UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 2001.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from to .
Commission file number:000-26927
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NOVAMED, INC
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(Name of Small Business Issuer in Its Charter)
Nevada 58-2027283
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1403 East 900 South, Salt Lake City, Utah 84105
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(Address of Principal Executive Offices) (Zip Code)
(801) 582-9609
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each Exchange on Which Registered
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Common Stock ($0.001 Par Value) None
Check whether the issuer: (1) 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and if no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
The issuer's net sales for the year ended December 31, 2001, were $0.
The aggregate market value of the registrant's common stock, $0.001 par value
(the only class of voting stock), held by non-affiliates was approximately
$155,314 based on the average closing bid and asked prices for the common stock
on April 15, 2002.
At April 15, 2002, the number of shares outstanding of the registrant's common
stock, $0.001 par value (the only class of voting stock), was 43,486,464.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business......................................1
Item 2. Description of Property......................................7
Item 3. Legal Proceedings............................................7
Item 4. Submission of Matters to a Vote of Security-Holders..........7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.....7
Item 6. Management's Discussion and Analysis or Plan of Operation....8
Item 7. Financial Statements........................................10
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure....................................11
PART III
Item 9. Directors and Executive Officer.............................11
Item 10. Executive Compensation......................................12
Item 11. Security Ownership of Certain Beneficial Owners and
Management..................................................12
Item 12. Certain Relationships and Related Transactions..............13
Item 13. Exhibits, List and Reports on Form 8-K......................14
Signatures .................................................15
PART I
This Report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to continue its expansion strategy,
changes in costs of raw materials, labor, and employee benefits, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Annual Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
ITEM 1. DESCRIPTION OF BUSINESS
A. Corporate Organization.
As used herein the term Company refers to NovaMed, Inc., its subsidiaries and
predecessors, unless the context indicates otherwise. NovaMed, Inc. was
incorporated in Nevada on November 26, 1996, as Conceptual Technologies, Inc. On
April 9, 1998, the Company changed its name to reflect the acquisition of the
operating subsidiaries of NovaMed Medical Products Incorporated (NMMP), and the
resultant operational focus to the development, manufacture, and sale of mammary
prosthesis devices. The Company acquired the operating subsidiaries of NMMP,
pursuant to a Stock Purchase and Sale agreement dated February 25, 1998. NMMP
was formed as a Nevada corporation in October of 1994 with the intent of
producing a breast implant that would provide a safe and credible alternative to
silicone gel filled implants. All of the outstanding shares of the three NMMP
subsidiaries, NovaMed Medical Products Manufacturing Inc., NovaMedical Products
GmbH and NovaMed Medical Supplies Corporation were acquired for 6,301,558 shares
of the Company's common stock.
The Company is a medical device holding company that developed, manufactured,
and marketed hydrogel and saline filled breast implant products that were used
in primary augmentations, revisions, or reconstructive procedures.The Company
through the period ended December 31, 2000, derived substantially all of its
sales revenue from the sale of prosthesis products outside of North America.
B. Corporate History.
On December 11, 2000, the Medical Device Agency ("MDA") of the British
Department of Health issued a device alert in connection with the recall of the
Company's NOVAGOLD(TM) breast implant product. The decision to issue a device
alert was made after discussions with the Company's subsidiary, Novamedical
Products GmbH, which voluntarily agreed to suspend any further shipment or sale
of the NOVAGOLD(TM) product in Britain until such time as the MDA was satisfied
that the Company had completed an "adequate" biological safety assessment of the
Company's hydrogel filling material. The device alert did not advise that the
NOVAGOLD(TM) breast implant was unsafe, rather the MDA's position was that the
Company did not satisfy the European device regulations for selling breast
implants.
1
Concurrent with the MDA device alert, which was relevant only to sales in
Britain, the Company was in the process of re-certifying its approval to sell
the NOVAGOLD(TM) product throughout the European Union. Permission to sell
throughout the European Union requires a CE Mark awarded by a notified body from
one of the member nations. Notified bodies are certified by government health
authorities and given the responsibility of examining products for safety and
efficacy before allowing sales within the European Union. Once the device alert
was issued in Britain, the MDA's justifications for issuing the alert were
published throughout the European Union. The ECM (the Company's notified body
certified by the German government) learned of the MDA's device alert and
decided not to re-certify the NOVAGOLD(TM) product for sale in the European
Union until such time as the Company provided new testing data and a new CE Mark
application to support the contention that the product was safe. Further, the
ECM advised the Company to discontinue its sale of the NOVAGOLD(TM) until such
time as a new CE Mark was obtained. The loss of the CE mark on the NOVAGOLD(TM)
breast implant precluded the Company from generating any significant sales
revenues.
The Company also submitted a Investigational Device Exemption (IDE) application
to the Food and Drug Administration ("FDA") on January 9, 1999 for the purpose
of obtaining permission from the FDA to start a clinical trial of the
NOVAGOLD(TM) breast implant in the United States. The FDA responded on February
11, 1999 with certain deficiencies related to the IDE submission that required a
Company response. The Company resubmitted its NOVAGOLD(TM) IDE submission on
March 28, 2000 with responses to the FDA's noted deficiencies and additional
information pertaining to the NOVAGOLD(TM). The Company's application for an IDE
has been abandoned.
C. Relocation and Closing of Operating Facilities.
The Company decided to relocate and consolidate its German operating facilities
to the Company's headquarters in Minneapolis, Minnesota in December 2000. The
decision was made due to the lack of substantial revenues at year end from sales
in Europe with an indefinite prospect of future revenues coupled with the
expense of operating two manufacturing facilities in two separate countries. The
MDA device alert, and the Company's inability to re-certify the CE Mark for the
NOVAGOLD(TM) breast implant product were added factors crucial to the decision.
Management agreed that in order to increase manufacturing efficiencies and
faithfully address quality control issues that a consolidation of all activities
in Minneapolis would be in the best interests of the Company. The Company then
devoted its limited resources on improving its facilities at 623 Hoover Street,
Minneapolis, Minnesota. Despite efforts to fund operations, the Company was
evicted from the premises located in Minneapolis on November 21, 2001 due to
non-payment of rent.
D. Disposition of German Subsidiary.
The decision to consolidate the Company's business to Minneapolis, Minnesota
necessarily caused the disposition of Novamedical Products GmbH. Further to a
Stock Purchase and Sales Agreement ("Sales Agreement") effective December 31,
2000, the Company sold its 100% ownership in Novamedical Products GmbH to Dr.
Aydin Dogan. The sale involved the disposition of all the assets and liabilities
of Novamedical Products GmbH with certain exceptions to Dr. Dogan in exchange
for one million three hundred fifty thousand (1,350,000) shares of its common
stock issued to Dr. Dogan and certain individuals or entities for the sole
purpose of satisfying the outstanding third party liabilities of Novamedical
Products GmbH. All assets excepted under the Sales Agreement were shipped to
NovaMed's Minneapolis facililty subsequent to December 31, 2000.
2
E. Technology License Agreement.
During March 1, 1998, the Company entered into a License Agreement with AAB Corp
and Greaco II, Ltd. ("Inventors') for the right to use certain patented
technology in the production of the NOVAGOLD(TM) and NOVASALINE(TM) products.
The term of the license was perpetual and permitted the use of the technology on
an exclusive basis worldwide. The terms of the License Agreement caused the
Company to pay a royalty equal to 5% of net revenue on sales of the products. A
minimum royalty payment of $21,000 was made every six month period with
additional royalties, if warranted based on sales, made payable at the beginning
of each month subsequent to the royalty period. On September 1, 2000, the
Company failed to make a minimum royalty payment of $21,000 and placed by the
Inventors into default.
On December 29, 2000, the Company entered into a new License Agreement with the
Inventors that once again enabled the Company to use certain patented technology
in the production of the NOVAGOLD(TM) and NOVASALINE(TM) products. The license
is perpetual and permits the use of the technology on an exclusive worldwide
basis. The terms of the License Agreement cause the Company to pay a royalty
equal to 7.5% of net revenue on sales of the products. A minimum royalty payment
of $21,000 was to be made every six month period with additional royalties, if
warranted based on sales, made payable at the beginning of each month subsequent
to the royalty period. The first minimum royalty payment of $21,000 was to be
made on May 1, 2001. The Company has failed to make any payments under the terms
of the License Agreement and on August 21, 2001 the Inventors placed the Company
in default of the License Agreement.
The Company entered into an Agreement for the Issuance, Sale and Purchase of
Commons Stock with AAB Corp. and Greaco II, Ltd. ("Issuance Agreement") on
December 29, 2000 as an inducement to have the Inventors enter into a new
License Agreement, to settle obligations stemming from the March 1998 License
Agreement and to provide a pre-payment of royalties due until May 1, 2001 under
the December 29, 2000 Licence Agreement.
F. Operations.
The Company was not able to generate any revenues in 2001. As of December 31,
2001 the Company had ceased attempts to resolve the MDA device alert and renew
the CE Mark application. The Company is considering the viability of continuing
in the business of developing, manufacturing and marketing breast implant
products.
G. Selection of a Business.
The Company considering the viability of its breast implant business and also is
considering other business opportunities either through merger or acquisition
that might create value for our shareholders. We have no day-to-day operations
at the present time. Our sole officer and director devotes limited time and
attention to the affairs of the Company. Management has adopted a conservative
policy of seeking opportunities that they consider to be of exceptional quality.
As a result of that policy the Company may have to wait some time before
consummating a suitable transaction. Management recognizes that the higher the
standards it imposes upon itself, the greater may be it's competitive
disadvantages when vying with other acquiring interests or entities.
3
The Company does not intend to restrict its consideration to any particular
business or industry segment, and the Company may consider, among others,
finance, brokerage, insurance, transportation, communications, research and
development, service, natural resources, manufacturing or high-technology.
However, due to the Company's limited financial resources, the scope and number
of suitable candidate business ventures available is limited, and most likely
the Company will not be able to participate in more than a single business
venture. Accordingly, it is anticipated that the Company will not be able to
diversify, but may be limited to one merger or acquisition. This lack of
diversification will not permit the Company to offset potential losses from one
business opportunity against profits from another.
The decision to participate in a specific business opportunity will be made upon
management's analysis of the quality of the other firm's management and
personnel, the anticipated acceptability of new products or marketing concepts,
the merit of technological changes and numerous other factors which are
difficult, if not impossible, to analyze through the application of any
objective criteria. In many instances, it is anticipated that the historical
operations of a specific venture may not necessarily be indicative of the
potential for the future because of the necessity to substantially shift a
marketing approach, expand operations, change product emphasis, change or
substantially augment management, or make other changes. The Company will be
dependent upon the management of a business opportunity to identify such
problems and to implement, or be primarily responsible for the implementation
of, required changes. Since the Company may participate in a business
opportunity with a newly organized business or with a business which is entering
a new phase of growth, it should be emphasized that the Company may incur risk
due to the failure of the target's management to have proven its abilities or
effectiveness, or the failure to establish a market for the target's products or
services, or the failure to realize profits.
While the Company does not intend to rule out its consideration of any
particular business or industry segment, management has determined to focus its
principal interest in evaluating development stage companies in the electronic
commerce, high- technology, communication technologies, information services and
Internet industry segments.
We will not acquire or merge with any company for which audited financial
statements cannot be obtained. It may be anticipated that any opportunity in
which the Company participates will present certain risks. Many of these risks
cannot be adequately identified prior to selection of the specific opportunity,
and the Company's shareholders must, therefore, depend on the ability of
management to identify and evaluate such risk. In the case of some of the
opportunities available to the Company, it may be anticipated that the founders
thereof have been unable to develop a going concern or that such business is in
its development stage in that it has not generated significant revenues from its
principal business activities prior to the Company's participation.
H. Acquisition of Business.
In implementing a structure for a particular business acquisition, the Company
may become a party to a merger, consolidation, reorganization, joint venture,
franchise or licensing agreement with another corporation or entity. It may also
purchase stock or assets of an existing business. On the consummation of a
transaction, it is possible that the present management and shareholders of the
Company will not be in control of the Company. In addition, the Company's sole
officer and director may, as part of the terms of the acquisition transaction,
resign and be replaced by new officers and directors without a vote of the
Company's shareholders.
4
It is anticipated that any securities issued in any such reorganization would be
issued in reliance on exemptions from registration under applicable federal and
state securities laws. In some circumstances, however, as a negotiated element
of this transaction, the Company may agree to register such securities either at
the time the transaction is consummated, under certain conditions, or at a
specified time thereafter. The issuance of substantial additional securities and
their potential sale into any trading market may have a depressive effect on
such market.
While the actual terms of a transaction to which the Company may be a party
cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so called "tax-free" reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
In order to obtain tax-free treatment under the Code, it may be necessary for
the owners of the acquired business to own 80% or more of the voting stock of
the surviving entity. In such event, the shareholders of the Company would
retain less than 20% of the issued and outstanding shares of the surviving
entity, which could result in significant dilution in the equity of such
shareholders.
As part of our investigation, officers and directors of the Company will meet
personally with management and key personnel, may visit and inspect material
facilities, obtain independent analysis or verification of certain information
provided, check reference of management and key personnel, and take other
reasonable investigative measures, to the extent of the Company's limited
financial resources and management expertise.
The manner in which each Company participates in an opportunity will depend on
the nature of the opportunity, the respective needs and desires of the Company
and other parties, the management of the opportunity, and the relative
negotiating strength of the Company and such other management. With respect to
any mergers or acquisitions, negotiations with target company management will be
expected to focus on the percentage of the Company that target company
shareholders would acquire in exchange for their shareholdings in the target
company. Depending upon, among other things, the target company's assets and
liabilities, the Company's shareholders will in all likelihood hold a lesser
percentage ownership interest in the Company following any merger or
acquisition. The percentage ownership may be subject to significant reduction in
the event the Company acquires a target company with substantial assets. Any
merger or acquisition effected by the Company can be expected to have a
significant dilutive effect on the percentage of shares held by the Company's
then shareholders.
I. Operation of Business After Acquisition.
The Company's operation following its merger or acquisition of a business will
be dependent on the nature of the business and the interest acquired. The
Company is unable to determine at this time whether the Company will be in
control of the business or whether present management will be in control of the
Company following the acquisition. It may be expected that the business will
present various challenges that cannot be predicted at the present time.
5
J. Government Regulation.
The Company cannot anticipate the government regulations, if any, to which the
Company may be subject until it has acquired an interest in a business. The use
of assets to conduct a business that the Company may acquire could subject it to
environmental, public health and safety, land use, trade, or other governmental
regulations and state or local taxation. In selecting a business in which to
acquire an interest, management will endeavor to ascertain, to the extent of the
limited resources of the Company, the effects of such government regulation on
the prospective business of the Company. In certain circumstances, however, such
as the acquisition of an interest in a new or start-up business activity, it may
not be possible to predict with any degree of accuracy the impact of government
regulation. The inability to ascertain the effect of government regulation on a
prospective business activity will make the acquisition of an interest in such
business a higher risk.
K. Competition.
The Company will be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by virtue
of their stronger financial resources and prior experience in business. There is
no assurance that the Company will be successful in obtaining suitable business
opportunities.
L. Employees.
The Company currently has no employees. Our executive officer devotes as much
time to the affairs of the Company as he deems appropriate. Management of the
Company expects to use consultants, attorneys, and accountants as necessary, and
does not anticipate a need to engage any full-time employees as long as business
needs are being identified and evaluated. The need for employees and their
availability will be addressed in connection with a decision concerning whether
or not to acquire or participate in a specific business venture.
M. Reports to Security Holders.
The Company's annual report will contain audited financial statements. The
Company is not required to deliver an annual report to security holders and will
not voluntarily deliver a copy of the annual report to the security holders. The
Company intends to file all of its required information with the Securities and
Exchange Commission ("SEC").
The public may read and copy any materials that are filed by the Company with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The statements
and forms filed by the Company with the SEC have also been filed electronically
and are available for viewing or copy on the SEC maintained Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The Internet address
for this site can be found at http://www.sec.gov.
6
ITEM 2. DESCRIPTION OF PROPERTY
The Company was headquartered at 623 Hoover St. N.E., Minneapolis, Minnesota
55413 where it leases office and manufacturing space totaling 15,000 square
feet. The Company leased these facilities for $6,679 per month. The lease was
subject to incremental increases and expires in January 2003. The Company was
evicted from the premises on November 21, 2001 for non-payment of rent and
currently occupies limited office space, for which it pays no rent, owned by the
Company's president, at 1403 East 900 South, Salt Lake City, Utah 84105
The Company believes that its current office space is generally suitable and
adequate to accommodate its current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any pending legal proceeding
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the period
covered by this report.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Company's common stock is traded on Over the Counter Bulletin Board under
the symbol NVMD.OB.
The table below sets forth the high and low sales prices for the Company's
common stock for each quarter of 2000 and 2001. The quotations below reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions:
Year Quarter Ended High Low
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2000 March 31 $2.12 $0.40
----
June 30 $1.31 $0.27
September 30 $0.28 $0.14
December 31 $0.25 $0.02
2001 March 31 $0.06 $0.02
----
June 30 $0.05 $0.01
September $0.02 $0.01
December 31 $0.03 $0.01
7
A. Record Holders
As of April 15, 2002, there were approximately 330 shareholders of record
holding a total of 43,486,464 shares of common stock. The holders of the common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. Holders of the common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock.
B. Dividends
The Company has not declared any cash dividends since inception and does not
anticipate paying any dividends in the foreseeable future. The payment of
dividends is within the discretion of the board of directors and will depend on
the Company's earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit the Company's
ability to pay dividends on its common stock other than those generally imposed
by applicable state law.
ITEM 6 MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company is a medical device holding company that developed, manufactured,
and marketed hydrogel and saline filled breast implant products that were used
in primary augmentations, revisions, or reconstructive procedures.
The Company manufactured and marketed two different pre-filled single lumen
mammary prostheses (breast implants), the NOVAGOLDTM and the NOVASALINETM .
These products were designed to address the safety concerns associated with
silicone gel-filled implants, as voiced by the FDA's decision in April of 1992
which mandated that silicone gel implants would thereafter only be available
under controlled clinical studies. Both products were used for routine cosmetic
breast augmentation and for breast reconstruction following either subcutaneous
or modified radical mastectomy. The Company has realized no sales revenues
during 2001, due to the prohibition placed on the sale of the Company's products
and the default on the License Agreement related to the Company's use of
patented technology in its products.
A. Results of Operations
Sales
Sales for the year ended December 31, 2001 decreased to $ 0 from $1,141,033 for
the year ended December 31, 2000. The decrease in revenues is primarily
attributable to the Company's failure to re- certify the NOVAGOLD(TM) product in
the Europe which prohibited new sales in 2001.
International sales accounted for 100% of total net sales in 2000. The absence
of sales in 2001 is directly related to the MDA's device alert for the
NOVAGOLD(TM) product and the advice of the Company's notified body that all
further shipment of the NOVAGOLD(TM) product be suspended. Sales of the
NOVAGOLD(TM) breast implant accounted for over 98% of all Company revenues in
2000.
8
Losses
The net loss for the year ended December 31, 2001 was $475,564 as compared to a
loss of $1,500,351 for the year ended December 31, 2000, which is a decrease in
losses of $1,024,787. The decrease was attributable primarily to the suspension
of product sales in Europe and the default on the License Agreement which
terminated the Company's right to its products. The effect of these events
resulted in limited operations through 2001 causing a decrease in costs.
The Company expects to incur losses through fiscal 2002 and there can be no
assurance that the Company will establish a profitable revenue stream until such
time as a new business opportunity is adopted through merger or acquisition.
Selling, general and administrative expenses for the year ended December 31,
2001, decreased to $566,959 from $1,681,128 for the year ended December 31,
2000, a decrease of $1,114,169. The decrease in selling general and
administrative expenses resulted from limited operations through the period.
The Company was obligated to pay a royalty equal to 5% of net revenue of the
product. A minimum royalty payment of $21,000 is made for each six month period.
Royalty expense for the year ended December 31, 2001 and 2000 was approximately
$ 42,000 and $53,000, respectively. The Company did not make royalty payments
under the License Agreement and therefore lost all rights to continue the sale
of its products.
Depreciation and amortization expenses for the years ended December 31, 2000 and
December 31, 1999 were $ 17,924 and $40,327 respectively.
Cost of Sales
The largest factors in the variation from year to year in the cost of sales as a
percentage of net sales were the cost of raw materials and the yield of finished
goods from the Company's manufacturing facilities.
The cost of sales for the year ended December 31, 2001 was $0 compared to
$812,870 for the year ended December 31, 2000. The decrease was attributable
primarily to the suspension of product sales in Europe and the default on the
License Agreement which terminated the Company's right to its products. The
effect of these events resulted in limited operations through 2001 causing a
decrease in cost of sales.
B. Income Tax Expense (Benefit)
The Company has an income tax benefit resulting from net operating losses to
offset any operating profit.
C. Impact of Inflation
The Company believes that inflation has had a negligible effect on operations
over the past three years.
9
D. Liquidity and Capital Resources
The Company has expended significant resources on research and development in
the past. The Company does not expect to expend any sum on research or
development.
Cash flow used in operations was $211,745 for the year ended December 31, 2001,
as compared to cash flow used in operations of $137,229 for the year ended
December 31, 2000. Negative cash flows from operating activities for the year
ended December 31, 2001 are primarily attributable to losses from operations.
Cash flow generated from financing activities was $200,000 for the year ended
December 31, 2001 and $173,990 for the year ended December 31, 2000. The Company
issued convertible debentures in the amount of $25,000 each through the period
ended December 31, 2001. The debentures were subsquently assigned to a third
party in connection with the sale of a former subsidiary.
The Company has funded its cash needs from inception through December 31, 2001
through revenues and a series of debt and equity transactions, including several
private placements. The bulk of these transactions have taken place outside the
United States. Since there is currently no revenue stream, the Company expects
that it will require new debt or equity transactions to satisfy cash needs over
the next twelve months.
E. Capital Expenditures
The Company made no significant capital expenditures on property or equipment
for the year ended December 31, 2001 and expenditures of approximately $41,000
for the year ended December 31, 2000.
F. Going Concern
The Company's auditors have expressed an opinion as to the Company's ability to
continue as a going concern as a result of an accumulated deficit of $6,440,940
as of December 31, 2001. The Company's ability to continue as a going concern is
subject to the ability of the Company to obtain a profit and /or obtaining the
necessary funding from outside sources. Management's plan to address the
Company's ability to continue as a going concern, includes: (1) obtaining
funding from private placement sources; (2)obtaining additional funding from the
sale of the Company's securities; (3) establishing revenues from a suitable
business opportunity; (4) obtaining loans and grants from various financial
institutions where possible. Although management believes that it will be able
to obtain the necessary funding to allow the Company to remain a going concern
through the methods discussed above, there can be no assurances that such
methods will prove successful.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements for the fiscal year ended December 31,
2001 are attached hereto as pages F-1 through F-21.
10
NOVAMED INC.
Index to Consolidated Financial Statements
--------------------------------------------------------------------------------
Page
Independent auditors' report F-2
Consolidated balance sheet F-3
Consolidated statement of operations F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-7
--------------------------------------------------------------------------------
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
NovaMed, Inc.
We have audited the accompanying consolidated balance sheet of NovaMed, Inc., as
of December 31, 2001, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for the two years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
NovaMed, Inc., as of December 31, 2001, and the results of their consolidated
operations and their cash flows for the two years then ended, in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a working capital deficit, an
accumulated deficit and has incurred losses since inception. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
TANNER + CO
Salt Lake City, Utah
April 10, 2002
F-2
NOVAMED, INC.
Consolidated Balance Sheet
December 31
--------------------------------------------------------------------------------
2001
-------------
Assets
Current assets:
Cash $ 10,034
Note receivable 15,000
-------------
Total current assets 25,034
Property and equipment, net 33,071
-------------
$ 58,105
-------------
-----------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Note payable $ 20,000
Accounts payable 142,953
Accrued royalties 42,000
Accrued liabilities 11,905
-------------
Total current liabilities 216,858
-------------
Commitments and contingencies -
Stockholders' deficit:
Common stock, $.001 par value, 50,000,000 shares
authorized; 43,486,464 shares issued and outstanding 43,487
Additional paid-in capital 6,238,700
Accumulated deficit (6,440,940)
-------------
Total stockholders' deficit (158,753)
-------------
$ 58,105
-------------
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
NOVAMED, INC.
Consolidated Statement of Operations
Years Ended December 31,
--------------------------------------------------------------------------------
2001 2000
---------- ------------
Net sales $ - $ 1,141,033
---------- ------------
Costs and expenses:
Cost of sales - 812,870
Selling, general and administrative 566,959 1,681,128
Research and development - 45,320
Write down of inventory 129,204 125,000
---------- ------------
696,163 2,664,318
---------- ------------
Loss from operations (696,163) (1,523,285)
Gain on sale of subsidiary 225,000 -
Other income 3,099 31,808
Interest expense (7,500) (8,874)
---------- ------------
Loss before income taxes (475,564) (1,500,351)
---------- ------------
Benefit from income taxes - -
---------- ------------
Net loss $(475,564) $(1,500,351)
---------- ------------
Loss per common share-basic and diluted $ ($01) (.09)
---------- ------------
Weighted average common shares - basic and diluted 43,486,000 15,872,000
---------- ------------
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
NOVAMED, INC.
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------
Cumulative
Foreign Stock
Additional Currency Subscrip-
Common Stock Paid-in Translation tion Accumulated
Shares Amount Capital Adjustment Receivable Deficit Total
---------- -------- ---------- -------- ----------- ------------ -----------
Balance at
January 1, 2000 15,196,464 15,197 5,170,635 1,208 (440,000) (4,465,025) 282,015
Issue Common Stock for:
Cash 320,000 320 143,680 - - - 144,000
Services 11,470,000 11,470 379,375 - - - 390,845
Sale of foreign subsidiary
to related party 1,350,000 1,350 503,670 (1,208) - - 503,812
Settlement of accounts
payable 6,400,000 6,400 217,600 - - - 224,000
Collection of stock
subscription receivable - - - - 9,990 - 9,990
Stock subscription
receivable 8,750,000 8,750 253,750 - (262,500) - -
Net loss - - - - - (1,500,351) (1,500,351)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance at
December 31, 2000 43,486,464 43,487 6,668,710 $ (692,510) (5,965,376) 54,311
Services exchanged for
subscriptions receivable - - - - 262,500 - 262,500
Write-off of subscription
receivables - - (430,010) - 430,010 - -
Net Loss - - - - - (475,564) (475,564)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance at
December 31, 43,486,464 $ 43,487 $6,238,700 $ $ - $(6,440,940) $(158,753)
---------- -------- ---------- -------- ----------- ------------ -----------
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
NOVAMED, INC.
Consolidated Statement of Cash Flows
Years Ended December 31,
--------------------------------------------------------------------------------
2001 2000
---------- ------------
Cash flows from operating activities:
Net loss $ (475,564 $(1,500,351)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 17,924 40,327
Stock subscriptions satisfied for services 262,500 390,845
Gain on sale of subsidiary (225,000) -
Write down of inventory 129,204 125,000
(Increase) decrease in:
Receivables - 160,270
Inventories - 502,589
Other assets - 54,328
Increase (decrease) in:
Cash overdraft - (16,736)
Accounts payable and accrued liabilities 79,191 106,499
---------- ------------
Net cash used in
operating activities (211,745) (137,229)
---------- ------------
Cash flows from investing activities :
Purchase of property and equipment - (41,219)
Proceeds from the sale of subsidiary 10,000 -
---------- ------------
Net cash provided by (used in)
investing activities 10,000 (41,219)
---------- ------------
Cash flows from financing activities:
Proceeds from convertible debentures 200,000 -
Proceeds from note payable - 20,000
Issuance of common stock - 144,000
Collection of stock subscription receivable - 9,990
---------- ------------
Net cash provided by
financing activities 200,000 173,990
---------- ------------
Net decrease in cash (1,745) (4,458)
Cash, beginning of year 11,779 16,237
---------- ------------
Cash, end of year $ 10,034 $ 11,779
---------- ------------
--------------------------------------------------------------------------------
See accompanying notes to financial statements
F-6
NOVAMED, INC.
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
--------------------------------------------------------------------------------
1. Organization The consolidated financial statements consist of NovaMed,
and Inc. (formerly Conceptual Technologies, Inc.) and its wholly
Presentation owned subsidiaries.
On December 31, 2000 the Company sold its wholly owned
subsidiary Novamedical Products, GmbH and issued 1,350,000
shares of the Company's common stock to a significant
shareholder and former officer in exchange for ten dollars
and the assumption of all Novamedical Products, GmbH net
liabilities. After the sale of Novamedical Products, GmbH
the Company has had no foreign operations or sales.
The Company was engaged primarily in the development,
manufacture and sale of mammary prostheses products. The
flagship product is NOVAGOLD, a pre-filled hydrogel textured
single lumen breast implant that utilizes a unique water
based filling material that is designed to be biocompatible.
The ability of the Company to further sale, development, and
manufacture this product is permanently impaired due to the
Company's default on its Royalty Agreement for certain
technology rights related to the development, manufacturing
and sale of the pre-filled hydrogel textured single lumen
breast, which rights have been terminated (See note 13).
Through the period ended December 31, 2000, the Company
derived substantially all of its sales revenue from the sale
of prosthesis products outside of North America. The Company
has not yet obtained FDA approval for its product in the
United States and must obtain that approval before domestic
sales will be feasible.
Effectively On December 11, 2000, the Medical Device Agency
("MDA") of the British Department of Health issued a device
alert in connection with the recall of the Company's
NOVAGOLDTM breast implant product. The decision to issue a
device alert was made after discussions with the Company's
subsidiary, Novamedical Products GmbH, which voluntarily
agreed to suspend any further shipment or sale of the
NOVAGOLDTM product in Britain until such time as the MDA is
satisfied that the Company has completed an "adequate"
biological safety assessment of the Company's hydrogel
filling material. The device alert did not advise that the
NOVAGOLDTM breast implant was unsafe, rather the MDA's
position is that the Company did not satisfy the European
device regulations for selling breast implants.
--------------------------------------------------------------------------------
F-7
NOVAMED, INC.
Notes to Financial Statements
Continued
--------------------------------------------------------------------------------
1. Organization The MDA device alert stated that the MDA had not identified
and any definite risk associated with the NOVAGOLDTM implant and
Presentation did not recommend explantation for the approximately 250
Continued patients in Britain. The device alert further provided that
there was no information to indicate that there were
specific risks to women or their children, either during
pregnancy or from breast feeding associated with the
NOVAGOLDTM breast implant.
Concurrent with the MDA device alert, which was relevant
only to sales in Britain, the Company was in the process of
re-certifying its approval to sell the NOVAGOLDTM product
throughout the European Union. Permission to sell throughout
the European Union requires a CE Mark awarded by a notified
body from one of the member nations. Notified bodies are
certified by government health authorities and given the
responsibility of examining products for safety and efficacy
before allowing sales within the European Union. Once the
device alert was issued in Britain, the MDA's justifications
for issuing the alert were published throughout the European
Union. The ECM (the Company's notified body certified by the
German government) learned of the MDA's device alert and
decided not to re- certify the NOVAGOLDTM product for sale
in the European Union until such time as the Company
provided new testing data and a new CE Mark application to
support the assertion that the product was safe. Further,
the ECM advised the Company to discontinue its sale of the
NOVAGOLDTM product until such time as a new CE Mark is
obtained.
The loss of the CE Mark on the NOVAGOLDTM breast implant
precludes the Company from generating any significant sales
revenues until such time as the Company can be approved for
a new CE Mark.
Due to the above-noted items, the Company was not able to
generate any revenues in 2001. As of December 31, 2001 the
Company had ceased attempts to resolve the MDA devise alert
and renew the CE Mark application. The Company is
considering the viability of continuing in the business of
development, manufacture and sale of mammary prostheses
product.
--------------------------------------------------------------------------------
F-8
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
2. Going At December 31, 2001 the Company had a working capital
Concern deficit, an accumulated deficit and has incurred losses
since inception as well as negative cash flow from
operations. Further, the License Agreement has been
terminated rendering the Company unable to use patented
technology with its products. These conditions raise
substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome
of this uncertainty.
The Company's ability to continue as a going concern is
subject to the obtaining necessary funding from outside
sources. The Company intends to begin seeking a potential
merger partner and cash infusion through a reverse
acquisition transaction. There can be no assurance that the
Company will be successful in these efforts.
3. Significant Principles of Consolidation
Accounting The consolidated financial statements include the accounts
Policies of the Company, and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated.
Cash Equivalents
For purposes of the statement of cash flows, cash includes
all cash and investments with original maturities to the
Company of three months or less.
Inventories
Inventories are recorded at the lower of cost or market,
cost being determined on a first-in, first-out (FIFO)
method. During the year ended December 31, 2001 the Company
determined that $129,204 its inventory was impaired based on
the inability of the Company to sell its products and based
on a default of license agreement ( See note 13).
Property and Equipment
Property and equipment are recorded at cost, less
accumulated depreciation. Depreciation and amortization on
property and equipment is determined using the straight-line
method over the estimated useful lives of the assets which
is approximately 4 years. Expenditures for maintenance and
repairs are expensed when incurred and betterments are
capitalized. Gains and losses on sale of property and
equipment are reflected in operations.
--------------------------------------------------------------------------------
F-9
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
3. Significant Revenue Recognition
Accounting Revenue is recognized when a valid purchase order has been
Policies received, product has been shipped, the selling price is
Continued fixed or determinable, and collectibility is reasonably
assured.
Income Taxes
Deferred taxes are computed using the asset and liability
method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets
are not recognized unless it is more likely than not that
the asset will be realized in future years.
Earnings Per Share
The computation of basic earnings per common share is based
on the weighted average number of shares outstanding during
each year.
The computation of diluted earnings per common share is
based on the weighted average number of shares outstanding
during the year plus the common stock equivalents, which
would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average
market price per share during the year. Options to purchase
550,000 shares of common stock at $1.30 per share were
outstanding at December 31, 2000, but were not included in
the diluted earnings per share calculation because their
effect would have been antidilutive. There were no
outstanding options as of December 31, 2001.
Concentration of Credit Risk
Financial instruments which potentially subject the Company
to concentration of credit risk consist primarily of trade
and note receivables. In the normal course of business, the
Company provides on-going credit evaluations of its
customers and maintains allowances for possible losses
which, when realized, have been within the range of
management's expectations.
--------------------------------------------------------------------------------
F-10
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
3. Significant Concentration of Credit Risk - Continued
Accounting The Company maintains its cash in bank deposit accounts
Policies which, at times, may exceed federally insured limits. The
Continued Company has not experienced any losses in such account and
believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
Reclassifications
Certain amounts in the 2000 financial statements have been
reclassified to conform with the current year presentation.
4. Note The Company has a note receivable of $15,000 due from an
Receivable individual, with interest at 6%, and due on or before July
2002.
5. Property and Property and equipment consist of the following:
Equipment
Equipment and fixtures $ 71,694
Less accumulated
depreciation (38,623)
----------------
$ 33,071
----------------
6. Note Payable The Company has a note payable of $20,000 due to an entity
which is unsecured, non-interest bearing, and due on demand.
7. Related Party The Company incurred consulting expenses of $24,000 and
Transactions $67,000 to an Officer of the company for the years ended
December 31, 2001 and 2000, respectively.
--------------------------------------------------------------------------------
F-11
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
7. Related Party During the year ended December 31, 2000 the Company leased a
Transactions facility from a shareholder. The lease required monthly
Continued payments of approximately $8,000. Rent expense for the year
ended December 31, 2000 was approximately $80,000,
respectively.
8. Income The provision for income taxes is different than amounts
Taxes which would be provided by applying the statutory federal
income tax rate to loss before the provision for income
taxes for the following reasons:
Years Ended
December 31,
----------------------
2001 2000
----------------------
Federal income tax benefit at
statutory rate $ 161,000 $ 510,000
Gain on sale of subsidiary - (163,000)
Change in valuation allowance (161,000) (347,000)
----------------------
$ - $ -
----------------------
Deferred tax assets (liabilities) are comprised of the
following:
Net operating loss carryforward $ 1,431,000
Impairment on Inventory 86,000
Valuation allowance (1,517,000)
-----------------
$ -
-----------------
A valuation allowance has been established for the net
deferred tax asset due to the uncertainty of the Company's
ability to realize such asset.
At December 31, 2001, the Company has a net operating loss
carryforward available to offset future taxable income of
approximately $4,208,000, which begins to expire in 2010.
The amount of net operating loss carryforward that can be
used in any one year will be limited by the applicable tax
laws which are in effect at the time such carryforward can
be utilized. The change in ownership of the Company may
reduce the amount of loss allowable.
--------------------------------------------------------------------------------
F-12
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
9. Supplemental During the year ended December 31, 2001 the Company
Cash Flow determined that $430,010 of its stock subscriptions
Information receivable were uncollectible and determined not to cancel
the related issued shares. Accordingly $430,000 has been
off-set to additional paid-in-capital.
During the year ended December 31, 2001 the Company sold to
an individual a wholly-owned subsidiary which was formed in
2001. The company had no cost basis in the subsidiary and
sold the subsidiary for a gain of $225,000 as follows:
Cash $ 10,000
Note receivable 15,000
Assignment of convertible debentures 200,000
-----------
Gain on sale of minority interest $ 225,000
-----------
On December 31, 2000 the Company sold its foreign wholly
owned subsidiary, Novamedical Products GmbH, and issued
1,350,000 of the Company's common stock to a stockholder and
former officer in exchange for ten dollars and assumption of
all Novamedical Products GmbH net liabilities as follows:
Receivables $ (71,931)
Inventories (1,075)
Property and equipment, net (26,677)
Other assets (4,980)
Cash overdraft 23,479
Payables 584,854
Issuance 1,350,000 Novamed, Inc.
common shares 1,350
Foreign currency adjustment, net (1,208)
-----------------
Gain on sale to related party $ 503,812
-----------------
During the year ended December 31, 2000 the Company issued
6,400,000 of its common shares for settlement of $224,000 of
accounts payable.
--------------------------------------------------------------------------------
F-13
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
9. Supplemental During the year ended December 31, 2000 the Company issued
Cash Flow common stock for stock subscription receivables of $262,500.
Information
Continued
During the years ended December 31, 2001 and 2000, the
Company paid interest of $800 and $9,000, respectively. The
Company did not pay any income taxes in 2001 or 2000.
10. Stock Options During the year ended December 31, 1999 the Company
and Warrants established a stock option plan (the Plan), which allowed a
maximum of 1,315,000 options be granted to purchase common
stock at prices generally not less than the fair market
value of common stock at the date of grant. Under the Plan,
grants of options may be made to selected officers,
employees and non-employees without regard to any
performance measures. The options may be immediately
exercisable or may vest over time as determined by the Board
of Directors.
Information regarding the stock options and warrants is
summarized below:
Weighted
Average
Number of Exercise
Options Price
-------------------
Outstanding at January 1, 2000 500,000 $1.30
Granted 370,000 .45
Exercised (320,000) .45
-------------------
Outstanding at December 31, 2000 550,000 1.22
Granted -
Expired (550,000) 1.22
-------------------
Outstanding at December 31, 2001 $ $ -
-------------------
--------------------------------------------------------------------------------
F-14
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
10. Stock Options The Company has adopted the disclosure only provisions of
and Warrants Statement of Financial Accounting Standards (SFAS) No. 123,
Continued "Accounting for Stock-Based Compensation." Accordingly, no
compensation expense has been recognized for stock options
granted to employees. Had compensation expense for the
Company's stock options been determined based on the fair
value at the grant date consistent with the provisions of
SFAS No. 123, the Company's results of operations would have
been reduced to the pro forma amounts indicated below:
Years Ended
December 31,
-------------------------
2001 2000
-------------------------
Net loss - as reported $ (475,564 $ (1,500,351)
Net loss - pro forma $ (475,564 $ (1,675,768)
Loss per share - as reported $ (.$1) (.09)
Loss per share - pro forma $ (.$1) (.11)
-------------------------
The fair value of each option grant During the ended
December 31, 2000 was estimated on the date of grant using
the Black-Scholes option pricing model with the following
assumptions:
Expected dividend yield $ -
Expected stock price volatility 381%
Risk-free interest rate 7%
Expected life of options 1 year
------------------
The weighted average fair value of options granted during
2000, was $.47
As of December 31, 2001, there were no options or warrants
to purchase common stock outstanding.
--------------------------------------------------------------------------------
F-15
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
11. Gain On Sale During the year ended December 31, 2001 the Company sold to
Of Subsidiary an individual a wholly-owned subsidiary which was formed in
2001. The company had no cost basis in the subsidiary which
it sold for a gain of $225,000. In exchange for the
subsidiary, the Company assigned $200,000 of convertible
debentures, received $10,000 cash and obtained a note
receivable for $15,000 which bears interest at 6% and is due
on or before July 1, 2002. The note receiveable was paid in
February 2002.
12. Disposal of On December 31, 2000, the Company sold its wholly owned
Subsidiary foreign subsidiary Novamedical Products GmbH to an officer
and shareholder of the Company. The Company realized a net
contribution to its equity of $503,812 from the sale by
issuing 1,350,000 shares of the Company's common shares in
exchange for the extinguishment of net liabilities of
$505,162.
Royalty Agreement
13. Commitments The Company had a license agreement which assigned the
and intellectual property, technology and patent rights used in
Contingencies and around manufacturing breast implants. The term of this
license was perpetual and allowed for the worldwide
exclusive rights to manufacture and market the product. As
part of this agreement, the Company agreed to pay a royalty
equal to 5% of net revenue of the product and a minimum
royalty payment of $21,000 for each six month period
beginning May 1, 2001. During the year ended December 31,
2001 the Company was in default of the agreement from not
remitting minimum royalty payments as required by the
agreement and the Company's rights to the technology were
terminated. The termination of these rights prohibits sales
of the Company's traditional product which accounts for
substantially all product sales in 2000 and preceding years.
During the years ended December 31, 2001 and 2000, the
Company had royalty expense relating to this agreement of
approximately $42,000 and $53,000, respectively. At December
31, 2001 the Company had accrued royalty expense of $42,000.
--------------------------------------------------------------------------------
F-16
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
Operating Lease
13. Commitments The Company's wholly owned subsidiary NovaMed Medical
and Products Manufacturing, Inc., leased a facility under a
Contingencies non-cancelable operating lease which expires January 2004.
Continued Rental expense incurred under this lease for the years ended
December 31, 2001 and 2000 totaled approximately $80,000 and
$58,000, respectively At December 31, 2001 the Company was
in default of its lease payments and had been evicted from
the facility. Under the lease obligation the Company may be
liable for future minimum lease payments for the residue of
the stated term less the fair rental value of the leased
facility taking into account the time and expenses necessary
for the leassor, to re-let the facility. Minium lease
payments for which the Company was obligated according to
the agreement at December 31, 2001 for this operating lease
is as follows:
Year Amount
-----------------
2002 $ 62,000
2003 62,000
2004 5,200
-----------------
Total future minimum lease payments $ 129,200
-----------------
Operating Lease- Continued
At December 31, 2001 the Company had recorded a liability
related to this lease of $28,856 which is included in
accounts payable.
Litigation
The Company may become or is subject to investigations,
claims or lawsuits ensuing out of the conduct of its
business, including those related to product safety and
health, product liability, commercial transactions, etc. The
Company is currently not aware of any such items which it
believes could have a material adverse effect on its
financial position.
--------------------------------------------------------------------------------
F-17
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
14. Fair Value of The Company's financial instruments consist of cash, a note
Financial receivable, payables, and a notes payable. The carrying
Instruments amount of cash, receivables and payables approximates fair
value because of the short-term nature of these items. The
aggregate carrying amount of the notes payable approximates
fair value as the individual borrowings bear interest at
market interest rates.
15. Recent In August 2001, the Financial Accounting Standards Board
Accounting issued Statement of Financial Accounting Standards No. 144
Pronounce- "Accounting for the Impairment of Long-Lived Assets". This
ments Statement addresses financial accounting and reporting for
the impairment of long-lived assets and for long-lived
assets to be disposed of. This Statement supercedes FASB
Statement 121 and APB Opinion No. 30. This Statement retains
certain fundamental provisions of Statement 121, namely;
recognition and measurement of the impairment of long-lived
assets to be held and used, and measurement of long-lived
assets to be disposed of by sale. The Statement also retains
the requirement of Opinion 30 to report discontinued
operations separately from continuing operations. This
Statement also amends ARB No. 51 to eliminate the exception
of consolidation for a temporarily controlled subsidiary.
The provisions of this statement are effective for financial
statements issued for fiscal years beginning after December
15, 2001.
--------------------------------------------------------------------------------
F-18
NOVAMED, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
15. Recent In June 2001, the Financial Accounting Standards Board
Accounting issued Statement of Financial Accounting Standards No. 143,
Pronounce- "Accounting for Asset Retirement Obligations". This
ments Statement addresses financial accounting and reporting for
Continued obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
This Statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. This
Statement addresses financial accounting and reporting for
the disposal of long- lived assets
Management does not expect the adoption of SFAS No. 144 or
143 to have a significant impact on the financial position
or results of operations of the Company.In June 2001, the
Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 "Business
Combinations" (SFAS No. 141)and No. 142 "Goodwill and Other
Intangibles" (SFAS No. 142). SFAS No. 141 and No. 142 are
effective for the Company on July 1, 2001. SFAS No. 141
requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. The
statement also establishes specific criteria for recognition
of intangible assets separately from goodwill and requires
unallocated negative goodwill to be written off immediately
as an extraordinary gain. SFAS No. 142 primarily addresses
the accounting for goodwill and intangible assets subsequent
to their acquisition. The statement requires that goodwill
and indefinite lived intangible assets no longer be
amortized and be tested for impairment at least annually.
The amortization period of intangible assets with finite
lives will no longer be limited to forty years. Management
does not expect the adoption of SFAS No. 141 and 142 to have
a significant impact on the financial position or results of
operations of the Company.
SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, was
issued in September 2000. SFAS No. 140 is a replacement of
SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. Most of
the provisions of SFAS No. 125 were carried forward to SFAS
No. 140 without reconsideration by the Financial Accounting
Standards Board (FASB), and some were changed only in minor
ways. In issuing SFAS No. 140, the FASB included issues and
decisions that had been addressed and determined since the
original publication of SFAS No. 125. SFAS No. 140 is
effective for transfers after March 31, 2001. Management
does not expect the adoption of SFAS No. 140 to have a
significant impact on the financial position or results of
operations of the Company.
--------------------------------------------------------------------------------
F-19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements between the Company and
its accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS
The officers and directors of the Company as of December 31, 2001 are as
follows:
Name Age Position
Ruairidh Campbell 39 president and director
Ruairidh Campbell has lead the Company since his appointment as president in
1995. He estimates that he will spend approximately 20 percent of his time,
approximately 10 hours per week, on the Company's business during the next 12
months. He also has significant responsibilities with other companies, as
detailed in the following paragraph.
Mr. Campbell graduated from the University of Texas at Austin with a Bachelor of
Arts in History and then from the University of Utah College of Law with a Juris
Doctorate with an emphasis in corporate law, including securities and taxation.
Over the past five years he has been an officer and director of several public
companies: InvestNet, Inc., a company involved in exploration for precious
metals in British Columbia, Canada from March 2000 to present, Allied Resources
Inc., a Canadian based oil and gas development company from June 1998 to
present, EnterNet, Inc., a wholesale distributor of vitamins through the
Internet from March 2000 to July 2001, and Canadian Metals Exploration Ltd.,
formally known as Bren-Mar Minerals, Ltd., a Canadian mineral resource
development company from 1995 to June 2001. Mr. Campbell is also the president
and sole director of Aswan Investments, Inc., Cairo Acquisitions, Inc. and
Alexandria Holdings, Inc., three shell companies that are fully reporting under
the Exchange Act of 1934.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is aware of three individuals or entities who during the transitional
period ended December 31, 2001 were directors, officers, or beneficial owners of
more than ten percent of the common stock of the Company, and who failed to
file, on a timely basis, reports required by Section 16(a) of the Securities
Exchange Act of 1934.
Dr. Aydin Dogan - Dr. Dogan was appointed to the board of directors in 1998. He
resigned from the board of directors and as an officer on December 18, 2000.
Further, Dr. Dogan owns 8,245,000 or 18.96% of the Company's common stock. Dr.
Dogan failed to file a Form 3 in a timely manner. Dr. Dogan further failed to
file a Form 5 for the year ended December 31, 2001. Dr. Robert Ersek - Dr. Ersek
and his wholly owned corporation, Graeco II, Ltd. own 8,810,000 or 20.26% of the
Company's common stock. Dr. Ersek failed to file a Form 3 in a timely manner.
Dr. Ersek further failed to file a Form 5 for the year ended December 31, 2001.
11
Art Beisang - Mr. Beisang and his wholly owned corporation, AAB Corporation own
8,750,000 or 20.12%. Dr. Ersek failed to file a Form 3 in a timely manner. Dr.
Ersek further failed to file a Form 5 for the year ended December 31, 2001.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides summary information for the years 2001, 2000 and
1999 concerning cash and noncash compensation paid or accrued by the Company to
or on behalf of president and the only other employee to receive compensation in
excess of $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payout
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Compensation Award(s) Options/ payouts Compensation
Position ($) ($) ($) ($) ($) SARs(#) ($) ($)
Ruairidh 2001 24,000 - - - - -
Campbell 2000 67,000 - - 2,000,000 30,0001 -
President 1999 120,000 - - 55,0002 - -
Dr. Aydin,
President of 2001 - - - - - - -
NovaMedical 1999 80,000 - - - 20,0003 - -
Products 1998 160-000 - - 100,0004 - -
GmbH
Compensation of Directors
The Company's director is not currently compensated for their services as
directors of the Company.
1 Shares under option at $0.45 a share expired as of March 2001 2 Shares under
option at $1.30 a share expired as of March 2001 3 Shares under option at $0.45
a share expired as of March 2001 4 Shares under option at $1.30 a share expired
as of March 2001
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the stock of the Company as of April 15, 2002, by each shareholder
who is known by the Company to beneficially own more than 5% of the outstanding
common stock, by each director, and by all executive officers and directors as a
group.
12
Title of Class Name and Address of Amount and nature of Percent of Class
Beneficial Ownership Beneficial Ownership
------------------- ----------------------------------- -------------------------------- -----------------------
Common Ruairidh Campbell 2,150,000 4.9%
Stock 600 Westwood Terrace
Austin, Texas 78746
Common Dr. Aydin Dogan 8,245,000 18.9%
Stock 3 Heinestrasse D-40789
Monheim, Germany
Common Graeco II, Ltd. 8,810,000 20.0%*
Stock 630 West 34th Street #201
Austin, Texas 78705
Common AAB Corporation 8,750,000 20.1%**
Stock 5009 White Bear Lake
Minnesota 55110
Common All Executive Officers and 2,150,000 4.9%
Stock Directors as a Group
* Dr. Robert Ersek is the legal and beneficial owner of Greaco II, Ltd. ** Art
Beisang is the legal and beneficial owner of AAB Corporation.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 31, 2000, the Company issued 6,400,000 shares of common stock to Dr.
Aydin Dogan pursuant to an agreement for accord and satisfaction, for consulting
services rendered in connection with his management of Novamedical Products GmbH
and loans provided to the Company, pursuant to the exemptions provided by
Regulation S of the Securities Act in a private transaction that did not include
a public offering. Amounts due to Dr. Dogan under a consulting agreement with
Novamedical Products GmbH and loans made to the Company were settled. The
Company chose to issue the shares to Dr. Dogan in order satisfy his claims for
compensation for services and loans made. Further, the Company canceled a
promissory note due to the Company by Dr. Dogan.
On December 31, 2000, the Company issued 1,020,000 shares of common stock to Dr.
Aydin Dogan for debt settlement services in connection with the sale of
Novamedical Products GmbH, rendered pursuant to the exemptions provided by
Regulation S of the Securities Act in a private transaction that did not include
a public offering. The share issuance to Dr. Dogan was part of a stock purchase
and sale agreement pursuant to the terms of which the Company was to issue
1,350,000 shares to be used to settle the claims of creditors of Novamedical
Products GmbH. The Company issued 330,000 shares to creditors directly and
1,022,000 shares to Dr. Dogan for his use in settling creditors.
On December 29, 2000, the Company issued 8,750,000 shares of common stock to AAB
Corporation for inducement to enter into a new license agreement with the
Company, settlement of royalty debts and pre- payment on royalties, pursuant to
section 4(2) of the Securities Act in a private transaction that did not include
a public offering. The share issuance to AAB Corporation induced it to enter
into a new licence agreement with the Company executed on even date that enables
the Company to utilize certain patented technology in the manufacture of its
products.
13
On December 29, 2000, the Company issued 8,750,000 shares of common stock to
Greaco II, Ltd. for inducement to enter into a new license agreement with the
Company, settlement of royalty debts and pre- payment on royalties, pursuant to
section 4(2) of the Securities Act in a private transaction that did not include
a public offering. The share issuance to Greaco II, Ltd. induced it to enter
into a new licence agreement with the Company executed on even date that enables
the Company to utilize certain patented technology in the manufacture of its
products.
On December 26, 2000, the Company issued 2,000,000 shares of common stock to
Ruairidh Campbell in consideration for services rendered in 2000 as president of
the Company, pursuant to section 4(2) of the Securities Act in a private
transaction that did not include a public offering. The Company issued the
shares to Mr. Campbell as part of a plan to reduce or eliminate amounts due to
creditors. Mr. Campbell's services had not been adequately compensated and
therefore the decision was taken to settle all obligations to Mr. Campbell as of
year end 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B
are listed in the Index to Exhibits beginning on page 16 of this Form
10-KSB, which is incorporated herein by reference.
(b) Reports on Form 8-K. The Company filed no Form 8K's during the last quarter
of the period covered by this Form 10-KSB.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 15th day of April, 2002
NovaMed, Inc.
/s/ Ruairidh Campbell
---------------------------------------------
Ruairidh Campbell, President/CFO and Director
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.
Signature Title Date
/s/ Ruairidh Campbell President and Director April 15, 2002
--------------------------
Ruairidh Campbell
15
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
3(i) * Articles of Incorporation of the Company formally known as Conceptual
Technologies, Inc. a Nevada corporation dated November 26, 1996
(incorporated herein by reference from Exhibit No. 2(i) to the Company's Form
10SB12G/A as filed with the Securities and Exchange Commission on
November 29, 1999).
3(ii) * Bylaws of the Company adopted on November 12,
1996 (incorporated herein by reference from Exhibit
2(iv) of the Company's Form 10SB12G/A as filed with
the Securities and Exchange Commission on November
29, 1999).
3(iii) * Certificate of Amendment of the Articles of Incorporation of the Company filed
on August 29, 1997 effecting a 1-for-14 reverse split and rounding each
fractional share to one whole share (incorporated herein by reference from
Exhibit 2(ii) of the Company's Form 10SB12G/A as filed with the Securities
and Exchange Commission on November 29, 1999).
3(iv) * Certificate of Amendment of the Articles of Incorporation of the Company
changing the name from Conceptual Technologies, Inc. to NovaMed, Inc.
(incorporated herein by reference from Exhibit 2(iii) of the Company's Form
10SB12G/A as filed with the Securities and Exchange Commission on
November 29, 1999).
Material
Contracts
10(i) * Stock Purchase and Sale Agreement between Conceptual Technologies, Inc. and
NovaMed Medical Products Incorporated, dated February 25, 1998, pursuant to
which the Company acquired all its current operations (incorporated herein by
reference from Exhibit 6(i) of the Company's Form 10SB12G/A as filed with
the Securities and Exchange Commission on November 29, 1999).
10(ii) * Letter Agreement-Strategic Alliance between the Company and Inamed, Inc.
dated March 25, 1999 for the sale of the Company's NOVAGOLD(TM)implant
internationally and the sale of the NOVASALINE(TM)pre-filled implants
(incorporated herein by reference from Exhibit 6(ii) of the Company's Form
10SB12G/A as filed with the Securities and Exchange Commission on
November 29, 1999).
10(iii) * Second Amendment to the Lease Agreement between the Company and Michelle
Realty Company dated October 8, 1998 for the lease of the Company's office
and manufacturing facilities in Minnesota (incorporated herein by reference
from Exhibit 6(iii) of the Company's Form 10SB12G/A as filed with the
Securities and Exchange Commission on November 29, 1999).
16
10(iv) * The Company's Stock Option Plan dated March 19, 1999, reserving a
maximum of 500,000 shares of common stock to provide incentives to officers,
directors and key employees (incorporated herein by reference from Exhibit
6(iv) of the Company's Form 10SB12G/A as filed with the Securities and
Exchange Commission on November 29, 1999).
10(v) * Stock Option Agreement between the Company and Ruairidh Campbell dated
March 19, 1999, granting him the option to purchase up to 55,000 shares of
common stock of the Company for $1.30 a share (incorporated herein by
reference from Exhibit 6(v) of the Company's Form 10SB12G/A as filed with
the Securities and Exchange Commission on November 29, 1999).
10(vi) * Stock Option Agreement between the Company and Dr. Howard Bellin dated
March 19, 1999, granting him the option to purchase up to 35,000 shares of
common stock of the Company for $1.30 a share (incorporated herein by
reference from Exhibit 6(vi) of the Company's Form 10SB12G/A as filed with
the Securities and Exchange Commission on November 29, 1999).
10(vii) * Correspondence between the Company and IKB Deutche Industrie Bank dated
June 10, 1999 discussing various terms of loan to establish production plant in
Duisberg, Germany (incorporated herein by reference from Exhibit 6(vii) of the
Company's Form 10SB12G/A as filed with the Securities and Exchange
Commission on November 29, 1999).
10(viii) * The Company's Stock Option Plan dated March 2, 2000, reserving a maximum
of 1,315,000 shares of common stock to provide incentives to officers, directors
and key employees (incorporated herein by reference to the Company's S-8
registration statement filed with the Securities and Exchange Commission on
March 2, 2000).
10(ix) * Stock Option Agreement between the Company and Dr. Aydin Dogan, dated
February 29, 2000, granting him the option to purchase 20,000 shares of the
Company for $0.45 a share (incorporated herein by reference to the Company's
Form 10-KSB filed with the Securities and Exchange Commission on May 21,
2001).
10(x) * Stock Option Agreement between the Company and Dr. Howard Bellin, dated
February 29, 2000, granting him the option to purchase 20,000 shares of the
Company for $0.45 a share (incorporated herein by reference to the Company's
Form 10-KSB filed with the Securities and Exchange Commission on May 21,
2001).
10(xi) * Stock Option Agreement between the Company and Ruairidh Campbell, dated
February 29, 2000, granting him the option to purchase 30,000 shares of the
Company for $0.45 a share (incorporated herein by reference to the Company's
Form 10-KSB filed with the Securities and Exchange Commission on May 21,
2001).
17
10(xii) * Stock Option Agreement between the Company and Dr. Franz Schain, dated
February 29, 2000, granting him the option to purchase 300,000 shares of the
Company for $0.45 a share (incorporated herein by reference to the Company's
Form 10-KSB filed with the Securities and Exchange Commission on May 21,
2001).
10(xiii) * License Agreement between the Company and AAB Corp. Ltd. and Greaco II
Ltd. ("Inventors") dated December 27, 2000 for the use of patented technology
in the manufacture of the Company's products (incorporated herein by reference
to the Company's Form 10-KSB filed with the Securities and Exchange
Commission on May 21, 2001).
10(xiv) * Agreement for the Issuance, Sale and Purchase of NovaMed Common Stock
between the Company and AAB Corp. and Greaco II, Ltd. dated December 29,
2001 for the issuance of a combined total of 17,500,000 shares to the Inventors
as a means to induce them to enter into a new license agreement, settle debt
owed on royalties and pre-pay royalty payments (incorporated herein by
reference to the Company's Form 10-KSB filed with the Securities and
Exchange Commission on May 21, 2001).
10(xv) * Agreement for Accord and Satisfaction between the Company and Dr. Aydin
Dogan dated December 31, 2000 for the issuance of 6,400,000 shares to settle
obligations Dr. Dogan had against the Company and settle obligations the
Company had against Dr. Dogan pursuant to a promissory note (incorporated
herein by reference to the Company's Form 10-KSB filed with the Securities
and Exchange Commission on May 21, 2001).
10(xvi) * Stock Purchase and Sale Agreement between the Company and Dr. Aydin
Dogan dated December 31, 2000 to effect the sale of Novamedical Products
GmbH to Dr. Dogan, the terms of which included the issuance of 1,350,000
shares of common stock to settle creditors of Novamedical Products GmbH
(incorporated herein by reference to the Company's Form 10-KSB filed with the
Securities and Exchange Commission on May 21, 2001).
10(xvii) * Stock Sale Agreement between the Company and John Olson dated December
17, 2001 to effect the sale of the Company's interest in a former subsidiary
(incorporated herein by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission on March 4, 2002).
* Incorporated by reference from previous filings of the Company.
18