ITEM 1. BUSINESS.
GENERAL
Advanced Medical, Inc. ("Advanced Medical" or the "Company") through its major operating subsidiary, IMED Corporation ("IMED"), is a leading developer and manufacturer of infusion systems and related technologies for the health care industry. IMED is one of the largest manufacturers of intravenous infusion instruments (which consist of pumps and controllers) and disposable administration sets in the United States. The Company acquired IMED on April 2, 1990 and owns 90% of IMED's common stock (on a fully diluted basis).
Advanced Medical was incorporated on September 28, 1988 under the laws of the State of Delaware.
A description of the business of IMED and the other enterprises which the Company controls or in which the Company has invested is set forth below.
IMED CORPORATION
GENERAL
IMED is one of the largest manufacturers of intravenous infusion pumps and disposable administration sets in the United States. IMED's infusion pumps are used to deliver fluids, generally pharmaceuticals or nutritionals, to patients in hospitals or in alternate-care sites, such as patients' homes or free-standing outpatient clinics. IMED's pumps can be used only with IMED's proprietary disposable administration sets, each of which consists of a plastic pump interface and tubing. IMED's products are widely used in hospitals and other patient care settings where accuracy and safety in fluid delivery and monitoring are crucial. IMED has been an innovator in the intravenous instrument market since developing the first volumetric pump in 1974. Its infusion products in development incorporate recent innovations in microprocessor and electromechanical technologies that are designed to reduce instrument size and weight significantly. These innovations are also intended to enhance clinical performance, reduce manufacturing cost and simplify operation of IMED's products.
Management currently estimates that IMED has a domestic installed base of approximately 93,000 infusion instruments, approximately 24,000 of which have been leased to customers. Approximately 150 IMED proprietary disposable administration sets are used per year with each pump. For the year ended December 31, 1992, IMED's revenues attributable to pumps and to disposable administration sets were $44.4 million and $78.6 million, respectively. During the year ended December 31, 1993, such revenues were $30.6 million and $78.8 million, respectively. For the year ended December 31, 1994, such revenues were $25.4 million and $75.9 million, respectively.
IMED's products are sold principally in the critical care segment of the domestic hospital market. The Company is seeking to expand IMED's customer base by taking advantage of opportunities it perceives in other areas of the domestic hospital market and in the home health care and international markets for infusion products. In October 1991, IMED sold certain European assets to Pharmacia AB ("Pharmacia"), a major European pharmaceutical company, and entered into a marketing, distribution and development arrangement with Pharmacia, pursuant to which IMED granted Pharmacia exclusive marketing and distribution rights for IMED products in territories which include most of Europe. See "Marketing and Sales -- INTERNATIONAL." In March 1992, IMED entered into a five-year agreement with McGaw, Inc. ("McGaw") pursuant to which McGaw has an exclusive right in the alternate-site market to market, sell and distribute IMED's ReadyMED 50 mL, 100 mL and 250 mL lightweight disposable ambulatory infusion pumps in the United States and Puerto Rico. See "Marketing and Sales -- DOMESTIC."
------------------------ IMED-Registered Trademark-, Accuset-Registered Trademark-, Graviset-Registered Trademark-, Microset-Registered Trademark-, Flo-Stop-Registered Trademark-, Gemini-Registered Trademark-, Gemini PC-1-Registered Trademark-, Gemini PC-2-Registered Trademark-, Gemini PC-4-Registered Trademark-, Gemini PC-2TX-Registered Trademark-, PC-1-Registered Trademark-, PC-2-Registered Trademark-, PC-4-Registered Trademark-, Autotaper-Registered Trademark-, Versataper-Registered Trademark- and ReadyMED-Registered Trademark- are registered trademarks of IMED. IMED has applied to register the trademark Versasafe.
INFUSION THERAPY INDUSTRY
Infusion therapy generally involves the delivery of one or more fluids, primarily pharmaceuticals or nutritionals, to a patient through an infusion line inserted into the circulatory system. The intravenous infusion of fluids was pioneered in the early 1900's and is now a frequent and sophisticated component of patient care. Over the past 20 years, as both the reliance on intravenous drug therapy and the potency of the drugs administered have increased, the need for extremely precise administration and monitoring of intravenous fluids has risen significantly.
The infusion therapy industry can be divided generally into two markets: the hospital market and the alternate-site market. The hospital market can be further divided into a critical care segment, which includes pediatric and adult intensive care units (ICUs), coronary care and oncology units, operating rooms, and a general care segment, which also includes hospital outpatient clinics. The alternate-site market is comprised primarily of home health care and also includes free standing clinics and nursing homes.
In recent years, a number of trends have affected the hospital market for infusion products. Sophisticated treatments and technologies, often involving more complex infusion therapies, now allow hospitals to treat more acutely ill patients. Consequently, the average patient now requires a greater number of intravenous lines and has a greater need for technologically advanced infusion instruments. For example, while in 1985 a typical ICU patient required approximately two instrumented intravenous lines, today it is not unusual for such a patient to require four or more instrumented intravenous lines. Other factors work to reduce demand for IMED products. Demand for disposable administration sets, for example, depends on the frequency with which sets must be changed. Some hospitals have introduced new clinical protocols increasing the maximum time between disposable set changes for certain applications from every 24 hours to as much as every 72 hours.
Complications associated with intravenous therapy are well recognized, and technology to minimize patient risks and enhance safety of infusion systems is increasingly demanded. One such complication is unintentional free-flow -- the unregulated flow of fluids into the patient. Unintentional free-flow can result in severe patient injury or death. All of IMED's infusion products are designed to prevent unintentional free-flow. Most of IMED's competitors have incorporated a version of free-flow protection into some of their products.
As intravenous therapies have become more complex, the need for monitoring of patients has increased. Implementation of cost containment measures by hospitals has reduced the number of hospital personnel available to monitor patients. Accordingly, health care providers have become increasingly aware of the need for accuracy and safety features in infusion instruments. IMED's products compete primarily on the basis of technological sophistication, quality, accuracy, safety and flexibility in application.
In addition, implementation of cost containment measures, including those relating to Medicare reimbursement, has resulted in the treatment of less seriously ill patients as outpatients, often in the alternate-site market. This growth in the alternate-site market has stimulated the development of new infusion instrument technology. In 1992, IMED introduced the ReadyMED which is a lightweight disposable ambulatory infusion pump for the alternate-site market. See "Marketing and Sales -- DOMESTIC."
INFUSION INSTRUMENTS
Infusion instruments may be classified according to the method by which they deliver fluids. Controllers, which use gravity; and infusion pumps, which use positive pressure. Controllers typically are nonvolumetric devices that regulate flow by electronically counting drops rather than by measuring a specific volume of fluid. Since an equal number of drops of two different fluids may represent significantly different fluid volumes, this method of regulating flow is less accurate than volumetric methods. Drop-counting controllers have generally been used to administer less critical fluids and drugs that do not require precise volumetric measurement.
Infusion pumps use positive pressure to overcome the resistance existing in infusion sets and the back pressure generated by the patient's circulatory system. Infusion pumps administer precise, volumetrically
measured quantities of fluids more accurately and over a wider range of infusion rates than drop-counting controllers. For this reason infusion pumps are used with increasing frequency to administer expensive, high-potency therapeutics.
Historically, controllers held a major share of the installed base of instruments, principally because they were significantly less expensive than pumps. As pump prices declined and their technological capabilities increased, the purchasing trend has been toward pumps. As of the end of 1994, infusion pumps represented approximately 96%, and controllers represented approximately 4%, of the installed base of infusion instruments in the U.S. hospital market.
All intravenous pumps and controllers require the use of disposable administration sets. A set consists of a plastic pump interface and tubing and may have a variety of features including multiple entry ports for injecting medications or combining several lines. Almost all of these sets, including those manufactured by IMED, are proprietary and compatible only with their particular manufacturer's line of intravenous infusion instruments.
IMED PRODUCT LINE
IMED manufactures and markets single channel (one intravenous line), dual channel and four channel infusion instruments and disposable administration sets. The Company estimates that IMED has a domestic installed base of approximately 93,000 intravenous instruments, of which approximately 63,000 are single channel instruments, approximately 27,000 are dual channel instruments and approximately 3,000 are four channel instruments. Based upon past experience and current usage patterns, the Company estimates that IMED's single channel instruments use on average approximately 130 disposable administration sets per year, its dual channel instruments use on average approximately 190 disposable administration sets per year and its four channel instruments use on the average 300 disposable administration sets per year. For the year ended December 31, 1992, disposable administration sets accounted for approximately 61%, and infusion instruments accounted for approximately 35%, of IMED's total revenues. For the year ended December 31, 1993, disposable administration sets accounted for approximately 66%, and infusion instruments accounted for approximately 26%, of IMED's total revenue. For the year ended December 31, 1994, disposable administration sets accounted for approximately 68%, and infusion instruments accounted for approximately 23%, of IMED's total revenue.
IMED's inventory levels reflect the need to deliver critical supplies immediately and minimize back-ordered products. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
The following table summarizes the key features and actual or estimated market introduction dates of IMED's current infusion product line and products in development. For sales information for IMED's major product groups, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
INFUSION INSTRUMENTS
PISTON CASSETTE PUMPS. Since 1974, IMED has manufactured and marketed various models of volumetric piston cassette pumps which utilize IMED's Accuset, Graviset or Microset disposable administration sets to regulate the flow of fluid through a syringe-like mechanism. IMED's piston cassette pumps are as accurate as its Gemini series of peristaltic pumps but do not have some of the features of the Gemini series, such as multi-channel capability, programmable drug delivery and the ability to operate either as a pump or a controller. The installed base of piston cassette pumps is expected to decline in size over time as customers replace piston cassette pumps with the Gemini product line or other new technology offered by IMED or its competitors. IMED currently intends to discontinue manufacturing piston cassette pumps by the end of the first quarter 1995.
PERISTALTIC PUMPS -- GEMINI SERIES OF PUMPS. The Gemini series is a line of peristaltic pumps that regulate fluid flow by means of a multi-finger-like mechanism that alternately compresses sections of the tubing contained in the pumping chamber. The family of Gemini pumps is based on the foundation of a flexible hardware and software technology platform. This technology platform has allowed incremental feature enhancements based on evolving customer needs.
In late 1987, IMED introduced the Gemini PC-2, the first of its line of Gemini pumps. Peristaltic pumps represent the largest portion of IMED's installed base of instruments. The PC-2 has two channels that can be programmed from the pump's single keypad. Each channel can operate independently and can be easily switched from pump to controller mode without changing the disposable administration set.
In the second half of 1988, IMED introduced the Gemini PC-1, a single channel version of the PC-2. The PC-1 can be programmed automatically to taper-up and taper-down infusion rates to facilitate delivery of total parenteral nutrition therapy (the intravenous administration of nutrients, such as proteins, carbohydrates, fats and vitamins, in predigested form) and other complex drug-dosing regimens.
In the third quarter of 1989, IMED incorporated into the PC-1 a capability to operate in either micro mode (0.1 to 99.9mL/hr) for use with neonatal patients, among others, or macro mode (1 to 999mL/hr) for use with adult patients. This micro/macro capability, which is not available in IMED's piston cassette pumps, was added to the PC-2 during the second quarter of 1991. During the same period, IMED incorporated into the PC-2 a rapid rate titration feature, which allows rapid adjustments of the flow rate in small increments and is designed for use in the operating room and critical care settings. IMED incorporated rapid rate titration into the PC-1 during the first quarter of 1992.
In December 1992, IMED introduced the Gemini PC-4, a four channel version of the PC-1. The PC-4 has all the features currently available with the PC-2 and, in addition, offers such features as drug dose calculation and programmable drug delivery to meet the special needs associated with intensive care, anesthesia and oncology applications.
IMED introduced the PC-2TX, an enhanced version of the PC-2, in the second quarter of 1994. The PC-2TX has all the features currently available with the PC-2 and the PC-4 discussed previously and, in addition, offers enhanced features such as pressure monitoring, pressure history and volume/time dosing. IMED incorporated these enhanced features into the PC-4 during the fourth quarter of 1994.
The Gemini series of instruments incorporates a patented pressure sensor system within the peristaltic pumping mechanism. This technology permits the Gemini to be operated as either a pump or a controller. When operated in the pump mode, the Gemini automatically adjusts pressure settings to permit rapid detection of occlusions (blockages) at all flow rates. The Gemini pressure sensor system also allows an instrument to operate as a volumetric controller, thereby eliminating the need for remote electronic drop sensing used in traditional controllers. The Gemini technology significantly reduced the frequency of nuisance alarms (alarms with no clinical significance) associated with patient movement and transport. Nuisance alarms often occur during transport of patients, when the IV bag can sway and cause the controller's remote electronic drop sensor to monitor drop flow incorrectly.
Unintentional free-flow can result in severe patient injury or death and IMED believes this feature is important in the infusion instrument market. IMED pioneered free-flow protection and all Gemini instruments use a patented Flo-Stop mechanism in the disposable administration set, which is designed to automatically clamp off the administration set to prevent unintentional free-flow of fluids into the patient when the set is removed from an instrument. By the end of 1994 most of IMED's competitors had incorporated some version of free-flow protection in their products.
In addition, the Gemini pumps have an internal computer interface capability that is designed to enable the device to be monitored from a remote nursing station. See "Status."
READYMED. ReadyMED is a disposable, compact, ambulatory device for the intravenous administration of antibiotics. The ReadyMED pump is designed to offer a number of advantages over systems currently in use for this purpose. With traditional systems, the patient must attach a small bag and tubing set, through which the antibiotics are administered, to a catheter placed in the patient's circulatory system. The patient must eliminate all air from the system and set a manual rate adjustment clamp, a process that generally must be repeated every four to six hours. Since traditional systems are gravity driven, the bag must remain on an IV pole during infusion, thereby restricting the patient's movement. The ReadyMED pump is provided to patients pre-filled (in 50 mL, 100 mL and 250 mL sizes) and pre-primed, allowing infusion to be initiated when the patient simply opens a clamp. In addition, since the ReadyMED pump is small and uses positive pressure, the patient is able to carry the device in a pocket or wear it on a belt.
MODULAR INFUSION SYSTEM. During the fourth quarter of 1993, IMED commenced designing a modular infusion system as the basis for its next generation of infusion instruments. In addition to all of the features available on the Gemini series, the system is being designed to incorporate advanced programming capabilities in a smaller system that is simpler to operate and less expensive to manufacture. A modular, building-block design is intended to allow the user of the system to easily combine a number of infusion instruments into an integrated multi-channel delivery system tailored for a specific patient's needs.
The Company's strategy will be to unbundle certain hardware and software features to stratify pricing and thus increase customer value. This will allow flexibility in providing product configurations to meet the requirements of both the domestic and international marketplaces. The design of this system is intended to supply the best combination of price and performance by allowing a low pump acquisition cost, extended product life cycle, improved asset utilization and lower cost per use over the product life.
During the fourth quarter of 1993, the Company cancelled its research and development arrangements with AM Development Limited Partnership ("AMD") which provided such services through Deka Products (the principal of Deka Products is Dean Kamen). Therefore, the modular infusion system currently under development by IMED is not the same as the system which was being developed for IMED by Deka Products in prior years.
DISPOSABLE ADMINISTRATION SETS
The Company estimates that IMED has a domestic installed base of approximately 93,000 intravenous infusion instruments, each of which uses proprietary disposable administration sets designed and manufactured only by IMED. Disposable administration sets consist of a plastic pump interface and tubing and have a variety of features, such as clamps for flow regulation and multiple entry ports for injecting medications or combining several lines. Each of IMED's current and proposed infusion instrument product lines uses disposable sets designed for that particular product line.
Based upon past experience and current usage patterns, the Company estimates that single channel pumps typically use approximately 130 disposable sets per year, dual channel pumps typically use approximately 190 disposable sets per year and its four channel instruments use on the average 300 disposable administration sets per year. The rate at which disposables are used depends on the utilization rate for the pump and the frequency with which sets must be changed, which in turn depends on the therapy being administered. Certain hospitals have effected a change in protocol increasing the maximum time between set changes for certain applications from every 24 hours to as much as every 72 hours. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
IMED's disposable sets are designed to automatically stop or restrict the flow of fluids when removed from an infusion instrument, protecting against unintentional free-flow. Given the potency of medications administered to seriously ill patients, the Company believes that this has become an increasingly important feature in the infusion market. IMED pioneered free-flow protection. Most of IMED's competitors have incorporated a version of free-flow protection in some of their products. As a result, IMED improved its free-flow protection and introduced into the market an enhanced Flo-Stop in late 1994.
There is increasing pressure by regulatory agencies, such as Occupational Safety and Health Administration ("OSHA") and the Food and Drug Administration ("FDA"), for more stringent control of needles in hospitals. OSHA requires that hospitals must put in place systems to reduce the potential for needle sticks. The FDA recommends using needleless systems or protected needle systems to replace hypodermic needles for accessing intravenous lines. IMED's needleless strategy is a dual product line approach which incorporates the ability to access IMED's administration sets without the use of needles, thus reducing the potential for accidental needle sticks. The VersaSafe system utilizes a blunt cannula device, combined with a split-septum "Y" site. IMED has a non-exclusive license to the VersaSafe system which was a cooperative development effort of IMED, Elcam Plastic of Israel and Medical Associates Network. Additionally, IMED has entered into an agreement with B. Braun, Inc. for the purchase of their SAFSITE-Registered Trademark- valve. The SAFSITE-Registered Trademark- valve provides needle-free access through the use of a standard male luer, eliminating the need for needleless blunt cannulae to access the administration set. This parallel product strategy will satisfy IMED customer requirements for needle-free systems, as well as assist its customers in complying with OSHA standards.
STATUS
The Status system monitors, in real-time, the status of intravenous infusion instruments and other bedside devices, such as pulse oximeters and ventilators that can save hospitals valuable time documenting equipment readouts, searching for the source of equipment alarms, and assessing the progress of intravenous therapy. Status automatically gathers data from bedside instruments and, through touch-screen technology, displays the information on computer monitors. These monitors can be at one or more locations, such as the central nursing station, so clinicians can see immediately what is occurring at the bedside. In addition, Status can recall data for documentation and other reports, which assists health care facilities fulfill their obligations under the Safe Medical Device Act ("SMDA") of 1990. SMDA requires user facilities to track and report problems with many medical devices, including ventilators and infusion pumps, to the FDA and the manufacturer. Status can also improve coordination between nursing and pharmacy, and assist in tracking and documenting instrument uses. As of December 31, 1994, seven systems have been installed.
MARKETING AND SALES
DOMESTIC. IMED supplies its infusion instruments and related proprietary disposable administration sets to approximately 1,300 hospitals in the United States. Sales are made primarily through IMED's experienced direct sales force of approximately 55 sales representatives and regional managers. IMED's domestic marketing efforts are supported by a staff of 15 nurses and pharmacists who consult with customers with respect to evaluation, installation and use of IMED products and provide ongoing clinical support. IMED operates six instrument service centers from which service engineers provide product maintenance and conduct training seminars.
In response to cost containment pressures, many hospitals have joined buying groups that negotiate contracts with suppliers of medical products. These contracts typically establish pricing structures for qualified vendors' products. In many cases, qualification as an approved vendor to a buying group is important in gaining access to the member hospitals. IMED has been approved as a qualified vendor for a number of buying groups. IMED is actively seeking contracts with additional groups.
IMED also sells its products to a number of alternate site care providers. Management believes that this segment of the infusion market, although much smaller than the hospital segment, should experience significant growth. In 1992, IMED introduced the ReadyMED which is a lightweight disposable ambulatory infusion pump. In March 1992, IMED entered into a five-year agreement with McGaw pursuant to which
IMED granted McGaw exclusive right in the alternate-site market to market, sell and distribute IMED's ReadyMED 50 mL, 100 mL and 250 mL lightweight disposable ambulatory infusion pumps in the United States and Puerto Rico.
Approximately 24,000 of IMED's 93,000 domestic installed base of infusion instruments are leased to customers. IMED's leases have terms ranging from one to five years and generally provide the customers with a purchase option at the end of the lease term. In the case of some customers who lease infusion instruments, the related supply agreements for disposables also provide for the purchase of minimum quantities at agreed prices. As of December 31, 1994, disposables relating to approximately 18,000 instruments were being sold under such agreements. IMED does not rely on one or a small number of customers. In 1994, no single customer accounted for more than 2% of IMED's sales. For information concerning domestic and foreign sales, see "Item 8. Financial Statements and Supplementary Data -- Note 14 to the Consolidated Financial Statements."
INTERNATIONAL. In 1994, approximately 12% of IMED's sales were made to customers by its foreign subsidiaries. These sales were concentrated in Australia (approximately 39%), Canada (approximately 27%) and Europe (approximately 34%). Additionally, products exported in 1994 from IMED's domestic operation to unaffiliated customers were approximately 7% of sales.
In October 1991, IMED sold certain European assets to Pharmacia and entered into a marketing, distribution and development arrangement with Pharmacia (the "Pharmacia Transaction"), pursuant to which Pharmacia obtained the exclusive right to market and distribute IMED's infusion products in a territory that includes most of Europe. IMED supplies its pumps and related proprietary disposable administration sets to hospitals outside the United States (excluding territories served by Pharmacia) through a combination of 11 direct sales representatives and a network of 32 dealers.
On August 12, 1994, Advanced Medical, IMED and Pharmacia amended their distribution agreement. Under the terms of the Amended and Restated Distribution Agreement ("Amended Distribution Agreement"), Pharmacia retains the exclusive right (subject to certain exceptions) to distribute IMED's infusion products in the territory that includes most of Europe. Under the Amended Distribution Agreement, Pharmacia has the right not to distribute certain products currently under development by IMED. In the event of such an election, IMED has the right to sell such products directly or through others, and under certain circumstances, has the right to repurchase from Pharmacia the distribution rights to IMED products currently distributed by Pharmacia in the territory. In addition, Pharmacia has the right to terminate the Amended Distribution Agreement at any time on 12 months notice, in which event Pharmacia would be required to make a payment of $2.5 million to IMED and IMED would be required to make payments to Pharmacia based on net sales of products currently distributed by Pharmacia for the 4 years following termination.
COMPETITION
The primary market for IMED's existing products is mature and highly competitive. IMED's primary domestic competitors are major diversified health care companies with greater financial and other resources than IMED. Management believes that IMED's products, which are in the upper price range of infusion products, compete primarily on the basis of technical sophistication, quality, accuracy, safety and flexibility of application. IMED's competitors engage in a strategy of offering their products at reduced prices in order to enhance their market share positions. Two of IMED's largest domestic competitors, Abbott Laboratories ("Abbott") and Baxter Healthcare Corporation ("Baxter"), offer customers volume discounts based on purchases of a broad range of their medical equipment and supplies, including infusion instruments and intravenous solutions, a strategy that IMED is unable to pursue.
According to industry sources, as of December 31, 1994, IMED together with IVAC Corporation ("IVAC"), Abbott, Baxter and McGaw accounted for approximately 94% of the U.S. installed base of instrument channels.
IMED sells infusion instruments which are multi-channeled. According to industry sources, IMED also had the fourth largest installed base of instrument channels as of December 31, 1994 with a market share of
19.4%, behind Baxter (24.1%), IVAC (23.3%), Abbott (20.8%) and ahead of McGaw (6.3%). For the year ended December 31, 1994, IMED was fourth in the domestic placement of new infusion instrument channels with a market share of 18.1%, Baxter was first (25.9%), Abbott was second (24.8%), IVAC was third (21.0%) and McGaw was fifth (7.9%). See "Marketing and Sales -- INTERNATIONAL" for information concerning the foreign markets in which IMED competes.
RESEARCH AND DEVELOPMENT
IMED engages in product design, engineering, development and performance validation to enhance its existing products and to develop new products. IMED expended approximately $5.5 million, $5.5 million and $6.3 million on in-house research and development for the years ended December 31, 1992, 1993 and 1994, respectively. In addition, the Company expended $3.9 million and $3.6 million for the years ended December 31, 1992 and 1993 on early-state and new products research and development performed by Deka Products Limited Partnership ("Deka"), an outside contractor.
Under an agreement with Deka established in 1990, a modular infusion system was being designed. IMED had planned to introduce this product by late 1993. Development features to enhance marketability required further engineering work resulting in substantial delays and increase in costs. As a result, the Company no longer considered the Deka program to be commercially feasible and discontinued its funding of that program in October 1993. However, IMED retains a royalty interest in certain commercial applications of the Deka technology. As described below, IMED has accelerated its own in-house development of a new line of hospital infusion pumps and associated disposables based upon its patented technology and know-how.
During the fourth quarter of 1993, IMED's product development process was re-engineered to utilize concurrent engineering and cross-functional development teams (R&D, marketing, manufacturing, etc.). Management believes the new development process will reduce product development time, improve product manufacturability, and meet customers' needs. The increase in IMED's research and development expenses in 1994 resulted primarily from the costs of additional personnel.
IMED expended approximately $8.9 million on research and development for the year ended December 31, 1992 and $8.6 million for the year ended December 31, 1993, including amounts paid to Deka Products through AMD. For the year ended December 31, 1994, IMED expended approximately $6.3 million.
MANUFACTURING
IMED's instrument manufacturing facility is located in San Diego, California. A contractor provides IMED with assembly services for disposable administration sets in Tijuana, Mexico. The agreement between IMED and the contractor may be terminated by either party on 90 days' notice and requires that IMED pay the contractor an hourly rate per employee hour worked on assembly of IMED products. At the end of 1994, approximately 95% of IMED's completed disposable administration sets were assembled at the Tijuana facility.
During 1994, IMED sold its Irish manufacturing facility to Pharmacia. The Irish manufacturing facility primarily produced molded components used to assemble disposable administration sets. In connection with the sale of the Irish manufacturing facility, IMED entered into an agreement with Pharmacia for the purchase, at fixed prices, of minimum quantities of disposable administration sets and components used to assemble disposable administration sets for three years, effective January 1, 1994. See Note 2 to the Consolidated Financial Statements.
The raw materials used in IMED's production process are available from several suppliers. IMED generally either has an alternate supplier for its raw materials or can readily replace the primary supplier. Although IMED is generally not dependent upon any single source of supply, it has chosen to rely upon a single supplier for certain components used in its infusion pumps and disposable administration sets. Although the Company believes that IMED can find an alternate supplier for these components, the loss of any such supplier could result in a temporary interruption in the manufacturing of its instruments and disposables.
PATENTS AND PROPRIETARY RIGHTS
IMED's policy is to secure patent protection for significant innovations. IMED currently holds 90 unexpired patents in the United States and in foreign countries, principally in Europe, Canada, Japan and Australia. Additional applications are pending or in preparation. In addition, Advanced Medical currently holds 48 unexpired patents granted in the United States and various foreign countries which it has licensed to IMED on an exclusive worldwide basis for $1.1 million annually. The patents owned or licensed to IMED which the Company deems material to IMED's operations expire at various times through 2010. A patent covering IMED's piston cassette pumps and Accuset disposable administration sets expired in Australia during 1992, in the United States during 1993 and in Germany in 1994. The Company does not believe that the expiration of this patent had or will have a material effect on the Company's results of operations. Although the Company is not aware of any generic manufacturers of disposable administration sets which intend to manufacture a product similar to the Accuset, it is possible that other manufacturers could decide to manufacture and distribute disposable administration sets to IMED piston cassette pump customers in direct competition with IMED. The percentage of IMED's total installed base of infusion pumps represented by piston cassette pumps is declining as sales of Accuset disposable administration sets accounted for approximately 27%, 24% and 19% of the Company's consolidated revenues in 1992, 1993 and 1994, respectively. Sales of disposable administration sets could be adversely affected if a competitor were to begin manufacturing a product that competed with IMED's Accuset disposable administration set. However, because IMED holds an additional patent relating to the Accuset disposable administration set that does not expire until 2001 and in light of other competitive factors, the Company believes that the loss of the patent that expired in 1993 will not have a material effect on the Company's future results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
There can be no assurance that the patents on which IMED principally relies will not be invalidated or that any issued patent will provide protection that has commercial significance. Litigation may be necessary to protect IMED's patent position. Such litigation can be costly and time consuming, and there can be no assurance that IMED would be successful if such litigation were instituted. The validation of patents owned by or licensed to IMED could have a material adverse effect on IMED.
IMED sells its products under a variety of trademarks, some of which are considered by IMED to be of sufficient importance to warrant registration in the United States and various foreign countries in which IMED does business. IMED also relies on trade secrets, unpatented know-how and continuing technological advancement to maintain its competitive position. It is IMED's practice to enter into confidentiality agreements with key technical employees and consultants. There can be no assurance, however, that these measures will prevent the unauthorized disclosure or use of IMED's trade secrets and know-how or that others may not independently develop similar trade secrets or know-how or obtain access to IMED's trade secrets, know-how or proprietary technology.
GOVERNMENT REGULATION
The research, development, testing, production and marketing of IMED's products are subject to extensive governmental regulation in the United States and certain other countries. Non-compliance with applicable requirements may result in recall or seizure of products, total or partial suspension of production, refusal of the government to allow clinical testing or commercial distribution of products, civil penalties or fines and criminal prosecution.
The FDA regulates the development, production, distribution and promotion of medical devices in the United States. Virtually all of the products being developed, manufactured and sold by IMED (and products likely to be developed, manufactured or sold in the foreseeable future) are subject to regulation as medical devices by the FDA. Pursuant to the Federal Food, Drug and Cosmetic Act (the "FDA Act"), a medical device is classified as either a Class I, Class II or Class III device. Class I devices are subject to general controls, including registration, device listing, recordkeeping 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.
Virtually all of IMED's products are Class II devices. IMED is not currently developing, manufacturing or distributing any Class III devices, although it may do so in the future.
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 notification clearance ("510(k)") or an approved Premarket Approval Application ("PMA"). A product qualifies for a 510(k) 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 the submission of clinical data and manufacturing 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) typically takes less than one year and involves the submission of less clinical data and supporting information. Management believes that IMED's proposed products described under "IMED Product Line" should qualify for the 510(k) procedure.
At present, all of IMED's products and manufacturing facilities and all phases of its manufacturing and distribution process are subject to pervasive and continuing regulation by the FDA. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. The export of infusion products is also subject to regulation. In complying with the standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the areas of production and quality systems to ensure full technical compliance. Failure to comply subjects the manufacturer to possible FDA action, such as recall or seizure of the product or the suspension of manufacturing of the product. IMED's manufacturing facilities are subject to periodic inspections by the FDA and the Food and Drug Branch of the California Department of Health Services, as well as by several foreign governments. If significant violations of applicable regulations are noted during these inspections, the continued marketing of any product manufactured by IMED may be adversely affected.
The Medical Device Reporting ("MDR") regulations obligate IMED to provide information to the FDA on serious injuries or death which may have been associated with the use of a product or in connection with certain product malfunctions which could potentially cause injury. If, as a result of FDA inspections, MDR reports or other information, the FDA believed that IMED was not in compliance with the law, the FDA could institute proceedings to detain or seize products, enjoin future violations, or assess civil or criminal penalties against IMED, its officers and employees. In addition, if the FDA believed any of IMED's products presented a potential health hazard, the FDA could also require IMED to notify the users to cease use of the product, and could require IMED to recall, or repair or replace, or refund to the user the cost of, such product. To date, IMED and its products have not been the subject of such FDA enforcement action, although MDR reports with respect to the Company's products have been filed in the past. From time to time, the Company has voluntarily recalled products to make repairs and enhancements/upgrades to its products and may do so in the future as circumstances warrant. Any enforcement action by the FDA could result in a disruption of IMED's operations for an undetermined period of time.
IMED is also subject to foreign regulatory authorities. Whether or not FDA market clearance has been obtained, registration of a product by comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The approval process varies from country to country, and the time required may be longer or shorter than that required by the FDA.
The European Community is in the process of developing a new approach to regulation of medical products which may significantly change the way products are regulated in these countries within the next several years.
IMED is subject to regulation by the OSHA and the Environmental Protection Agency ("EPA") and their state and local counterparts. IMED, like most medical device manufacturing companies, is subject to regulation under the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act and other environmental regulatory statutes and may in the future be subject to other federal, state or local regulations. Either one or both of OSHA and the EPA or their state or local counterparts may promulgate regulations that may affect IMED's development or manufacturing programs. The Company is unable to predict whether any agency will adopt any regulation or take other action which would have a material adverse effect on IMED's operations, and there can be no assurance that changes in such regulations will not impose the need for additional capital expenditures or other requirements. Compliance with federal, state and local environmental and employee health safety laws has not had a material effect on the capital expenditures, earnings and competitive position of IMED, and management does not anticipate that it will make any material capital expenditures for environmental control facilities in the near future.
Heightened public awareness and concerns regarding the growth in overall health care expenditures in the United States may result in the enactment of national health care reform or other legislation affecting payment mechanisms and health care delivery. Legislation which imposes limits on the number and type of medical procedures which may be performed or which has the effect of restricting a provider's ability to select specific devices or products for use in administrating medical care may adversely impact the demand for the Company's products. In addition, legislation which imposes restrictions on the price which may be charged for medical products may adversely affect the Company's results of operations. However, it is not possible to predict the extent to which the Company or the health care industry in general may be adversely affected by the aforementioned in the future.
EMPLOYEES
As of March 1, 1995, IMED employed a work force of 559 individuals. Of these employees, 422 were located in San Diego, 105 were located in the field in the United States and 32 were located in foreign locations. In addition, IMED's contractor in Tijuana employed approximately 485 employees who assemble certain IMED products. Of IMED's employees, 58 were engaged in product development. IMED's employees are not represented by a union.
Management considers IMED's relationship with its employees to be good and is not aware of any problems with respect to the work force employed in Tijuana.
AM DEVELOPMENT LIMITED PARTNERSHIP
On April 2, 1990, AM General Development Corp. ("AM General"), AM Development Limited ("AM Limited") and Deka Products entered into an agreement to form AMD, a joint venture partnership for the primary purpose of developing medical technologies, including those of Deka Products. AM General and Deka Products were the general partners of AMD, and AM Limited was the sole limited partner. AM General and AM Limited are both wholly-owned subsidiaries of Advanced Medical. The general partner of Deka Products is a corporation wholly-owned by Dean L. Kamen.
Deka Products and its employees, including Mr. Kamen, provided certain research and development services to AMD pursuant to a development agreement between AMD and Deka Products. As consideration for the research and development activities, AMD paid Deka Products on a cost-plus basis. For the years ended December 31, 1992 and 1993, AMD paid Deka Products approximately $500,000 and $300,000, respectively, pursuant to the development agreement for research and development activities conducted by Deka Products for AMD, which amounts did not include approximately $3.8 million and $3.3 million for 1992 and 1993, respectively, paid to Deka Products in connection with research and development conducted on behalf of IMED. See "Business -- IMED Corporation -- Research and Development."
During the fourth quarter of 1993, the Company entered into an agreement with Deka Products and Kamen to terminate AMD as well as licenses and development agreements among Advanced Medical and its subsidiaries and Kamen and his affiliates and pursuant to which the Company discontinued its funding of
AMD. Kamen and his affiliates can independently commercialize products based on Kamen's fluid management technology. IMED retains a royalty interest in certain future commercial applications of Kamen's technology.
DESCRIPTION OF OTHER HOLDINGS
ALTEON, INC. ("ALTEON")
Alteon is a development stage pharmaceutical company engaged in the discovery and development of novel therapeutic and diagnostic products for the complications associated with diabetes and aging. Alteon's present focus is on the development of compounds to treat the major complications of diabetes, which include diseases of the kidney, cardiovascular system, nervous system and the eye.
The Company owns 512,600 shares of Alteon common stock, which represented less than 5% of the issued and outstanding shares of Alteon common stock on a fully diluted basis as of December 31, 1994. The Alteon shares owned by the Company were registered under the Securities Act on October 1, 1993. The Alteon common stock owned by the Company is pledged to secure senior debt. Under the terms of senior debt agreements, the Company is permitted to sell such shares, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
FIDATA CORPORATION
At the time of the Company's acquisition of Fidata in March 1989, Fidata had cash but no operations, and its business primarily consisted of defending and settling claims and liquidating its business. Fidata disposed of substantially all of its businesses in 1985 and 1986. As of this date, Fidata has settled substantially all of the claims against it and is continuing to wind down its business which should be completed in 1995.
COMPANY EMPLOYEES
The Company's operations are supported by persons employed by IMED. The Company's principal offices are located in San Diego, California.
ITEM 2.
ITEM 2. PROPERTIES.
Pursuant to six separate leases, IMED rents a total of approximately 216,000 square feet in San Diego, California. These facilities house Advanced Medical's principal executive offices, IMED's principal executive offices, engineering and development facilities and IMED's approximately 131,000 square foot domestic manufacturing and warehouse operations. One of the leases for the San Diego facility provides for termination by either IMED or the landlord on six months' notice. The remaining leases have terms expiring at various times through 1998 and have varying clauses providing for renewal at IMED's option. In addition, the disposable administration sets assembly is provided by a contractor in a 41,190 square foot facility in Tijuana, Mexico.
During the fourth quarter of 1993, IMED adopted a plan to reduce by approximately 27,000 square feet its facilities in San Diego. This plan is currently scheduled to be completed in the second quarter of 1995.
Fidata leases approximately 200 square feet of office space in New York, New York under a lease that will expire in May 1995. The Company is planning to rent this space on a monthly basis until the wind down is complete.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in various actions, claims, and legal proceedings arising from normal business operations. Management believes they have meritorious defenses and intends to vigorously defend against all allegations and claims.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is listed on the American Stock Exchange under the symbol AMA. The following table sets forth the high and low last reported sale prices for the common stock of the Company as reported by the American Stock Exchange for the quarters indicated.
As of March 30, 1995, there were 546 holders of record of the Company's common stock.
The Company has not paid any dividends on its common stock since its organization, and it is not contemplated that it will pay any dividends on the common stock in the foreseeable future. The Company is prohibited from declaring and paying dividends on the common stock under certain debt agreements and pursuant to the terms of its convertible preferred stock. In addition, the Amended IMED Loan Agreement limits IMED's ability to declare and pay dividends and to make other distributions and payments to the Company. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company did not declare and pay the September 1993, March 1994 and September 1994 dividends and the March 1994 redemption and does not anticipate declaring dividends and redeeming its preferred stocks in the foreseeable future on its 10% mandatorily redeemable preferred stocks, $.01 per share par value ("10% Preferred Stocks"). As a result, the 10% Preferred Stock shareholders are entitled to elect, as a class, two members to the Company's board of directors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA. The following selected historical consolidated financial data of the Company at December 31, 1990, 1991, 1992, 1993 and 1994, and for the years then ended, have been derived from the Company's annual financial statements including the consolidated balance sheets at December 31, 1993 and 1994 and the related consolidated statements of operations for the three years ended December 31, 1994 and notes thereto which appear elsewhere herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Advanced Medical is a holding company for IMED, Fidata and several investments. It also identifies and evaluates potential acquisitions and investments and performs various corporate functions. As a holding company, Advanced Medical currently has no revenues to fund its operating and interest expense and relies on cash generated by cash flow from IMED, external borrowings, sale of investments and other external sources of funds to meet its obligations.
The following discussion and analysis should be read in conjunction with "Item 6. Selected Financial Data," and "Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Advanced Medical, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 58 present fairly, in all material respects, the financial position of Advanced Medical, Inc. and its subsidiaries at December 31, 1993 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for income taxes in 1993 to comply with the provisions of Statement of Financial Accounting Standards No. 109.
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for investments in 1994 to comply with the provisions of Statement of Financial Accounting Standards No. 115.
PRICE WATERHOUSE LLP
San Diego, California March 17, 1995
ADVANCED MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
The accompanying notes are an integral part of these consolidated financial statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of these consolidated financial statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 1 -- BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS AND ORGANIZATION:
Advanced Medical, Inc. ("Advanced Medical"), operating through its consolidated subsidiaries, is a leading developer and manufacturer of infusion products and related technologies for the health care industry. On April 2, 1990, Advanced Medical acquired the IMED Division of Fisher Scientific Company through IMED Corporation ("IMED"). IMED is a 90% owned subsidiary on a fully-diluted basis. (Advanced Medical and its subsidiaries are collectively referred to as the "Company".)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION:
The financial statements include the accounts of Advanced Medical and its greater than 50 percent-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. IMED's foreign subsidiaries are consolidated as of and for the periods ended November 30, 1992, 1993 and 1994 in the December 31, 1992, 1993 and 1994 consolidated financial statements, respectively.
REVENUE RECOGNITION:
Revenues from sales of fluid delivery instruments and related disposable products, and from instrument capital lease contracts, are recognized at the time such products are shipped. Revenues from instrument operating lease contracts are recognized over the terms of the lease agreements, ranging from 1 to 5 years.
LICENSE FEE REVENUE RECOGNITION:
During 1991, IMED entered into a marketing, distribution and development agreement with Pharmacia AB ("Pharmacia"). Pursuant to the agreement, a product distribution fee of $6,530 was classified as deferred revenue (a non-current liability) and is recognized on a straight-line basis over the 15 year term of the agreement.
CONCENTRATIONS OF CREDIT RISK:
The Company provides a variety of financing arrangements for its customers. The majority of the Company's accounts receivable are from hospitals throughout the United States with credit terms of generally 30 days. The Company maintains adequate reserves for potential credit losses and such losses, which have been minimal, have been within management's estimates.
SECURITIES AVAILABLE FOR SALE:
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). As permitted under SFAS 115, the Company adopted the standard on a prospective basis. In accordance with SFAS 115, the Company's investment in Alteon, Inc. (Note 5) is classified as securities available for sale and is required to be carried at fair market value. During 1993, the Company accounted for its securities available for sale using the cost method.
INVENTORIES:
Inventories are stated at the lower of cost (determined using the first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method based upon the following estimated useful lives of the assets or lease terms, if shorter, for leasehold improvements and instrument operating leases:
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 1 -- BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INTANGIBLE ASSETS:
The excess of purchase price over the estimated fair values of assets acquired and liabilities assumed has been recorded as goodwill and is amortized using the straight-line method over 35 years. Patents are amortized using the straight-line method over estimated useful lives of 4 to 12 years. Technology licenses are amortized using the straight-line method over estimated useful lives of 15 years. Management periodically reviews intangible assets for impairment.
DEBT ISSUE COSTS:
Debt issue costs of $3,901 and $4,074 at December 31, 1993 and 1994, respectively, are amortized using the straight-line method over the respective terms of the debt agreements and are included in other non-current assets.
FOREIGN CURRENCY TRANSLATION:
The accounts of foreign subsidiaries which use local currencies as functional currencies are translated into U.S. dollars using year-end exchange rates for assets and liabilities, historical exchange rates for equity and weighted average exchange rates during the period for revenues and expenses. The gains or losses resulting from translations are excluded from results of operations and accumulated as a component of stockholders' deficit.
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs are expensed as incurred.
INCOME TAXES:
The Company and its domestic subsidiaries file a consolidated Federal income tax return. Domestic subsidiaries file income tax returns in multiple states on either a stand-alone or combined basis. Foreign subsidiaries file income tax returns in their respective jurisdictions based on their separate taxable income. The Company provides for deferred income taxes on undistributed earnings of its foreign subsidiaries.
Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse (see Note 7). As permitted under SFAS 109, the Company's 1992 consolidated statement of operations has not been restated.
Prior to 1993, the provision for income taxes was based on income and expense included in the accompanying consolidated statements of operations. Differences between taxes so computed and taxes payable under applicable statutes and regulations were classified as deferred taxes arising from timing differences.
STATEMENT OF CASH FLOWS:
For the purpose of the statement of cash flows, the Company considers short-term investments with an original maturity of three months or less to be cash equivalents, excluding restricted amounts held in escrow or trust.
NET INCOME (LOSS) PER COMMON SHARE:
The Company's net income (loss) per common share assuming no dilution is computed using the weighted average number of common shares outstanding during the respective periods. Net income (loss)
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 1 -- BUSINESS AND ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) per common share assuming no dilution does not include common stock equivalents (options and warrants) because the effect would be antidilutive. The Company's net income (loss) per common share assuming full dilution is computed using the weighted average number of common shares outstanding plus, for the year ended December 31, 1994, the shares that would be outstanding assuming conversion of the $6,000 secured promissory note ("Decisions Note") issued to Decisions Incorporated ("Decisions") on January 4, 1994, and conversion of the $6,500 secured promissory note ("the Note") issued to Decisions on August 12, 1994 (see Note 6). Net income (loss) applicable to common stock for the year ended December 31, 1994 has been increased by $386 for the interest expense (net of tax) on the convertible debt since conversion on January 4, 1994 and August 12, 1994, respectively, was assumed. The calculation of net income (loss) per common share assuming full dilution excludes common stock equivalents and convertible securities that are antidilutive.
NOTE 2 -- RESTRUCTURINGS AND ASSETS HELD FOR SALE: During 1993, the Company adopted a plan to sell its Irish manufacturing facility to a wholly-owned subsidiary of its European marketing and distribution partner, Pharmacia. The Irish manufacturing facility primarily produces molded components used to assemble disposable administration sets ("Sets").
Net assets held for sale in the accompanying balance sheet consists of the following at December 31, 1993:
Assets held for sale are presented at their expected net realizable values and liabilities are presented at their carrying amounts.
The Company recorded a $3,515 restructuring charge during 1993 in connection with the proposed sale of its Irish manufacturing operations and the relocation of its molding operations to the United States. Professional fees and relocation costs of $1,300 are included in the restructuring charge. During 1993, the Company also recorded a $1,898 charge to consolidate certain of the Company's operations. The provision includes severance payments, facilities consolidation costs and the write-off of equipment associated with discontinued products, net of the defined benefit plan curtailment gain (see Note 11).
During 1994, the Company sold its Irish manufacturing facility to Pharmacia for $4,089, from which the net proceeds were used to repay a portion of the GECC long-term debt. The Company entered into an agreement with Pharmacia for the purchase, at fixed prices, of minimum quantities of Sets and components used to assemble Sets through 1996. The Company is obligated to purchase approximately $2,300 and $800 from Pharmacia during 1995 and 1996, respectively.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
Depreciation expense was $6,709, $5,659 and $3,893 for 1992, 1993 and 1994, respectively.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS: (CONTINUED)
NOTE 4 -- INTANGIBLES:
During 1993, the Company discontinued its funding of Dean Kamen and his affiliates ("Kamen") to develop hospital infusion pumps and related disposables based on Kamen's fluid management technology. Other expenses in 1993 includes a loss of $1,919, consisting of the write off of unamortized technology licenses of $3,919 less a non-refundable product development fee of $2,000. The product development fee was received in 1991 from Pharmacia as part of a $10,000 arrangement to develop products using Kamen's fluids management technology. The fees were to be earned upon the attainment of certain development milestones. Since IMED discontinued funding Kamen, the deferred revenue of $2,000 was released to income and IMED will not receive any of the remaining $8,000 of product development fees.
Goodwill was reduced by $3,234 during 1993 as a result of Advanced Medical acquiring Kamen's interests in IMED (see Note 9).
NOTE 5 -- SECURITIES AVAILABLE FOR SALE: Current marketable securities comprise the following:
During 1993, the Company sold 327 shares of its AIS common stock for $6,332, resulting in a realized gain of $3,681. During 1994, the Company sold all remaining 107 shares of its AIS common stock for $1,005, resulting in a realized gain of $133.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 5 -- SECURITIES AVAILABLE FOR SALE: (CONTINUED) During 1993, the Company sold 554 shares of its Alteon common stock for $5,180, resulting in a realized gain of $3,020. During 1994, the Company sold 378 shares of its Alteon common stock for $2,763, resulting in a realized gain of $1,293. At December 31, 1994, the Company owned 513 shares of Alteon common stock.
The market value at December 31, 1994 is based on the quoted market price and is considered to represent fair value as determined under SFAS 115. The fair value may not represent actual value of the Alteon common stock that could have been realized as of December 31, 1994 or that will be realized in the future.
The gross unrealized gain as of March 17, 1995 on the current marketable equity securities was $1,332.
NOTE 6 -- NOTES PAYABLE AND LONG-TERM DEBT: In connection with the acquisition of the IMED Division, IMED entered into a revolving credit facility and a term loan agreement with GECC. During 1994, IMED restructured its loan agreement with GECC ("Amended Loan Agreement").
Long-term debt comprises the following:
GECC LONG-TERM DEBT
The Amended Loan Agreement includes a $42,000 revolving credit facility that replaces the previous $22,000 revolving credit facility and the term loan. The interest rate on the Amended Loan Agreement is the index rate plus 2% (10 1/2% at December 31, 1994). Outstanding indebtedness under the Amended Loan Agreement will mature in March 1999. Advances under the Amended Loan Agreement will be made against a borrowing base consisting of 85% of eligible accounts receivable, 65% of eligible inventory and 85% of the future value of eligible instrument lease receivables. The Amended Loan Agreement contains affirmative and negative covenants, including, among others, the maintenance of certain financial ratios, balances, and earnings levels, limitations on capital expenditures and transfer of funds to Advanced Medical and restrictions on incurring additional debt. The Amended Loan Agreement is secured by a first priority interest in all of IMED's assets and the IMED capital stock and certain patents used in IMED's business, owned by Advanced Medical.
DEBENTURES
The Company has outstanding 7 1/4% convertible subordinated debentures ("Debentures") in the princi- pal amount of $60,000. The Debentures are convertible at the option of the holder into common stock of the Company at any time prior to maturity, unless previously redeemed or repurchased, at a conversion price of $18.14 per share, subject to adjustment in certain events. The Debentures mature on January 15, 2002. Interest on the Debentures is payable semi-annually on each January 15 and July 15. The Debentures are
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 6 -- NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED) redeemable in whole or in part at the option of the Company at any time on or after January 15, 1993, at the redemption prices set forth in the indenture, together with accrued and unpaid interest, provided that the Debentures may not be redeemed during the twelve-month periods commencing on January 15, 1993 and January 15, 1994, unless the last reported sale price of the common stock for a specified period prior to such redemption is at least 170% and 160%, respectively, of the conversion price then in effect. The Debenture holders may require the Company to repurchase the Debentures, in whole or in part, in certain circumstances involving a change in control of the Company. The Debentures are subordinate to all existing or future senior indebtedness of the Company, and are also effectively subordinated to liabilities of the Company's subsidiaries. The indenture does not restrict the incurrence of senior indebtedness or other indebtedness by the Company or any subsidiary (see Note 16).
REFINANCINGS
On January 4, 1994, the Company issued the Decisions Note and borrowed $6,000 from Decisions. The Note bears interest at 7% and is payable on the earlier of January 4, 2001 or on demand by Decisions provided the repayment is generated by net income of the Company exclusive of IMED, any borrowing or debt or equity offering by the Company, or funds available through distribution from affiliates, including IMED. The principal portion of the note is convertible at the option of the holder into 6,000,000 shares of the Company's common stock at a conversion price of $1.00 per share (subject to antidilution protection). The Decisions Note is secured by a first priority security interest in all of the Company's assets subject to the rights of GECC under the Amended Loan Agreement. The proceeds of the Note were used by the Company to pay $6,000 of indebtedness to Aeneas Venture Corporation ("Aeneas").
On August 12, 1994, the Company issued the Note and borrowed an additional $6,500 from Decisions. The proceeds of the loan were used to (i) pay all remaining indebtedness to Aeneas in the amount of $3,188, (ii) make the July 15, 1994 interest payment on the Debentures in the amount of $2,187 and (iii) pay other obligations of the Company. The payment of all indebtedness owed by Advanced Medical to Aeneas released Advanced Medical from its obligations under a letter agreement with Aeneas thereby removing the restrictions imposed on Advanced Medical's use of its available cash. The Note is payable on January 4, 2001 and has an annual interest rate of 9%. Interest on the principal is due on June 30 and December 31 of each year. In regards to security, the Note ranks pari passu with the Decisions Note. The Note is convertible, at the option of the holder, into up to 10,483,870 shares of the Company's common stock at a conversion price of $.62 per share (subject to antidilution protection). Any shares of common stock converted cannot be sold into the public market prior to August 12, 1996.
MATURITIES
Maturities of long-term debt during the years subsequent to December 31, 1995 are as follows:
At December 31, 1994, the fair value, as determined under SFAS No. 107, of long-term debt, including current maturities, was $69,017. The estimated fair values represent the quoted market price for the Debentures and carrying amounts for all other debt.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 7 -- INCOME TAXES: Income (loss) before income taxes, minority interests, extraordinary item and cumulative effect of change in accounting principle comprises the following:
The provision for income taxes comprises the following:
The principal items accounting for the differences in income taxes computed at the U.S. statutory rate (34%) and the effective income tax rate comprise the following:
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 7 -- INCOME TAXES: (CONTINUED) As of December 31, 1994 the Company has net operating loss carryforwards of approximately $29,000 for federal income tax purposes which expire in varying amounts through 2008. As of December 31, 1994 the Company has capital loss carryforwards of approximately $5,000 for federal income tax purposes which expire in varying amounts through 1996. The availability of the Company's net operating loss and capital loss carryforwards would be subject to substantial limitations if it should be determined that certain stockholders of the Company have increased their percentage of ownership of the Company's stock by more than 50% during a specified period.
The components of the net deferred tax asset as of December 31, 1994 are as follows:
NOTE 8 -- LITIGATION AND CONTINGENCIES: The Company is a defendant in various actions, claims, and legal proceedings arising from normal business operations. Management believes they have meritorious defenses and intends to vigorously defend against all allegations and claims. As the ultimate outcome of these matters is uncertain, no contingent liabilities or provisions have been recorded in the accompanying financial statements for such matters. However, in management's opinion, based upon discussion with legal counsel, liabilities arising from these matters, if any, will not have a material adverse effect on the consolidated financial position or results of operations.
An action was commenced during 1986 against various parties including the corporate predecessor of IMED alleging, among other matters, breach of employment contract and wrongful discharge and seeking $5,000 and $40,000 in actual and punitive damages, respectively. During 1993, IMED settled this action with the plaintiff. Pursuant to the settlement agreement, the action was dismissed and IMED paid $1,000 to the plaintiff during 1993 and delivered to the plaintiff a promissory note, payable over 2 years, in the principle amount of $1,275. As a $1,375 contingent liability was previously recorded, $900 was charged to other expense during 1993.
An action was commenced during 1991 against IMED, Fisher and various other parties alleging, among other matters, breach of contract and misappropriation of trade secrets. The plaintiffs were seeking unspecified punitive and compensatory damages. During 1994, IMED settled this action with the plaintiffs. Pursuant
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 8 -- LITIGATION AND CONTINGENCIES: (CONTINUED) to the settlement agreement, the action was dismissed and IMED paid $250 to the plaintiff and delivered to a subsidiary of Fisher a promissory note, payable over 5 years, in the principal amount of $750. A charge related to this liability in the amount of $1,200 was recorded in the fourth quarter of 1993.
NOTE 9 -- MANDATORILY REDEEMABLE EQUITY SECURITIES AND MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES:
PREFERRED STOCK:
Mandatorily redeemable preferred stock activity comprises the following:
In connection with the capitalization of Advanced Medical and mergers during 1989, 1,594 shares of $.01 par value mandatorily redeemable preferred stock ("10% preferred stock") were issued (1,800 shares authorized). The 10% preferred stockholders are entitled to cumulative dividends in preference to any dividends on common stock, payable semi-annually on March 27 and September 27, if declared, out of funds legally available. The 10% preferred stock has a liquidation value of $10.00 per share plus accrued and unpaid dividends. The 10% preferred stockholders have limited voting rights under certain circumstances; the stock is not convertible into any other class of stock.
The 10% preferred stock was recorded at its fair value at the issuance date ($6.26 per share). The carrying amount is periodically increased for the amounts which will be payable upon redemption. The accretion to the carrying amount is determined using the interest method and results in a corresponding decrease to paid-in capital.
The 10% preferred stock is redeemable at any time at the option of the Board of Directors, in whole or in part, and is mandatorily redeemable in the amount of $3,985 by March 27 of each year from 1991 through 1994, if declared (aggregate redemption price of $15,940).
The Company redeemed 180 shares of its 10% preferred stock during 1990. To satisfy the remaining redemption requirement of 219 shares, the Company redeemed 262 shares of its 10% preferred stock in March 1991 through the issuance of 333 shares of a newly created class of mandatorily redeemable convertible preferred stock ("convertible preferred stock") to a stockholder or entities controlled by the stockholder. The convertible preferred stock is subordinate to the existing 10% preferred stock and has a liquidation preference of $6.40 per share. Cumulative dividends are payable semi-annually at 15% of the liquidation preference. Each share is convertible into .617 common shares, subject to anti-dilution adjustments, at any time prior to redemption. The convertible preferred stock is redeemable after all the 10% preferred shares are redeemed (a) at the holder's option at the liquidation preference plus accrued dividends, or (b) at the Company's option at the liquidation preference plus accrued dividends, plus $1.50 per share. The convertible preferred stock is mandatorily redeemable at the liquidation preference plus accrued dividends on the later of March 26, 1998 or the date all existing 10% preferred stock is redeemed.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 9 -- MANDATORILY REDEEMABLE EQUITY SECURITIES AND MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES: (CONTINUED) On July 12, 1994, IMED commenced a Tender Offer for up to all of the outstanding shares of 10% Preferred Stock for a cash price equal to $9.00 per share (the "Tender Offer"). The Tender Offer expired on August 30, 1994, at which time 68,517 shares of the 10% Preferred Stock were tendered. Immediately upon purchase thereof, IMED distributed all such shares of the 10% Preferred Stock acquired by it pursuant to the Tender Offer to Advanced Medical and received a credit from Advanced Medical against the amount of accrued and unpaid dividends on shares of IMED's preferred stock held by Advanced Medical in an amount equal to the liquidation value of the 10% Preferred Stock ($10 per share) plus accrued and unpaid dividends thereon ($1.45 per share).
COMMON STOCK WARRANT
IMED's common stock warrant held by GECC and included in minority interests in consolidated subsidiaries on the accompanying consolidated balance sheet is comprised of the following:
In connection with the loan agreements, IMED issued a warrant allowing GECC to purchase 10% of IMED's common stock on a fully-diluted basis for nominal consideration, subject to adjustment as provided in the agreement, and exercisable at any time until August 12, 2004. IMED is required to purchase not less than 25% of the shares under the warrant, or warrant stock if exercised, at the option of GECC, and also upon (a) the filing of a registration statement for the offering of IMED's common stock; (b) the sale of IMED; (c) the prepayment in full of the GECC loans, or (d) the termination by GECC of the revolving loan under provisions of the loan agreement. Additionally, IMED has the option to redeem not less than 25% of the shares under warrant, or warrant stock if exercised, beginning April 2, 1995. The purchase price per share will be the higher of fair value (determined by either an investment banking firm or at quoted price if the shares are publicly traded) or fully-diluted net book value at the purchase date. Additionally, the warrant shares, or warrant stock if exercised, have specified registration rights.
In September 1993, the Company acquired all of the interests of IMED held by Kamen, which included a 10.79% common equity interest and $1,690 of 10% redeemable preferred stock, for $1,750. Minority interests were reduced by the carrying amount of Kamen's interests of $4,984. The excess of the carrying amount ($4,984) over the purchase price ($1,750) has been recorded as a reduction in goodwill.
NOTE 10 -- STOCK OPTION PLANS: The Company maintains several stock option and purchase plans under which incentive stock options may be granted to key employees and nonqualified stock options may be granted to key employees, directors, officers, independent contractors and consultants. A maximum of 1,950 shares of common stock are subject to issuance under the Plans.
The exercise price for incentive stock options generally may not be less than the underlying stock's fair market value at the grant date. The exercise price for non-qualified stock options granted to non-directors will not be less than the par value of a share of common stock, as determined by a committee appointed by the Board of Directors ("the Committee"). The exercise price for non-qualified stock options granted to directors may not be less than the underlying stock's fair market value at the grant date.
Options granted to non-directors generally vest and become exercisable as determined by the Committee. Options granted to directors generally vest and become exercisable at a rate of four thousand shares for
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 10 -- STOCK OPTION PLANS: (CONTINUED) each 12 month period of continuous service as a director. Options granted to non-directors generally expire upon the earlier of the termination of the optionee's employment or ten years from the grant date. Options granted to directors generally expire upon the earlier of the date the optionee is no longer a director or five years from the grant date.
STOCK OPTION ACTIVITY
At December 31, 1994, there were 1,551 shares reserved for future grants.
During January 1995, the Company cancelled options to acquire 266 shares of common stock (at prices ranging from $4.47 to $16.94 per share) and granted options to acquire 1,224 shares of common stock (at $1.8125 per share) to key employees of the Company.
NOTE 11 -- BENEFIT PLANS:
PENSION PLANS
The Company has a defined benefit pension plan (the "Plan") which covers substantially all of its U.S. employees. On December 1, 1993, the Company's Board of Directors approved amendments to the Plan provisions which include, among other matters, cessation of benefit accruals after December 31, 1993. All earned benefits as of that date are preserved and the Company continues to contribute to the Plan as necessary to fund earned benefits. The portion of the projected benefit obligation based on the expected future compensation levels decreased $1,381, and nonvested benefits decreased $508. The Plan also had an unrecognized net loss, resulting from Plan asset performance experience different than assumed, remaining unamortized of $1,219 and unrecognized prior service costs of $18 at December 31, 1993. The sum of the effects resulting from the Plan curtailment was a gain of $652 and was included in restructuring charges at December 31, 1993 as described in Note 2.
Certain of the Company's foreign employees are covered by defined benefit pension plans. Benefits are based on years of service and the employee's compensation during the last five years of employment. The Company's funding policy is to contribute the net pension cost annually to the plan. As a result of the Company's plan to sell its Irish manufacturing facility, the foreign accrued pension cost of $298 is included in net assets held for sale at December 31, 1993 as described in Note 2.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 11 -- BENEFIT PLANS: (CONTINUED) The following table sets forth the plans' estimated funded status and amounts recognized in the Company's balance sheet:
The components of net periodic pension cost (benefit) are as follows:
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 12 -- LEASES:
LEASE RECEIVABLES
The Company leases instruments to customers under non-cancelable capital and operating lease contracts with terms ranging generally from 1 to 5 years. Scheduled future minimum lease payments are as follows:
Operating lease revenue totaled $7,673, $2,838 and $2,033 during 1992, 1993 and 1994, respectively.
LEASE COMMITMENTS
The Company leases buildings and equipment under non-cancelable operating leases with initial terms ranging from 1 to 6 years. Scheduled future minimum lease commitments as of December 31, 1994 are as follows:
Rent expense was $3,840, $3,845 and $3,740 during 1992, 1993 and 1994, respectively.
NOTE 13 -- RELATED PARTY ARRANGEMENTS AND COMMITMENTS: On April 2, 1990, IMED entered into an agreement with Deka Products Limited Partnership ("Deka") whereby Deka granted IMED an exclusive, worldwide, royalty-free license of certain intravenous infusion pump technology developed by Deka. In consideration for this technology, IMED issued Deka 10.79% of its common stock and 13% of its preferred stock (each on a fully-diluted basis). During 1993, the Company discontinued its funding of Deka and AMD to develop hospital infusion pumps and related disposables based on Deka's fluid management technology and the Company acquired all the interests of IMED held by Deka (see Notes 4 and 9).
During 1990, IMED entered into a five year purchase and supply agreement with a hospital buying group. Pursuant to the agreement, the buying group is to market IMED's products to the individual hospitals which are members of the buying group. In exchange for such marketing efforts, IMED granted the buying
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 13 -- RELATED PARTY ARRANGEMENTS AND COMMITMENTS: (CONTINUED) group stock appreciation rights ("SARs") of up to an aggregate of 250,000 shares of Advanced Medical common stock, subject to a vesting schedule based on purchasing volumes. Upon signing the agreement the buying group was immediately vested in 50,000 SARs and during 1991 the buying group's purchasing volumes qualified it to become vested in an additional 50,000 SARs. The recorded liability related to such SARs totaled $400 at December 31, 1993. During 1994, IMED repurchased all vested SARs and paid $400 to the buying group.
In October 1991, IMED sold certain European assets to Pharmacia and entered into a marketing, distribution and development arrangement with Pharmacia (the "Pharmacia Transaction"), pursuant to which Pharmacia obtained the exclusive right to market and distribute IMED's infusion products in a territory that includes most of Europe. On August 12, 1994, the Company, IMED and Pharmacia amended their distribution agreement. Under the terms of the Amended and Restated Distribution Agreement ("Amended Distribution Agreement"), Pharmacia retains the exclusive right (subject to certain exceptions) to distribute IMED's infusion products in the territory that includes most of Europe. Under the Amended Distribution Agreement, Pharmacia has the right not to distribute certain products currently under development by IMED. In the event of such an election, IMED has the right to sell such products directly or through others, and under certain circumstances, has the right to repurchase from Pharmacia the distribution rights to IMED products currently distributed by Pharmacia in the territory. In addition, Pharmacia has the right to terminate the Amended Distribution Agreement at any time on 12 months notice, in which event Pharmacia would be required to make a payment of $2,500 to IMED and IMED would be required to make payments to Pharmacia based on net sales of products currently distributed by Pharmacia for the 4 years following termination.
During 1994, the Company issued the Decisions Note and the Note to Decisions, a corporation affiliated with Jeffry M. Picower. Mr. Picower is an officer, director and significant stockholder of the Company. (See Note 6.)
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 14 -- SEGMENT INFORMATION:
NOTE 15 -- SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS: Foreign and state income taxes paid during 1992, 1993 and 1994 totaled $2,061, $870 and $1,433, respectively. Interest paid during 1992, 1993 and 1994 totaled $19,568, $10,280 and $7,745, respectively. Interest paid during 1992 includes $12,451 accrued in previous periods.
NOTE 16 -- SUBSEQUENT EVENT (UNAUDITED): Effective March 31, 1995, the Company completed an exchange (the "Exchange") wherein $28,245, or approximately 47%, in principal amount of the Company's Debentures were exchanged for an aggregate of $14,123 in principal amount of the Company's newly created 15% Subordinated Debentures due 1999 ("15% Debentures") and 1,340,441 shares of the Company's common stock ("Common Stock"). As a result of this transaction, the Company will recognize an extraordinary gain on the extinguishment of debt of approximately $8,200 in the first quarter of 1995.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
NOTE 16 -- SUBSEQUENT EVENT (UNAUDITED): (CONTINUED) PRO FORMA CONDENSED BALANCE SHEET
The unaudited Pro Forma Condensed Balance Sheet is based upon the Company's historical consolidated balance sheet at December 31, 1994, after giving effect to the pro forma adjustments described in the footnotes hereto as if the Exchange had been consummated on December 31, 1994.
The pro forma adjustments described herein are based upon currently available information and upon certain assumptions that the Company believes are reasonable under current circumstances and which are described herein. The unaudited Pro Forma Condensed Balance Sheet should be read in conjunction with the Company's historical consolidated financial statements and accompanying notes thereto. Due to the fact that the Exchange and certain related transactions occurred subsequent to December 31, 1994, the pro forma financial information presented herein is not necessarily indicative of the results or balances that would have been attained had the Exchange actually taken place prior to December 31, 1994 and the actual adjustments and balances may vary from those presented in the unaudited Pro Forma Condensed Balance Sheet. However, management believes that any differences between actual adjustments and pro forma adjustments will not have a material impact on the pro forma financial statements.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The unaudited Pro Forma Condensed Statement of Operations is based upon the Company's historical consolidated statement of operations for the year ended December 31, 1994, after giving effect to the pro forma adjustments described in the footnotes hereto as if the Exchange had been consummated on January 1, 1994.
The pro forma adjustments described herein are based upon currently available information and upon certain assumptions that the Company believes are reasonable under current circumstances and which are described herein. The unaudited Pro Forma Condensed Statement of Operations should be read in conjunction with the historical consolidated financial statements and accompanying notes thereto. The Pro Forma Condensed Statement of Operations is not necessarily indicative of what actual results of operations would have been for the respective period presented had the Exchange actually taken place on January 1, 1994 and does not purport to project the Company's results of operations for any future period.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED) DECEMBER 31, 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED) DECEMBER 31, 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Note 1 -- The Exchange pro forma adjustments assume the surrender of $28,245 in principal amount of Debentures in exchange for an aggregate of $14,123 in principal amount of the Company's newly-created 15% Debentures and 1,340,441 of Common Stock. The Exchange pro forma adjustments are made as follows:
(A) Reflects the surrender of $28,245 of Debentures in exchange for an aggregate of $14,123 in principal amount of the Company's newly created 15% Debentures and 1,340,441 shares of Common Stock ($2.75/share) and the corresponding extraordinary gain on retirement of debt of $10,436. The extraordinary gain is recorded net of $1,393, comprising the write-off of approximately 47% of the unamortized Debenture debt issue costs and net of $620, the effective tax rate applicable to the Exchange.
(B) Reflects the use of cash to pay $300 of debt issue costs in connection with the Company's newly created 15% Debentures.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1994 (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
ADVANCED MEDICAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Note 1 -- The Exchange pro forma adjustments assume the surrender of $28,245 in principal amount of Debentures in exchange for an aggregate of $14,123 in principal amount of the Company's newly-created 15% Debentures and 1,340,441 of Common Stock. The Exchange pro forma adjustments are made as follows:
(C) Reflects the extraordinary gain of $10,436 on the extinguishment of debt due to the Exchange of $28,245 in principal amount of Debentures for an aggregate of $14,123 in principal amount of 15% Debentures and 1,340,441 shares of Common Stock ($2.75/share). The extraordinary gain is recorded net of $1,590, comprising the write-off of approximately 47% of the unamortized Debenture debt issue costs and net of $620, the effective tax rate applicable to the Exchange.
(D) Reflects the elimination of approximately 47% of the amortization of Debenture debt issue costs of $197, net of additional amortization of debt issue costs of $75 incurred with the Exchange.
(E) Reflects additional interest expense of $2,118 incurred on the $14,123 of 15% Debentures, net of the elimination of interest expense of $2,048 related to the $28,245 of Debentures which is assumed to have been retired in connection with the Exchange.
(F) Reflects the tax effect on items (D) and (E) above, calculated at the statutory rate.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and executive officers of IMED are as follows:
JEFFRY M. PICOWER -- Mr. Picower was a Director, Vice President and Assistant Treasurer of the Company from September 1988 to March 1989 and Vice Chairman from December 1988 to June 1989. Mr. Picower was re-elected as a Director and Co-chairman of the Board on March 8, 1993 and became Chairman of the Board on May 4, 1993. Mr. Picower has been Chief Executive Officer since September 7, 1993. He has, since 1984, been Chairman of the Board and Chief Executive Officer of Monroe Systems for Business, Inc. ("Monroe"), a world-wide office equipment, distribution and service organization. Mr. Picower has been a director of Physician Computer Network, Inc. ("PCN") since January 1994 and Chairman of the Board since June 1994. PCN, a corporation whose principal shareholder is Mr. Picower, operates a computer network linking its office-based physician members to health care organizations.
JOSEPH W. KUHN -- Mr. Kuhn was appointed President of the Company and IMED in January 1995. Since August 1993, Mr. Kuhn has been Chief Financial Officer, Treasurer and Secretary of the Company and Treasurer and Secretary of IMED. From August 1993 to January 1995, Mr. Kuhn was Vice President of the Company and Executive Vice President of IMED. Mr. Kuhn was Corporate Controller of the Company from January 1990 to August 1993. Mr. Kuhn joined Controlled Therapeutics Corporation ("CTC") (a development stage pharmaceutical company and a former subsidiary of the Company) in September 1989 and was its Corporate Controller through December 1991. From 1983 to 1989, Mr. Kuhn held positions of increasing responsibility, including senior manager, with Price Waterhouse, a public accounting firm. From 1982 to September 1983, Mr. Kuhn was employed by Main Hurdman, a public accounting firm. Mr. Kuhn holds a B.A. degree from Rutgers University and is a Certified Public Accountant.
ANTHONY CERAMI, PH.D. -- Dr. Cerami was first elected to the Board of Directors of the Company in March 1989. He has been President of The Picower Institute for Medical Research since October 1991. Dr. Cerami was Dean, Graduate and Postgraduate Studies at The Rockefeller University from 1986 through January 1991 and was a Professor at The Rockefeller University from 1978 until October 1991. He is an editor of the JOURNAL -- MOLECULAR MEDICINE and is on the editorial boards of several biomedical journals. He has been an author of numerous publications covering many aspects of medical biochemistry. He holds a B.S. from Rutgers University and a Ph.D. from The Rockefeller University. Dr. Cerami is Chairman of the Scientific Advisory Board and a director of Alteon.
NORMAN M. DEAN -- Mr. Dean was first elected to the Board of Directors of the Company in March 1989. Mr. Dean has been a director and President of Foothills Financial Corporation, a venture capital company, since January 1985 and Chairman of the Board of Miller Diversified Corp. since May 1990.
HENRY GREEN -- Mr. Green was President and Chief Operating Officer of the Company from September 1990 to March 1993 and has been a director of the Company since 1991. Mr. Green was also President and Chief Executive Officer of CTC from February 1991 to December 1992. Mr. Green became an employee of PCN in March 1993 and Chief Executive Officer in June 1994. Mr. Green was elected President of PCN in May 1993 and Chief Executive Officer in June 1994. He was elected as a director of PCN in July 1993. From 1988 to September 1990, Mr. Green was Vice President of Johnson & Johnson International. From 1981 to 1988, Mr. Green was President of Vistakon, Inc., a subsidiary of Johnson & Johnson. Mr. Green holds a B.S. and an M.B.A. from Drexel University.
RICHARD B. KELSKY -- Mr. Kelsky has been a Director of the Company since June 1989. Since 1984, Mr. Kelsky has been Vice President and General Counsel of Monroe. Mr. Kelsky has been a director of PCN since January 1992.
Directors are elected for terms of one year and until their successors are duly elected and have qualified. There are no family relationships among the above directors.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information concerning compensation paid or accrued by the Company and IMED to or on behalf of the Company's Chief Executive Officer and each of the other most highly compensated executive officers of the Company whose salary and bonus exceeded $100,000 (determined for and as of the end of 1994) (the "Named Executive Officers") for the years ended December 31, 1992, 1993 and 1994:
SUMMARY COMPENSATION TABLE
EMPLOYMENT AGREEMENTS
Mr. Kuhn is employed by the Company and IMED as President pursuant to an employment agreement providing for a base salary of $175,000. The agreement provides that, upon termination of his employment by the Company other than for cause, Mr. Kuhn will receive an amount, to be paid over a six-month period commencing with the date his employment terminates, equal to six months' salary, which amount will be reduced by any salary or compensation that Mr. Kuhn receives from any other sources during such six-month period. In addition, subject to certain conditions, the option to purchase shares of common stock previously granted to Mr. Kuhn will become fully vested when his employment terminates. From September 1993 through December 1994, Mr. Kuhn was employed by the Company as Chief Financial Officer and by IMED as Executive Vice President pursuant to an employment agreement providing for a base salary of $135,500.
During 1994, Mr. Kuhn received a performance bonus of $40,650 pursuant to his employment contract.
In connection with Mr. Kuhn's acceptance of employment as the Company's Chief Financial Officer on September 1, 1993, he received supplemental income of $67,750 and the cancellation of a $35,543 loan made by the Company to Mr. Kuhn in connection with his relocation to California in 1990.
STOCK-BASED BENEFIT PLANS
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Option Plan"), was originally adopted by the Board of Directors on December 27, 1988. The Option Plan in its first amended and restated form was adopted by the Board of Directors on July 12, 1990 and became effective on September 7, 1990. The Option Plan in it second amended and restated form was adopted by the Board of Directors on June 30, 1992. The Option Plan in its third amended and restated form was approved by the Board of Directors and became effective on June 28, 1994. Under the Option Plan, incentive stock options ("ISOs"), as provided in Section 422 of the Internal Revenue Code, may be granted to key employees of the Company and its subsidiaries, and nonqualified stock options ("NQSOs") may be granted to key employees, directors (except directors eligible to participate in the Directors Plan), and officers of the Company, its subsidiaries or affiliates, as well as independent contractors and consultants performing services for such entities. The maximum aggregate number of shares of the Company's common stock that may be issued under the Option Plan is 1,700,200. The number of shares of common stock which remained available for issuance under the Option Plan was 1,638,680 of which 1,107,305 are subject to currently outstanding options. The number of shares of common stock available under the Option Plan will be reduced on a share for share basis in respect of each share issued other than under the Option Plan to persons eligible to participate in the Option Plan. In the event of a change in the capitalization of the Company which affects the common stock, the Committee may make proportionate adjustments to the number of shares of common stock for which options may be granted and the number and exercise price of shares of common stock subject to outstanding options. Options may not be granted under the Stock Option Plan after December 27, 1998.
The Option Plan provides for administration by a committee appointed by the Board of Directors (the "Committee"). No member of the Committee is eligible to receive options under the Option Plan. The Committee has authority, subject to the terms of the Option Plan, to determine the individuals to whom options may be granted, the exercise price and number of shares of common stock subject to each option, whether the options granted to employees are to be ISOs, the time or times during which all or a portion of each option may be exercised and certain other provisions of each option.
Pursuant to the Option Plan, the purchase price of shares of common stock subject to ISOs must be not less than the fair market value of the common stock at the date of the grant; provided, that the purchase price of shares subject to ISOs granted to any optionee who owns shares possessing more than 10% of the combined voting power of the Company or any parent or subsidiary of the Company ("Ten Percent Shareholder") must be not less than 110% of the fair market value of the common stock at the date of the grant. With respect to NQSOs, the purchase price of shares will be determined by the Committee at the time of the grant, but will not be less than the par value of a share of common stock. The maximum term of an option may not exceed 10 years from the date of grant, except with respect to ISOs granted to Ten Percent
Shareholders which must expire within five years of the date of grant. Options granted vest and become exercisable as determined by the Committee. The Committee will limit the grant so that no more than 250,000 shares of common stock (subject to certain adjustments) may be awarded to any one employee in any calendar year. During the lifetime of an optionee, his or her options may be exercised only by such optionee. Options are not transferable other than by will or by the laws of descent and distribution.
Payment of the purchase price for the shares of common stock to be received upon exercise of an option may be made in cash, in shares of common stock or in any combination thereof. In addition, the Committee may, pursuant to the terms of the stock option agreement between the optionee and the Company, provide for payment of the purchase price by promissory note or by any other form of consideration permitted by law.
Options granted to participants under the Option Plan are subject to forfeiture under certain circumstances in the event an optionee is no longer employed by or performing services for the Company. In the event an optionee is terminated for cause, all unexercised options held by such optionee (whether or not vested) expire upon such termination. If an optionee is no longer an Officer, Director or Employee (as defined in the Option Plan) other than as the result of having been terminated for cause, all unvested options expire at such time and all vested options expire twelve months thereafter, unless by their terms such options expire sooner.
In the event of a change in control, as defined in the Option Plan, unless otherwise determined by the Committee at the time of grant or by amendment (with the holder's consent) of such grant, all options not vested on or prior to the effective time of any such change of control shall immediately vest as of such effective time.
No options were granted under the Option Plan in 1994 to any director of the Company or Named Executive Officer.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1994 AND OPTION VALUES AS OF DECEMBER 31, 1994
DIRECTORS PLAN
The Company's Non-Qualified Stock Option Plan for Non-Employee Directors (the "Directors Plan"), a separate plan pursuant to which it grants NQSOs to its non-employee directors, was originally adopted by the Board on July 12, 1990 and became effective on September 7, 1990. The Directors Plan in its amended and restated form was adopted by the Board of Directors and became effective on June 30, 1992. The Directors Plan in its second amended and restated form was approved by the Board of Directors and became effective on June 28, 1994. Directors who are eligible participants in the Directors Plan are not eligible to receive awards under the Option Plan. An aggregate of 250,000 shares of the Company's common stock may be issued under the Directors Plan. The number of shares of common stock which remained available for issuance under the Directors Plan was 240,000, of which 62,000 are subject to currently outstanding options.
The number of shares of common stock available under the Directors Plan will be reduced on a share for share basis in respect of each share issued other than under the Directors Plan to persons eligible to participate in the Directors Plan. In the event of a change in the capitalization of the Company which affects the common stock, the committee which administers the Directors Plan (the "Plan Committee") may make proportionate adjustments to the number of shares of common stock for NQSOs which may be granted and to the number and exercise price of shares of common stock subject to outstanding NQSOs. NQSOs may not be granted under the Directors Plan after September 7, 2000.
The Plan Committee consists of at least two individuals who are not eligible to participate in the Directors Plan. The Plan Committee has the authority to administer all aspects of the Directors Plan other than (i) the grant of NQSOs; (ii) the number of shares of common stock subject to NQSOs; (iii) the rate at which options granted thereunder vest and become first exercisable; and (iv) the price at which each share covered by a NQSO may be purchased, all of which are determined automatically under the Directors Plan.
On September 10, 1990, initial grants of NQSOs covering 12,000 shares of common stock were made automatically under the Directors Plan to each of the Company's three non-employee directors. An initial grant of NQSOs covering 12,000 shares of common stock also will be made automatically to any person who becomes an eligible participant after September 10, 1990, on the business day following such person's election to the Board of Directors. During the term of the Directors Plan, additional grants of NQSOs covering 12,000 shares of common stock will be made to each participant in the Directors Plan every three years on the anniversary of such person's initial NQSO grant. The NQSOs granted under the Directors Plan will vest and become exercisable at the rate of 4,000 for every twelve month period of continuous service on the Board, provided that the optionee is still a member of the Board on that date. For purposes of vesting, participants will receive credit for any period of continuous service prior to September 7, 1990. The term of each NQSO is five years from the date of grant. During the lifetime of an optionee, his or her NQSOs may be exercised only by the optionee and the NQSOs are not transferable other than by will or by the laws of descent and distribution. NQSOs granted under the Directors Plan which have not yet vested are subject to termination if the optionee ceases to be a director or becomes an employee of the Company and all NQSOs which have vested expire twelve months after such change in status, unless by their terms such NQSOs expire sooner. In the event that an optionee is removed from the Board for cause, all unexercised NQSOs, whether or not vested, expire upon such removal.
The purchase price of shares of common stock subject to NQSOs is the fair market value of the common stock on the date of the grant. Payment for the shares of Common Stock to be received by a optionee upon exercise of a NQSO may be in cash or in shares of common stock. In addition, the Plan Committee may provide in such optionee's stock option agreement for payment of the purchase price by promissory note or any other form of consideration permitted by law.
In the event of a change in control, as defined in the Directors Plan, all NQSOs not vested on or prior to the effective time of any such change in control shall immediately vest as of such effective time.
COMPENSATION OF DIRECTORS
The Company's current policy is to compensate members of its Board of Directors who are not employees of the Company at the annual rate of $10,000 plus options to purchase 4,000 shares of the Company's Common Stock pursuant to the Directors Plan. See "Stock-Based Benefit Plans Directors Plan." Travel and accommodation expenses of directors incurred in connection with meetings are reimbursed by the Company.
In March 1993, the Company and Mr. Green entered into a consulting agreement with a three year term, expiring on March 15, 1996, and providing for the payment to Mr. Green of consulting fees in the amount of $100,000 annually. Mr. Green does not currently receive the $10,000 annual director's compensation or the option to purchase the Company's common stock pursuant to the Directors Plan.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below sets forth, as of March 30, 1995, information regarding the beneficial ownership of the Company's Common Stock by (i) all persons known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director of the Company, (iii) each of the Named Executive Officers who still hold an office with the Company and/or its subsidiaries, and (iv) all directors and officers of the Company as a group. Unless otherwise stated, the Company believes that the beneficial owners of the shares listed below have sole investment and voting power with respect to such shares.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 4, 1994, the Company issued a secured promissory note to Decisions in the amount of $6,000,000, the proceeds of which were used to repay principal to Aeneas Venture Corporation ("Aeneas"). The note bears interest at 7% and is payable on the earlier of January 4, 2001 or on demand by Decisions provided the repayment is generated by net income of the Company exclusive of IMED, any borrowing or debt or equity offering by the Company, or funds available through distribution from affiliates, including IMED. The principal portion of the note is convertible at the option of the holder into 6,000 shares of the Company's common stock at a conversion price of $1.00 per share (subject to antidilution protection). The Decisions Note is secured by a first priority security interest in all of the Company's assets subject to the rights of GECC under the Amended Loan Agreement.
On August 12, 1994, the Company issued the Note and borrowed $6,500,000 from Decisions. The proceeds of the loan were used to (i) pay all indebtedness to Aeneas in the amount of $3,188,000, (ii) make the July 15, 1994 interest payment on the Company's 7% convertible subordinated debentures ("Debentures") in the amount of $2,187,000 and (iii) pay other obligations of the Company. The payment of the interest due on the Debentures cured Advanced Medical's default in its payment of interest. The payment of all indebtedness owed by Advanced Medical to Aeneas released Advanced Medical from its obligations under a letter agreement with Aeneas thereby removing the restrictions imposed therein on Advanced Medical's use of its available cash. The Note is payable on January 4, 2001 and has an annual interest rate of 9%. Interest on the principal is due on June 30 and December 31 of each year. In regards to security, the Note ranks pari passu with the Decisions Note. The Note is convertible, at the option of the holder, into up to 10,483,870 shares of Common Stock at a conversion price of $.62 per share (subject to antidilution protection). Any shares of Common Stock converted cannot be sold into the public market prior to August 12, 1996.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS:
The following financial statements of Advanced Medical, Inc. and its subsidiaries are included in Part II, Item 8 of this report, on the following pages:
2. FINANCIAL STATEMENT SCHEDULES:
Schedule III -- Condensed Financial Information of Advanced Medical, Inc. as of December 31, 1993 and 1994 and for the three years ended December 31, 1994.
Schedule VIII -- Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 1994.
All other schedules have been omitted because they are inapplicable, not required or the required information is included in the financial statements or notes thereto.
3. EXHIBITS.
(b) Report on Form 8-K
The Company did not file any reports during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ADVANCED MEDICAL, INC.
By: /s/ JEFFRY M. PICOWER
-------------------------------------- Jeffry M. Picower CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Date: March 31, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ----------------------------------- ------------------------- ----------------
Chairman of the Board, /s/ JEFFRY M. PICOWER Chief Executive Officer ------------------------------ and Director (Principal March 31, 1995 Jeffry M. Picower executive officer)
President, Treasurer and /s/ JOSEPH W. KUHN Secretary (Principal ------------------------------ accounting and financial March 31, 1995 Joseph W. Kuhn officer)
/s/ ANTHONY CERAMI ------------------------------ Director March 31, 1995 Anthony Cerami
/s/ NORMAN M. DEAN ------------------------------ Director March 31, 1995 Norman M. Dean
/s/ HENRY GREEN ------------------------------ Director March 31, 1995 Henry Green
/s/ RICHARD B. KELSKY ------------------------------ Director March 31, 1995 Richard B. Kelsky
ADVANCED MEDICAL, INC. AND SUBSIDIARIES SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC. CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
The accompanying notes are an integral part of these condensed financial statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC. CONDENSED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of these condensed financial statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC. CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of these condensed financial statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF ADVANCED MEDICAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS OF ADVANCED MEDICAL, INC. (DOLLARS IN THOUSANDS)
NOTE 1 -- STATEMENT OF ACCOUNTING POLICY: The accompanying condensed financial statements have been prepared by Advanced Medical pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. It is therefore suggested that these condensed financial statements be read in conjunction with the Consolidated Financial Statements and notes thereto.
NOTE 2 -- SECURITIES AVAILABLE FOR SALE: The market value at December 31, 1994 is based on the quoted market price and is considered to represent fair value as determined under SFAS 115. The fair value may not represent actual value of the Alteon common stock that could have been realized as of December 31, 1994 or that will be realized in the future.
See Note 5 to the Consolidated Financial Statements.
NOTE 3 -- INVESTMENTS IN AND NET ADVANCES FROM SUBSIDIARIES: Advanced Medical accounts for its investments in subsidiaries using the equity method. Under the equity method, investments are carried at cost, adjusted for Advanced Medical's proportionate share of their undistributed earnings on losses. Investments in preferred stock are stated at cost.
Investments in and net advances to/(from) subsidiaries comprise the following:
The IMED preferred stock held by Advanced Medical is entitled to receive 12% cumulative dividends on its stated value ($13,000) and is redeemable at Advanced Medical's option, after January 1, 2000, at $13,000 plus accrued and unpaid dividends. IMED paid dividends to Advanced Medical in the amount of $2,273 during 1994.
NOTE 4 -- PATENTS: Advanced Medical acquired patents for $10,000 on April 2, 1990. These patents are licensed to IMED for a royalty of $1,100 per annum.
NOTE 5 -- LONG-TERM DEBT: The terms and maturities of Advanced Medical's long-term debt are described in Note 6 to the Consolidated Financial Statements.
NOTE 6 -- MANDATORILY REDEEMABLE EQUITY SECURITIES: Advanced Medical's mandatorily redeemable equity securities are described in Note 9 to the Consolidated Financial Statements.
NOTE 7 -- LITIGATION AND CONTINGENCIES: Litigation and contingencies are described in Note 8 to the Consolidated Financial Statements.
ADVANCED MEDICAL, INC. AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
EXHIBIT INDEX