Attached files
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EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - BIOTEL INC. | biotel104810_ex31-2.htm |
EX-32.1 - CERTIFICATION OF CEO/CFO PURSUANT TO SECTION 906 - BIOTEL INC. | biotel104810_ex32-1.htm |
EX-21.1 - SUBSIDIARIES OF BIOTEL, INC. - BIOTEL INC. | biotel104810_ex21-1.htm |
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - BIOTEL INC. | biotel104810_ex31-1.htm |
EX-10.10 - THIRD EXTENSION OF LEASE AGREEMENT - BIOTEL INC. | biotel104810_ex10-10.htm |
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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2010. |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________. |
Commission File No. 0-50914
BIOTEL INC.
(Exact name of
registrant as specified in its Charter)
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Minnesota |
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41-1427114 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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1285 Corporate Center Drive, Suite 150, Eagan, MN |
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55121 |
(Address of principal executive offices) |
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(Zip Code) |
Issuers Telephone Number, Including Area Code: (651) 286-8620
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes x No o
Indicate by check mark if the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)
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Large accelerated filer o |
Accelerated filer o |
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Non-accelerated filer o |
Smaller reporting company x |
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Issuers revenues for fiscal year ended June 30, 2010 were $11,012,350.
The aggregate market value of voting and non-voting common equity held by non-affiliates of registrant as of September 24, 2010 was approximately $2,515,426.
The number of shares outstanding of the registrants common stock, par value $0.01 per share, as of September 24, 2010 was 2,783,827.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement for the 2010 Annual Meeting of Shareholders to be filed within 120 days of the end of the fiscal year is incorporated by reference into Part III of this annual report.
Transitional Small Business Disclosure Format (check one). Yes o No x
PART I
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Item 1. |
BUSINESS. |
General
Biotel Inc. is a Minnesota corporation that was incorporated in 1982. From 1982 to 1998, Biotel developed and marketed digital Holter recorders and software. Since 1998 we have conducted business as a non-operating holding company through wholly owned subsidiaries. The businesses of our subsidiaries consist of developing, manufacturing, testing and marketing medical devices and related software as described below:
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Braemar, Inc. is a North Carolina corporation based in Eagan, Minnesota. Braemar designs, manufactures and services non-invasive medical and other specialized monitoring products and ultrasound products for original equipment manufacturers (OEMs). Braemar was incorporated in 1997 and became a wholly owned subsidiary of Biotel in 1998 through a series of merger and acquisition transactions. |
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Until July 1, 2006, the Companys King, North Carolina facility operated as Carolina Medical, Inc., a Minnesota corporation. Carolina Medical was incorporated in 1959 and became a wholly owned subsidiary of Biotel in 1998 through a series of merger transactions. This business designed, manufactured and serviced biological fluid and tissue management systems. Effective July 1, 2006, the assets of Carolina Medical were acquired by our subsidiary, Braemar, Inc.; and Carolina Medical, Inc. was dissolved on November 8, 2006. Engineering and manufacturing operations continued at the King, North Carolina facility through June 30, 2008. Effective July 1, 2008, engineering and manufacturing operations were consolidated into Braemars Eagan, Minnesota facility other than the retention of one engineer in Winston-Salem, North Carolina. On June 30, 2010, the Winston-Salem, North Carolina, facility was closed. |
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Until September 19, 2008, the Companys Columbia, South Carolina facility operated as Advanced Biosensor Inc., a Delaware corporation. Effective September 19, 2008, Advanced Biosensor was merged into Braemar, Inc. This facility sells maintenance services, Holter recorders, Holter diagnostic software and Holter supplies to medical clinics and hospitals and their patients. |
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Agility Centralized Research Services, Inc. is a Minnesota corporation with operations in Bannockburn, Illinois. Agility provides 24-hour/7-day electrocardiogram (ECG) data and management services to the medical device and pharmaceutical industries, contract research and academic research organizations worldwide for cardiac safety and therapeutic evaluation purposes within clinical trials. Biotel purchased the assets comprising Agilitys business in July, 2004. |
When we use the terms Biotel, we, us, our or similar words, unless the context otherwise requires, we are referring to Biotel and its subsidiaries. Biotels principal executive offices are located at 1285 Corporate Center Drive, Suite 150, Eagan, Minnesota 55121, and its telephone number is (651) 286-8620. Biotels Internet website address is www.biotelinc.com.
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Investment Considerations
Investors should consider all of the information contained in this report including the factors discussed under Item 1 Description of Business Factors That May Affect Future Results, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 Financial Statements, before making an investment decision with regard to our securities.
Some of the statements made in this report in the sections listed above and elsewhere in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should or continue or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of our business, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors including, but not limited to, adverse economic conditions, intense competition, entry of new competitors, inability to obtain sufficient financing to support our operations, progress in research and development activities, variations in costs that are beyond our control, adverse federal, state and local government regulation, unexpected costs, lower sales and net income (or higher net losses) than forecasted, price increases for equipment, inability to raise prices, failure to obtain new customers, the possible fluctuation and volatility of our operating results and financial condition, inability to carry out marketing and sales plans, loss of key executives and other specific risks that may be alluded to in this report.
Products and Services
Biotels development, manufacturing and marketing of medical devices falls into two business segments sales and service to medical companies and sales and service to clinics and hospitals. Our wholly owned subsidiaries, Braemar and Agility, design, manufacture, test and sell medical devices and services primarily to medical companies. Braemar, through its Columbia, South Carolina facility previously operated as Advanced Biosensor, sells products and services to clinics and hospitals. Approximately 25% of our revenue is derived from servicing and repairing products, including providing spare parts.
Sales to Medical Companies
Braemar, Inc.: Braemar develops and manufactures specialty type medical devices marketed through OEM channels. Braemars primary product line consists of Holter and event recorders, which allow physicians to monitor and analyze a patients heart activity over a continuous period without the need for hospitalization.
A Holter recorder is a portable, battery-powered diagnostic device that monitors heart functions, including electrocardiogram readings, over a continuous time period (typically 24 to 48 hours). Data is downloaded for analysis via a USB link or over the Internet. This product is named after its inventor. Braemar produces both analog and digital Holter recorders, as well as tape playback systems for analog devices. Although Holter recorders were originally developed as analog devices incorporating a cassette tape to store data, the Holter recorder and cardiac event recorder industry has transitioned to the use of digital devices, with analog devices used essentially for service or replacements.
Braemar also manufactures digital cardiac event recorder products, which record heart functions over a month or longer time period in order to record infrequent events such as arrhythmia. Instead of providing continuous monitoring, specific events trigger the device to record heart functions. Data is downloaded for analysis in a manner similar to that for Holter recorders.
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Sales to Medical Companies (Continued)
Braemar sees continued future growth in digital battery powered cardiac devices, such as Holter recorders and cardiac event recorders, including opportunities to integrate wireless technology for recording, storing and sharing data. Braemar initiated sales of wireless event recorders in June, 2008 and of wireless Fusion mobile cardiac telemetry (MCT) devices in June, 2010. Braemar also designs, develops and manufactures tissue management devices used in cosmetic surgery procedures, such as liposuction devices.
Braemars devices are used as components in the product lines of its customers and typically are manufactured to customer specifications and carry the customers private labels. In addition to competition from OEM suppliers, Braemars customers and prospective customers may elect to manufacture their own devices as an alternative to purchasing the products from Braemar (or other OEM suppliers). Braemar attempts to differentiate itself from its competitors, as well as dissuade its customers from producing the devices themselves, by stressing a combination of quality, cost effectiveness, and its ability to develop products quickly.
Braemar is a registered device manufacturer with the United States Food and Drug Administration (FDA) and is required to meet the agencys Quality System Regulation. Braemars Eagan, Minnesota manufacturing facility is certified to and meets ISO 9001:2000 and ISO 13485:2003 standards.
Agility Centralized Research Services, Inc.: Agility contracts with medical device and pharmaceutical companies, contract research and academic research organizations worldwide to provide 24-hour/day 7-day/week electrocardiogram (ECG) data and management services for cardiac safety and therapeutic evaluation purposes within clinical trials. Agility is based in Bannockburn, Illinois.
Sales to Clinics and Hospitals
Braemar, Inc.: Braemar, through its Columbia, South Carolina facility formerly operated as Advanced Biosensor, distributes PC-based diagnostic monitoring products marketed to clinics and hospitals. This facility sells maintenance services, Holter recorders, Holter diagnostic software and Holter supplies to medical clinics and hospitals and their patients.
Marketing and Sales
Approximately 90% of Biotels revenues for fiscal 2010 were derived from sales to OEM manufacturers. Foreign sales, primarily to Europe, accounted for about 10% of our revenues during the year ended June 30, 2010.
Sales to Medical Companies
Braemar manufactures products for use in OEM-manufactured medical devices. OEM sales traditionally result in lower selling expenses due to fewer customers and fewer sales-related employees and independent representatives. However, gross margins are lower for OEM sales and the customer base is highly concentrated.
Agility markets its products to pharmaceutical companies, medical device manufacturers, and contract research and academic research organizations.
Sales to Clinics and Hospitals
Braemar, Inc., through its Columbia, South Carolina facility, formerly Advanced Biosensor, markets its products to clinic and hospital end-users. It relies primarily on telemarketing and leads generated from existing customers.
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Significant Customers
The Company had three major customers which accounted for approximately 56% and 58% of the Companys consolidated revenues in the years ended June 30, 2010 and 2009, respectively. One of the three major customers was CardioNet, Inc. (CardioNet). Biotel commenced litigation against CardioNet on July 16, 2009, claiming that it had breached its merger agreement with the Company. Another major customer (Customer B) did not renew a distribution agreement with Biotel that expired on May 16, 2009, as required by the CardioNet merger agreement. Customer B has subsequently made additional purchases of wireless event recorders in fiscal year 2010 and has placed additional orders for wireless event recorders in fiscal year 2011 in conjunction with a revised distribution agreement. None of the major customers has indicated any intention to purchase Fusion MCT recorders or systems. (See Factors That May Affect Future Results Potential loss of business due to termination notices sent in accordance with requirements of terminated merger agreement, and Item 3. Legal Proceedings.) As a result, the Company experienced a reduction of revenues from the sale of products to these three major customers in fiscal year 2010 versus fiscal year 2009.
Backlog
Our product lines have no significant order backlog because we follow the industry practice of stocking finished goods to meet customer demand on a just-in-time basis. We believe that the ability to fill orders in a timely fashion is a competitive factor in the markets in which we operate.
Competition
The medical device market is highly competitive. We are subject to competition on the basis of price, delivery time, customer service and our ability to meet specialty needs. There are a number of firms that provide certain products and services similar to those provided by Biotel and vary from small operations offering a certain similar subset of our products or services to large integrated product and service companies. Each of our businesses competes with at least one major competitor, and these competitors vary according to specific products within a business. Due to the diversity of our product lines as a whole, no single competitor competes with us across the entire spectrum of our product lines.
Braemar faces competition in its Holter recorder business from companies that produce OEM Holter recorders, such as IntriCon (formerly Datrix Corporation), GeTeMed and Kenz. Alternatively, Holter software developers and marketers may prefer to manufacture their own internally designed and developed Holter recorders, including Mortara, ScottCare and Medicomp.
In Braemars event recorder business, it faces competition from a number of private event recorder manufacturing firms, such as Aerotel, TZ Medical, IMD, LifeWatch and MedNet. These companies are service providers which manufacture their own event recorders.
Wireless MCT products competitive with Braemar devices are designed and manufactured by corporations that provide MCT services, including CardioNet, LifeWatch, Medicomp, Biomedical Systems and MedNet. Other companies have announced MCT product offerings or planned product offerings, including ScottCare and IntriCon.
In its component business for flow transport, flow measurement and ultrasound medical devices it faces competition from other companies, such as HEI, Inc. and Plexus Corp., each of which manufacture devices for medical companies.
Agilitys primary competitors include eResearch Technology, Inc., Biomedical Systems and other contract research organizations (CROs).
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Competition (continued)
In most cases, our competitors are larger companies that undertake a greater diversity of product lines and services and have substantially more resources than we do. These larger companies produce a wide variety of contract research, testing, engineering and manufacturing services, whether related to diagnostic and clinical testing, OEM equipment, or both. There are also a significant number of small and mid-size companies that generally compete in segments of the diagnostic and clinical testing industry or as OEM equipment vendors. As a result, contract research, testing, engineering and manufacturing in the diagnostic, clinical testing and OEM manufacturing industries is fragmented and segmented.
In addition to actual competitors, Biotel faces possible competition from its OEM customers, who could change their outsourcing strategy and elect to produce or undertake internally the product development, testing, and manufacturing services provided by Biotel.
Research and Development
Our aggregate research and development expenses during the fiscal years ended June 30, 2010 and 2009 amounted to approximately $1.5 million and $1.6 million, respectively. We continually seek to develop new technologies that will offer accelerated and improved research, development, testing, and manufacturing operations options to our medical device and pharmaceutical company customers. In addition to internally developing new technologies, we may, when appropriate, pursue alliances and acquire technologies and products that we believe to be commercially viable and complementary to the core technologies of our operating companies.
Employees
As of September 28, 2010, we had 45 employees. No employees are represented by labor organizations, and there are no collective bargaining agreements. We consider relations with our employees to be good. Set forth below is a chart of our employment by business segment:
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As the holding company for the subsidiaries, Biotel has a full-time Chief Executive Officer and a Chief Financial Officer who also serves as the Chief Financial Officer and Vice President of Braemar. These two positions are included in the table above.
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Environmental Matters
Our manufacturing operations are subject to federal, state and local environmental laws and regulations relating to, among other things, the storage, handling, disposal, emission, transportation and discharge of hazardous substances, materials and waste products. We do not believe that compliance with environmental laws and regulations will have a material effect on the level of our capital expenditures or our business, financial condition, liquidity or results of operations. However, violation of, or non-compliance with, these laws, regulations or permit requirements, even if inadvertent, could result in an adverse impact on our operations, business, financial condition, liquidity or results of operations.
Carolina Medical, Inc., a subsidiary of the Company that was dissolved in November, 2006 (Carolina Medical), was the subject of an environmental oversight by the North Carolina Division of Environmental and Natural Resources (the DENR) involving alleged ground water contamination on property that had been owned/leased by Carolina Medical for activities that occurred on the property prior to the Companys ownership of Carolina Medical. In June 2006, the owner/landlord of the property, a partnership in which one of the partners is a Biotel director and former shareholder and officer of Carolina Medical, and Carolina Medical entered into an agreement for the early termination of the lease of the property. In the agreement, the landlord indemnified the Company for any losses it may incur in connection with environmental claims related to the property. The DENR has notified the Company that it considers the landlord to be the responsible party for the property. In order to protect the Company from any claim with respect to the property that may exceed the landlords ability to indemnify the Company, Biotel has obtained a binder for insurance to cover any liability for environmental claims that the Company may have relating to the property up to a maximum of $10 million during the ten-year period ending in 2019. The annual cost of the insurance is $16,000.
Manufacturing
Most of the materials and components we use are available from a number of different suppliers. We generally maintain multiple sources for most items, but some components are single sourced. We are dependent upon our suppliers for timely delivery of quality components. To date, we have not experienced significant delays in the delivery of components. We do maintain designs, drawings, molds, tools, safety stock, alternate vendors, and other techniques to eliminate or mitigate the effects of the loss of a single source vendor.
Most products are built in response to specific customer purchase orders, while others are fabricated as standard products. The manufacturing process consists primarily of assembly and testing of custom and commercially available components from outside sources.
Product Warranties and Service
We provide warranties against defects in materials and workmanship in our products. Warranty periods for our products range from 90 days to two years. At the time a sale is recorded, we establish a provision for estimated expenses of providing service under these warranties. Non-warranty service is billed to the customer as performed. As of June 30, 2010 and 2009, our provision for warranty services was $234,430 and $186,424, respectively. The assumptions we use to estimate warranty accruals are evaluated periodically in light of actual experience and managements estimates of future claims, and, when appropriate, the accruals are adjusted. Our determination of the appropriate level of warranty accrual is subjective and based on estimates, and actual experience can be different than our expectations.
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Government and Other Regulation
Biotels manufacturing subsidiary, Braemar, is registered with the FDA. The Medical Device Amendments of 1976 to the Food, Drug and Cosmetic Act (the Act) and regulations issued or proposed thereunder, including the Safe Medical Devices Act of 1990, provide for regulation by the FDA of the marketing, design, manufacturing, labeling, packaging and distribution of medical devices. These regulations apply to many of the products that are outsourced to us for manufacture.
The Act and the regulations include requirements that manufacturers of medical products and devices register with and furnish lists of products and devices manufactured by them to the FDA. Prior to marketing a medical product or device, the FDA requires the company selling the product or device to obtain FDA clearance. Tests to be performed for approval range from bench-test data and engineering analysis to potentially expensive and time-consuming clinical trials. The types of tasks for a particular product submission are indicated by the classification of the device and previous approvals for similar devices. Braemar is registered with the FDA.
Braemars procedures and records are also subject to ongoing review by the FDA from time to time, pursuant to the FDAs Quality System Regulation (QSR). The QSR for medical devices sets forth standards for the design and manufacturing processes that require Braemar to maintain certain records and provides for unscheduled inspection of its facilities.
There are also certain requirements of other federal laws and of state, local and foreign governments, which may apply to the manufacture and marketing of our OEM and other products and services. In addition, European Community regulations also apply to products that are offered in European markets. Biotels OEM products are marketed in European markets and are subject to these regulations, and Biotel or its customers are required to complete testing programs prior to selling medical devices in the European Community. Biotel development and manufacturing divisions conduct planned periodic quality assessment in conjunction with European Community medical device regulations and are regularly inspected by authorized bodies. Biotel companies have met or exceeded the necessary quality system programs to permit distribution in the European Community, whether for its products or certain of its customers products.
The ISO 9000 series of quality management and quality assurance standards has been adopted by over 90 countries. ISO standards require that a quality system be used to guide work to assure quality and to produce quality products and services. ISO 9001, the most comprehensive of the standards, covers 20 elements. These elements include management responsibility, design control, training, process control and servicing. ISO 9001 is the quality system standard used by companies providing design, development, manufacturing, installation and servicing. Biotels quality systems are ISO 9001 and ISO 13485 certified.
Intellectual Property
We try to protect our proprietary technology and know-how through established security practices and confidentiality, non-competition and invention assignment agreements with certain of our employees. We also rely on non-disclosure agreements with certain suppliers and customers. There can be no assurance that these agreements or procedures will provide meaningful protection for our trade secrets in the event of unauthorized use or disclosure of such information.
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Management
Executive officers of Biotel are as follows:
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B. Steven Springrose |
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Chief Executive Officer of Biotel; Chief Executive Officer of Braemar and Agility Centralized Research Services |
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Judy E. Naus |
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Chief Financial Officer of Biotel; Vice President and Chief Financial Officer of Braemar |
B. Steven Springrose has served as Biotels President and Chief Executive Officer since July 2003, as Secretary since 1982, and as a director since 1982. Mr. Springrose also serves as Agilitys Chief Executive Officer. Mr. Springrose was employed in a management position with Biotel from 1982 through 1998 and in a management position with Braemar, Inc. from January 1999 to November 1999. Mr. Springrose served as an independent contractor with pacemaker sales from 2000 to 2003. Mr. Springrose earned his bachelor of science degree from the University of Minnesota and a master of science degree from Washington University in St. Louis, Missouri, in biomedical engineering. He also earned an MBA from the University of St. Thomas, and holds three patents.
Judy E. Naus has served as the Chief Financial Officer of Biotel since November 2003. She also serves as the Chief Financial Officer and Vice President of Braemar, a position she has held since 1997. Ms. Naus holds a bachelor of arts degree in business administration/accounting from Augsburg College in Minneapolis, Minnesota and has been employed with Braemar since 1977.
Factors That May Affect Future Results
Factors that may affect our future results include, but are not limited to, the following items as well as the information in Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following risk factors should be considered carefully in addition to the other information contained in this report. This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in the forward-looking statements. Factors that may cause these differences include those discussed below as well as those discussed elsewhere in this report.
Potential loss of business due to termination notices sent in accordance with requirements of terminated merger agreement. On April 2, 2009, the Company entered into a Merger Agreement (the Merger Agreement) with CardioNet pursuant to which CardioNet was to acquire our outstanding securities. In a letter dated July 14, 2009, CardioNet advised us that CardioNet was terminating the Merger Agreement. On July 16, 2009, we commenced a lawsuit claiming CardioNet breached and improperly terminated the Merger Agreement. (See Item 3. Legal Proceedings.) In accordance with the terms and conditions of the Merger Agreement, we terminated and did not renew several business relationships we had at the time the Merger Agreement was signed. Biotel believes its business has been negatively affected by the Merger Agreement and the actions we were required to take in accordance with the terms of the agreement. The Companys business prospects, profitability and cash flow may be materially and adversely affected as a result of the Merger Agreement and related legal expenses.
Three customers generated a significant portion of our revenues. Three major customers accounted for 56% and 58% of our consolidated revenues in the fiscal years ended June 30, 2010 and 2009, respectively. CardioNet, against whom we commenced a lawsuit, was one of these customers, and another was a company with whom we did not renew a distribution agreement because of the Merger Agreement described above. As a result of the Merger Agreement and its requirement for the termination of Braemar customer relationships in innovative wireless product lines, total sales to major customers in 2010 was less than in 2009. The loss of or reduction in demand for our products from major customers has had a material adverse effect on operating results and cash flow from operations.
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Factors That May Affect Future Results (continued)
We may be unable to raise additional capital to meet capital expenditure needs if our operations do not generate sufficient funds to do so. Our business is expected to have continuing capital expenditure needs. While we anticipate that our operations will generate sufficient funds to meet our capital expenditure needs for the foreseeable future, our ability to gain access to additional capital, if needed, cannot be assured, particularly in view of competitive factors and industry conditions. Competitive factors and industry conditions include quality, price, technological capability, proprietary rights, and the ability to develop and market products and processes. Any additional capital raised through the sale of equity may dilute the ownership percentage of holders of our common stock.
Our inability to compete with other manufacturers in the medical device industry could harm our business. The market for medical devices is highly competitive. Each of our subsidiary businesses compete with at least one major competitor. In addition, our OEM customers represent potential competition, in that one or more may decide not to outsource the design and manufacture of some or all components used in their products. We are subject to competition in many markets on the basis of price, delivery time, customer service and our ability to meet specialty needs. Some of our competitors are significantly larger and have greater resources, financial and other, than we do. There can be no assurance that we will be able to compete successfully with our existing competitors or with new competitors. Failure to compete successfully could have a material adverse effect on our business.
If we fail to achieve and maintain the high manufacturing standards that our products and services require, our business could suffer. Our products and services require precise, high quality manufacturing. Our failure to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, design defects or component failures, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously hurt our business.
If we are unable to retain senior management, our business operations could be adversely affected. Our success and future prospects depend on the continued contributions of our senior management. There can be no assurances that we would be able to find qualified replacements for these individuals if their services were no longer available. The loss of services of one or more members of our senior management team could have a material adverse effect on our business.
Failure to protect our intellectual property and know-how or our infringement of the intellectual property of others could have a material adverse effect on our business. Our intellectual property rights are and will continue to be a critical component of our success. A substantial portion of our intellectual property rights relating to our current products and those under development is in the form of trade secrets, rather than patents. In order to preserve certain proprietary information as trade secrets, we are required to restrict disclosure of information intended to constitute trade secrets to third parties. We protect our trade secrets and proprietary knowledge in part through confidentiality agreements with certain of our employees, consultants and other parties. Certain of our consultants and third parties with whom we have business relationships may also provide services to other parties in the medical device industry, including companies, universities and research organizations that are developing competing products. In addition, some of our former employees may seek employment with, and become employed by, our competitors. We do not have confidentiality agreements with all of our employees, consultants and third-parties, and cannot assure that the confidentiality agreements that are in place with our employees, consultants and third parties will not be breached, that we will have adequate remedies for a breach, or that our trade secrets will not become known to or be independently developed by our competitors. The loss of trade secret protection for technologies or know-how could adversely affect our business prospects.
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Factors That May Affect Future Results (continued)
Companies in the medical device industry typically obtain patents and frequently engage in substantial intellectual property litigation. Our products and technologies could infringe on the rights of others. If a third party successfully asserts a claim for infringement against us, we may be liable for substantial damages, be unable to sell products using that technology, or have to seek a license or redesign the related product. These alternatives may be uneconomical or impossible. Patent litigation could be costly, result in product development delays and divert the efforts and attention of management from our business.
Product liability claims could damage our reputation and hurt our financial results. The use of medical products, even after regulatory approval, poses an inherent risk of product liability claims. We maintain limited product liability insurance coverage of $5,000,000 per occurrence and $5,000,000 of general aggregate liability, subject to deductibles and exclusions. Although we believe our present insurance coverage is adequate, we cannot be sure that product liability insurance will be available in the future or will be available on acceptable terms or at reasonable costs, or that such insurance will provide us with adequate coverage against potential liabilities. Claims against us, regardless of their merit or potential outcome, may also hurt our ability to obtain physician endorsement of our products or expand our business. If we have to pay product liability claims in excess of our insurance coverage, our financial condition could be adversely affected.
Our Agility subsidiary faces the risk of becoming involved in litigation as a result of injury or death to a clinical test subject. Agility provides ECG data collection and management services in connection with testing pharmaceutical and medical device products. A portion of the services Agility provides to the manufacturers involves monitoring ECG results of test patients. Agility does not provide diagnostic or other healthcare services to the patient. Although Agility does not have a contractual relationship with the test subjects and has taken steps to limit its liability in the case of patient injury or death, Agility could be named as a defendant in resulting litigation due to its role in the clinical testing. Agility is not a defendant in any litigation and is not aware of any circumstances under which it could be named as a defendant in a lawsuit in the future. Involvement in litigation would likely be costly and time consuming to management, regardless of whether Agility ultimately prevailed in the litigation.
If our suppliers cannot provide the components we require, our ability to manufacture our products could be harmed. We rely on third party suppliers to provide us with certain components used in our products. These and other supply factors could make it more difficult for us to effectively and efficiently manufacture our products and could adversely impact our results of operations. Relying on third party suppliers makes us vulnerable to component part failures and to interruptions in supply, either of which could impair our ability to ship our products to our customers on a timely basis. Using third party vendors makes it difficult and sometimes impossible for us to test fully certain components, such as components on circuit boards, maintain quality control, manage inventory and production schedules and control production costs. Vendor lead times to supply us with ordered components vary significantly. We cannot be sure that our suppliers will furnish us with required components when we need them. Although some suppliers may be the only source for a customized component, which makes us vulnerable to cost increases and supply interruptions, We maintain designs, drawings, molds, tools, safety stock, alternate vendors, and other techniques to eliminate or mitigate the effects of the loss of a single source vendor. As a result, we do not believe the loss of any vendor of single source components would have a material effect on our business. For example, if a supplier does not satisfactorily provide a customized product, we believe we have the ability to find a replacement supplier by retrieving the molds and providing them to a replacement supplier. If we are unable to retrieve the molds or they are destroyed, the molds can be reproduced.
11
Factors That May Affect Future Results (Continued)
Our business could be materially adversely impacted by risks inherent in international markets. During the 12 months ended June 30, 2010 and 2009, approximately 10.0% and 12.0%, respectively, of our revenues were generated by customers outside the United States. Approximately 90% of these customers are located in Europe. We expect that customers outside the United States will continue to account for a comparable portion of Biotels revenue in the future. Our international sales subject us to inherent risks related to changes in the economic, political, legal and business environments in the foreign countries in which we do business. Although Europe has historically been stable, we may still be subject to the following general risks relating to international sales:
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Fluctuations in currency exchange rates. |
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Regulatory, product approval and reimbursement requirements. |
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Tariffs and other trade barriers. |
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Greater difficulty in accounts receivable collection and longer collection periods. |
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Difficulties and costs of managing foreign distributors. |
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Reduced protection for intellectual property rights in some countries. |
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Burdens of complying with a wide variety of foreign laws. |
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|
The impact of recessions in foreign economies. |
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Political and economic instability. |
If we fail to successfully market and sell our products in international markets, our business, financial condition, results of operations and cash flows could be negatively affected.
Our common stock is subject to the SECs penny stock rules, which makes our shares more difficult to sell. The SEC rules regarding penny stocks may have the effect of reducing trading activity in our common stock and making it more difficult for investors to sell. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:
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Make a special written suitability determination for the purchaser. |
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Receive the purchasers written agreement to a transaction prior to sale. |
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Provide the purchaser with risk disclosure documents which identify certain risks associated with investing in penny stocks and which describe the market for these penny stocks as well as a purchasers legal remedies. |
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Obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a penny stock can be completed. |
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Give bid and offer quotations and broker and salesperson compensation information to the customer orally or in writing before or with the confirmation. |
These rules may make it more difficult for broker-dealers to effectuate customer transactions and trading activity in our securities, resulting in a lower trading volume of our common stock and lower trading prices.
An active trading market may not exist for our common stock, and we cannot assure the market price for our common stock if a market does develop. Our common stock is quoted on the OTC Bulletin Board. However, the market for our common stock generally has been very limited and there can be no assurance that there will be an active market for our common stock. To the extent that brokerage firms act as market makers for our securities, they may be a dominating influence in any market that might develop, and the degree of participation by these firms may significantly affect the price and liquidity of our common stock. These firms may discontinue their market making activities at any time. The prices at which our common stock are traded in the market will be determined by these firms and by the purchasers and sellers of our securities, but the prices may not necessarily relate to our assets, book value, results of operations or other established and quantifiable criteria of value. Securities quoted on the OTC Bulletin Board are often thinly traded, highly volatile and not followed by analysts. Consequently, investors may have difficulty reselling our common stock.
12
Factors That May Affect Future Results (Continued)
Our policy to forego paying dividends for the foreseeable future may hurt our stock price. We do not anticipate paying any dividends on our common stock for the foreseeable future, which may make our common stock an unattractive investment. Some institutional investors may only invest in dividend-paying equity securities or may operate under other restrictions that may prohibit or limit their ability to invest in our common stock.
Undesignated shares in our articles of incorporation could prevent or delay a change in control of us or otherwise negatively affect shareholders. Our articles of incorporation currently authorize the board of directors, without shareholder approval, to issue up to 12,000,000 shares of capital stock, of which up to 2,000,000 shares are designated as preferred stock and up to 10,000,000 shares are designated as common stock. We currently have 2,783,827 common shares outstanding. The board of directors may issue up to 2,000,000 preferred shares in one or more classes or series and with those provisions as it determines, without shareholder approval. The holders of our common stock do not have any preemptive rights. The issuance of stock with rights and preferences determined by the board of directors could make it more difficult for a third party to acquire us, dilute the stock ownership or adversely effect the rights of holders of our common stock, including voting rights.
13
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Item 2. |
PROPERTIES. |
We conduct our principal operations at leased facilities described below. We believe that our existing facilities are suitable for their use and will be adequate to meet our needs for the foreseeable future. We also believe that any additional space needed in the future will be available at commercially reasonable rates.
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Entity Name; Location |
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Use |
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Square |
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Term of Lease |
Braemar,
Inc. |
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Production, engineering and administration |
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17,314 |
|
Lease expires August 31, 2011 |
Braemar,
Inc. |
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Administration |
|
2,903 |
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Lease expires April 30, 2011 |
Agility
Centralized Research |
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Service operations |
|
1,225 |
|
Lease expires April 30, 2013 |
14
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Item 3. |
LEGAL PROCEEDINGS. |
On April 2, 2009, the Company entered into a Merger Agreement (the Merger Agreement) with CardioNet, Inc. (CardioNet) pursuant to which CardioNet was to acquire the Companys outstanding securities for $4.82 per share. In a letter dated July 14, 2009, CardioNet advised the Company that it was terminating the Merger Agreement due to the Companys breach of a covenant to withdraw and terminate a business relationship with ScottCare Corporation (ScottCare). On July 15, 2009, CardioNet notified the Company that the Company owed CardioNet $1.4 million for a termination fee and expenses as a result of CardioNets termination of the Merger Agreement. The Company believes CardioNets termination of the Merger Agreement was without merit. On July 16, 2009, the Company commenced a lawsuit in Hennepin County District Court, State of Minnesota, claiming CardioNet breached and improperly terminated the Merger Agreement. The Company is seeking specific performance and damages. On August 3, 2009, the case was removed to the United States District Court, District of Minnesota. On September 4, 2009, CardioNet submitted an answer and counterclaim denying the Companys claims and asserting a counterclaim for the $1.4 million CardioNet claims it is owed as a result of its termination of the Merger Agreement. On February 1, 2010, CardioNet filed its Amended Answer And Counterclaims, asserting additional defenses and counterclaims against the Company. On May 28, 2010, following the completion of discovery, the Company moved for partial summary judgment dismissing CardioNets counterclaims and certain defenses, and that motion remains pending with the court. The case is set for a bench trial to begin on November 8, 2010.
On September 25, 2009, LifeWatch Services, Inc., and Card Guard Scientific Survival, Ltd., the licensee and owner, respectively, of U.S. Patent Nos. 7,542,878 B2 (the 878 Patent) and 5,730,143 (the 143 Patent) commenced an action LifeWatch Patent Matter. On September 25, 2009, LifeWatch Services, Inc., and Card Guard against Braemar, Inc. (Braemar), and one of its customers, eCardio Diagnostics, LLC (eCardio), in Federal District Court for the Northern District of Illinois, File No. 09-CV-6001, alleging that Braemar and eCardio had infringed the 878 and 143 Patents. The Supply Agreement between Braemar and eCardio provides that Braemar will hold eCardio harmless from any liability it incurs in connection with a claim that Braemars products violate the intellectual property rights or infringes upon any patent of a third party. Braemar and eCardio have denied the allegations, and Braemar is defending the suit on behalf of both itself and eCardio. Since the action was commenced, the Plaintiffs have dismissed their claims relating to alleged infringement of the 878 Patent and have continued to pursue their claims relating to the alleged infringement of the 143 Patent.
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Item 4. |
RESERVED. |
15
PART II
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Item 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Our common stock is traded on the Over the Counter Bulletin Board under the symbol BTEL.OB. The reported high and low bid prices for the fiscal quarters for the past two fiscal years ended June 30, 2010 and 2009 are set forth in the table below, as reported by MarketWatch.com. These quotations represent prices between dealers and do not include retail markup, markdown or commission and may not represent actual transactions.
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Quarter
Ended |
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|
Low |
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High |
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||
September 30 |
|
$ |
2.22 |
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$ |
4.76 |
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December 31 |
|
$ |
1.20 |
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$ |
2.90 |
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March 31 |
|
$ |
1.10 |
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$ |
1.90 |
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June 30 |
|
$ |
1.30 |
|
$ |
1.80 |
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Quarter
Ended |
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|
Low |
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High |
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||
September 30 |
|
$ |
2.55 |
|
$ |
3.35 |
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|
December 31 |
|
$ |
2.00 |
|
$ |
3.00 |
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|
March 31 |
|
$ |
1.52 |
|
$ |
1.94 |
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June 30 |
|
$ |
4.40 |
|
$ |
4.81 |
|
As of June 30, 2010, we had approximately 400 shareholders of record of our common stock. We have not paid any cash or other dividends during our last two fiscal years, and we currently have no intention to pay dividends. The payment of dividends, if any, in the future, rests within the discretion of our board of directors and will depend, among other things, upon our earnings, our capital requirements and our financial condition, as well as other relevant facts.
Unregistered Sales of Equity Securities and Use of Proceeds. Biotel did not issue any shares of capital stock during the year ended June 30, 2010.
Securities Authorized for Issuance Under Equity Compensation Plans. The following table sets forth certain information about Biotel common stock that may be issued upon exercise of options as of June 30, 2010, under the Biotel 2001 Incentive Compensation Plan, which is Biotels only equity compensation plan. The board of directors grants qualified and non-qualified stock options to purchase shares of Biotel common stock to all eligible participants, which includes officers, directors and employees. Option prices of grants are not less than the fair market value of Biotel common stock at grant dates.
16
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Number of |
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Weighted |
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Number of |
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|||
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(a) |
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(b) |
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(c) |
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|||
Equity compensation plans approved by security holders |
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141,000 |
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$ |
1.6793 |
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509,000 |
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Equity compensation plans not approved by securities holders |
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Total |
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141,000 |
|
$ |
1.6793 |
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509,000 |
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Item 6. |
SELECTED FINANCIAL DATA. |
Not applicable.
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Item 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Critical Accounting Policies
The consolidated financial statements of Biotel include the accounts of Biotel Inc. and its wholly-owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.
Management uses estimates and assumptions in preparing financial statements, including those assumed in computing the allowance for doubtful receivable accounts, inventory valuation allowances and warranty reserves and deferred income tax valuation allowances. Those estimates and assumptions may affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and reported revenues and expenses. Actual results may vary from these estimates.
At times Biotel maintains bank deposits in excess of federally insured limits. Management monitors the soundness of these financial institutions and believes Biotels risk is negligible.
Biotel sells its products to customers on credit in the ordinary course of business. A customers credit history is reviewed and must meet certain standards before credit is extended. Biotel establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
Biotel follows the policy of charging the costs of advertising, except for costs associated with direct response advertising, to operating expenses as incurred. The costs of direct response advertising are capitalized and amortized over the period during which future benefits are expected to be received.
17
Critical Accounting Policies (Continued)
Inventories are valued at lower of cost (using the average and first-in first-out cost methods) or market. A valuation allowance is maintained to provide changes in inventory valuation due to fluctuations in market requirements and product revisions.
Property, equipment and leasehold improvements are recorded at cost. Depreciation is calculated using the straight-line method over estimated useful lives of three to five years for equipment, seven years for furniture and fixtures and two to five years for leasehold improvements, which represents the terms of the original leases.
Goodwill is deemed to have an indefinite useful life and is not amortized but is subject to impairment tests performed at least annually. During fiscal 2010 and 2009, we performed the required impairment tests of goodwill and determined our recorded goodwill had not been impaired.
Amounts billed to customers for service contracts are recognized as income over the term of the agreements, and the associated costs are recognized as incurred.
We routinely warrant our recorders against defects in material and workmanship for one year. Supplies, accessories and repairs typically carry no warranty to 90-days warranty, depending on the item. An accrual is provided for estimated future claims. Such accruals are based on historical experience and managements estimate of the level of future claims.
Revenues from product sales are recognized at date of shipment.
Research and development costs are charged to operations as incurred. These costs are for proprietary research and development activities that are expected to contribute to the future profitability.
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes relate primarily to differences between financial and income tax reporting for the basis of inventory, accounts receivable, property and equipment, and accrued liabilities. The deferred tax accounts represent future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Deferred taxes may also be recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
We consider all highly liquid short term investments purchased with an original maturity of three months or less to be cash equivalents.
18
Overview
Biotel has been implementing a strategy to expand its base of operations among medical companies who seek to outsource strategic items provided by various Biotel companies. From our operating subsidiaries located within the United States, we supply an array of products and services to provide for the research, development, testing, and manufacturing needs of our customers.
Biotel subsidiaries, Braemar, Inc. and Agility Centralized Research Services, Inc., sell medical devices, technology and research services to medical companies. They design, manufacture, and test 24- and 48-hour Holter recorders, 30-day ECG event recorders, wireless event recorders, wireless MCT systems, and tissue extraction components; provide 24/7 clinical ECG research services and internet technologies; complete FDA, CE, and other regulatory testing; and develop, test, and manufacture other custom medical devices. These subsidiaries form a base of products and services which we believe are attractive to medical device and pharmaceutical companies, allowing accelerated and improved research, development, testing, and manufacturing operations for our customers.
Biotel subsidiary, Braemar, Inc., through its Columbia, South Carolina facility which was formerly Advanced Biosensor Inc., sells maintenance services, Holter recorders and event recorders manufactured by Braemar, diagnostic Holter software provided by others and Holter supplies to hospitals and clinics.
On April 2, 2009, the Company entered into a Merger Agreement with CardioNet, Inc. pursuant to which CardioNet was to acquire all of the Companys outstanding securities. In a letter dated July 14, 2009, CardioNet notified the Company that CardioNet was terminating the Merger Agreement due to the Companys breach of a covenant requiring the Company to terminate a business relationship with another company. On July 16, 2009, the Company commenced a lawsuit claiming CardioNet breached and improperly terminated the Merger Agreement. (See Item 3. Legal Proceedings.) In accordance with the terms and conditions of the Merger Agreement, we terminated and did not renew a number of business relationships. We believe that our business has been adversely affected by the Merger Agreement and the actions we were required to take pursuant to the agreement and that this could have a material and adverse effect on our profitability and financial condition.
Results of Operations
Biotels net revenues for the year ended June 30, 2010, were $11,012,000, 12.9% less than net revenues of $12,640,000 for the year ended June 30, 2009. Revenue decreased in fiscal 2010 as a result of the terminated Merger Agreement described above. In accordance with the terms and conditions of the Merger Agreement, we terminated and did not renew a number of business relationships.
Gross profit margin decreased to $4,326,000 (39.3%) for fiscal year 2010, compared to $5,525,000 (43.7%) in fiscal year 2009. Cost of sales and service decreased to $6,686,000 (60.7%) for fiscal year 2010, compared to $7,115,000 (56.3%) for fiscal year 2009. The decrease in cost of sales and service was primarily the result of the decrease in sales. Revenues on equipment sales in fiscal year 2010 were diminished, resulting in diminished gross margins as a result of semi-fixed levels of manufacturing overhead and increase in allocation of costs to product support. Gross margins vary from year to year dependent on model mix and subsidiary contributions. Biotel manages its operations to promote favorable gross margins and profitability.
Selling and administrative expenses increased to $3,324,000 (30.2% of sales) for the year ended June 30, 2010, compared to $2,586,000 (20.5% of sales) for the year ended June 30, 2009. This increase is primarily the result of administrative expenses associated with general corporate legal fees related to the Companys current legal proceedings (see Item 3. Legal Proceedings). Legal expenses for the fiscal year ended June 30, 2010 totaled $1,200,000, compared to legal expenses of $137,000 for the fiscal year ended June 30, 2009. Selling expenses include salaries, commissions, benefits, travel expenses and other selling expenses.
19
Results of Operations (continued)
Research and development expenditures for fiscal year 2010 were $1,453,000, a decrease of 9.3% compared to $1,602,000 in fiscal year 2009. The decrease resulted primarily because heavy development activities related to a new Holter product line and ER9 Wireless technology platform and product line were funded in the two previous fiscal years. Expenditures for MCT wireless product development activity in fiscal year 2010 benefited from the ER9 Wireless technology platform developed in 2009 and 2008. Biotel expects a similar level of expenditures for research and development in fiscal year 2011.
No interest expense was posted for the year ended June 30, 2010, compared to interest expense of $590 for the year ended June 30, 2009. During the year ended June 30, 2009, interest expense was incurred only when the bank credit line was accessed.
A net loss of $283,000 was posted for the year ended June 30, 2010, versus net income of $944,000 for the year ended June 30, 2009. The net loss was primarily the result of diminished revenues and legal fees associated with the terminated merger agreement. (See Item 3. Legal Proceedings.)
Off-Balance Sheet Arrangements
Biotel does not have any off-balance sheet financing arrangements other than operating leases.
Liquidity and Capital Resources
Working capital decreased to $4,034,000 at June 30, 2010, compared to $4,197,000 at June 30, 2009. The decrease in working capital was primarily a result of the reduction in the level of inventory required to support the decrease in equipment sales.
Cash and cash equivalents were $1,577,000 at June 30, 2010, compared to $1,160,000 at June 30, 2009. The increase in cash and cash equivalents was influenced by many factors, including the decrease in accounts receivable and inventory and increase in accounts payable. The ratio of current assets to current liabilities (current ratio) decreased to 3.58 to one at June 30, 2010, compared to 3.97 to one at June 30, 2009.
Accounts receivable decreased to $2,067,000 at June 30, 2010, versus $2,202,000 at June 30, 2009. The decrease in accounts receivable was related to decreased sales. To the extent that credit terms are extended to customers, Biotels cash position is diminished and debt may be required to supplement cash flows. Accordingly, Biotel attempts to make timely collections from its customers in accordance with credit terms, extend credit only to credit worthy customers with a strong payment history, and to keep credit terms as short as is practicable.
In fiscal year 2010, $299,000 was used for capital expenditures, compared with $380,000 in fiscal year 2009. Levels of capital investment are expected to vary from year to year.
Inventory decreased to $1,312,000 at June 30, 2010, compared to $1,878,000 at June 30, 2009. This decrease resulted as less material was purchased to support decreased sales levels as a result of the terminated merger agreement. (See Item 3. Legal Proceedings.) Biotels subsidiaries manage inventories to provide safety stock and product flow for customers while controlling the amount of inventory.
Current liabilities increased to $1,565,000 at June 30, 2010, compared to $1,415,000 on June 30, 2009. The increase resulted from changes in deferred revenue and accruals for expenses.
As of June 30, 2010 and 2009, Biotel had long term liabilities of $343,000 and $329,000, respectively, relating to the Companys deferred income tax liability.
20
Liquidity and Capital Resources (continued)
Stockholders equity decreased to $5,386,000 at June 30, 2010, from $5,659,000 at June 30, 2009. The decrease in stockholders equity was principally a result of the decrease in retained earnings due to the fiscal 2010 net loss.
Management believes that present cash balances and internally generated funds should provide sufficient working capital to meet present and projected needs for the coming 12 months. As described above, Biotel believes that its business has been adversely affected by the Merger Agreement and the actions the Company took in accordance with the terms and conditions of the Merger Agreement and that this could have a material adverse effect on Biotels financial condition. There is no assurance that Biotel will be successful in obtaining additional working capital if more is required.
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|
Item 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
21
|
|
Item 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. |
See Financial Statements beginning on page F-1.
|
|
Item 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
Not applicable.
|
|
Item 9A. |
CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
There have been no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal control over financial reporting during the fiscal year ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Our management has concluded that, as of June 30, 2010, our internal control over financial reporting is effective based on these criteria. This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within this Company have been detected. Biotels internal controls over financial reporting, however, are designed to provide reasonable assurance that the objectives of internal control over financial reporting are met.
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|
Item 9B. |
OTHER INFORMATION. |
Not applicable.
22
PART III
|
|
Item 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
Incorporated by reference from Biotels definitive proxy statement to be filed for the 2010 Annual Meeting of Shareholders.
|
|
Item 11. |
EXECUTIVE COMPENSATION. |
Incorporated by reference from Biotels definitive proxy statement to be filed for the 2010 Annual Meeting of Shareholders.
|
|
Item 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
Incorporated by reference from Biotels definitive proxy statement to be filed for the 2010 Annual Meeting of Shareholders.
|
|
Item 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. |
Incorporated by reference from Biotels definitive proxy statement to be filed for the 2010 Annual Meeting of Shareholders.
|
|
Item 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Incorporated by reference from Biotels definitive proxy statement to be filed for the 2010 Annual Meeting of Shareholders.
PART IV
|
|
Item 15. |
EXHIBITS. |
For a list of Exhibits filed as a part of this report, see Exhibit Index page following the signature page to this annual report on Form 10-K.
23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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|
|
|
Biotel Inc. |
|
|
|
|
Date: September 28, 2010 |
By |
/s/ B. Steven Springrose |
|
|
B. Steven Springrose, President |
|
|
and Chief Executive Officer |
Know all persons by these presents, that each person whose signature appears below hereby constitutes and appoints B. Steven Springrose and Judy E. Naus, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full powers and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
/s/ B. Steven Springrose |
|
September 28, 2010 |
B. Steven Springrose |
|
|
(President,
Chief Executive Officer |
|
|
|
|
|
/s/ Judy E. Naus |
|
September 28, 2010 |
Judy E. Naus |
|
|
(Chief
Financial Officer |
|
|
|
|
|
/s/ C. Roger Jones |
|
September 28, 2010 |
C. Roger Jones |
|
|
(Director) |
|
|
|
|
|
/s/ Stanley N. Bormann |
|
September 28, 2010 |
Stanley N. Bormann |
|
|
(Director) |
|
|
|
|
|
/s/ L. John Ankney |
|
September 28, 2010 |
L. John Ankney |
|
|
(Director) |
|
|
|
|
|
/s/ David A. Heiden |
|
September 28, 2010 |
David A. Heiden |
|
|
(Director) |
|
|
|
|
|
/s/ Spencer M. Vawter |
|
September 28, 2010 |
Spencer M. Vawter |
|
|
(Director) |
|
|
24
Exhibits:
|
|
|
|
|
Exhibit |
|
|
Description of Document |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Articles of Incorporation of Biotel Inc.** |
|
3.2 |
|
|
Bylaws of Biotel Inc. ** |
|
4.1 |
|
|
Specimen Common Stock Certificate. ** |
|
10.1 |
|
|
Lease Agreement dated March 1, 2006 between Braemar, Inc. and DB Quad Prairie Business Center, Inc. **** |
|
10.2 |
|
|
Commercial Lease Agreement dated June 30, 2006 between Braemar, Inc. and King Investment Partners. ***** |
|
10.3 |
|
|
Lease Agreement dated October 1, 2005 between Advanced Biosensor, Inc. and AP Southeast Portfolio Partners, L.P., as amended. **** |
|
10.4 |
|
|
Office Lease dated December 28, 2006 between Agility Centralized Research Services, Inc. and Bannockburn Executive Plaza, L.L.C. ****** |
|
10.5 |
|
|
Asset Purchase Agreement among Biotel Inc., ACRS Acquisition Company, Daniel Pawlik and Agility Centralized Research Services, LLC. ** |
|
10.6 |
|
|
OEM Purchase Agreement by and between Philips Medical Systems and Braemar, Inc. dated September 1, 2003.** |
|
10.7 |
|
|
Termination of Lease, Release, Hold Harmless and Indemnification Agreement dated June 30, 2006. ***** |
|
10.8 |
|
|
Office Lease dated April 15, 2008 between Braemar, Inc. and Jonestown Properties, L.L.C.******* |
|
10.9 |
|
|
Office Lease dated March 25, 2009 between Biotel Inc. and Fontaine Business Park, LLC ******** |
|
10.10 |
|
|
Office Lease dated May 7, 2010 between Agility Centralized Research Services, Inc. and Bannockburn Executive Plaza LLC * |
|
11.1 |
|
|
Statement regarding computation of per share earnings. *** |
|
21.1 |
|
|
Subsidiaries of Biotel Inc. * |
|
24.1 |
|
|
Power of Attorney (included in signature page) * |
|
31.1 |
|
|
Certification of Chief Executive Officer.* |
|
31.2 |
|
|
Certification of Chief Financial Officer.* |
|
32.1 |
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|
* |
|
Filed herewith. |
||
** |
|
Previously filed with Form 10-SB on October 14, 2004, Commission File No. 0-50914. |
||
*** |
|
Previously filed with Amendment No. 2 to Form 10-SB on December 27, 2004, Commission File No. 0-50914. |
||
**** |
|
Previously filed with Form 10-QSB on February 14, 2006, Commission File No. 0-50914. |
||
***** |
|
Previously filed with Form 10-KSB on September 28, 2006, Commission File No. 0-50914. |
||
****** |
|
Previously filed with Form 10-QSB on December 31, 2006, Commission File No. 0-50914. |
||
******* |
|
Previously filed with Form 10-KSB on September 29, 2008, Commission File No. 0-50914. |
||
******** |
|
Previously filed with Form 10-K on September 28, 2009, Commission File No. 0-50914. |
25
BIOTEL INC.
REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS
ENDED
JUNE 30, 2010 AND 2009
F-1
BIOTEL INC.
CONTENTS
|
|
|
|
|
PAGE |
|
|
|
|
F-3 |
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
F-4 |
|
|
F-5 |
|
|
F-6 |
|
|
F-7 |
|
|
|
|
|
F-8 F-18 |
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of Directors and Stockholders
Biotel Inc.
Eagan, Minnesota
We have audited the accompanying consolidated balance sheets of Biotel Inc. (the Company) as of June 30, 2010 and 2009, and the related consolidated statements of operations, stockholders equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Biotel Inc. as of June 30, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Elliott Davis LLC
September
28, 2010
Columbia, South Carolina
F-3
BIOTEL INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
June 30, |
|
||||
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
|
ASSETS |
|||||||
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,576,651 |
|
$ |
1,160,409 |
|
Trade accounts receivable, net of allowance for doubtful accounts of $40,690 and $48,965 at June 30, 2010 and 2009, respectively |
|
|
2,066,917 |
|
|
2,202,378 |
|
Income taxes receivable |
|
|
80,501 |
|
|
|
|
Inventories, net |
|
|
1,311,933 |
|
|
1,878,397 |
|
Deferred tax asset |
|
|
316,221 |
|
|
250,674 |
|
Prepaid expenses |
|
|
247,597 |
|
|
120,098 |
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
5,599,820 |
|
|
5,611,956 |
|
|
|
|
|
|
|
|
|
PROPERTY & EQUIPMENT, Net |
|
|
985,030 |
|
|
1,081,314 |
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
Goodwill |
|
|
695,551 |
|
|
695,551 |
|
Other assets |
|
|
13,820 |
|
|
13,820 |
|
|
|
|
|
|
|
|
|
Total Other Assets |
|
|
709,371 |
|
|
709,371 |
|
|
|
|
|
|
|
|
|
|
|
$ |
7,294,221 |
|
$ |
7,402,641 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|||||||
|
|||||||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
773,646 |
|
$ |
557,094 |
|
Accrued payroll and related liabilities |
|
|
246,576 |
|
|
277,803 |
|
Deferred service contract revenue |
|
|
72,941 |
|
|
93,855 |
|
Unearned revenue |
|
|
149,200 |
|
|
|
|
Other accrued expenses |
|
|
322,987 |
|
|
283,502 |
|
Income taxes payable |
|
|
|
|
|
202,265 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
1,565,350 |
|
|
1,414,519 |
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
Deferred tax liability |
|
|
343,232 |
|
|
329,183 |
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (See Notes 6 and 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,908,582 |
|
|
1,743,702 |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
Preferred stock, $.01 stated value; 2,000,000 shares authorized; no shares issued |
|
|
|
|
|
|
|
Common stock, $.01 stated value; 10,000,000 shares authorized; 2,783,827 and 2,763,827 shares issued at June 30, 2010 and 2009, respectively |
|
|
27,838 |
|
|
27,638 |
|
Additional paid-in capital |
|
|
2,168,015 |
|
|
2,158,638 |
|
Retained earnings |
|
|
3,189,786 |
|
|
3,472,663 |
|
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
5,385,639 |
|
|
5,658,939 |
|
|
|
|
|
|
|
|
|
|
|
$ |
7,294,221 |
|
$ |
7,402,641 |
|
See notes to consolidated financial statements which are an integral part of these statements.
F-4
BIOTEL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
For the
years ended |
|
||||
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
|
SALES AND SERVICES |
|
$ |
11,012,350 |
|
$ |
12,639,636 |
|
|
|
|
|
|
|
|
|
COST OF SALES AND SERVICES |
|
|
6,686,055 |
|
|
7,114,810 |
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
4,326,295 |
|
|
5,524,826 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
Selling and administrative |
|
|
3,324,167 |
|
|
2,585,932 |
|
Research and development |
|
|
1,452,611 |
|
|
1,601,525 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,776,778 |
|
|
4,187,457 |
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
(450,483 |
) |
|
1,337,369 |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
Interest income |
|
|
5,665 |
|
|
7,298 |
|
Interest expense |
|
|
|
|
|
(590 |
) |
Miscellaneous |
|
|
(15,064 |
) |
|
12,471 |
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(9,399 |
) |
|
19,179 |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES |
|
|
(459,882 |
) |
|
1,356,548 |
|
|
|
|
|
|
|
|
|
PROVISION (BENEFIT) FOR INCOME TAXES |
|
|
(177,005 |
) |
|
412,611 |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
(282,877 |
) |
$ |
943,937 |
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER SHARE |
|
|
|
|
|
|
|
BASIC |
|
$ |
(0.10 |
) |
$ |
0.34 |
|
DILUTED |
|
$ |
(0.10 |
) |
$ |
0.33 |
|
See notes to consolidated financial statements which are an integral part of these statements.
F-5
BIOTEL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
For the
years ended |
|
||||
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(282,877 |
) |
$ |
943,937 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
|
|
|
|
|
|
|
Depreciation |
|
|
391,049 |
|
|
389,198 |
|
Stock-based compensation |
|
|
2,077 |
|
|
13,044 |
|
Deferred income taxes |
|
|
(51,498 |
) |
|
97,560 |
|
Decrease in allowance for doubtful accounts |
|
|
(8,275 |
) |
|
(6,475 |
) |
Increase (decrease) in inventory valuation allowance |
|
|
92,095 |
|
|
(43,453 |
) |
Loss on disposal of property and equipment |
|
|
64 |
|
|
529 |
|
Changes in deferred and accrued amounts |
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
143,736 |
|
|
(429,391 |
) |
Income taxes receivable |
|
|
(80,501 |
) |
|
39,310 |
|
Prepaid expenses |
|
|
(127,499 |
) |
|
(10,195 |
) |
Inventories |
|
|
474,369 |
|
|
(406,781 |
) |
Trade accounts payable |
|
|
216,552 |
|
|
(94,541 |
) |
Accrued payroll and related liabilities |
|
|
(31,227 |
) |
|
40,300 |
|
Other accrued expenses |
|
|
39,485 |
|
|
84,962 |
|
Unearned revenue |
|
|
149,200 |
|
|
|
|
Deferred service contract revenue |
|
|
(20,914 |
) |
|
(39,504 |
) |
Income taxes payable |
|
|
(202,265 |
) |
|
202,265 |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
703,571 |
|
|
780,765 |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(299,329 |
) |
|
(379,945 |
) |
Proceeds from sale of property and equipment |
|
|
4,500 |
|
|
1,614 |
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(294,829 |
) |
|
(378,331 |
) |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
7,500 |
|
|
|
|
Net change on line of credit |
|
|
|
|
|
(187,146 |
) |
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
7,500 |
|
|
(187,146 |
) |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
416,242 |
|
|
215,288 |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AS OF JUNE 30, 2009 and 2008 |
|
|
1,160,409 |
|
|
945,121 |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AS OF JUNE 30, 2010 and 2009 |
|
$ |
1,576,651 |
|
$ |
1,160,409 |
|
|
|
|
|
|
|
|
|
CASH PAID FOR |
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
$ |
621 |
|
Income Taxes |
|
$ |
300,693 |
|
$ |
73,475 |
|
See notes to consolidated financial statements which are an integral part of these statements.
F-6
BIOTEL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the years ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
Retained |
|
Total |
|
|||||||
|
|
|
|
|
|
|||||||||||
|
|
Amount |
|
Shares |
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008 |
|
$ |
27,638 |
|
|
2,763,827 |
|
$ |
2,145,594 |
|
$ |
2,528,726 |
|
$ |
4,701,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
13,044 |
|
|
|
|
|
13,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
943,937 |
|
|
943,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009 |
|
|
27,638 |
|
|
2,763,827 |
|
|
2,158,638 |
|
|
3,472,663 |
|
|
5,658,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
200 |
|
|
20,000 |
|
|
7,300 |
|
|
|
|
|
7,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
2,077 |
|
|
|
|
|
2,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
(282,877 |
) |
|
(282,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
$ |
27,838 |
|
|
2,783,827 |
|
$ |
2,168,015 |
|
$ |
3,189,786 |
|
$ |
5,385,639 |
|
See notes to consolidated financial statements which are an integral part of these statements.
F-7
BIOTEL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF BUSINESS AND CORPORATE ORGANIZATION
Biotel Inc. (Parent Company) has two wholly owned subsidiaries, Braemar, Inc. and Agility Centralized Research Services, Inc. Braemar, Inc. designs, manufactures and services diagnostic cardiology devices including 24- and 48-hour Holter recorders and 30-day cardiac ECG event recorders. Braemar also manufactures and services biological fluid and tissue management systems. Braemar, Inc. primarily sells to original equipment manufacturing (OEM) customers who use the Companys products as components in their medical product lines. Braemar, Inc., through its acquisition of Advanced Biosensor Inc., integrates diagnostic Holter software with Braemar recorders and other cardiopulmonary diagnostic equipment and sells to end-users in hospitals and clinics. Agility Centralized Research Services, Inc., which was acquired by Biotel Inc. on July 1, 2004, provides 24-hour/day 7-day/week electrocardiogram (ECG) data and management services to the medical device and pharmaceutical industries, contract research and academic research organizations worldwide for cardiac safety and therapeutic evaluation purposes within clinical trials.
The Companys sales are both national and international.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
|
Principles of consolidation |
|
|
|
|
|
|
The consolidated financial statements include the accounts of Biotel Inc. and its wholly owned subsidiaries (collectively, the Company). Significant intercompany accounts and transactions are eliminated in consolidation. |
|
|
|
|
Management estimates |
|
|
|
|
|
|
Management uses estimates and assumptions in preparing consolidated financial statements. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and reported revenues and expenses. Significant estimates used in preparing these consolidated financial statements include those assumed in computing the allowance for doubtful receivable accounts, inventory valuation allowances, warranty reserves, analysis of goodwill for potential impairment and deferred income tax valuation allowances. Actual results could differ from those estimates. |
|
|
|
|
Concentrations of credit risk |
|
|
|
|
|
|
At times the Company maintains bank deposits in excess of the federally insured limit. Management monitors the soundness of these financial institutions and feels the Companys risk is negligible. |
|
|
|
|
|
The Company sells its products to customers on credit in the ordinary course of business. A customers credit history is reviewed and must meet certain standards before credit is extended. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. |
|
|
|
|
Advertising and marketing |
|
|
|
|
|
|
The Company follows the policy of charging the costs of advertising, except for costs associated with direct response advertising, to operating expenses as incurred. Advertising expenses totaled approximately $5,000 and $11,000 in the fiscal years ended June 30, 2010 and 2009, respectively. |
F-8
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. |
|
|
|
|
Inventories |
|
|
|
|
|
|
Inventories are valued at the lower of cost (using the average and first-in first-out cost methods) or market. Company management periodically reviews inventory for specific future usage, and estimates of impairment of individual inventory items are recorded as a reserve to reduce inventories to the lower of cost or market. |
|
|
|
|
Property and equipment |
|
|
|
|
|
|
Property, equipment and leasehold improvements are recorded at cost. Depreciation is calculated using the straight-line methods over estimated useful lives of three to five years for equipment, seven years for furniture and fixtures and two to five years for leasehold improvements, which represents the terms of the related leases. Maintenance and repairs which do not improve or extend the useful lives of assets are charged to expense as incurred. |
|
|
|
|
Goodwill |
|
|
|
|
|
|
The Companys goodwill arose from the acquisition of Braemar, Inc. Goodwill is deemed to have an indefinite useful life and is subject to impairment tests performed at least annually. During 2010 and 2009, such tests of goodwill determined the recorded goodwill had not been impaired. |
|
|
|
|
Service contracts |
|
|
|
|
|
|
Amounts billed to customers for service contracts are recognized as income over the term of the agreements, and the associated costs are recognized as incurred. At June 30, 2010 and 2009, current liabilities include service contract revenue deferrals of approximately $73,000 and $94,000, respectively. |
|
|
|
|
Warranty reserve |
|
|
|
|
|
|
The Company offers warranties of up to two years to its customers depending on the specific product sold. The Companys warranties require it to repair or replace defective products during the warranty period at no cost to the customer. The Company records a liability for estimated costs that may be incurred under its warranties based on recorded sales. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded liability and adjusts the balance as necessary. At June 30, 2010 and 2009, the warranty reserve totaled $234,430 and $186,424, respectively, and this amount is included in Other Accrued Expenses. The following is a reconciliation of the aggregate warranty liability as of June 30, 2010 and 2009: |
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
Balance, beginning of year |
|
$ |
186,424 |
|
$ |
87,512 |
|
Claims paid |
|
|
(164,724 |
) |
|
(94,343 |
) |
Additional warranties issued and revisions in estimates of previously issued warranties |
|
|
212,730 |
|
193,255 |
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
234,430 |
|
$ |
186,424 |
|
|
|
|
|
Unearned revenues |
|
|
|
|
|
|
Unearned revenues represent payments received from customers for products that have not yet been produced and delivered to the customers. |
F-9
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
|
|
|
|
Revenue recognition |
|
|
|
|
|
|
Revenues from medical equipment and software sales are recognized at date of shipment when title passes to the customer. There are no customer acceptance provisions, and the right to return exists only in cases of damaged product or non-compliance with customer specifications. Revenues for services provided by the Company are recognized as these services are provided. |
|
|
|
|
|
The Companys revenue recognition complies with the accounting and disclosure requirements of Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 104. |
|
|
|
|
Net income (loss) per common share |
|
|
|
|
|
|
The Company reports both basic net income (loss) per share, which is based on the weighted-average number of common shares outstanding, and diluted net income (loss) per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive shares outstanding. Potential dilutive shares consist of the stock options outstanding. |
|
|
|
|
Stock options plans |
|
|
|
|
|
|
The Company uses the fair value recognition provision under United States generally accepted accounting principles. |
|
|
|
|
|
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. For the options issued, the following significant assumptions were used: risk-free interest rates based on date of issuance of 1.55% to 4.41%, no expected dividends, a volatility factor of 20.62 to 229.35, an expected life of the options of 5-10 years (amortized over the vesting period) and expected vesting of the options at 100%. |
|
|
|
|
|
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion the existing models do not necessarily provide a reliable single measure of the fair value of Biotel Inc.s options. |
|
|
|
|
Research and Development |
|
|
|
|
|
|
Research and development costs are charged to operations as incurred. These costs are for proprietary research and development activities that are expected to contribute to the future profitability of the Company. |
F-10
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
|
|
|
|
Income taxes |
|
|
|
|
|
|
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes relate primarily to differences between financial and income tax reporting for the basis of inventory, accounts receivable, property and equipment and accrued liabilities. The deferred tax accounts represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Deferred taxes may also be recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount management expects is more likely than not to be realized. |
|
|
|
|
Recently issued accounting standards |
|
|
|
|
|
|
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Companys financial position, results of operations or cash flows. |
F-11
NOTE 3 INVENTORIES
As of June 30, 2010 and 2009, inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
$ |
1,308,624 |
|
$ |
1,782,903 |
|
Finished goods |
|
|
231,339 |
|
|
235,534 |
|
Evaluation units and replacements |
|
|
8,612 |
|
|
4,507 |
|
|
|
|
|
|
|
|
|
|
|
|
1,548,575 |
|
|
2,022,944 |
|
Valuation allowance |
|
|
(236,642 |
) |
|
(144,547 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
1,311,933 |
|
$ |
1,878,397 |
|
NOTE 4 PROPERTY AND EQUIPMENT
As of June 30, 2010 and 2009, property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
|
Machinery and equipment |
|
$ |
3,691,382 |
|
$ |
3,402,351 |
|
Furniture and fixtures |
|
|
34,791 |
|
|
34,791 |
|
Leasehold improvements |
|
|
47,857 |
|
|
47,857 |
|
|
|
|
|
|
|
|
|
|
|
|
3,774,030 |
|
|
3,484,999 |
|
Accumulated depreciation |
|
|
(2,789,000 |
) |
|
(2,403,685 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
985,030 |
|
$ |
1,081,314 |
|
Depreciation expense for the years ended June 30, 2010 and 2009 totaled $391,049 and $389,198, respectively.
NOTE 5 REVOLVING LINE OF CREDIT
The Company has a $1,500,000 credit line with a bank. The line bears interest at the banks prime rate (3.25% at June 30, 2010) plus .25% and expires on February 5, 2011. There was no outstanding balance on this line of credit as of June 30, 2010 and 2009.
F-12
NOTE 6 LEASE OBLIGATIONS
Biotel and its subsidiaries are parties to operating leases at the following locations:
Braemar, Inc. leases its facility in Columbia, South Carolina, under a 24-month lease agreement which will expire April 30, 2011.
Braemar, Inc. leases its facility in Eagan, Minnesota under a 66-month lease agreement which will expire August 31, 2011.
Braemar, Inc. leased a facility in Winston-Salem, North Carolina under a 36-month lease agreement with an expiration date of June 30, 2011. Under terms of the agreement, Braemar elected to terminate the lease effective June 30, 2010.
Agility Centralized Research Services, Inc. leases its facility in Bannockburn, Illinois, under a 36-month lease agreement which will expire April 30, 2013.
Future minimum lease payments due under these non-cancelable operating leases as of June 30, 2010 are as follows:
For the years ending |
|
|
|
|
2011 |
|
$ |
172,135 |
|
2012 |
|
|
41,311 |
|
2013 |
|
|
18,674 |
|
|
|
|
|
|
|
|
$ |
232,120 |
|
The leases for office and manufacturing space include costs allocated by the lessor for property taxes, insurance and maintenance. Total rent expense for leased space was $246,998 and $248,786 for the years ended June 30, 2010 and 2009, respectively.
F-13
NOTE 7 COMMITMENTS AND CONTINGENCIES
Carolina Medical, Inc., a subsidiary of the Company that was dissolved in November, 2006, was the subject of environmental oversight by the North Carolina Division of Environmental and Natural Resources (DENR) in Surry County, North Carolina, involving alleged ground water contamination coming from property that had been previously owned/or leased by Carolina Medical, Inc. In June, 2006, Carolina Medical entered into a Termination of Lease, Release, Hold Harmless and Indemnification with the landlord, King Investment Partners, related to any environmental matters or potential environmental matters at the King Investment Partners property located in King, North Carolina. In the Agreement, King Investment Partners acknowledged full and complete satisfaction of any and all past, present or future claims and causes of action, including any environmental claims related to the property, and agreed to indemnify the Company for any environmental claims related to the property. In order to protect the Company from any claim with respect to the property that may exceed the landlords ability to indemnify the Company, Biotel has obtained insurance to cover any liability for environmental claims that the Company may have relating to the property up to a maximum of $10 million during the ten-year period ending in 2019. The annual cost of the insurance is $16,000.
On April 2, 2009, the Company entered into a Merger Agreement (the Merger Agreement) with CardioNet, Inc. (CardioNet) pursuant to which CardioNet was to acquire the Companys outstanding securities for $4.82 per share. In a letter dated July 14, 2009, CardioNet advised the Company that it was terminating the Merger Agreement due to the Companys breach of a covenant to withdraw and terminate a business relationship with ScottCare Corporation (ScottCare). On July 15, 2009, CardioNet notified the Company that the Company owed CardioNet $1.4 million for a termination fee and expenses as a result of CardioNets termination of the Merger Agreement. The Company believes CardioNets termination of the Merger Agreement was without merit. On July 16, 2009, the Company commenced a lawsuit in Hennepin County District Court, State of Minnesota, claiming CardioNet breached and improperly terminated the Merger Agreement. The Company is seeking specific performance and damages. On August 3, 2009, the case was removed to the United States District Court, District of Minnesota. On September 4, 2009, CardioNet submitted an answer and counterclaim denying the Companys claims and asserting a counterclaim for the $1.4 million CardioNet claims it is owed as a result of its termination of the Merger Agreement. On February 1, 2010, CardioNet filed its Amended Answer And Counterclaims, asserting additional defenses and counterclaims against the Company. On May 28, 2010, following the completion of discovery, the Company moved for partial summary judgment dismissing CardioNets counterclaims and certain defenses, and that motion remains pending with the court. The case is set for a bench trial to begin on November 8, 2010.
On September 25, 2009, LifeWatch Services, Inc., and Card Guard Scientific Survival, Ltd., the licensee and owner, respectively, of U.S. Patent Nos. 7,542,878 B2 (the 878 Patent) and 5,730,143 (the 143 Patent) commenced an action LifeWatch Patent Matter against Braemar, Inc. (Braemar), and one of its customers, eCardio Diagnostics, LLC (eCardio), in Federal District Court for the Northern District of Illinois, File No. 09-CV-6001, alleging that Braemar and eCardio had infringed the 878 and 143 Patents. The Supply Agreement between Braemar and eCardio provides that Braemar will hold eCardio harmless from any liability it incurs in connection with a claim that Braemars products violate the intellectual property rights or infringes upon any patent of a third party. Braemar and eCardio have denied the allegations, and Braemar is defending the suit on behalf of both itself and eCardio. Since the action was commenced, the Plaintiffs have dismissed their claims relating to alleged infringement of the 878 Patent and have continued to pursue their claims relating to the alleged infringement of the 143 Patent.
Biotel Inc. maintains product liability insurance covering its subsidiaries. There are no known product liability claims, and management presently believes that there is no material risk of loss from product liability claims.
F-14
NOTE 8 SIGNIFICANT CUSTOMER CONCENTRATIONS
Credit sales are made to the Companys customers in the ordinary course of business. Generally, these sales are unsecured. The Company had three major customers which accounted for approximately 56% and 58% of the Companys consolidated revenues in the years ended June 30, 2010 and 2009, respectively.
Accounts receivable due from these customers at June 30, 2010 and 2009 totaled approximately $1,341,000 and $1,441,000, respectively.
NOTE 9 STOCK OPTIONS
Biotel Inc. adopted an incentive compensation plan for board designated personnel on November 15, 2001, by amending the Biosensor Corporation 1999 Incentive Compensation Plan. Under this plan, the number of common shares subject to outstanding awards shall not exceed the greater of 650,000 shares or 15% of the aggregate number of common shares outstanding. Options to purchase shares of the Companys common stock are granted at a price not less than 100% of the fair market value of the common stock, as determined by the Board of Directors using the best available market data, on the date the options are granted. As of June 30, 2010 Biotel Inc. had 141,000 options outstanding, and as of June 30, 2009, Biotel Inc. had 211,000 options outstanding. Currently, option prices range from $.625 to $2.05 per share with a weighted average remaining contract life of 3.20 years. During the year ended June 30, 2010, 20,000 options were exercised. During the year ended June 30, 2009, no options were exercised. Option vesting and expiration is determined by the Board of Directors at the time they are awarded. No options may be awarded with an expiration greater than 10 years. The compensation cost charged against income for this plan was $2,077 and $13,044 for the years ended June 30, 2010 and 2009, respectively.
A summary of the activity under the Companys plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
Exercisable |
|
||||||||
|
|
Number |
|
Weighted |
|
Number |
|
Weighted |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
211,000 |
|
$ |
1.3635 |
|
|
203,500 |
|
$ |
1.5214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
145,000 |
|
|
2.0472 |
|
|
|
|
|
|
|
Expired |
|
|
(25,000 |
) |
|
1.8200 |
|
|
|
|
|
|
|
Cancelled |
|
|
(120,000 |
) |
|
2.0000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
211,000 |
|
$ |
1.6391 |
|
|
198,500 |
|
$ |
1.6171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(20,000 |
) |
|
0.3750 |
|
|
|
|
|
|
|
Expired |
|
|
(50,000 |
) |
|
2.0500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 |
|
|
141,000 |
|
$ |
1.6793 |
|
|
133,500 |
|
$ |
1.6537 |
|
F-15
NOTE 10 INCOME TAXES
The components of the provision (benefit) for income taxes are as follows for the years ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
|
Current provision (benefit) for taxes |
|
$ |
(60,570 |
) |
$ |
315,051 |
|
Change in deferred tax assets and liabilities |
|
|
(51,498 |
) |
|
97,560 |
|
Research and development tax credits |
|
|
(65,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) |
|
$ |
(177,068 |
) |
$ |
412,611 |
|
A reconciliation of income tax at the statutory rate to the Companys effective rate is as follows:
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|||||||
Computed at the federal statutory rate |
|
|
-34.0 |
% |
|
34.0 |
% |
State income taxes |
|
|
-3.3 |
% |
|
3.3 |
% |
Manufacturers deduction |
|
|
|
|
|
-2.1 |
% |
Other |
|
|
-1.2 |
% |
|
-4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
-38.5 |
% |
|
30.4 |
% |
The tax effects of temporary differences that give rise to significant portions of the deferred tax accounts as of June 30, 2010 and 2009 are presented below:
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities) applicable to: |
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
16,000 |
|
$ |
19,100 |
|
Inventory reserves |
|
|
92,300 |
|
|
56,400 |
|
Warranty reserves |
|
|
91,400 |
|
|
72,700 |
|
Accruals |
|
|
65,600 |
|
|
63,100 |
|
Depreciation |
|
|
(215,900 |
) |
|
(249,400 |
) |
Goodwill |
|
|
(252,800 |
) |
|
(221,400 |
) |
Net operating loss carryforwards |
|
|
230,000 |
|
|
232,000 |
|
Other |
|
|
73,805 |
|
|
76,407 |
|
|
|
|
|
|
|
|
|
|
|
|
100,405 |
|
|
48,907 |
|
Less valuation allowance |
|
|
127,416 |
|
|
127,416 |
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
$ |
(27,011 |
) |
$ |
(78,509 |
) |
F-16
NOTE 10 INCOME TAXES (continued)
The deferred tax amounts presented above have been classified on the accompanying consolidated balance sheets as of June 30, 2010 and 2009 as follows:
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
Current asset |
|
$ |
316,221 |
|
$ |
250,674 |
|
Long-term liability |
|
|
(343,232 |
) |
|
(329,183 |
) |
|
|
$ |
(27,011 |
) |
$ |
(78,509 |
) |
Valuation allowances are established when necessary to reduce deferred tax assets to the amount management expects is more likely than not to be realized. This determination is made annually by management based on the anticipated level of taxable income in future years. During the years ended June 30, 2010 and 2009, management recorded a valuation allowance of $127,416 for the deferred tax asset that was more likely than not to be realized in future periods. The valuation allowance at June 30, 2010 and 2009, related to a portion of the federal net operating loss carryforwards from which the Company was not expecting to realize the benefit due to Internal Revenue Code section 382 limitations relating to a prior transaction executed by the Company.
At June 30, 2010, the Company had federal net operating loss carryforwards totaling $422,000, which expire on various dates through 2020. The Company also had state net operating loss carryforwards totaling $1,312,000, which expire on various dates through 2026.
NOTE 11 NET INCOME (LOSS) PER SHARE OF COMMON STOCK
The weighted average number of shares used in the computation of basic and diluted net income (loss) per common share as of June 30, 2010, was 2,774,676. In computing dilutive net loss per common share as of June 30, 2010, common shares issuable upon exercise of employee stock options (see Note 9) have not been included in the computation because their inclusion would have had an antidilutive effect. The weighted average number of shares used in the computation of basic and diluted net income (loss) per common share as of June 30, 2009, was 2,763,827 and 2,854,822, respectively.
NOTE 12 EMPLOYEE BENEFITS PLANS
Biotel Inc. has a 401(k) plan covering substantially all of its employees. Company contributions for the fiscal years ended June 30, 2010 and 2009, totaled $78,165 and $71,047, respectively.
F-17
NOTE 13 OPERATIONS AND INDUSTRY SEGMENTS
The Company reports on two segments of business: OEM Medical Equipment Sales and Service and Direct Medical Equipment Sales and Service. The industry segment information corresponds with the Companys different customer and product types.
In calculating segment information, certain corporate operating expenses incurred for the benefit of all segments are included on an allocated basis. The corporate profit amount includes non-allocable general corporate expenses, interest expense and other income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
||||||||||
|
|
OEM Medical |
|
Direct Medical |
|
Corporate |
|
Totals |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic revenues |
|
$ |
9,533,818 |
|
$ |
459,335 |
|
$ |
|
|
$ |
9,993,153 |
|
International revenues |
|
|
867,648 |
|
|
151,549 |
|
|
|
|
|
1,019,197 |
|
Revenues from external customers |
|
|
10,401,466 |
|
|
610,884 |
|
|
|
|
|
11,012,350 |
|
Intersegment revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(9,065 |
) |
|
42,568 |
|
|
(210,508 |
) |
|
(177,005 |
) |
Depreciation |
|
|
371,029 |
|
|
|
|
|
20,020 |
|
|
391,049 |
|
Segment profit |
|
|
7,170 |
|
|
66,581 |
|
|
(356,628 |
) |
|
(282,877 |
) |
Goodwill |
|
|
695,551 |
|
|
|
|
|
|
|
|
695,551 |
|
Total segment assets |
|
|
5,024,853 |
|
|
77,743 |
|
|
2,191,625 |
|
|
7,294,221 |
|
Purchases of property and equipment |
|
|
293,249 |
|
|
|
|
|
6,080 |
|
|
299,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
||||||||||
|
|
OEM
Medical |
|
Direct
Medical |
|
Corporate |
|
Totals |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic revenues |
|
$ |
10,579,765 |
|
$ |
585,381 |
|
$ |
|
|
$ |
11,165,146 |
|
International revenues |
|
|
1,380,139 |
|
|
94,351 |
|
|
|
|
|
1,474,490 |
|
Revenues from external customers |
|
|
11,959,904 |
|
|
679,732 |
|
|
|
|
|
12,639,636 |
|
Intersegment revenues |
|
|
27,734 |
|
|
(27,734 |
) |
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
590 |
|
|
590 |
|
Income tax expense |
|
|
544,605 |
|
|
71,902 |
|
|
(203,896 |
) |
|
412,611 |
|
Depreciation |
|
|
360,908 |
|
|
5,404 |
|
|
22,886 |
|
|
389,198 |
|
Segment profit |
|
|
832,112 |
|
|
102,506 |
|
|
9,319 |
|
|
943,937 |
|
Goodwill |
|
|
695,551 |
|
|
|
|
|
|
|
|
695,551 |
|
Total segment assets |
|
|
5,844,166 |
|
|
64,680 |
|
|
1,493,795 |
|
|
7,402,641 |
|
Purchases of property and equipment |
|
|
374,811 |
|
|
|
|
|
5,134 |
|
|
379,945 |
|
NOTE 14 SUBSEQUENT EVENTS
The Company has evaluated events and transactions through the SEC filing date for potential recognition or disclosure in the consolidated financial statements and has determined there are no subsequent events to disclose.
F-18