be charged for the on-site
visit.
All examinations and procedures rendered at a Center are eligible for
reimbursement by Medicare, except for the Topical Hyperbaric Oxygen therapy.
Each treatment procedure and product or supply used has a reimbursement code and
scheduled fee under the Medicare regulations. See "Governmental Regulations".
The HBO products are used as an additional treatment device, in conjunction with
the other available treatments, with payment for this treatment coming from
either private insurance carriers, if applicable, or the patient. The Company,
however, receives payment directly from the Management Services client, pursuant
to its Services Agreement, regardless of whether the client or patient receives
reimbursement from Medicare, or other insurance carrier.
The Company executed its first Services Agreement with the West Jersey Health
System ("West Jersey") in July, 1995. See Exhibit 10.26. The Company executed
its second Services Agreement with West Hudson Hospital ("West Hudson") in
January, 1996. The West Hudson Agreement has an initial term of two years, with
yearly renewals thereafter. Under the Services Agreement, the Company received a
$10,000 start-up fee and will receive $5,000 per month for the length of the
initial term. The Company agreed to provide West Hudson with two THBO Chambers
as part of the Agreement, with additional Chambers available for West Hudson to
rent at $800 per month. West Hudson provided the funds necessary for the use of
a Soft Tissue Ultrasound Scanner at the Center, and have taken delivery. See
Exhibit 10.28 and "Medical Equipment Business - Soft Tissue Ultrasound Scanner".
The Company maintains a General Liability policy and a Liability Umbrella policy
to provide coverage for the consulting services it provides. This multi-peril
policy provides for a total of $3,000,000 in coverage per occurrence. The
coverage of these policies can be expanded to include new Centers the Company
may service in the future. Management believes these policies provide adequate
insurance coverage based on the liability risks of the business.
Future Centers
The Company expects new wound healing centers to be located within or adjacent
to (i) existing hospitals, (ii) within physicians' offices that provide the same
level of services, and see the same number of patients, as the hospital-based
Centers, and (iii) within physicians' offices that provide services to smaller
patient populations. While the Company has reduced its capital needs for general
operations, the Company's current financial status may adversely affect the
Company's ability to enter into additional Service Agreements. Also, there can
be no assurance that the Company will obtain any additional clients in the
future.
<PAGE>
Medical Equipment Business
In 1997 the company relied less on medical supply sales and rental revenues, in
comparison to the revenues from 1996. The Company has no contractual agreements
with any suppliers for any products, and is working with outside engineering
firms to conduct research and development of a its Soft Tissue Ultrasound
Scanner developed by UMDS. See "Medical Equipment Business - Ultrasound Soft
Tissue Scanner". The Company continues to market the Sacral Units on a
non-exclusive basis. See "Topical Hyperbaric Oxygen Units" below.
Topical Hyperbaric Oxygen Products
The Company continues to market Topical Hyperbaric Oxygen ("HBO") products, that
apply oxygen under pressure to wound sites in order to reduce wound healing
time, as part of its Management Services program and as a stand alone treatment
device. The Company rents and sells "rigid" HBOs (sometimes referred to as
"Chambers"), which treat wound sites on extremities (primarily arms and legs) by
delivering oxygen intermittently in a humid condition, along with disposable
HBOs ("Sacral Units"), which are soft sided and deliver moist oxygen to the
lower back and buttocks, primarily to treat decubitus ulcers.
Currently, the Company owns less than 50 Chambers, renting approximately 30% of
its Chambers to non-affiliated third parties, and offers the Sacral Units for
sale. Rental rates for the Chambers average $60 per day for individual patients
and $500 per month for dealers while sales prices for the Sacral Units average
$45 each to dealers and $75 each to end users. Neither the Chambers nor the
Sacral Units are Medicare reimbursable, which means that Medicare will not
reimburse the patient or the provider for use of either HBO product, thereby
reducing the marketability of the products. The revenues generated by the HBO
products are predominately from the rental of Chambers with monthly rental
charges to independent dealers who, in turn, market the HBO Chambers. The
Company also receives revenues from hospitals and nursing facilities that rent
or buy the HBO products directly from the Company. The dealers, hospital and
nursing facilities are charged regardless of their ability to obtain payment or
reimbursement from Medicare or the patient. Further, numerous private health
insurance companies reimburse patients for HBO costs.
The Company markets Sacral Units on a non-exclusive basis by purchasing the
units from Healing Systems, Inc. ("HSI"). The Company expects to be able to
obtain the Sacral Units from HSI on an as needed basis, although there can be no
assurance that the Company will be able to continue to purchase such products
through HSI.
HSI purchased the patent for the Sacral Units from Supra ("Sacral Patent"), but
the agreement is currently the subject of litigation between HSI and Supra. If
HSI is unsuccessful in its litigation with Supra, the Company may be unable to
market the HSI Sacral Units. In November, 1993 the Company purchased a patent
covering an earlier developed Sacral Unit which has FDA marketing permission.
See "Patents." The Patent expired in 1997. The Company does not intend to
develop a new Sacral Unit. The Company's relationship with HSI is strictly as a
customer of HSI for the purchase of Sacral Units. The Company places orders for
the purchase of Sacral units as needed. The Company had secured, at no expense
to the Company, an option to purchase the Sacral patent and any raw materials
from HSI, at the same price HSI paid for the patent and materials, as part of
the now expired Exclusive Marketing Agreement. The purchase option, which has
expired, only took effect if HSI succeeded in the patent litigation between it
and Supra, and exercising of the option was at the discretion of the Company.
See "Item 12 - Certain Relationships and Related Transactions" and "Business -
Patents".
Soft Tissue Ultrasound Scanner
As part of the settlement of the Supra Medical federal lawsuit (See "Item 3 -
Legal proceedings"), the Company has been assigned the patent and intellectual
property rights to the ultrasound scanner technology by the United Medical and
Dental Schools of Guy's and St. Thomas Hospitals ("UMDS") located in London,
England. The Company has already started the final stages of development for the
Scanner, and to develop an information database that makes the Scanner a
commercially viable product. Additionally, since the Scanners will be utilized
at Company managed Centers, the Company does not expect to incur significant
research and development costs during the final research phase.
<PAGE>
The Scanner can produce a high resolution image of the skin, and tissue just
below the skin, by picking up the pattern of the skin and tissue. This type of
imaging may allow a clinician to check the status of a wound, and the
surrounding tissue, without having to cut the patient or stick a probing device
into the fragile wound bed. When used with a coupling gel, the Scanner's
ultrasound can penetrate through certain types of wound dressings and produce an
image, thus avoiding risks of infection and protecting the wound surface during
the scanning process. The Scanner is expected to produce an image with an axial
resolution of 65 microns and a lateral resolution of 200 microns. The image can
then be analyzed, through a proprietary image analysis program designed at UMDS.
The image analysis system provides a mathematical "signature" of the skin and
tissue, and is capable of detecting small changes to the tissue, before they
become clinically evident. The image analysis may permit clinicians to recognize
the improvement, or deterioration, of a wound earlier than present methods
allow, so that treatments can be modified quickly, leading to potentially large
savings in treatment time and expense. The Scanner can examine tissue up to 2
centimeters below the skin, and may provide clinicians with the ability to image
a patient's skin, subcutaneous tissue and even tendons. Because the Scanner is
new to the Company, the Company anticipates having to file for marketing
permission with the U.S. Food and Drug Administration ("FDA"). See "Government
Regulation". The Company continues to analyze the requirements of the FDA
filings, to determine the filings that will be required and the related costs,
but a final decision has not yet been made. Due to the Company's financial
status, however, there can be no assurance the Company will have, or be able to
obtain, the funds to complete the FDA filing process.
Competition
The Company's expects to compete against hospitals that seek to open their own
wound centers. Management anticipates, however, that the Company will be able to
obtain contracts with a number of these hospitals by offering them a flexible
Management Services plan that can provide the facility with highly specialized
clinical management at affordable rates. Whether the Company competes with a
particular hospital, or makes that hospital a client, will depend on the
internal capabilities of that hospital with respect to wound healing programs.
The Company also expects to compete with Curative Technologies, Inc. ("CTI") to
obtain Management Service contracts with hospitals and, if the Company
establishes additional wound healing centers, those centers, depending upon
their location, may compete with CTI centers that already operate within a
specific geographic region. CTI is a larger, better capitalized and more
recognized company that markets wound center franchises under a plan similar to
the Company's. Management, however, believes the Company can successfully
compete against CTI due to differences between the companies' programs. First,
the expenses incurred by a hospital in setting up a CTI franchise are much
higher than those incurred in setting up a Company managed center. Second, the
Company's protocols are non-invasive, focus on a comprehensive assessment of
wounds, and utilize flexible, individualized treatment programs. CTI's programs
focus on a proprietary, but expensive and invasive, treatment method that
decreases the ability to individualize treatment programs. Lastly, the Company's
centers are capable of treating more types of wounds than the CTI managed
centers and the Company believes its strictly non-invasive approach to be more
appealing to hospitals and patients.
With respect to the Company's HBO products, the Company markets the Sacral Units
through a non-exclusive agreement with HSI, whose purchase of its patent for
Sacral Units is being disputed by Supra, the Seller of the patent. Accordingly,
Supra at some point may be a direct competitor in the marketing of the HSI
Sacral Unit. The Company remains in minor competition with Wound Healing
Systems, Inc. ("WHS"), an affiliate, and Wound Care Systems, Inc. ("WCS") in the
sale and rental of Chambers in the regions where the Company currently conducts
business. WHS remains under agreement with the Company not to increase its
Chamber inventory above its original level, permitting WHS to replace broken
chambers.
<PAGE>
Marketing
Chambers and Sacral Units are marketed directly by representatives of the
Company to hospitals, nursing homes and physicians.
On February 19, 1996, the Company executed an Agreement with Martin Rosenblum &
Associates, Inc. ("MRA"), a nonaffiliate, under which MRA will market the
Company's Management Services program on a nonexclusive basis. Under the
Agreement, MRA agrees to use best efforts to market the Company's Services and
will receive a commission of 20% of all business generated by MRA. See Exhibit
10.30.
The Company has also entered into agreements with non-affiliates in Pennsylvania
(National Health & Services Corporation and GWR Medical, L.L.P.) and Mississippi
(Professional Home Care Services), for the promotion of all aspects of
Longport's business, including HBO sales and rentals and the establishment of
additional wound centers. These agreements, and future agreements similar to
these, require the licensee to pay the Company a flat monthly fee for the right
to market Longport's products and services, and generally includes a split of
the gross revenues from the applicable business generated by the licensee.
Government Regulation
The changing of the Company's operations, from direct selling of product to
providing consulting services, eliminates the Company's need to perform Medicare
billings. Thus, the guidelines concerning billing for wound products and
supplies no longer apply to the Company's operations. The HBO products are not
Medicare reimbursable, so the Medicare guidelines do not affect this portion of
the Company's business. The Company, however, must comply with certain
government regulations regarding the Scanner and HBO products.
The Company must be granted permission through the United States Food and Drug
Administration ("FDA"), and possibly other domestic and foreign authorities to
market the Company's medical devices, the HBO products and the Soft Tissue
Ultrasound Scanner. These authorities also regulate labeling, advertising and
other forms of product claims.
The Federal Food, Drug and Cosmetic Act requires the Company to file a
pre-marketing notice of intent to market with the FDA on all medical devices.
The notice seeks the FDA's permission to market the product. Devices
manufactured and marketed before 1976, and any devices substantially equivalent
to such device, may fall within the regulations' "grandfather" clause. This
clause exempts the manufacturer from having to submit the device for FDA
permission and allows the device to be taken directly to the market. Devices
developed after 1976, or devices that differ substantially from a legally
marketed predicate device, must receive the FDA's permission before marketing to
the public may begin. These devices are also subject to reviews by the FDA after
the pre-market review process, with devices that are potentially life-
threatening being subject to more stringent standards. The HBO's marketed by the
Company were first developed and patented prior to 1976. The current version of
the HBO's remain substantially equivalent to the pre-1976 devices and, to the
best of the Company's knowledge, may continue to be marketed under current FDA
regulations.
The Scanner is subject to FDA regulations regarding the introduction of medical
devices into commerce within the United States markets. The research,
development, testing, production, and marketing of new medical products are
subject to extensive governmental regulation in the United States. Noncompliance
with these regulations may result in recall or seizure of products, total or
partial suspension of production, refusal of the government to allow clinical
studies or commercial distribution of the device, civil penalties or fines, and
criminal prosecution.
<PAGE>
Pursuant to the Federal Food Drug and Cosmetic Act (the "FDA Act"), a medical
device will be classified as either a Class I, Class II or Class III device.
Class I devices are subject to general controls, including registration, device
listing, record-keeping requirements, labeling requirements and "Good
Manufacturing Practices" (as such term is defined in the FDA Act). In addition
to general controls, Class II devices may be subject to special controls that
could include performance standards, postmarket surveillance, patient
registries, guidelines, recommendations and other actions as the FDA deems
necessary to provide reasonable assurance of safety and effectiveness. Class III
devices must meet the most stringent regulatory requirements and must be
approved by the FDA before they can be marketed. Such premarket approval can
involve extensive pre-clinical and clinical testing to prove safety and
effectiveness of the devices.
All medical devices introduced to the market since 1976 are required by the FDA,
as a condition of marketing, to secure either a 510(k) premarket clearance or an
approved Premarket Approval Application ("PMA"). A product qualifies for a
510(k) premarket notification clearance if it is substantially equivalent in
terms of safety, effectiveness, and intended use to another legally marketed
medical device. If a product is not substantially equivalent to such a device,
the FDA must first approve a PMA application before it can be marketed. An
approved PMA application indicates that the FDA has determined the device has
been proven, through submission of clinical data and supporting information, to
be safe and effective for its labeled indications. The PMA process typically
takes more than a year and requires the submission of significant quantities of
clinical data and supporting information, While the process of obtaining a
510(k) clearance typically takes less than one year and involves the submission
of less clinical data and supporting information.
An entity must file with the FDA even if the device is simply "new" to the
particular entity, and is otherwise a well known device in the marketplace.
Since the Scanner, if it achieves commercial viability, will be introduced into
commerce within the United States for the first time by the Company, it will be
considered a "new device" under FDA regulations and will require appropriate
filings with the FDA. The FDA has already classified and approved other
diagnostic ultrasound devices, that the Company believes are substantially
equivalent to the Scanner, as Class II medical devices. The Company expects that
a 510(k) premarket notification clearance will be required and, in conjunction
with UMDS, has begun assembling the information needed to complete all necessary
filings, including the identification of the legally marketed device that is the
most equivalent with the Scanner. The FDA filing, and all expenses incurred in
connection with such, will be the responsibility of UMDS, since UMDS owns the
rights to the technology. Thus, the Company does not anticipate expenses that
will materially effect its finances. The Company, however, cannot make
assurances that the Scanner will become commercially viable nor that the Scanner
will achieve FDA clearance for its market entry.
In order for the Company to utilize the Scanner in clinical studies prior to FDA
clearance for market entry, the Company must obtain an Investigational Device
Exemption ("IDE") from the FDA regulations. The IDE permits entities to conduct
clinical studies on a medical device that has not received FDA concurrence for
introduction into commerce. The exemption rules were created by Congress, and
have been codified at 21 USC ss.360j(g). By definition, investigational devices,
for the purpose of an IDE, are broken into two groups, those that pose a
significant risk to patients and those that pose a nonsignificant risk to
patients. Those that pose significant risk to patients must obtain an approval
from the FDA to conduct pre-market clinical studies. This process may require
the filing of significant quantities of pre-study data and clinical study plans.
Those devices that pose a nonsignificant risk to patients must still have a
clinical study plan approved, but the oversight body can be an FDA recognized
Institutional Review Board ("IRB") that acts as the FDA's representative for the
purpose of approval and oversight of clinical studies.
The Company believes that under the parameters set forth in the FDA Act, the
Scanner, since it is a non-invasive device, poses a nonsignificant risk to
patients. This would enable the Company to conduct any necessary studies more
quickly and at significantly reduced costs. Also, the receipt of a clinical
study approval will permit the Company to conduct clinical studies while UMDS
undergoes the FDA marketing permission process.
<PAGE>
The Company is currently involved in negotiations for the utilization of an IRB
and is developing a formal clinical study plan. Upon agreement from an
institution, the Company will submit its clinical study plan and information on
the Scanner to the IRB who will then decide whether the device poses a
nonsignificant risk and whether it approves the clinical study plan. If the
Company receives approval from the IRB, the Company intends to conduct clinical
studies in conjunction with the operation of the Wound Healing Centers open at
that time, including the West Jersey and West Hudson Centers. The Company does
not expect to incur significant expenses in connection with the conducting of
those studies. The Company, however, cannot place a definitive time frame on
when an IRB will be selected or when the clinical plan will be presented, nor
can the Company assure that the clinical studies will be approved.
The FDA has established manufacturing (and sterilization) standards for medical
device manufacturers, known as "Good Manufacturing Practices". These standards
require any manufacturing facility to be registered annually and submit to
regular inspections. Therefore, if the Company begins manufacturing any devices,
the manufacturing facility would have to comply with these regulations. The
Company does not intend to directly manufacture any medical devices. Rather, the
Company intends to outsource any manufacturing operations that may develop in
the future.
Patents
The Company acquired a patent ("Stivala Patent") covering a Sacral Unit from an
unaffiliated individual for a purchase price of $10,000, 20,000 shares of the
Company's Common Stock and a royalty of $1.00 for each Sacral Unit sold, if any.
The patent expired in 1997. The Sacral Unit may be manufactured and sold by
anyone. Moreover, other patents have been granted for Sacral Units, and new
patents may be granted in the future. The Company has not manufactured any
Sacral Units under the patent and can give no assurance that it will do so.
In December, 1993, the Company acquired all development rights and the right to
file for a patent on a portable Chamber being developed by Richard Mazzolla, a
non-affiliate, in exchange for which Mr. Mazzolla was granted the exclusive
right to manufacture the Chamber for four years, received 10,000 shares of the
Company's restricted Common Stock and will be paid the costs for development and
design of the Chamber, $3,000 of which has been paid. Further, Mr. Mazzolla will
also receive an option to purchase an additional 25,000 shares of restricted
Common Stock, at $.50 per share, if a U.S. patent is granted on his new chamber
design. The Company currently does not intend to pursue the development of a new
Chamber.
See also "Medical Equipment Business - Ultrasound Scanner" regarding the
company's assignment of the Scanner patent and intellectual property rights from
UMDS.
Employees
The Company has an agreement with Colpat, Inc., an affiliate owned and
controlled by the its President and CEO, James R. McGonigle, for services
rendered to the Company. Mr. McGonigle devotes 100% of his time on Company
business. The Company also has agreements with Bonita Weyrauch, R.N. to provide
clinical services and Patricia McGonigle of Wound Healing Services to provide
office administration services.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases approximately 1,000 square foot office building at 791 South
Chester Road, Swarthmore, Pennsylvania. The Company pays the Lessor $550 per
month. See "Item 6. - Liquidity and Capital Resources" below.
ITEM 3. LEGAL PROCEEDINGS.
By agreement, the Supra Medical Corp litigation entitled "Longport, Inc. vs.
Supra Medical Corp. et al" civil action no. 95-14754 in the Court of Common
Pleas of Delaware County, Pennsylvania) has been settled and dismissed. The
Company paid nothing to Supra under the settlement agreement, but agreed to
withdraw its counterclaim.
Also, by agreement, and Court Order, dated September 16, 1997, the federal
lawsuit instituted by Supra, entitled Supra Medical Corp. v. James R. McGonigle,
et al., civil action no. 96-3737, has been settled and dismissed by the Court
with prejudice to the defendants. Under this agreement, the Company paid no
money to Supra Medical, and has been assigned the patent and intellectual
property rights held by UMDS. See "Medical Equipment Business - Ultrasound
Scanner" above.
As a result of these settlements, the Company no longer has any active
litigation in which it is a named defendant. However, the Company has joined
with James R. McGonigle in filing a lawsuit against the law firms Supra Medical
hired to prosecute the federal court litigation. The suit, entitled Longport,
Inc., in its own right and on behalf of its shareholders, and James R. McGonigle
v. Rosner, Bresler, Goodman & Buckholz, et al., has been filed in the
Philadelphia Court of Common Pleas. The lawsuit alleges wrongful use of civil
proceedings and civil conspiracy against the defendants, and seeks compensatory
and punitive damages. As of the writing of this document, the complaint has been
filed with the courts and served on the named defendants.
In September 1997, the Company was notified of a Medicare Hearing Officer's
decision that the Company is liable for repayment of Medicare Benefit
Overpayments of $269,120. The Overpayments are from calendar years 1994 and
1995. The Company has appealed the Hearing Officer's decision. The Appeal will
be heard by an Administrative Law Judge. The Company has not been notified of a
hearing date. The Company is unable to predict the outcome of the Appeal.
However, Management believes that there were no Medicare Benefit Overpayments in
1994 and 1995 and will vigorously defend its position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on the Bulletin Board of the National
Quotation System under the symbol "LPTI" since September 7, 1994.
The following table sets forth for the quarters indicated the range of high and
low closing prices of the Company's Common Stock as reported by the National
Quotation Bureau, but does not include retail markup, markdown or commissions.
Price
--------------------------
By Quarter Ended: High Low
---- ----
Fiscal 1996
March 31, 1996 $ .25 $ .06
June 30, 1996 No Change
September 30, 1996 No Change
December 31, 1996 $ .31 $ .06
Fiscal 1997
March 31, 1997 $ .31 $ .06
June 30, 1997 $ .31 $. 06
September 30, 1997 $ .50 $ .06
December 31, 1997 $2.00 $ .31
Outstanding Shares and Shareholders of Record
As of February 28, 1998 there were 15,111,282 shares outstanding held by
approximately 300 record and beneficial stockholders.
Dividend Policy
The Company has never paid cash dividends on its Common Stock and intends to
retain earnings, if any, for use in the operation and expansion of its business.
The amount of future dividends, if any, will be determined by the Board of
Directors based upon the Company's earnings, financial condition, capital
requirements and other conditions.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company was formed in January, 1993, primarily to market Topical Hyperbaric
Oxygen products. During 1993 and 1994, the Company developed plans to open its
own Wound Healing Center at the Montclair Community Hospital. Also, during 1993
the Company expanded its marketing efforts to include a full array of wound care
related products, through its subsidiary, LMI. The Company consistently
experienced receivables problems on the business generated by LMI and ceased
LMI's operations in 1995 due to these problems. The Company also closed the
Montclair Center in 1995 due to increasing costs. The Company's current
operations focus on providing consulting services and clinically managing wound
healing centers for healthcare facilities. The Company has experienced losses
since formation, but during 1996 greatly reduced its monthly expenses and
overall debt. The Company expects to expand its services business in 1997 by
obtaining additional Service Agreements.
Results of Operations
The year ended December 31, 1997, vs. year ended December 31, 1996
Total Revenues for 1997 essentially equaled those of 1996, $171,786 and $172,171
respectively. While revenues from medical supplies and equipment sales and
rentals decreased, revenues generated from Wound Center management fees
increased by 38.07%, $136,000 for 1997 and $98,500 for 1996. This change
reflects the shift in the Company's business away from a reliance on sales and
rentals to its management services segment. The Company expects this difference
to remain and increase in the future as it anticipates revenues from future
management agreements to outpace revenues from equipment sales and rentals
The Company's Total Expenses have again been reduced between 1997 and 1996,
$365,357 and $394,954 respectively. While the overall reduction is not
significant, representing only a 7.49% decrease, the shift in where the expenses
were incurred are important and reflect the changes the Company has undergone as
a result of the assignment of the Scanner rights. The Company's costs related to
its supplies and equipment sales and rentals have been reduced by 67.55%,
$18,581 for 1997 vs. $57,267 for 1996. General and Administrative expenses
essentially remained the same, but expenses related to Research and Development
increased from $669 for 1996 to $24,000 for 1997. This change better reflects
the Company's commitment to the development of the Scanner technology and how it
may impact the management services portion of the Company's business. The
Company expects Research and Development expenses related to the Scanner to
increase over time, but these expenses are necessary to the securing of FDA
clearance to market the Scanner.
The Company continues to experience a Net Loss, but it has reduced that Loss
from $357,429 for 1996 to $214,681 for 1997, a 39.94% decrease. However, part of
the 1996 loss consisted of a one-time loss on asset disposals totaling $127,741.
If this loss is not considered, the Company's Net Loss between 1997 and 1996
remains essentially the same.
The Company has again improved its balance sheet, with the most significant
difference being in the Company's Total liabilities. The again Company reduced
its Total Liabilities, from $138,218 as of December 31, 1996, to $12,847 as of
December 31, 1997, a 90.70% decrease. The Company no longer has any Long Term
debt.
<PAGE>
The year ended December 31, 1996, vs. year ended December 31, 1995
Total Revenues declined for the second year in a row. The Revenues for 1996 were
69.19% lower than the revenues for 1995, $172,171 and $558,866 respectively.
This decrease can be attributed to the reorganization of the Company and its
operations. The 1995 figures included at least one full quarter of revenues from
the now-closed LMI operations. A significant difference between the revenues
figures comes from the fact that a majority of the 1995 revenues, specifically
those to medical supplies sales and rentals, were never collected, while the
vast majority of the revenues for 1996 have already been collected. In
Management's opinion, the revenues for 1996 create a better basis to which
future performance can be compared.
While the revenues attributed to Management Fees are significantly higher in
1996, $98,500, as compared to 1995's revenues of $24,251, Management believes
this is not an adequate comparison since the first management agreement was not
executed until July, 1995. Management expects revenues from Management Services
to continue to climb through 1997. The other segments of revenues are not fair
comparisons due to the revenues reflected for 1995 from uncollected LMI revenues
during the first quarter of 1995.
One of Management's goals for 1996 was to get its expenses under control, payoff
all of the Company's old Trade Accounts, and reduce the Company's overall debt
as much as possible. Management believes it has accomplished the majority of its
goals. The Company's expenses have been greatly reduced, a 72.82% change from
1995 ($1,453,310) to 1996 ($394,954). This success can be attributed in part to
the closing of the LMI facility and the Montclair Center, and to Management's
efforts to reduce the expenses incurred in operating the Company under its new
structure. Management intends to continue its efforts to review expenses and cut
waste when appropriate.
Perhaps the Company's most significant reduction has been in Accounts Payable,
where the Company has reduced the figure from $431,598 as of December 31, 1995,
to $49,032 as of December 31, 1996. A 88.64% reduction. More importantly, the
1996 figure contains only current accounts, no old accounts. Management has
succeeded in eliminating all of the Company's, including LMI's, old trade debts
and now has the Company dealing with current accounts only. As part of
Management's efforts to keep expenses down, it expects that the accounts payable
and debt will also remain under control. Overall, the Company's liabilities have
been reduced by 83.09%, between December 31, 1995 and December 31, 1996,
$817,571 and $138,218 respectively. The reduction in Long Term Debt occurred
when the Company was forced to return the title to its office building to the
original seller and mortgage holder. Management was forced into this decision as
a result of the Supra Medical lawsuit filed in the Federal Eastern District
Court of Pennsylvania. See "Item 3. Legal Proceedings" and "Management's
Analysis and Discussion - Liquidity and Capital Resources". Management intends
to continue its efforts to completely eliminate all debts of the Company through
1997.
The Operating Loss for 1996 is significantly lower, when compared to 1995,
$222,783 and $894,444 respectively, a 75.09% decrease. This change can be
attributed to the reduction in expenses and a more reliable revenue stream from
the Company's new operations. Management strived to make its expenses coincide
with the Company's new operations. By the end of 1996, Management has become
confident that it has succeeded in this goal and that the Company is in a better
position from which to grow.
<PAGE>
Strategy to Achieve Profitable Operations
During 1997, the Company began new growth under its services-oriented plan.
Management believes that the Company's restructuring places it in a better
position to continue an expansion as a services oriented operation. In 1997,
Management focused its efforts on refining the Management Services Program for
opening wound centers and implementing wound programs, while also concentrating
efforts on reducing the Company's overall debts. The Company believes that
healthcare facilities, mainly hospitals, will be attempting to open more
outpatient operations, to make up for lost revenues due to lower inpatient
populations. Management has identified the wound market as one of the healthcare
industries growth segments and believes the Company can expand and become
profitable by entering into Service Agreements with additional healthcare
facilities.
The Company anticipates an increase in revenues in 1998, mainly through
additional Management Agreements and Marketing/License Agreements. The operation
of a services based company requires fewer expenditures, including those related
to the opening of additional wound centers since they will be owned and operated
by unaffiliated third parties. In 1997, the Company entered into license
agreements for the marketing of its products and services. Management expects to
enter into similar agreements with other entities. Under these agreements, the
marketing company pays Longport a monthly license fee and a portion of the
revenues generated by the licensee. The Company intends enter into similar
agreements, ensuring that marketing expenses are incurred upon the generation of
revenues.
The Company continues to experience cash flow problems, with little working
capital. The restructuring of the operations, however, has greatly lowered the
monthly expenditures, and reduced the overall cash flow problem. The Company
anticipates further reduction of this problem as it enters into additional
Management Services Agreements.
The Company anticipates continued growth in revenues from the marketing of its
wound healing services program and the management of new Wound Healing Centers
over the next 12 months. Management will continue to work to reduce the levels
of overall debt and monthly expenses, so that the expenses incurred on a regular
basis better reflect a services-based operation with fewer capital needs. In
addition, the Company is exploring the possibilities of debt or equity
financing, but can make no assurance that such financing, either debt or equity,
can be effectuated.
Liquidity and Capital Resources
Through December 31, 1997, the Company continued to sell shares of its Common
Stock to private investors. Management expects to continue this practice, when
deemed in the best interest of the Company and its shareholders. The Company
does not expect to incur any significant short-term or long-term debts within
the next twelve months.
In 1997, sold a total of 1,811,147 shares of its restricted Common Stock to
current and new shareholders. The shares were sold between $.12 and $.25 per
share, netting the Company a total of $270,326.
In January, 1997, the Company sold 301,147 shares of restricted Common Stock to
a current shareholder and a non-affiliate. In April a current shareholder
purchased an addition 700,000 shares. In May the Company sold 100,000 shares to
current shareholders. In October, 1997, the Company sold 310,000 shares to a
current shareholder. In November, the Company sold 400,000 shares to current and
new shareholders.
<PAGE>
The Company also issued 100,000 shares to its employee, Bonita K. Weyrauch, as
payment on debts due from the Company. The Company and employee agreed that the
debt totaled $12,000, with the shares being issued at the rate of twelve ($.12)
cents per share. The Company also issued 40,000 shares as conversion of the last
unsecured Note Payable and 50,000 shares to a current shareholder who exercised
an option. The option permitted the shareholder to purchase shares of the
Company's restricted Common Stock at $.15 per share.
The Company continues to service the Wound Healing Centers at West Jersey Health
System and West Hudson Hospital. Each client has purchased and rented additional
supplies and equipment from the Company, providing revenues in excess of the
management fees. The Company anticipates continued growth from sales of its
products along with the addition of other management contracts for the opening
and managing of wound centers over the next twelve months. These Wound Centers
would be owned and funded by entities other than the Company, thus reducing the
necessity of cash outlays to purchase start-up materials and operate the center.
In addition, the Company continues to explore the possibility of debt financing
and public or private placements of its common stock, but cannot provide any
assurances that any such financing can be secured.
Commitments
The Company's only long term commitment, as to the use of cash, is the Retained
agreement it signed with the law firm of Bochetto and Lentz, the law firm
representing the Company in its lawsuit against the Supra Medical law firms. For
1997, the Company paid a total of $15,000 as their retainer.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Statements made under Item 6, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and other statements within this
document, that are not historical facts are forward looking statements that
involve risks and uncertainties, including but not limited to, market acceptance
risks, the effect of economic conditions, the impact of competition, product
development, commercialization and technology difficulties, the results of
financing efforts, legal circumstances, and other risks detailed in the
Company's Securities and Exchange Commission filings.
ITEM 7. FINANCIAL STATEMENTS
See page F-1.
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements Page
- -------------------- ----
Independent Auditors' Report F-2
Consolidated Balance Sheet as of December 31, 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 F-5
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 F-7
Notes To Consolidated Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Longport, Inc.
We have audited the accompanying consolidated balance sheet of Longport, Inc.
and Subsidiary as of December 31, 1997, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Longport, Inc. and
Subsidiary as of December 31, 1997 and the consolidated results of its
operations and its cash flows for the years ended December 31, 1997 and 1996 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 financial statements,
the Company incurred a net loss of $214,681 during the year ended December 31,
1997. As discussed in Note 1 to the financial statements, the Company's
significant operating losses raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Angell & Deering
Certified Public Accountants
Denver, Colorado
February 24, 1998
F-2
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
------
Current Assets:
Cash and cash equivalents $ 36,397
Accounts receivable:
Trade, net of allowance for doubtful accounts of $3,600 4,276
Other 1,200
Interest 1,887
Inventories 2,200
Prepaid expenses 19,500
Current portion of note receivable 16,250
---------
Total Current Assets 81,710
---------
Property and Equipment, at cost:
Medical equipment 290,658
Computer equipment 6,615
Office furniture and equipment 7,901
---------
305,174
Less accumulated depreciation (262,367)
---------
Net Property and Equipment 42,807
---------
Other Assets:
Note receivable, net of current portion above 2,500
Intangible assets, net of accumulated amortization of $83,333 24,167
---------
Total Other Assets 26,667
---------
Total Assets $ 151,184
=========
The accompanying notes are an integral
part of these consolidated financial statements.
F-3
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 5,526
Accrued income taxes 3,173
Deferred revenue 3,500
Current portion of long-term debt 648
-----------
Total Current Liabilities 12,847
-----------
Long-term debt, net of current portion above --
-----------
Commitments and Contingencies --
Stockholders' Equity:
Preferred stock: $.001 par value, 1,000,000 shares authorized,
none issued or outstanding --
Common stock: $.001 par value, 25,000,000 shares authorized,
14,856,282 shares issued and outstanding 14,856
Paid in capital 2,615,354
Accumulated deficit (2,486,873)
-----------
143,337
Less treasury stock, at cost (30,000 common shares) (5,000)
-----------
Total Stockholders' Equity 138,337
-----------
Total Liabilities and Stockholders' Equity $ 151,184
===========
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Net Revenues:
Medical supply sales $ 18,786 $ 28,190
Medical equipment rentals 17,000 45,481
Wound clinic management fees 136,000 98,500
------------ ------------
Total Revenues 171,786 172,171
------------ ------------
Operating Expenses:
Cost of medical supply sales 13,133 5,979
Cost of medical equipment rentals 5,448 51,288
General and administrative 322,776 337,018
Research and development expense 24,000 669
------------ ------------
Total Operating Expenses 365,357 394,954
------------ ------------
Operating Income (Loss) (193,571) (222,783)
------------ ------------
Other Income (Expense):
Interest income 325 3,900
Other income 4,488 --
Loss on disposal of assets (21,407) (127,741)
Interest expense (5,412) (58,118)
------------ ------------
Total Other Income (Expense) (22,006) (181,959)
------------ ------------
Income (Loss) Before Provision for
Income Taxes and Extraordinary Gain (215,577) (404,742)
Provision for income taxes 3,759 1,548
------------ ------------
Income (Loss) Before Extraordinary Gain (219,336) (406,290)
Extraordinary Gain - Extinguishment of Debt 4,655 48,861
------------ ------------
Net Loss $ (214,681) $ (357,429)
============ ============
Net Loss Per Share of Common Stock:
Basic:
Loss before extraordinary gain $ (.02) $ (.03)
Extraordinary gain -- --
------------ ------------
Net Loss $ (.02) $ (.03)
============ ============
Diluted:
Loss before extraordinary gain $ (.02) $ (.03)
Extraordinary gain -- --
------------ ------------
Net Loss $ (.02) $ (.03)
============ ============
Weighted Average Number of
Common Shares Outstanding:
Basic: 13,874,970 11,155,874
Diluted 13,874,970 11,155,874
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
LONGPORT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Stock Treasury Stock
------------ Paid in Accumulated --------------
Shares Amount Capital Deficit Shares Amount
------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 8,116,995 $ 8,117 $ 1,760,240 $(1,914,763) -- $ --
Issuance of common stock for
cash at $.10 to $.12 per
share 2,303,333 2,303 260,697 -- -- --
Conversion of accounts payable
to common stock at $.10 to
$.51 per share 2,267,544 2,268 276,308 -- -- --
Conversion of notes payable
and accrued interest to
common stock at $.12 to
$.15 per share 167,263 167 23,673 -- -- --
Net Loss -- -- -- (357,429) -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 12,855,135 12,855 2,320,918 (2,272,192) -- --
Issuance of common stock for
cash at $.12 to $.25 per
share 1,811,147 1,811 270,326 -- -- --
Conversion of accrued expenses
to common stock at $.12 per
share 100,000 100 11,900 -- -- --
Conversion of note payable
to common stock at $.12 per
share 40,000 40 4,760 -- -- --
Issuance of common stock
upon exercise of stock option
at $.15 per share 50,000 50 7,450 -- -- --
Common stock returned to the
Company in exchange for
equipment at $.17 per
share -- -- -- -- (30,000) (5,000)
Net Loss -- -- -- (214,681) -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 14,856,282 $ 14,856 $ 2,615,354 $(2,486,873) (30,000) $ (5,000)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LONGPORT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $(214,681) $(357,429)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation and amortization 41,972 107,421
Repayment of notes receivable in consideration
for services provided 11,000 --
Provision for bad debts 18,171 (3,600)
Loss on disposal of assets 21,407 127,741
Gain on extinguishment of debt (4,655) (48,861)
Changes in assets and liabilities:
Decrease in accounts receivable 10,744 40,990
(Increase) in other receivables (1,525) (1,276)
(Increase) decrease in prepaid expenses (19,500) 4,813
Decrease in inventories 1,200 3,396
Decrease in deposits -- 579
Decrease in accounts payable and accrued expenses (44,566) (73,387)
--------- ---------
Net Cash (Used) By Operating Activities (180,433) (199,613)
--------- ---------
Cash Flows From Investing Activities:
Capital expenditures (20,132) (20,000)
Payments on notes receivable 13,750 2,500
--------- ---------
Net Cash (Used) By Investing Activities (6,382) (17,500)
--------- ---------
Cash Flows From Financing Activities:
Principal payments on notes payable (59,350) (43,388)
Issuance of common stock 279,637 263,000
--------- ---------
Net Cash Provided By Financing Activities 220,287 219,612
--------- ---------
Net Increase in Cash and Cash Equivalents 33,472 2,499
Cash and Cash Equivalents at Beginning of Year 2,925 426
--------- ---------
Cash and Cash Equivalents at End of Year $ 36,397 $ 2,925
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 4,500 $ 5,770
Income taxes 586 2,920
Supplemental Disclosure of Noncash Investing and Financing Activities:
Conversion of notes payable and accrued
interest into common stock $ 4,800 $ 23,840
Common stock issued for payment of accrued expenses 12,000 --
Conversion of accounts payable into common stock -- 278,576
Sale of equipment for treasury stock 5,000 --
The accompanying notes are an integral
part of these consolidated financial statements.
F-7
</TABLE>
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Description of Business
-----------------------
Longport, Inc. (the "Company") was incorporated January 22, 1993. The
Company was formed to market and distribute wound care products. In
1995, the Company began managing wound healing centers under
management services contracts.
Basis of Presentation
---------------------
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to obtain additional financing as may be required, and
to increase sales to a level where the Company becomes profitable.
Additionally, the Company has experienced extreme cash liquidity
shortfalls from operations.
The Company's continued existence is dependent upon its ability to
achieve its operating plan. Management's plan consists of the
following:
1. In 1995 and 1996, the Company restructured its operations to
begin opening and managing wound healing centers under management
services contracts. The Company intends to become a services
based Company and continue to reduce its general and
administrative expenses.
2. Sale of certain assets of the Company.
3. Obtaining additional equity capital through the sale of common
stock.
4. Potential exercise of outstanding common stock purchase warrants
and options.
If management cannot achieve its operating plan because of sales
shortfalls or other unfavorable events, the Company may find it
necessary to dispose of assets, or undertake other actions as may be
appropriate.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers
all highly liquid investments with a maturity of three months or less
at the date of purchase to be cash equivalents.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out pricing method. Inventories
consists entirely of finished goods.
Property and Equipment
----------------------
Depreciation of the primary asset classifications is calculated based
on the following estimated useful lives using the straight-line
method.
F-8
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
Property and Equipment (Continued)
----------------------------------
Classification Useful Life in Years
-------------- --------------------
Medical equipment 3-5
Computer equipment 5
Office furniture and equipment 5-10
Depreciation of property and equipment charged to operations is
$31,972 and $88,921 for the years ended December 31, 1997 and 1996,
respectively.
Intangible Assets
-----------------
Intangible assets are being amortized using the straight-line method
based on the following estimated useful lives.
Description Useful Life in Years
----------- --------------------
Patents 4
Goodwill 10
Scanner rights 5
Revenue Recognition
-------------------
The Company recognizes revenue from product sales upon shipment to the
customer. Revenue from medical services are recognized as the Company
performs the services.
Stock-Based Compensation
------------------------
During the year ended December 31, 1996, the Company adopted Statement
of Financial Accounting Standard (SFAS) No. 123, "Accounting for
Stock-Based Compensation". The Company will continue to measure
compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees".
Long-Lived Assets
-----------------
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", the Company reviews for the
impairment of long-lived assets, certain identifiable intangibles, and
associated goodwill, whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable.
An impairment loss would be recognized when the estimated future cash
flows is less than the carrying amount of the asset. No impairment
losses have been identified by the Company.
Income Taxes
------------
Deferred income taxes are provided for temporary differences between
the financial reporting and tax basis of assets and liabilities using
enacted tax laws and rates for the years when the differences are
expected to reverse.
Net (Loss) Per Share of Common Stock
------------------------------------
As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share", which
specifies the method of computation, presentation and disclosure for
earnings per share. SFAS No. 128 requires the presentation of two
earnings per share amounts, basic and diluted.
F-9
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
Net (Loss) Per Share of Common Stock (Continued)
------------------------------------------------
Basic earnings per share is calculated using the average number of
common shares outstanding. Diluted earnings per share is computed on
the basis of the average number of common shares outstanding plus the
dilutive effect of outstanding stock options using the "treasury
stock" method.
Estimates
---------
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Long-Term Debt
--------------
Obligation Under Capital Lease
------------------------------
15% installment note with monthly principal and interest
payments of $186, due in 1998, collateralized by equipment. $ 648
------
Total Long-Term Debt 648
Less current portion of long-term debt 648
------
Long-Term Debt $ --
======
Installments due on debt principal, including the capital lease, at
December 31, 1997 are as follows:
Year Ending December 31, 1998 $ 648
======
3. Income Taxes
------------
The Company has made no provision for income taxes because of
financial statement and tax losses. As of December 31, 1997 the
Company had net operating loss carryforwards of approximately
$2,300,000. The net operating loss carryforwards expire in the years
2008 through 2012.
At December 31, 1997 and 1996, the Company had a deferred tax asset of
approximately $715,000 and $660,000, respectively, resulting from net
operating loss carryforwards, which has been offset in its entirety by
a valuation allowance. The net change in the valuation allowance for
deferred tax assets was an increase of $55,000 related to benefits
from net operating loss carryforwards.
4. Warrants and Options
--------------------
Options
-------
The Company has granted stock options to employees, consultants and
other individuals. The outstanding agreements expire in July 1998. The
F-10
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Warrants and Options (Continued)
--------------------------------
Options (Continued)
-------------------
following table contains information on all of the Company's stock
options for the years ended December 31, 1997 and 1996.
Number of Option Price
Shares Per Share
------ ---------
Options outstanding at
December 31, 1995 594,000 $.10 to $1.00
Granted 150,000 $.15
Exercised -- --
Canceled (350,000) $.50 to $1.00
--------- -------------
Options outstanding at
December 31, 1996 394,000 $.10 to $.50
Granted -- --
Exercised (50,000) $.15
Canceled (150,000) $.15 to $.50
--------- -------------
Options outstanding at
December 31, 1997 194,000 $.10
========= =============
Warrants
--------
In November 1993, the Company sold 1,185,714 "Units" consisting of one
share of the Company's common stock and one common stock purchase
warrant for $.35 per unit. The Warrants entitle the holder to purchase
one share of the Company's common stock for $3.00 at anytime until
June 30, 1998. All 1,185,714 warrants are outstanding as of December
31, 1997.
5. Stock-Based Compensation Plans
------------------------------
The Company adopted Financial Accounting Standard No. 123, "Accounting
for Stock- Based Compensation" (SFAS 123) during the year ended
December 31, 1996. In accordance with the provisions of SFAS 123, the
Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees, " and related interpretations in accounting for its plans
and does not recognize compensation expense for its stock-based
compensation plans other than for options granted to non-employees.
The Company did not grant any employee stock options in 1997 or 1996.
The following table summarized information about stock based
compensation plans outstanding at December 31, 1997:
Options Outstanding and Exercisable by Price Range as of December 31,
1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life-Years Price Exercisable Price
------ ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ .10 194,000 .55 $.10 194,000 $.10
F-11
</TABLE>
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Preferred Stock
---------------
The authorized preferred stock of the Company consists of 1,000,000
shares, $.001 par value. The preferred stock may be issued in series
from time to time with such designation, rights, preferences and
limitations as the Board of Directors of the Company may determine by
resolution. The rights, preferences and limitations of separate series
of preferred stock may differ with respect to such matters as may be
determined by the Board of Directors, including without limitation,
the rate of dividends, method and nature of payment of dividends,
terms of redemption, amounts payable on liquidation, sinking fund
provisions (if any), conversion rights (if any), and voting rights.
Unless the nature of a particular transaction and applicable statutes
require approval, the Board of Directors has the authority to issue
these shares without shareholder approval.
7. Commitments and Contingencies
-----------------------------
Leases
------
The Company leases telephone equipment under a long-term leasing
arrangement. The Company's office facilities were leased under a
short-term lease which expired in March 1997. The Company currently
leases its office facilities on a month-to-month basis. The following
is a schedule of future minimum lease payments at December 31, 1997
under the Company's capital lease (together with the present value of
minimum lease payments) which has an initial noncancellable lease term
in excess of one year:
Year Ending Capital
December 31, Leases
------------ -------
1998 $ 1,116
-------
Total Future Minimum Lease Payments 1,116
Less Amount Representing Interest (468)
-------
Present Value of Future Capital Lease Obligations $ 648
=======
Rental expense charged to operations was $7,188 and $3,125 for the
years ended December 31, 1997 and 1996, respectively.
Leased equipment under capital leases as of December 31, 1997 is as
follows:
Equipment $ 6,549
Less accumulated amortization (2,489)
-------
Net Equipment Under Capital Leases $ 4,060
=======
Medicare Hearings
-----------------
In September 1997, the Company was notified of a Medicare Hearing
Officer's decision that the Company is liable for repayment of
Medicare Benefit Overpayments of $269,120. The Overpayments are
from calendar years 1994 and 1995. The Company has appealed the
Hearing Officer's decision. The Appeal will be heard by an
Administrative Law Judge. The Company has not been notified of a
hearing date. The Company is unable to predict the outcome of the
Appeal. However, Management believes that there were no Medicare
Benefit Overpayments in 1994 and 1995 and will vigorously defend
its position.
F-12
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments and Contingencies (Continued)
-----------------------------------------
Medicare Hearings (Continued)
-----------------------------
Payment of any judgement or settlement in connection with the Medicare
Benefit Overpayments Appeal together with the costs of defending the
Appeal, could adversely affect the Company's results or operations and
financial condition.
8. Related Party Transactions
--------------------------
The Company has entered into transactions with related entities, as
follows:
The Company borrowed $16,464 from Wound Healing Systems, Inc. ("WHS"),
a corporation controlled by the Company's President in August 1994
under a one year promissory note at 12% interest which had a balance
due of $3,000 as of December 31, 1996. The note was paid in full in
1997.
In 1996, the Company's President paid off the remaining $5,000 balance
of a Company note payable. Accordingly, the Company owed its President
$5,000 which was subsequently converted into 41,667 shares of the
Company's common stock ($.12 per share).
In 1996, two stockholders of the Company purchased certain accounts
payable and notes payable from creditors of the Company totalling
$228,594. The Company issued 2,223,140 shares of its common stock to
the stockholders as payment of these liabilities.
In June 1997, the Company sold six Hyperbaric Oxygen Chambers to WHS.
As payment WHS returned 30,000 shares of the Company's common stock to
the Company. The net book value ($5,000), of the chambers sold was
recorded as the value of the stock received (treasury stock).
In 1997, the Company elected to forgo repayment of two notes
receivable of $5,500 each from a former officer and a current officer.
The $5,500 notes receivable ($11,000 in total) have been expensed as
compensation.
The Company owed Healing Systems, Inc. ("Healing") $7,155. Healing
agreed to accept $2,500 as payment in full resulting in a gain on
forgiveness of debt of $4,655. Healing's President is a major
stockholder of the Company.
In January 1997, the Company's Vice President converted $12,000 of
accrued salary into 100,000 shares of the Company's common stock.
9. Loss on Disposal of Assets
--------------------------
Included in the loss on disposal of assets for the year ended December
31, 1996 is a $116,174 loss from the return of the Company's office
building to the mortgageholder in August 1996.
10. Extraordinary Gain
------------------
Included in the extraordinary gain are settlements of certain accounts
payable and notes payable for less than the amounts owed resulting in
a gain of $4,655 and $48,861 for the years ended December 31, 1997 and
1996, respectively.
F-13
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Concentration of Credit Risk and Major Customers
------------------------------------------------
The Company provides credit, in the normal course of business, to
hospitals, distributors, and others in the health care industry. The
Company's customers are located primarily in Pennsylvania and New
Jersey. The Company performs periodic credit evaluations of its
customers' financial condition and generally require no collateral.
The Company maintains reserves for potential credit losses.
Revenues from major customers, as a percentage of total revenue, for
the year ended December 31, 1997 and 1996 were as follows:
1997 1996
---- ----
Customer A 6.3% 12.7%
Customer B 24.4% 25.5%
Customer C 34.9% 41.5%
Customer D 18.6% --
12. Fair Value of Financial Instruments
-----------------------------------
Disclosures about Fair Value of Financial Instruments for the
Company's financial instruments are presented in the table below.
These calculations are subjective in nature and involve uncertainties
and significant matters of judgment and do not include income tax
considerations. Therefore, the results cannot be determined with
precision and cannot be substantiated by comparison to independent
market values and may not be realized in actual sale or settlement of
the instruments. There may be inherent weaknesses in any calculation
technique, and changes in the underlying assumptions used could
significantly affect the results. The following table presents a
summary of the Company's financial instruments as of December 31,
1997:
1997
---------------------------
Carrying Estimated
Amount Fair Value
-------- ----------
Financial Assets:
Cash and cash equivalents $36,397 $36,397
Note receivable 18,750 18,750
Financial Liabilities:
Long-term debt 648 648
The carrying amounts for cash and cash equivalents, receivables,
accounts payable and accrued expenses approximate fair value because
of the short maturities of these instruments. The fair value of
long-term debt, including the current portion, approximates fair value
because of the interest rate implicit in the obligation under the
capital lease.
F-14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding all current
directors and executives of the Company:
Name Age Office
- ---- --- ------
James R. McGonigle 53 Chairman of the
Board of Directors,
Chief Executive Officer,
President and
Chief Accounting Officer
Peter E. Cavanaugh 33 Director, Legal Counsel
Directors hold office for a period of one year from their election at the annual
meeting of stockholders and until their successors are duly elected and
qualified. Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors. None of the above individuals has any family
relationship with each other. The Board of Directors has no audit, nominating or
compensation committee. No director has received or currently receives any
compensation for services as a director.
Background
The following is a summary of the business experience of each officer and
director of the Company:
James R. McGonigle founded the Company and has served as its Chairman, Chief
Executive Officer and President since its inception in January, 1993. Mr.
McGonigle assumed the role of Chief Accounting Officer effective April 1, 1996,
due to the resignation of John Delamater. From 1985 to 1992 Mr. McGonigle was
the founder and president of Supra Medical Corp. (formally Topox, Inc.)("Supra")
a publicly held company specializing in the development of proprietary medical
technologies in the fields of skin care and diagnostics. Mr. McGonigle is also
President of Wound Healing Systems, Inc. which sells and rents Chambers in
competition with the Company. See "Business - Competition." Mr. McGonigle
intends to devote approximately 100% of his time to the affairs of the Company.
Peter E. Cavanaugh was the Vice President and General Counsel of the Company
from December, 1993 until February, 1997. He was appointed to the Board of
Directors and became Corporate Secretary in April, 1995. Mr. Cavanaugh left the
Company as a full time employee in January, 1996 to return to his legal
pracrice. He was elected to the Board upon shareholders vote in July, 1995. In
1993, Mr. Cavanaugh was admitted to practice by the Bar Associations of both
Pennsylvania and New Jersey. Mr. Cavanaugh will be utilized by the Company on an
as needed basis as it legal counsel.
<PAGE>
Executive Compensation
Summary Compensation Table
No compensation has been paid since inception to the members of the Company's
Board of Directors in their capacities as such, no executive officer received
annual compensation of more than $100,000.
None of the members of the Company's Board of Directors in their capacity of
such are scheduled to receive compensation for the fiscal year ended December
31, 1998. The Company executed a consulting agreement with Colpat, Inc., an
affiliate owned and controlled by Mr. McGonigle, for $3,000 per month for
services to the Company.
Option Grants in Last Fiscal Year
The following table provides information on option grants during the fiscal year
ended December 31, 1997 to the named executive officers:
NONE
ITEM 11. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning stock ownership by
all persons known to the Company to own beneficially 5% or more of the
outstanding shares of the Company's Common Stock, by each director and officer,
and by all directors and officers as a group. All shares of Common Stock are
owned beneficially and of record as of February 28, 1998.
Number of
Name Shares Owned Percent of Class
- ---- ------------ ----------------
James R. McGonigle(1)(6) 1,965,893 12.92%
791 South Chester Road
Swarthmore, PA 19081
Peter Cavanaugh(2) 223,571 1.47%
John H. Carbutt(3) 812,777 5.31%
Michie Proctor and
Joyce Proctor(4) 2,669,174 17.55%
The First Baptist Church of
Southwest Broward 1,280,977 8.48%
John Mills 1,192,000 7.89%
All officers and directors
as a group (two persons)(5) 2,189,464 14.30%
(1) Includes 942,000 shares held by James R. McGonigle, 547,143 shares held by
Wound Healing Systems, Inc., a corporation controlled by Mr. McGonigle, 376,750
shares held by Colpat, Inc. a corporation controlled by Mr. McGonigle and
100,000 Warrants also held by Colpat, Inc. with each Warrant entitling the
holder to purchase one share of Common Stock at $3.00 per share at any time
until June 30, 1998.
<PAGE>
(2) Includes an option to purchase 100,000 shares at $.10 per share at any time
until July 18, 1998.
(3) Includes 436,098 shares held by John H. Carbutt, 200,000 Warrants held by
Mr. Carbutt with each Warrant entitling the holder to purchase one share of
Common Stock at $3.00 per share at any time until June 30, 1998 and 176,679
shares held by Jagapata, Ltd., a corporation controlled by Mr. Carbutt.
(4) Includes 2,118,258 shares held by Michie Proctor, 450,916 shares held by
Michie Proctor and Joyce Proctor and 100,000 Warrants held by Michie and Joyce
Proctor with each Warrant entitling the holder to purchase one share of Common
Stock at $3.00 per share at any time until June 30, 1998.
(5) Includes shares, Warrants to purchase shares and options to purchase shares
held by the Company's officers and directors.
(6) This individual may be deemed to be "promoters" of the Company as that term
is defined under the Securities Act of 1933, as amended.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management is of the opinion that each transaction described below between the
Company and its officers, directors and stockholders was on terms at least as
fair to the Company as had the transaction been concluded with an unaffiliated
party.
In January, 1996, Mr. Cavanaugh and the Company mutually agreed to terminate Mr.
Cavanaugh's employment agreement to permit Mr. Cavanaugh to pursue his private
practice of law. Mr. Cavanaugh, however, will remain a member of the Board of
Directors. Mr. Cavanaugh will not be paid for services rendered as a member of
the Board of Directors.
In January, 1996, the Company agreed to a consulting agreement with Colpat,
Inc., an affiliate owned and controlled by the Company's President and CEO,
James R. McGonigle. Colpat will provide various services to the Company and will
be paid $3,000 per month. The services agreement will continue through 1998. Mr.
McGonigle will not be paid for his services as the Company's Chairman of the
Board of Directors.
In 1996, the Company's President paid off the remaining $5,000 balance of a
Company Note Payable. Accordingly, the Company owed its President $5,000 which
was subsequently converted into 41,667 shares of the Company's restricted Common
Stock, at twelve ($.12) per share.
In 1996, two stockholders of the Company purchased certain accounts payable and
notes payable from creditors of the Company totalling $228,594. The Company
issued 2,223,140 shares of its common stock to the stockholders as payment of
these liabilities.
In June 1997, the Company sold six Hyperbaric Oxygen Chambers to WHS. As payment
WHS returned 30,000 shares of the Company's common stock to the Company. The net
book value ($5,000)of the chambers sold was recorded as the value of the stock
received (treasury stock).
<PAGE>
In 1997, the Company elected to forgo repayment of two notes receivable of
$5,500 each from a former officer and a current officer. The $5,500 notes
receivable ($11,000 in total) have been expensed as compensation.
The Company owed Healing Systems, Inc. ("Healing") $7,155. Healing agreed to
accept $2,500 as payment in full resulting in a gain on forgiveness of debt of
$4,655. Healing's President is a major stockholder of the Company.
ITEM 13. EXHIBITS
Exhibit
No. Title
--- -----
3.1 Certificate of Incorporation of Registrant(1)
3.2 Bylaws of Registrant(1)
4.1 Form of Common Stock Purchase Warrant(1)
10.1 Agreement of Sale between Registrant and Leiti regarding
Registrant's purchase of 791 South Chester Road, Swarthmore,
Pennsylvania(1)
10.2 Sales Agreement between Registrant and Wound Healing
Systems, Inc. regarding 20 Topical Hyperbaric Chambers(1)
10.3 Sales Agreement between Registrant and Wound Healing
Systems, Inc. regarding 23 Topical Hyperbaric Chambers(1)
10.4 Memorandum of Understanding between Registrant and Baker
Medical, Inc.(1)
10.5 Memorandum of Understanding between Registrant and
Southeastern Medical Supply, Inc.(1)
10.6 Joint Venture Agreement between Registrant and Wellison
International, Inc.(1)
10.7 Patent Assignment between Registrant and Stivala(1)
10.8 Transfer Agreement between Registrant and Mazzolla(1)
10.9 Transmittal Letter regarding Wound Healing Research(1)
10.10 Licensing and Purchase Option Agreement between Registrant
and Healing System, Inc.(1)
10.11 Memorandum of Understanding between Registrant and Robert
Crousore Hess and Fernando Laguda(1)
<PAGE>
10.12 Sale Agreement between Registrant and Robert D. Crousore
(Hess)(1)
10.13 Sale Agreement between Registrant and Fernando G. Laguda(1)
10.14 Sale and Release Agreement between Registrant and Fernando
G. Laguda(1)
10.15 Lease Agreement between Registrant and Montclair Community
Hospital(1)
10.16 Rental Agreement between Registrant and Integrated Therapy
Products, Inc.(1)
10.17 Revenue Sharing Agreement between Registrant and American
Home Medical Services, Inc.(1)
10.18 Employment Agreement between Registrant and Angelo R.
Bergamo, M.D.(1)
10.19 Form of Subscription Agreement - November, 1993 Private
Placement(1)
10.20 Form of Loan Agreement - April, 1994 Loans(1)
10.21 Form of Promissory Note - April, 1994 Loans(1)
10.22 Medical Consultant Agreement between Registrant and Martin
Pressman, M.D.
10.23 Medical Consultant Agreement between Registrant and David
Novicki, M.D.
10.24 Joint Venture Agreement between Registrant and MedaStat
Scientific Corp.(2)
10.25 Research and Licensing Agreement between Registrant and the
United Medical & Dental Schools of Guy's and St. Thomas
Hospitals of London, England(3)
10.26 Services Agreement between Registrant and West Jersey Health
System(3)
10.27 Loan Agreement between Registrant and National Health &
Safety Corporation
10.28 Services Agreement between Registrant and West Hudson
Hospital
10.29 Settlement Agreement between Registrant and MedaStat
Scientific Corporation
10.30 Representative Agreement between Registrant and Martin
Rosenblum & Associates
10.31 Agreement between Registrant and Quality Medical
Instruments, Ltd.
21.1 Subsidiaries of Registrant(1)
23.1 Consent of Angell & Deering(1)
23.2 Consent of Michael J. Tauger (See 5.1)(1)
<PAGE>
23.3 Consent of Angell & Deering(1)
23.4 Consent of Angell & Deering(1)
23.5 Consent of Angell & Deering(1)
23.6 Consent of Angell & Deering(1)
99.1 Deed for 791 South Chester Road, Swarthmore, PA(1)
99.2 Deed of Correction(1)
(1) Incorporated by reference to the Registrant's Registration Statement on Form
SB-2, file number 33- 75236 declared effective on July 7, 1994.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB, for the period ended March 31, 1995.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB, for the period ended June 30, 1995.
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized, in Swarthmore, Pennsylvania, on ________, 1998
LONGPORT, INC.
By:
---------------------------------
James R. McGonigle
Chief Executive Officer
Pursuant to the requirements of the Exchange Act as amended, this Report has
been signed below by the following persons on the dates indicated.
Signature Title Date
- --------- ----- ----
- ---------------------- Chairman of the Board ----------------
James R. McGonigle of Directors,
Chief Executive Officer,
President, and
and Chief Accounting Officer
- ---------------------- Director, and Counsel ----------------
Peter E. Cavanaugh
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,397
<SECURITIES> 0
<RECEIVABLES> 7,876
<ALLOWANCES> 3,600
<INVENTORY> 2,200
<CURRENT-ASSETS> 81,710
<PP&E> 305,174
<DEPRECIATION> 262,367
<TOTAL-ASSETS> 151,184
<CURRENT-LIABILITIES> 12,847
<BONDS> 0
0
0
<COMMON> 14,856
<OTHER-SE> 123,481
<TOTAL-LIABILITY-AND-EQUITY> 151,184
<SALES> 18,786
<TOTAL-REVENUES> 171,786
<CGS> 13,133
<TOTAL-COSTS> 365,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,412
<INCOME-PRETAX> (215,577)
<INCOME-TAX> 3,759
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 4,655
<CHANGES> 0
<NET-INCOME> (214,681)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
