<PAGE>
As filed with the Securities and Exchange Commission on March 7, 1997
Registration No. 333-19285
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
MYO DIAGNOSTICS, INC.
(Name of Small Business Issuer in its Charter)
CALIFORNIA 384 95-4089525
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Address and Telephone Number of Principal Executive Offices)
-----------
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Address of Principal Place of Business or Intended Principal Place of Business)
-----------
GERALD D. APPEL
PRESIDENT
MYO DIAGNOSTIC, INC.
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Name, Address and Telephone number of Agent for Service)
-----------
COPIES TO:
Alan B. Spatz
Troop Meisinger Steuber & Pasich
10940 Wilshire Boulevard
Los Angeles, California 90024
(310) 824-7000
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
MYO DIAGNOSTICS, INC.
CROSS REFERENCE SHEET
Item in Form SB-2 Location in Prospectus
- ----------------- ----------------------
ITEM 1. Front of Registration Statement and Outside
Front Cover of Prospectus . . . . . . . . . Outside Front Cover Page
of Prospectus
ITEM 2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . Inside Front and Outside
Back Cover Page of
Prospectus
ITEM 3. Summary Information and Risk Factors. . . . "Prospectus Summary;"
"Risk Factors"
ITEM 4. Use of Proceeds . . . . . . . . . . . . . . Not Applicable
ITEM 5. Determination of Offering Price . . . . . . Outside Front Cover Page
of Prospectus
ITEM 6. Dilution. . . . . . . . . . . . . . . . . . Not Applicable
ITEM 7. Selling Security Holders. . . . . . . . . . "Principal and Selling
Shareholders"
ITEM 8. Plan of Distribution. . . . . . . . . . . . Outside Front Cover Page
of Prospectus
ITEM 9. Legal Proceedings . . . . . . . . . . . . . Not Applicable
ITEM 10. Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . "Management"
ITEM 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . "Principal and Selling
Shareholders"
ITEM 12. Description of Securities . . . . . . . . . "Risk Factors;"
"Dividend Policy;"
"Description of Capital
Stock"
ITEM 13. Interest of Named Experts and Counsel . . . Not Applicable
ITEM 14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . "Management"
ITEM 15. Organization Within Last Five Years . . . . Not Applicable
ITEM 16. Description of Business . . . . . . . . . . "Prospectus Summary;"
"Management's Discussion
and Analysis of Results
of Operations and
Financial Condition;"
"Business"
ITEM 17. Management's Discussion and Analysis
or Plan of Operation. . . . . . . . . . . . "Management's Discussion
and Analysis of Results
of Operations and
Financial Condition"
ITEM 18. Description of Property . . . . . . . . . . "Business"
ITEM 19. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . "Certain Transactions"
ITEM 20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . "Risk Factors;"
"Description of Capital
Stock"
ITEM 21. Executive Compensation. . . . . . . . . . . "Management"
ITEM 22. Financial Statements. . . . . . . . . . . . Financial Statements
ITEM 23. Changes in and Disagreements With
Accountants on Account and
Financial Disclosure. . . . . . . . . . . . Not Applicable
<PAGE>
PROSPECTUS
3,255,561 SHARES
MYO DIAGNOSTICS, INC.
COMMON STOCK
This Prospectus relates to the offer and sale from time to time by certain
shareholders (the "Selling Shareholders") of Myo Diagnostics, Inc., a California
corporation (the "Company"), of up to 3,255,561 shares of Common Stock, no par
value (the "Shares"), of the Company. The Company will not receive any proceeds
from the sale of the Shares.
The Selling Shareholders may sell all or a portion of the shares of Common
Stock offered hereby from time to time in brokerage transactions in the
over-the-counter market at prices and terms prevailing at the times of such
sales. The Selling Shareholders may also make private sales directly or through
brokers. The Selling Shareholders may individually pay customary brokerage
commissions and expenses. In connection with any sales, the Selling
Shareholders and any brokers participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act, in which event
commissions received by such brokers may be deemed underwriting commissions
under such Act.
Under the 1934 Act and the regulations thereunder, any person engaged in a
distribution of the shares of Common Stock offered by this Prospectus may not
simultaneously engage in market making activities with respect to the shares of
Common Stock of the Company during the applicable "cooling off" periods prior to
the commencement of such distribution. in addition, and without limiting the
foregoing, the Selling Shareholders will need to comply with applicable
provisions of the 1934 Act and the rules and regulations thereunder including,
without limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing
of purchases and sales of shares of Common Stock by the Selling Shareholders.
There is no public market for the Common Stock, and none is likely to
develop as a result of this offering.
At December 31, the net tangible book value per share of the Common Stock
was $.03 per share, and the Company had an accumulated deficit of $4,067,741.
The Company expects to incur losses for the foreseeable future.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" ON PAGE 5 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ______________, 1997
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act with respect
to the shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and with respect to
any contract or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement is qualified in its entirety by
such reference. For further information with respect to the Company and the
shares offered hereby, reference is hereby made to the Registration Statement
and exhibits thereto. A copy of the Registration Statement, including the
exhibits thereto, may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of certain prescribed rates.
Prior to the date of this Prospectus, the Company was not subject to the
informational requirements of the Securities Exchange Act of 1934. Upon the
effectiveness of the Registration Statement of which this Prospectus is a part
the Company became subject to such informational requirements and, in accordance
therewith, will file reports and other information with the Securities and
Exchange Commission in accordance with its rules. Such reports and other
information concerning the Company may be inspected and copied at the public
reference facilities referred to above as well as certain regional offices of
the Securities and Exchange Commission.
The Company intends to furnish its shareholders with audited reports
containing annual financial statements.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE HEREIN. PROSPECTIVE
INVESTORS ARE URGED TO CAREFULLY READ THIS PROSPECTUS PRIOR TO MAKING AN
INVESTMENT IN THE COMPANY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS,
WHICH ARE INHERENTLY UNCERTAIN. ACTUAL RESULTS MAY DIFFER FROM THOSE DISCUSSED
IN SUCH FORWARD-LOOKING STATEMENTS FOR THE REASONS, AMONG OTHERS, DESCRIBED IN
"RISK FACTORS."
THE COMPANY
Myo Diagnostics, Inc. (the "Company") is a development stage company which
was formed in 1988 to develop and bring to market a new medical diagnostic
technique: Muscle Pattern Recognition ("MPR"). The Company's MPR system (the
"MPR System") provides objective evidence of soft tissue muscle injury and
detailed information on the site, nature and severity of muscle dysfunction.
The Company believes that no other system in use today is capable of objectively
evaluating data to be used in diagnosing muscle injury of the back and
delivering a report outlining the existence, nature and severity of abnormal
muscle recruitment patterns of the back without the need for a subjective
evaluation of raw data by the treating physician.
The MPR System is designed to assist physicians to help establish a
diagnosis, select a treatment and assess the effectiveness of such treatment.
The MPR System also addresses needs that have become increasingly important in
the new health care environment. In medical/legal cases for instance, the MPR
System can serve as a forensic medical tool. Furthermore, the MPR System
supports the cost-containment and risk management drive of managed care
providers and health care insurers by giving them the capability to measure
treatment outcomes, to eliminate unnecessary care, and prevent fraud.
The Company licenses the MPR process and related technology from Toomim
Research Group ("TRG"), a partnership of three of the Company's shareholders,
which holds a United States patent on the MPR technology. The MPR System
involves proprietary hardware, software and protocols which presently has the
capability of evaluating back and neck muscles. In 1990, the Company received
FDA premarket approval of the MPR System. The Company has completed production
and design of the system and conducted a number of marketing and clinical tests.
As of the date of this Prospectus, the Company has not commenced significant
marketing efforts of the MPR System, and Company has not performed MPR
evaluations except as part of research and development, clinical studies and
test marketing.
Back pain and back muscle injuries from automobile, sports and work related
accidents affect a large number of individuals. In 1994, back injuries
represented the largest cause of workdays lost (27% of all non-fatal
occupational injuries and illnesses involving days away from work) according to
the 75 RESOURCE TABLES, United States Department of Commerce, Bureau of Labor
Statistics (May 1996). According to WORK INJURY MANAGEMENT, Vol. 2, No. 4
(July/August 1993), lower back injuries were the most prevalent cause of
compensable injuries in the United States with an estimated cost of $16 billion
per year. The United States Department of Health and Human Services, Public
Health Service, Agency for Health Care Policy and Research, stated in
Publication No. 95-0643, ACUTE LOW BACK PROBLEMS IN ADULTS: ASSESSMENT AND
TREATMENT (December 1994) that low back problems affect more than 80% of the
population sometime during their life. It also indicated that 50% of working
aged adults experience symptoms of back pain each year.
For the Company to be successful, the Company must establish MPR as a
standard medical practice for diagnosis of muscle dysfunction. The Company
believes it will take a minimum of three to five years for such awareness to be
achieved (if it can be achieved at all). To create market awareness, the
Company will need to devote significant resources to marketing and sales. The
Company's plan is to develop market awareness through a public relations
campaign involving attendance at trade shows and professional conferences,
scientific presentations and clinical studies. In addition, and very critical
to this process, will be direct contact with payors (insurance companies, health
maintenance organizations ("HMOs") and preferred provider organizations
("PPOs")) and providers (such as physicians, rehabilitation professionals,
hospitals and diagnostic clinics) to create awareness of the MPR System and to
educate them as to its benefits and clinical applicability.
3
<PAGE>
Although the Company has begun to implement its marketing plan, to fully
implement the marketing plan in 1997 and 1998, the Company estimates it would
need an additional $2.0 million to $2.5 million of additional funding. The
amount of additional funding if any, the Company receives will be determined by
the degree to which it can implement its marketing plan. Without any additional
funding, the Company does not believe that it will be able to develop sufficient
awaremess efforts to operate profitably in the foreseeable future.
The Company's principal office is located at 3760 Robertson Blvd., Suite
212, Culver City, California 90232 and its telephone number is (310) 559-5500.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS BEFORE
PURCHASING THE SECURITIES OFFERED HEREBY.
RELIANCE ON SINGLE PRODUCT
The Company has only one product, the MPR System. There is no established
market for this product. See "New and Uncertain Market." Accordingly, if for
any reason the MPR System cannot be marketed successfully (including the many
reasons described elsewhere under "Risk Factors"), the Company would not
survive.
RELIANCE ON LICENSE
The Company's entire business is based on an exclusive license of the MPR
process and related technology from TRG. See "Business -- Intellectual
Property." The license terminates in 2013, but may be terminated earlier upon
the occurrence of certain events including (i) if the Company becomes insolvent
or generally fails to pay its debts when due, (ii) the assignment by the Company
of its property for the benefit of the Company's creditors or the appointment of
a receiver for any part of the Company's property, (iii) the commencement of any
proceedings under bankruptcy or insolvency law by or against the Company,
(iv) the sale or other transfer of the license by the Company without TRG's
consent and (v) the failure of a license of the Company to comply with the terms
of the license. Any termination of the license would have a material adverse
effect on the Company and would likely result in the Company not surviving.
DEVELOPMENT STAGE COMPANY WITH LIMITED OPERATING HISTORY
The Company is in the development stage and its operations are subject to
all the risks inherent in launching a new business enterprise, in developing and
marketing a new product or service, and in establishing a name and a business
reputation. The likelihood of success of the Company must be considered in the
light of problems, expenses, difficulties and delays frequently encountered in
converting prototype designs into viable production designs, and in achieving
market acceptance with a new type of product or service. The Company has had
limited revenues to date, has operated at a loss since inception, and, because
it is only now entering its commercial stage, it will likely sustain operating
losses for an indeterminate time period. There can be no assurance that the
Company will ever generate material revenues or that the Company will ever be
profitable.
NEW AND UNCERTAIN MARKET
Until now, muscle injuries have always been diagnosed and evaluated
subjectively by physicians through physical examination. Accordingly, there is
no established demand for a computer-assisted procedure to diagnose such
injuries, and it is difficult to predict if, and when, the procedure will gain
wide acceptance by prescribers. A prerequisite to success will be the ability
of the Company to establish MPR as a standard medical practice for diagnosis of
muscle dysfunction. The Company believes it will take a minimum of three to
five years for such awareness to be achieved, if it can be achieved at all.
Factors that may affect market acceptance could include resistance to change,
concerns over the lack of track record of the procedure, and the risk for
insurance companies to use the results of the procedure to challenge or overrule
the diagnostic or treatment decisions of a physician.
NEED FOR ADDITIONAL FUNDING
To create market awareness of its MPR System, the Company will need to
devote significant resources to marketing and sales. The Company's plan is to
develop market awareness through a public relations campaign, including
attendance at trade shows and professional conferences, scientific presentations
and clinical studies. In addition, and very critical to this process, will be
direct contact with payors (primarily insurance companies, HMOs and PPOs) and
providers (including physicians, rehabilitation professionals, hospitals and
diagnostic clinics) to create
5
<PAGE>
awareness of the MPR System and to educate them as to its benefits and clinical
applicability. See "Business -- Marketing and Distribution."
To fully implement its marketing plan in 1997 and 1998, the Company
estimates it will need an additional $2.0 million to $2.5 million. The amount
of additional funding, if any, the Company receives will determine for the
degree to which it can implement its marketing plan. Without any additional
funding, the Company does not believe it will develop sufficient marketing
awareness to operate profitably in the foreseeable future.
The issuance of additional debt or equity securities by the Company could
have the effect of impairing the rights of existing shareholders. For example,
the Company could issue securities senior to the Common Stock in liquidation
(such as debt securities or preferred stock), with preferential voting rights,
or which limit or restrict the payment of dividends. In addition, the Company
could issue securities at prices which are dilutive to the existing
shareholders. See "Preferred Stock".
INTELLECTUAL PROPERTY
TRG holds a United States patent on the MPR technology, and the Company is
the exclusive licensee of the rights under the patent. The Company believes
that its ability to be successful will be contingent on its ability to protect
the MPR technology, its future developments and its know how. There can be no
assurance, however, that this patent will provide substantial protection of the
MPR technology or that its validity will not be challenged. Pursuant to its
license agreement with TRG, the Company has the right to protect the MPR
technology.
The Company presently has no patent protection of the MPR technology
outside the United States. The Company has the right to file patent
applications and attempt to obtain patents in other jurisdictions. To date, the
Company has not done so, in part because of lack of funds. TRG is under no
obligation to patent the MPR technology in any jurisdiction and the Company's
determination as to whether or not to seek patent protection will depend upon a
number of factors, including the likelihood of the issuance of the patent, the
Company's financial resources and marketing plans.
COMPETITION
The Company believes that there is no competitive diagnostic technology in
use today capable of detecting, locating and evaluating soft tissue muscle
injuries in a manner similar to the MPR System. However, there are many
companies, both public and private, which are active in the field of medical
diagnostic imaging. Some of these companies have substantially greater
financial, technical and human resources, have a well established name and enjoy
a strong market presence. There is no assurance that one or several such
companies are not currently developing, or will not start developing, technology
that will prove more effective or desirable than the Company's technology. Such
occurrence could severely affect the Company's ability to establish and develop
a market presence and to maintain its competitive position.
DEPENDENCE ON THIRD PARTIES
The success of the Company will be dependent, in part, on insurance
companies and managed care organizations paying for or reimbursing for MPR
evaluations. To date, over 60 insurance companies have reimbursed patients who
have been diagnosed using the MPR System. However, this has been a limited
sample in that the Company's experience is based solely on clinical tests and
test marketing. No assurance can be given as to what extent, if at all, that
insurance companies will continue to reimburse for MPR evaluations.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The Company is substantially dependent upon the experience and efforts of
Gerald D. Appel, President, Chief Executive Officer and founder of the Company.
The loss of the services of Mr. Appel could have a material adverse impact on
the Company and its business unless a suitable replacement for the individual is
found promptly, but there is no assurance that such replacement can be found.
6
<PAGE>
PRODUCT LIABILITY
The Company may be subject to substantial product liability costs if claims
arise out of problems associated with the use of the Company's MPR System.
While the Company maintains insurance against such potential liabilities, there
can be no assurance that such product liability insurance will adequately insure
against such risk.
CONTROL BY MANAGEMENT
Gerald D. Appel owns beneficially 3,715,019 shares of the Common Stock
(which includes voting rights with respect to 111,900 shares), representing
48.0% of the outstanding voting power of the Company as of December 31, 1996.
All directors and officers of the Company (including Mr. Appel) currently have
voting power with respect to 51.3% of the outstanding Common Stock.
Accordingly, Mr. Appel individually, and all directors and officers as a group,
have the power to control the election of directors, and therefore the business
and affairs of the Company. See "Principal and Selling Shareholders." This
concentration of stock ownership may have the effect of delaying or preventing a
change in the management or control of the Company.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, issuable in one or more series, the rights, preferences, privileges and
restrictions of which may be established by the Company's Board of Directors
without stockholder approval. As a result, in the future, the Company could
issue Preferred Stock with voting and conversion rights that could adversely
effect the voting power and other rights of the holders of the Common Stock. No
shares of Preferred Stock are presently outstanding and the Company has no
present plans to issue shares of Preferred Stock.
ABSENCE OF PUBLIC MARKET
Presently, there is no public market for any securities of the Company and
it is unlikely that one will develop as a result of the sale of the Shares. No
assurance can be given that any public market will ever develop for the Common
Stock.
The Common Stock is not listed on a national securities exchange or on the
NASDAQ Stock Market. The Company does not presently meet the requirements for
listing the Common Stock on any national securities exchange or the NASDAQ Stock
Market.
SHARES ELIGIBLE FOR FUTURE SALE
Any shares of Common Stock sold pursuant to this Prospectus will be freely
tradable without restriction or registration under the Securities Act. An
additional 5,016,031 shares of outstanding Common Stock are either "restricted
securities" as that term is defined in Rule 144 promulgated under the Securities
Act or shares which were issued to investors outside the United States. In
general, "restricted securities" may be resold publicly in reliance on Rule 144.
In general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) who has beneficially owned shares for at least two years
is entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 77,000 shares) or the average weekly public trading volume in the
Common Stock during the four calendar weeks preceding the date on which notice
of sale is filed with the Securities and Exchange Commission. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and availability of current public information about the Company. Any person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the three months proceeding the sale
and who is deemed to have owned shares, provided in Rule 144, for at least three
years, is entitled to sell such shares under Rule 144(k) without limit regarding
the volume limitations, manner of sale provisions, public information or notice
requirements. In general, in the case of sales by non-public issuers (such as
the Company), equity securities sold outside the United States may not be resold
in the United States or to United States persons during a restricted period of
one year unless such sales are registered under the Securities Act.
7
<PAGE>
At January 31, 1997 the Company had outstanding options or warrants to
purchase an aggregate of 1,000,755 shares of Common Stock at various times
through March 1999 at a weighted average exercise price of $1.67 per share.
Except with respect to the shares covered by this Prospectus and 600,000
shares included in units anticipated to be sold within two weeks from the date
of this Prospectus (see "Description of Capital Stock"), the Company has no
obligation to register any shares of Common Stock for its shareholders.
However, the Company may grant registration rights in connection with the sales
of convertible debt and/or equity securities.
PENNY STOCK
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or the NASDAQ Stock Market provided that current price and
volume information with respect to transactions in such securities is provided
by the exchange or NASDAQ). The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
generally require that prior to a transaction in a penny stock the broker-dealer
must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction.
The Common Stock would be considered a penny stock when its price is less
than $5.00 unless at such time the Common Stock is registered on a national
securities exchange or the NASDAQ Stock Market. See "Absence of Public Market".
For so long as the Common Stock is a penny stock, the penny stock rules may
affect adversely the ability of purchasers to sell securities in the secondary
market.
8
<PAGE>
THE COMPANY
The Company was incorporated in California on January 5, 1987 as AREX, Inc.
The name was changed to Devion Group and then to Myo Diagnostics, Inc. in
September 1989.
The Company held a 97.2% general partnership interest in Myo Diagnostics,
Ltd. (the "Partnership"), a California partnership, that began operations in
April 1991. The Partnership researched and developed the hardware and related
software to perform Muscle Pattern Recognition pursuant to a license agreement
with TRG. In December 1994, the Partnership's assets (including the license
agreement) and liabilities were transferred to the Company at their book value
and neither the Partnership nor the Company recognized any gain or loss. The
2.8% partners exchanged their interests in the Partnership, totaling $547,885,
for 755,330 shares of Common Stock and notes in the aggregate principal amount
of $175,000. The business combination was recorded in a manner similar to a
"pooling-of-interest" method of accounting. Under this method, assets and
liabilities of the Partnership were recorded at historical cost.
DIVIDEND POLICY
The present policy of the Company is to retain earnings to provide funds
for use in its business. The Company has not paid cash dividends on its Common
Stock and does not anticipate that it will do so in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996.
At December 31, 1996
------------------------
Shareholders' Equity
Preferred Stock, no par value --
10,000,000 shares authorized,
no shares outstanding ------
Common Stock, no par value -- 50,000,000 shares
authorized; 7,746,037 shares outstanding(1) $ 4,300,679
Deficit accumulated during the development stage (4,067,741)
------------
Total Shareholders' Equity $ 232,938
------------
------------
- ------------------------------
(1) Does not include 1,000,755 shares of Common Stock issuable upon exercise of
outstanding warrants and options.
9
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The Company is a development stage company which has yet to realize any
material revenues. The Company is ready to bring its product to market, but
needs additional funding to implement its marketing plan.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995. The Company incurred net losses of
$1,067,280 in 1995 and $1,234,254 in 1996.
Revenues declined in 1996 to $13,650 from $67,600 in 1995. Revenues in
both years consisted primarily of fees for performance of MPR evaluations in
connection with test marketing. Revenues were less in 1996 as no new test
marketing commenced during that period. These revenues related to approximately
30 MPR evaluations made in 1996 and 125 MPR evaluations made in 1995.
Royalties have accrued, but have not been paid, to TRG in connection with these
evaluations.
The Company's operating expenses increased to $1,239,938 in 1996 from
$1,090,639 in 1995. Sales and marketing expense decreased, due to a reduction
in marketing efforts as the Company focused its efforts on raising capital and
further product development. General and administrative expenses increased from
$515,810 in 1995 to $703,282 in 1996 principally as a result of a $134,000
increase in legal fees relating primarily to the Company's capital raising
efforts, a $51,000 increase in compensation expenses due to the hiring of four
additional personnel involved, in part, in administration, and an increase in
$26,000 in rental expense due to an expansion of the Company's leased
facilities.
FINANCIAL CONDITION
The Company has funded its operating expenses principally through equity
and debt financings, as the Company has had no material cash flows from
operations. During the year ended December 31, 1996, the Company funded its
operations principally through the sales of Common Stock generating net proceeds
of $2,022,757.
The Company has six revolving lines of credit from a commercial bank
pursuant to which the company may from time to time borrow up to an aggregate of
$400,000 at interest rates equal to the bank's prime rate of interest plus .75%
to 1.50%. These lines, which were fully utilized at December 31, 1996, mature at
various times through July, 1997. The Company was able to obtain these lines of
credit because six unaffiliated individuals delivered to the bank irrevocable
letters of credit in support of such lines, for which these individuals received
options to purchase an aggregate of 400,000 shares of Common Stock for $1.13 per
share.
The Company has commitments from two existing shareholders to purchase
480,000 units, which commitments are anticipated to be fulfilled within several
weeks after the date of this Prospectus. Each unit consists of one share of
Common Stock and one quarter stock purchase warrant. Each whole warrant will
entitle the holder to purchase one share of Common Stock for $3.00 at any time
within one year after its issuance. The issuance of these units would generate
net proceeds of $1,116,000 to the Company.
The Company believes that the proceeds from the sale of these units will
enable the Company to fund operations through the end of fiscal 1997. While the
Company also anticipates generating revenues from the sale of MPR evaluations in
1997, the amount of such revenues remains extremely uncertain due to the fact
that the MPR technology is a new product. As of January 31, 1997, the Company
had one contract with a distributor to market and sell the Company's MPR's
System. See "Business--Marketing and Distribution."
Although the Company believes that it can fund operations through the end
of fiscal 1997, it estimates it needs additional funding of approximately $2.0
million to $2.5 million to fully implement its marketing plan in 1997 and 1998.
See "Business--Marketing and Distribution" for a description of the marketing
plan. The amount of additional funding (if any) the Company receives will
determine the degree to which it can implement its marketing plan. Without any
additional funding, the Company does not believe that it will be able to develop
sufficient market awareness of the MPR System to operate profitably in the
foreseeable future.
10
<PAGE>
BUSINESS
OVERVIEW
The Company was formed to develop and bring to market a new patented
diagnostic technique called Muscle Pattern Recognition ("MPR"). MPR analyzes
patterns of muscle recruitment -- the engagement of muscles in order to perform
a specific body movement -- to provide objective evidence of muscle dysfunction
to assist in the diagnosis of muscle injury. It can identify affected muscle
sites, determine the nature of the dysfunction, and measure its severity. The
results of an MPR evaluation are presented in a comprehensive report which is
generated at the Company's central processing facility.
The Company believes that the capabilities of its MPR System are unique and
the MPR System addresses an unmet market need which has become even more
pressing in view of the cost-consciousness of the present health care
environment. The MPR System supports the cost-containment and risk management
goals of insurers and managed care providers by giving them means to measure
treatment outcomes, to eliminate unnecessary care and to detect outright fraud.
It can serve as a forensic medical tool in medical/legal cases and reduce the
exposure of insurers of disability and workers compensation risks.
MPR's scientific foundation originates from the research of Dr. Toomim, one
of the principals of the Company. Over the ten-year period that preceded the
formation of the Company, Dr. Toomim did extensive research on the patterns of
interactions occurring between the various muscles which participate in the
execution of a movement. Central to the MPR concept is the discovery of
movement-specific patterns which can be captured by simultaneously recording the
electromyographic ("EMG") signals of all participating muscles. The comparison
of a patient's patterns with those of "normal" subjects, using an expert system,
is the basis of the evaluation. Up until now, the Company has focused its
development efforts on the back and neck muscle application; it plans to address
other muscle groups in the future.
The first MPR system prototype capable of measuring simultaneously up to 14
muscle sites was Alpha and Beta tested in early 1990. A limited market test was
initiated in September 1990 in Southern California, through a non-exclusive
Mobile Diagnostic Distributor. Four technicians were certified by the Company
and approximately 300 patients were tested through June 1991. The Company
appointed in-house and independent sales representatives to expand the market
test. These market tests served to establish the prerequisites necessary to
commence marketing the product. These prerequisites included: an independent
scientific validation of the system, conclusive clinical studies, a
demonstration of the successful use the MPR information as medical/legal
evidence, and the publication of papers in peer reviewed journals. In the
opinion of management, these prerequisites have been met. See
"Product--Scientific Validation of the System" and "--Legal Validation of the
System."
In February 1996, the Company entered a distribution agreement with Medical
Consulting Images, Co. ("MCIC"), a well established, Cleveland-based diagnostic
imaging service company. Under the distribution agreement, MCIC is committed to
introduce the MPR procedure in 20 markets in the five states in which it
operates. As of January 31, 1997, MCIC had introduced the product into six
markets: Cleveland, Columbus, Cincinnati and Dayton, Ohio; Pittsburgh,
Pennsylvania; and Louisville, Kentucky. The other states in which it plans to
introduce the product are Michigan and Indiana. The Company will receive a fee
for each MPR evaluation it performs through MCIC and receives revenues from the
leasing of products. As of January 31, 1997, no MPR evaluations had been
conducted through MCIC other than limited evaluations for clinical purposes.
MARKET
MARKET ENVIRONMENT. The United States health care delivery and payment
systems have been undergoing profound changes over the past few years. These
changes have been driven by the determination of employers to halt the alarming
escalation of health care spending, by the concerns of the health care industry
over the threat of regulatory controls, and by a general awareness that the
system was plagued by major flaws. "Liability System Incentives to Consume
Excess Medical Care," a study by the RAND Corporation Institute for Civil
Justice, found an estimated 59% of the costs submitted in support of soft injury
claims for auto accidents is excess. This study further indicated that
11
<PAGE>
"the implications of this analysis reached far beyond auto insurance premiums.
Our data clearly suggests that large amount of medical resources are being
unnecessarily consumed." Lead by managed care providers, the re-engineering of
the industry has brought a new focus on the cost-effectiveness of services and
procedures. Capitated payment plans have reversed the financial incentives of
managed care providers, and insurers of traditional indemnity plans have had to
adopt similar cost-containment techniques to compete.
Management believes these trends will benefit the Company as MPR provides
important means required for cost-containment: means to objectively diagnose a
condition to aid in the selection of the most appropriate treatment course,
means to measure outcomes to prevent overuse, and means to detect fraud in
workers compensation, personal injury and disability cases involving back
injury.
BACK MUSCLE DIAGNOSTIC MARKET. Back pain and back muscle injuries from
automobile, sports and work related accidents affect a large number of
individuals. In 1994, back injuries represented the largest cause of workdays
lost (27% of all non-fatal occupational injuries and illnesses involving days
away from work) according to the 75 RESOURCE TABLES, United States Department of
Commerce, Bureau of Labor Statistics (May 1996). According to WORK INJURY
MANAGEMENT, Vol. 2, No. 4 (July/August 1993), lower back injuries were the most
prevalent cause of compensable injuries in the United States with an estimated
cost of $16 billion per year. The United States Department of Health and Human
Services, Public Health Service, Agency for Health Care Policy and Research,
stated in Publication No. 95-0643, ACUTE LOW BACK PROBLEMS IN ADULTS:
ASSESSMENT AND TREATMENT (December 1994) that low back problems affect more than
80% of the population sometime during their life. It also indicated that 50% of
working aged adults experience symptoms of back pain each year. An article in
California Worker's Compensation Enquirer, Vol. 13, No. 4 (October 1995) under
the signature of Dr. Richard Hyman, estimates that, in 1994, soft tissue back
injuries may have accounted for up to 70% or $2.1 billion of California's $3
billion annual worker's compensation medical costs. The Company believes that
the United States offers as many annual examination opportunities for MPR as it
does for MRI. According to Market Intelligence Research Company Annual Report
(1993), there are in excess of seven million MRI examinations per year.
BUSINESS STRATEGY
The Company's goal is to establish MPR as a widely recognized and accepted
procedure, to capitalize upon the full potential of this technology by
developing protocols for other applications, and to achieve and maintain a
leadership position in muscle-related diagnostic techniques. The Company's
strategy to achieve these goals consists of the following principal elements:
- EXPAND GEOGRAPHICALLY through establishing regional and local
distribution arrangements with diagnostic imaging services,
rehabilitation centers and diagnostic clinics. The existing physician
referral base of these distributors will provide access to the
personal injury, workers compensation and general back pain markets
more rapidly. The Company believes that distributors will have
interest as the low capital investment and high margin of MPR provides
an attractive opportunity for incremental profits.
- ESTABLISH THE PRODUCT IN THE HMO AND CORPORATE MARKETS through
strategic partnerships with major health care firms and insurance
companies. The Company hopes that these strategic partners will
introduce MPR to users with whom they have existing relationships,
which will provide accelerated entry into a large number of HMOs and
major corporations. One such partnership is presently being
negotiated.
- INCREASE EXPOSURE AND PEER RECOGNITION THROUGH PUBLICATIONS IN MEDICAL
AND SCIENTIFIC JOURNALS. Peer-reviewed publications play an important
role in overcoming physician resistance to new procedures.
Accordingly, the Company has an on-going program of studies and trials
aimed at providing statistical and clinical evidence for publication.
As of the date of this Prospectus, the Company had no clinical study
in process, and its ability to conduct additional clinical studies
(each
12
<PAGE>
of which costs approximately $250,000) is dependent upon obtaining
additional funding. See "Risk Factors--Need For Additional Funding".
- DEVELOP NEW APPLICATIONS OF ITS CORE TECHNOLOGY. The Company intends
to use its know-how and core technology to address other applications
related to arm and leg muscles. For example, the development of
appropriate protocols may allow the Company to introduce evaluation
systems for carpal tunnel syndrome, rotator cuff injuries and pre- and
post-operative arthroscopic surgery evaluation. In addition, the
Company plans to develop a disability management information system
designed to provide the elements necessary to predict potential high
risk of injury, avoid injuries through appropriate preventative
intervention, assess injury through MPR and other data, establish
protocols for treatment of injuries, manage chronic back injury cases
and establish outcome measures. This system of "disease management"
provides significant elements of cost containment which are currently
being sought by payors. The Company does not anticipate completing
development of new applications for at least the next two years; in
addition, its ability to complete development of new applications will
be contingent in part upon obtaining additional funding or generating
sufficient revenues from the MPR System.
PRODUCT
The MPR System is a computer-assisted evaluation procedure which is based
on the simultaneous measurement of electromyographic signals produced by up to
16 muscles during the execution of a movement. A patient's EMG readings, which
are collected during the examination procedure, digitized, then processed by an
expert system, can be converted into graphic "images" of recognizable muscle
patterns. A computer-assisted comparison of a patient's patterns with those
produced by normal subjects reveals differences which are the basis of the
diagnosis.
All the components of the MPR System have been designed and built based on
published and accepted scientific data and proven medical, electronic, and
statistical technology. The three proprietary components of the system include:
- the Myo D 1600 Data Acquisition Module,
- the Myo Diagnostics Expert System, and
- the Myo Diagnostics Muscle Pattern Recognition Report.
DATA ACQUISITION MODULE. The data acquisition equipment consists of a set
of 29 cutaneous electrodes connected to the Myo D 1600 Data Acquisition Module.
The electrodes, which are commercially available, pick up the EMG signals
produced by muscles and feed them into the D 1600 whose design provides for the
simultaneous reception of up to 14 of these signals. The Myo D 1600 has
built-in features which analyze the quality of the signal received from each
electrode and recognize and warn the technician/operator of any malfunction,
thereby ensuring that data reflects accurate EMG measurements. The Data
Acquisition Module also assists the operator by signaling the beginning and end
of each movement through visual prompts and audio tones, and by providing a
real-time feedback on the patient's performance through a graphic display.
After affixing the electrodes on the skin of the patient's back at
carefully selected muscle sites, and after connecting the electrodes to the D
1600, the technician performs a calibration of the instrument. The purpose of
the calibration is to prevent skin-specific variances to affect the readings,
thereby ensuring that the patterns from various subjects can be compared. The
patient is then directed to execute four repetitions of each of nine specific
movements. Fourteen muscle sites are associated to each movement and report to
the D 1600 during the execution of such movement. Their repetitions are
important for the protocol. To convert these parallel inflows of signals into
digital patterns ("images"), the D 1600 processes some 75,000 data points and
calculates these points' relationships to each other.
Technicians who perform the tests on the patient are presently required to
receive two weeks training from the Company. No special governmental or
regulatory license or approval is required for the technicians to perform the
service.
13
<PAGE>
THE EXPERT SYSTEM. The data collected during the examination is submitted
to the Company for processing. A report is generated which includes graphic,
statistical and narrative representations of each muscle group's pattern
compared to the pattern of a normative database of non-injured and pain-free
subjects. The normative data has been collected utilizing the same protocols
performed by the patient. The normative database is continuously updated as
more data is collected. The report which is produced is reviewed by a Company
employee to ascertain that the data was properly collected and processed.
The system of statistical analysis used in the MPR evaluations is based on
well-established principles of statistics which indicate that data which falls
two standard deviations or more from the mean value of the data base to which it
is compared has a statistical certainly of 95%-99% depending upon how far beyond
two standard deviations the data falls. The MPR System requires that this
phenomenon occur in multiple instances before it is considered to be significant
for further analysis. This assures that there is a very high probability that
the data is significant and a very low probability of falsely identifying an
artifact as being significant.
THE MUSCLE PATTERN RECOGNITION REPORT. The MPR Report provides the
physician with findings to classify the patient as normal or with a graded level
of muscle dysfunction. It provides four critical statements about the muscle
groups examined, along with detailed information supportive of these
conclusions. The statements address the following questions:
- - EVIDENCE OF INJURY: Is there evidence that the patient's
muscles are dysfunctional? If so, where
does it occur?
- - FREQUENCY AND SEVERITY
OF THE INJURY: How severe is the dysfunction as
compared to normal and how often does
the dysfunction occur?
- - WHAT ARE THE MUSCLE PATTERNS?: What deviations from normal muscle
patterns exist in each movement and what
are the patterns of muscle compensation?
- - ARE THERE PATTERNS OF SECONDARY
MUSCLE COMPENSATION?: Do the muscle patterns indicate that
there is secondary muscle dysfunction
due to muscles compensating
involuntarily to protect the injury?
- - WHAT IS THE RESULT OF THE
ABNORMAL MUSCLE RECRUITMENT?: What is the bio-mechanical explanation
for the muscle patterns?
Patients may be retested to measure progress and treatment and to assist
the physician in making a decision for discharge. Such retests are not normal,
but are done at the discretion of the physician. When a patient is retested to
ascertain if additional treatment is advisable and the second MPR evaluation is
compared to the baseline test, several other critical questions are addressed:
- - IS THE PATIENT'S MUSCLE RECRUITMENT PATTERN NOW WITHIN THE RANGE OF NORMAL?
- - IF STILL DYSFUNCTIONAL, HAS THE PATIENT PROGRESSED THROUGH TREATMENT?
- - SHOULD THE INSURANCE COMPANY CONTINUE TO FUND FURTHER (OR DIFFERENT)
TREATMENT?
These questions address the issues of rehabilitation and short and long term
disability which affect insurance reserves.
SCIENTIFIC VALIDATION OF THE SYSTEM. In May 1992, an independent study of
the Company's evaluation methodology was completed by Dr. Norman Carabet. The
study determined that the overall classification accuracy of normal subjects was
90%. In a further cross validation study involving 196 subjects, the results
confirmed the stability of the data base.
14
<PAGE>
In June 1992, a second clinical study was completed by Dr. Carabet. This
study showed a high correlation between the Company's evaluation of
doctor-diagnosed injured accident and Workers Compensation patients and the
doctors' diagnoses. The results were particularly impressive because the test
was able to detect injuries after a one to four week time lapse between the
doctor's diagnosis and the Company's examination. A test/retest study of 40 of
these patients indicated that 82% of the patients improved over a four week
period. The retest also validated the accuracy of the Company's classification.
The Company's MPR technology was submitted to leading academicians and
clinicians. Dr. V. Reggie Edgerton of UCLA and Dr. Steven Wolf of Emory
University reviewed the technical aspects of the MPR System in detail and
confirmed the validity of the science behind the MPR technology. They have
authored two published articles relating to the Company's MPR technology,
entitled "Evaluating Patterns of EMG Amplitudes for Back and Trunk Muscles of
Patients and Controls," INTERNATIONAL JOURNAL OF REHABILITATION AND HEALTH, Vol.
2, No. 1 (1996), and "Theoretical Basis for Patterning EMG Amplitudes to Assess
Muscle Disfunction," MEDICINE AND SCIENCE IN SPORTS EXERCISE, Vol. 28, No. 6
(1996). They have also authored one other article on the MPR technology which
has been accepted for publication in the Spring of 1997.
Dr. Edgerton and Dr. Wolf are members of the Company's Scientific Advisory
Board and receive fees for attendance at meetings of that Board. See
"Management -- Scientific Advisory Board." They have also received consulting
fees on specific projects for the Company.
LEGAL VALIDATION OF THE SYSTEM. In 1993, the California Workers
Compensation Appeals Board ("WCAB") issued a decision that the Company had
"...persuaded the Court as to the validity of the lien-claimant's [Myo
Diagnostics] methodology and mechanism" and that "it found that the procedure
(muscle pattern recognition) is a valid and useful diagnostic medical tool when
used in the proper case...." This determination was in connection with an
action pursuant to which an insurance carrier had sought refund of payments made
to a provider who had submitted claims for use of the MPR System (and the WCAB
denied the insurance company such refund). The Company believes that this
opinion helps to validate MPR as a valid medical/legal procedure.
COMPETITION
The Company believes it has no direct competition and that no other system
in use today is capable of delivering information similar in content,
comprehensiveness and reliability to the Company's MPR system. EMG signals have
been used by others to evaluate muscles at rest and muscles that do not have
kinesiological relationships; but the Company believes that these methodologies
are not supported by scientific studies and are not reliable. The Company
believes that Magnetic Resonance Imaging ("MRI") does not compete with MPR
because it cannot measure interactive muscle relationships when the muscles are
under constant tension. MRI's use in relation to back problems is primarily to
diagnose disk injuries.
However, there are many companies, both public and private, which are
active in the field of medical diagnostic imaging. Some of these companies have
substantially greater financial, technical and human resources, have a well
established name and enjoy a strong market presence. There is no assurance that
one or several such companies are not currently developing, or will not start
developing, technology that will prove more effective or desirable than the
Company's technology. Such occurrence could severely affect the Company's
ability to establish and develop a market presence and to maintain its
competitive position.
MARKETING AND DISTRIBUTION
MARKET AWARENESS. The Company's success will depend in substantial part
upon its ability to establish MPR as a standard medical practice for diagnosis
of muscle dysfunction. The Company hopes to achieve this awareness through an
active public relations campaign. Company personnel will contact providers in
the application of MPR and advise payors of the benefits of its utilization.
The Company has created a web page on the Internet which will encourage easy
access to information about the Company and the procedure. The Company intends
to sponsor additional clinical studies, with the expectation that the results
will be submitted for publication in peer-reviewed scientific journals. The
Company will be assisted in these efforts through the activities of the members
of its Medical and Scientific Advisory Boards. The Company will encourage these
members to write articles about the MPR
15
<PAGE>
technology and present the technology at various professional conferences. The
Company also intends to increase awareness through trade shows, seminars,
professional conferences and scientific presentations. The Company may utilize
direct mail to initiate contacts with key decision makers in target markets.
The extent to which the Company can create this market awareness will
depend in part upon obtaining additional funding. See "Risk Factors--Need for
Additional Funding".
MARKET TARGETS. The Company's market is comprised principally of two major
segments: the medical/legal market, which deals primarily with workers
compensation and personal injury claims, and the physical medicine market.
Initially, the Company will focus primarily on the medical/legal segment. To
this end, the Company will target strategic alliances with firms servicing
insurance companies, HMOs and PPOs, self-insured employers and their third-party
plan administrators, and risk and case management companies. The Company will
also target the medical providers which service these markets such as hospitals,
rehabilitation clinics, industrial clinics, diagnostic centers, physicians,
physical therapists and MRI imaging centers. This second group is also an
important component of the Company's strategy because, in addition to its
capacity to prescribe MPR, it may serve as a delivery vehicle.
INSURANCE COMPANIES are a primary target because their reimbursement
policies and practices have a profound impact on the medical diagnostic
industry; they largely dictate pricing policies, methods of distribution and
growth strategies. Insurance companies are also playing an increasingly
important role as prescribers. For example, recent workers compensation reforms
in California have given insurers more control over treatment regimen. An
insurer can now dictate the treatment of a patient for up to four months.
Because MPR can serve to control direct medical costs and indirect costs such as
lost time, disability claims and litigation costs, the Company believes that its
procedure will be well received by insurers who may become a major source of
referrals, particularly in the workers compensation market.
HMOS AND PPOS are expected to be of vital importance to the Company
due to their leadership role in the cost containment drive and the considerable
market share they enjoy.
SELF-INSURED EMPLOYERS paid claims representing 34% of the claims paid
in California for worker's compensation in 1995, according to Table No. 1, 1995
STATE WIDE TOTALS, DEPARTMENT OF INDUSTRIAL RELATIONS, OFFICE OF SELF-INSURANCE
PLANS, (1996). This could be a significant market for the MPR System.
HEALTH CARE PLAN ADMINISTRATORS are large organizations which provide
services to public and private self-insured employers. In their role to manage
private plans, they can influence care strategies and/or treatment selection
criteria, and they may have authority to commit funds for evaluation and
treatment. Most of them have financial incentives to contain costs and limit
payors' exposure related to ongoing treatment and disability.
HOSPITALS, INDEPENDENT CLINICS, DIAGNOSTIC CENTERS AND PHYSICIANS will
be recruited as evaluation centers for MPR evaluations. These providers may
become the delivery system for corporate clients and insurance companies. They
may service the medical/legal market and may later become the sites for entry
into the medical back pain and physical medicine market.
SERVICE DELIVERY STRATEGIES. The Company intends to market its services on
a per-use basis, directly ("Direct Services Operations") and through
distributors. As of the date of this Prospectus, the Company has not performed
any MPR evaluations except as part of research and development, clinical studies
and test marketing.
Patient data will be processed by, and reports will be prepared at, the
Company's evaluation center at its executive offices in Los Angeles, California.
The Company may establish other evaluation centers either as stand alone
co-ventures with existing diagnostic, physical therapy and rehabilitation
facilities, or based on lease arrangements with hospitals. The Company believes
an evaluation center can be operated at very low fixed overhead by subleasing
space and services at existing clinics.
DIRECT SERVICES OPERATIONS. In this mode of operation, services
will either be provided at a Company-owned and operated facility (evaluation
center), or at the facility of a provider (mobile testing services). Mobile
testing services will allow patient examinations to take place on the premises
of medical providers, using the
16
<PAGE>
Company's equipment and personnel. The Company believes that this approach will
overcome providers' resistance to invest in equipment and incur additional
personnel costs. As of the date of this Prospectus, the Company had no
contracts for mobile testing services.
DISTRIBUTORS. The Company intends to establish distributor operations
through limited exclusive arrangements with firms which presently provide mobile
and fixed-site MRI, CT and ultrasound services to hospital, clinics and managed
care locations. These firms, which market to the same referral base of doctors
which will refer MPR, are attracted by the low capital investment and high
margin of MPR.
In February 1996, the Company entered into a distribution agreement with
Medical Consulting Images, Co. ("MCIC"), a well established, Cleveland-based
diagnostic imaging service company. Under the distribution agreement, MCIC is
committed to introduce the MPR procedure in 20 markets in the five states in
which it operates. As of January 31, 1997, MCIC had introduced the product into
six markets: Cleveland, Columbus, Cincinnati and Dayton, Ohio; Pittsburgh,
Pennsylvania; and Louisville, Kentucky. The other states in which it plans to
introduce the product are Michigan and Indiana. The Company will receive a fee
for each MPR evaluation it performs through MCIC and receives revenues from the
leasing of products. As of January 31, 1997, no MPR evaluations had been
conducted through MCIC other than limited evaluations for clinical purposes.
MANUFACTURING
The Data Acquisition Module consists of a standard laptop computer, a
modified board and the Company's proprietary software. The Company acquires the
laptop computers from an outside source. The modified boards are manufactured
by the subcontractor who participated in their development, and with whom the
Company has established a long term relationship. Once tested, the boards are
shipped to the Company which installs them along with its proprietary software
and tests the completed Module.
FACILITIES AND EMPLOYEES
The Company operates from leased facilities in Culver City, California.
Research and development, manufacturing and report processing activities are
centralized to allow closer control over service and response time, and to
better protect the technology. The Company will also conduct research and
development activities and clinical studies at universities and research
hospital sites where the independent primary investigators reside. To the
extent that these studies are conducted, they will be funded by the Company.
As of January 31, 1997, the Company had 14 full time employees, including
five involved in research and development, seven involved in administration and
operations, and two involved in marketing.
REGULATORY REQUIREMENTS
The medical equipment manufactured and marketed by the Company is subject
to regulation by the Food and Drug Administration ("FDA"). Under the FDA Act,
manufacturers of medical devices must comply with certain regulations governing
the testing, manufacturing, packaging and marketing of medical devices. FDA
clearance to allow commercial sales and use may be acquired by means of a new
pre-market approval ("PMA") application to the FDA or by notification under
Section 510(k) of the FDA Act that the medical device used demonstrates
"substantial equivalence" to devices on the market prior to 1976 or already
approved under PMA applications.
In 1990, the FDA notified the Company that the MPR System had been accepted
under Section 510(k) substantial equivalence test because it utilizes an
existing medical device to acquire its data. No clinical trials such as those
needed to establish the efficacy of a drug or invasive diagnostic system were
required for the data collection system. The relation between the method of
collection and the report analysis is comparable to the relative operations
involved in laboratory processing procedures.
17
<PAGE>
INTELLECTUAL PROPERTY
The Company licenses the right to manufacture, market, sell, distribute and
further develop the MPR System and MPR technology and any related or derivative
technology throughout the world pursuant to an exclusive license with TRG, a
partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel Toomim.
Mr. Appel and Mr. Toomim are directors of the Company, and Mr. Appel is the
principal shareholder and Chief Executive Officer of the Company. The MPR
System and related technology and all additions or modifications thereto remain
the property of TRG, provided, however, that any derivative technology developed
by the Company for purposes other than the evaluation and treatment of muscle
dysfunction in the back, arms and legs ("Derivative Technology") will be the
property of the Company.
The Company pays royalties to TRG for the use of the MPR technology and any
Derivative Technology as follows: (i) the lesser of $30.00 per use or 10% of
total revenues received by the Company for each of the first 10,000 times the
MPR procedure is ever used, (ii) the greater of $12.50 per use or 5% of total
revenues received by the Company for each use thereafter, (iii) 5% of total
revenues received by the Company for each sale, lease, license or other transfer
of the MPR procedure or related equipment or technology and (iv) 3% of total
revenues received by the Company for each sale, lease, license or other transfer
of the Derivative Technology. The Company is not required to make any payments
on revenues pursuant to (iii) or (iv) to the extent royalties were previously
paid on such revenues pursuant to (i) or (ii). The procedure has been used in
clinical tests approximately 350 times to date.
The license expires in 2013. The license is terminable by TRG upon 14 days
notice (subject to cure during such period) (i) if the Company fails to observe
the terms of the Agreement, (ii) if the Company becomes insolvent or generally
fails to pay its debts when due, (iii) the assignment by the Company of its
property for the benefit of the Company's creditors or the appointment of a
receiver for any part of the Company's property, (iv) the commencement of any
proceedings under bankruptcy or insolvency law by or against the Company and
(v) the sale or other transfer of the license by the Company without TRG's
consent.
If the license is terminated for any reason, the Company becomes subject to
a three-year agreement not to engage in the manufacture, sale or distribution of
the MPR system or any similar product in any area in which the MPR system or
procedure has been sold.
The Company and TRG rely upon the law of trade secrets, patent protection
and unpatented proprietary know-how to protect the MPR technology. Due to the
rapid technological change that characterizes the medical device industry, the
Company believes that reliance upon trade secrets and unpatented know-how, and
on the continued introduction of improvements and new products, are generally as
important as patent protection in establishing and maintaining a competitive
advantage. TRG was granted a United States patent covering the MPR system,
which expires in 2013.
The Company presently has no patent protection of the MPR technology
outside the United States. The Company has the right to file patent
applications and attempt to obtain patents in other jurisdictions. To date, the
Company has not done so, in part because of lack of funds. TRG is under no
obligation to patent the MPR technology in any jurisdiction and the Company's
determination as to whether or not to seek patent protection will depend upon a
number of factors, including the likelihood of the issuance of the patent, the
Company's financial resources and marketing plans.
18
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to each executive
officer and director of the Company.
Name Age(1) Position
- ---- --- --------
Gerald D. Appel 60 President, Chief Executive Officer and
Chairman of the Board of Directors
Dr. Hershel Toomim, Sc.D. 80 Director
Wayne C. Cockburn 40 Director
_____________
(1) At December 31, 1996
MR. APPEL has served as President and Chief Executive Officer of the
Company since 1991, and as a director of the Company since inception. Mr. Appel
is also Chairman of the Board of Directors.
DR. TOOMIM has served as a Director of the Company since he co-founded it
with Mr. Appel in 1988. Dr. Toomim also served as Vice President of Research
and Development of the Company from 1988 to 1996.
MR. COCKBURN has served as a Director of the Company since July 1995.
Mr. Cockburn has been employed by Imutec Corporation, a Canadian
biopharmaceutical company, since January 1995, and is currently Vice President
of Corporate Development. From 1994 to 1995 Mr. Cockburn was an investment
banker with McDermid St. Laurence Chisholm, Ontario, Canada, and for more than
the three years prior to that, he was a securities broker with Midland Walwyn,
Ontario, Canada.
MEDICAL ADVISORY BOARD
The Company has a Medical Advisory Board ("MAB") whose members are
physicians with expertise relevant to the Company's business. The role of the
MAB is to advise on the medical considerations involved in designing the
product, to provide a user/prescriber perspective, and to assist with the design
of clinical trials. The MAB meets on an ad hoc basis. Members of the Medical
Advisory Board presently receive $750 for each meeting attended.
GUNNAR ANDERSSON M.D., PH.D. Dr. Andersson is Chairman of Orthopedic
Surgery at Rush Presbyterian - St. Luke's Medical Center in Chicago. He is the
deputy editor for the journal SPINE. Dr. Andersson is also a managing partner
of Midwest Orthopedics and has served as President of the International Society
for the Study of the Lumbar Spine.
PHILIP J. FAGAN, JR., M.D. Dr. Fagan obtained his medical degree from the
Tulane University School of Medicine, New Orleans in 1969. He is the Chief
Executive Officer and President of Emergency Department Physicians Medical Group
Inc. Dr. Fagan is the Director of the Emergency Department for Daniel Freeman
Marina Hospital, Marina Del Rey and the Hollywood Presbyterian Medical Center,
Los Angeles. He is the Medical Director of E.R. Physicians Medical Group, Inc.,
and Chief Executive Officer and Medical Director of the Burbank Urgent Care and
Industrial Medicine Clinic. He is a Diplomate of the American Board of the
Emergency Physicians and the American Board of Family Practice and a Fellow of
the American Academy of Family Physicians and the American College of Emergency
Physicians.
19
<PAGE>
HOWARD FULLMAN, M.D. Dr. Fullman has been trained as a medical
technologist and as such has consulted for major health care firms regarding
medical devices and procedures. He presently sits on the Board of Directors of
several privately held medical services companies. Dr. Fullman has a medical
practice in Los Angeles California.
ALAN J. GOLDMAN, M.D. Dr. Goldman was awarded his degree in medicine from
the University of Michigan Medical School in 1971. Currently he is in private
practice while serving as an Assistant Clinical Professor of Neurology at the
University of California at Irvine. For ten years beginning in 1976, he was an
Assistant Clinical Professor of Neurology at UCLA and was the Chief of Staff and
Chairman of the Department of Medicine at the Medicine Center at Garden Grove,
California. Dr. Goldman serves as a neurological reviewer of new technologies
for a number of national insurance carriers.
ROBERT SAMUEL MAYER, M.D. Dr. Mayer is an Assistant Professor in the
Department of Physical Medicine and Rehabilitation at Rush Medical College and a
practicing Physiatrist at the Rehabilitation Clinic, S.C. Dr. Mayer serves as
the Residency Program Director for the Rush-Marianjoy Residency in Physical
Medicine and Rehabilitation. Dr. Mayer also serves on the Editorial Advisory
Committee for the journal SPINE.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board ("SAB") whose members have
expertise in the scientific aspects of the MPR technology and in the area of
statistical analysis, including modeling. This Board meets twice yearly in
January and July, and members receive $2,500 for each meeting attended.
ANTHONY DELITTO, PH.D. Dr. Delitto is an Associate Professor and Chairman
of the Department of Physical Therapy in the School of Health and Rehabilitation
Services at the University of Pittsburgh. Dr. Delitto also serves as the
Director of Research for the Comprehensive Spine Center at the University of
Pittsburgh and Vice President for Education and Research at CORE network.
V. REGGIE EDGERTON, PH.D., M.S. Dr. Edgerton received his Bachelor of
Science in Physical Education and Biology from East Carolina University, his
Master of Science in Physical Education from the University of Iowa and Ph.D. in
Exercise Physiology from Michigan State University. Dr. Edgerton is currently a
professor within the Physiological Sciences Department at UCLA and has served as
Chairman of UCLA's Department of Kinesiology. Dr. Edgerton has published over
200 papers in peer-reviewed journals focusing primarily on muscle fiber and its
activity. Since 1980, he has been the Project Program Director of the NIH Grant
regarding neurological sciences. He has also worked with NASA and has published
extensively regarding muscle adaptation outside Earth's atmosphere.
Dr. Edgerton has been an officer of and/or associated with organizations
including the American Physiological Society, the American College of Sports
Medicine, the American Society of Gravitational Biology, the Society for
Neurosciences, the Neurotrauma Society, and the American Spinal Injury
Association.
ROBERT I. JENNRICH, PH.D., M.S. Dr. Jennrich received his Bachelor of
Science and Master of Science in Mathematics from the University of Wisconsin
and his Ph.D. in Mathematics from UCLA. Dr. Jennrich is currently a professor
within the Department of Mathematics at UCLA. He has published over 60 papers
in peer-reviewed journals, his most important papers concerning biological and
technical applications of advanced statistics. Dr. Jennrich is an active member
of the Institute of Mathematical Statistics, the American Statistical
Association and the Psychometric Society and has received numerous honors from
these and other societies.
JULES ROTHSTEIN, PH.D. Dr. Rothstein is a Professor and Chairman for The
Department of Physical Therapy at the University of Illinois at Chicago.
Dr. Rothstein is the Editor for the journal PHYSICAL THERAPY.
ROLAND ROY, PH.D. Dr. Roy is currently a Researcher for the Brain Research
Institute at the University of California at Los Angeles. Dr. Roy also serves
as the Co-Director for the Laboratory for Neural Control of Movement and Neural
Muscular Plasticity.
20
<PAGE>
STEVEN L. WOLF, PH.D. Dr. Wolf received his Bachelor of Arts in Biology
from Clark University, his Master of Science degrees in Physical Therapy from
Boston University and Anatomy from Emory University and his Ph.D. in Anatomy and
Neurophysiology from Emory University. Dr. Wolf is currently a professor and
Director of Research within the Department of Rehabilitation Medicine, Emory
University School of Medicine. Dr. Wolf has published over 130 papers in
peer-reviewed journals, authored six books focusing on electromyography,
biofeedback, physical therapy and rehabilitation and has made over 300
presentations, including key note speaker, for groups including the American
Association of Orthopedic Surgeons, the American Physical Therapy Association,
the International Society for Electrokinesiology and the American Neurology
Association. Dr. Wolf has received over 20 grants from organizations including
the National Institute of Aging and the Veterans Administration. Most recently,
Dr. Wolf has served as Chairman of the Advisory Council of the American Physical
Therapy Association, Board of Director of the International Society for
Electrokinesiology, Chairman of the Scientific Abstracts Committee of the World
Confederation of Physical Therapy, External Reviewer for Rehabilitation Graduate
Programs for the University of Toronto and Massachusetts General Hospital
(Harvard University) and on the Advisory Committee for the MGH Institute of
Health Professions.
EXECUTIVE REMUNERATION
The following table sets for certain information regarding the compensation
of the Chief Executive Officer for the year ended December 31, 1996 (no other
officer had annual compensation in excess of $100,000 during that year):
Summary Compensation Table
----------------------------
Name and Principal Positions Year Salary
---------------------------- ---- ------
Gerald D. Appel, President and Chief 1996 $124,000
Executive Officer
EMPLOYEE STOCK OPTION PLAN
The Board of Directors has approved the establishment of a stock option
plan pursuant to which the Company may from time to time issue up to 1,000,000
shares of Common Stock to selected employees. No written plan has been adopted,
and no options have been granted under such a plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation include a provision that eliminates
the personal liability of its directors to the Company and its shareholders for
monetary damages for breach of the directors' fiduciary duties in certain
circumstances. This limitation has no effect on a director's liability (i) for
acts or omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iii) for any
transaction from which a director derived an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of a serious injury to the Company or its shareholders, (v)
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Company or its
shareholders, (vi) under Section 310 of the California Corporations Code (the
"California Code") (concerning contracts or transactions between the Company and
a director) or (vii) under Section 316 of the California Code (concerning
directors' liability for improper dividends, loans and guarantees). The
provision does not extend to acts or omissions of a director in his capacity as
an officer. Further, the provision will not affect the availability of
injunctions and other equitable remedies available to the Company's shareholders
for any violation of a director's fiduciary duty to the Company or its
shareholders.
The Company's Articles of Incorporation also include an authorization for
the Company to indemnify its agents (as defined in Section 317 of the California
Code), through bylaw provisions, by agreement or otherwise, to the fullest
extent permitted by law. Pursuant to this latter provision, the Company's Bylaws
provide for indemnification of the
21
<PAGE>
Company's directors, officers, agents and employees. In addition, the Company,
at its discretion, may provide indemnification to persons whom the Company is
not obligated to indemnify. The Company has entered into indemnity agreements
with all directors which provide the maximum indemnification permitted by law.
These agreements, together with the Company's Bylaws and Articles of
Incorporation, may require the Company, among other things, to indemnify such
directors against certain liabilities that may arise by reason of their status
or service as directors (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' and officers' insurance if available on reasonable
terms.
Section 317 of the California Code and the Company's Bylaws make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.
The Company is currently reviewing director and officer liability insurance
policies and may purchase such a policy in the future.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
22
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of the date hereof, certain information
regarding the ownership of the Common Stock by: (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock; (ii) each of the Company's directors (other than members of the Medical
Advisory Board and Scientific Advisory Board); (iii) all of the Company's
executive officers and directors as a group and (iv) each Selling Shareholder.
Except as may be indicated in the footnotes to the table and subject to
applicable community property laws, each of the persons has sole voting and
investment power with respect to the Shares owned. Beneficial ownership has
been determined in accordance with Rule 13d-3 of the Securities Exchange Act of
1934, as amended. Under this Rule, certain shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares (for
example, upon exercise of an option) within 60 days of the date the information
is provided; in computing the percentage ownership of any person, the amount of
shares outstanding is deemed to include the amount of shares beneficially owned
by such person (and only such person) by reason of these acquisition rights. As
a result, the percentage of outstanding shares of any person as shown in the
following table does not necessarily reflect the persons actual voting power at
any particular date.
<TABLE>
<CAPTION>
Beneficial Ownership Prior
to Beneficial Ownership
Offering After the Offering (1)
--------------------------- -----------------------
Number Number of
of Shares Shares Number of
Name Owned Percent Offered Shares Percent
- ----------------------------------- ------------ ------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Gerald D. Appel 3,715,019(2) 48.0% 1,000,000 2,715,019(2) 35.1%
3760 South Robertson Blvd.
Culver City, California 90232
Ontario Municipal Employees 1,401,561(3) 17.2% 1,401,561 0 0%
Retirement Board
One University Avenue, Suite 1100
Toronto, Ontario M5J 2P1 Canada
Altamira Management Ltd. 750,000(4) 9.2% 375,000 375,000 4.6%
250 Bloor Street East, Suite 300
Toronto, Ontario M4W 1E6 Canada
Bona Vista Asset Management Ltd. 450,000(5) 5.6% 225,000 225,000 2.8%
2300 Yonge Street, Suite 2900
P.O. Box 2384
Toronto, Ontario M4P 1E4 Canada
Hershel Toomim
3710 South Robertson Blvd.
Culver City, California 90232 192,000 2.5% 192,000 0 0%
Wayne Cockburn 63,000(6) 0.8% 62,000 1,000 --
Imutec Corporation
1285 Morningside Avenue
Scarboro, Ontario M1B 3W2 Canada
All directors and executive officers as a 3,970,019(2) 51.3% 1,254,000 2,716,019 35.1%
group (6 persons)
</TABLE>
________________
(1) Assumes all shares offered are sold.
23
<PAGE>
(2) Includes 111,900 shares with respect to which Mr. Appel believes he has
voting power as a result of a proxy granted by Daniel J. Levendowski.
(3) Includes 405,555 shares which may be acquired at prices ranging from $1.50
to $2.00 per share upon exercise of warrants.
(4) Includes 75,000 shares which may be acquired for $3.00 per share upon
exercise of warrants, and 375,000 shares Altamira Management Ltd. has the
right and obligation to purchase immediately following the date of this
Prospectus, of which 75,000 shares for $3.00 per share may be acquired upon
the exercise of warrants.
(5) Includes 45,000 shares which may be acquired for $3.00 per share upon
exercise of warrants, and 225,000 shares Bona Vista Asset Management Ltd.
has the right and obligation to purchase immediately following the date of
this Prospectus, of which 45,000 shares for $3.00 per share may be acquired
upon the exercise of warrants.
(6) Includes 1,000 shares registered in the name of 260-274 Geary Avenue Ltd.
over which Mr. Cockburn has exclusive voting and investment power.
CERTAIN TRANSACTIONS
In December 1994, the Company entered into a Securities Purchase Agreement
(the "December Purchase Agreement") with Ontario Municipal Employees Retirement
Board ("OMERB"). Pursuant to the terms of the December Purchase Agreement, the
Company sold to OMERB 680,741 shares of Common Stock for an aggregate purchase
price of $1,000,000, and granted to OMERB currently exercisable warrants to
purchase 100,000 shares (the "Series A Warrant") and 83,333 shares (the "Series
B Warrant") of Common Stock with a current exercise price of $1.50 and $1.75 per
share, respectively. The Series A Warrant expires on December 23, 1997 and the
Series B Warrant expires on June 23, 1998.
In August 1995, the Company entered into another Securities Purchase
Agreement (the "August Purchase Agreement") with OMERB. Pursuant to the terms
of the August Purchase Agreement, the Company sold to OMERB 111,111 shares of
Common Stock for an aggregate purchase price of $200,000, and granted to OMERB
currently exercisable warrants to purchase 222,222 shares of Common Stock (the
"Series C Warrant") with a current exercise price of $2.00 per share. The
Series C Warrant expires on December 31, 1998.
The Company licenses the right to manufacture, market, sell, distribute and
further develop the MPR System and technology and any related or derivative
technology throughout the world pursuant to an exclusive twenty-year license
with TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel
Toomim. Mr. Appel is the Chairman of the Board, Chief Executive Officer,
President and a principal shareholder of the Company, and Dr. Toomim is a
director and a principal shareholder of the Company. See
"Business--Intellectual Property."
In May 1996 the Company issued to Waldorf Investment Advisory Services, a
corporation controlled by Mr. Cockburn, 100,000 shares of Common Stock in
satisfaction of obligations aggregating $100,000 of the Company to such
corporation for investment banking and financial consulting services rendered
during the prior several years. This corporation presently provides no services
to the Company.
From time to time Gerald D. Appel has loaned funds to the Company. These
loans were payable on demand with interest at the rate of 10% per annum. The
largest amount outstanding to Mr. Appel for these loans at any time since
January 1, 1995 was $90,000. At the date of this Prospectus, no loans were
outstanding.
In connection with the transaction in which Myo Diagnostics, Ltd. (the
"Partnership") transferred all of its assets and liabilities to the Company in
December, 1994 (see "The Company"), the limited partners of the Partnership
24
<PAGE>
(other than the Company) received, among other things, notes of the Company in
the aggregate amount of $150,000. The Company defaulted in payment of these
notes and, pursuant to the terms of the notes, the noteholders were entitled to
receive (and did receive), for no additional consideration, 42,000 shares of
Common Stock. Of these notes, $12,500 were issued to Gerald D. Appel, who
received 6,000 shares of Common Stock as a result of the default.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 50,000,000 shares of Common Stock.
Subject to dividend and liquidation preferences that may be applicable to any
shares of Preferred Stock outstanding, the holders of Common Stock are entitled
to receive dividends as and when declared by the Board of Directors out of funds
legally available therefor, and, upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities. The holders of Common Stock are
entitled to one vote for each share of Common Stock held of record by them, may
cumulate votes in the election of directors, have no preemptive or conversion
rights and are not subject to further calls or assessments by the Company.
There are no redemption or sinking fund provisions applicable to the Common
Stock. The Common Stock currently outstanding is fully paid and non-assessable.
At December 31, 1996, there were 7,746,037 shares of Common Stock outstanding
which were held of record by 95 persons.
The Company is also authorized to issue up to 10,000,000 shares of
Preferred Stock. The Board of Directors of the Company is authorized to fix the
dividend rights, dividend rate, conversion rights, voting rights, liquidation
preferences, rights and terms of redemption (including sinking fund provisions)
on any wholly-unissued series of Preferred Stock, the number of shares
constituting any such series and the designation thereof. At present, no shares
of Preferred Stock are outstanding and the Company has no present plans to issue
shares of Preferred Stock.
At January 1, 1997 the Company had outstanding options or warrants to
purchase an aggregate of 1,000,755 shares of Common Stock at various times
through March 1999 at a weighted average exercise price of $1.67 per share.
The Company has commitments from certain shareholders to purchase 480,000
shares of Common Stock and warrants to purchase 120,000 shares of Common Stock,
which warrants are exercisable at a price of $3.00 per share for one year from
issuance. It is anticipated that these units will be issued within two weeks of
the date of this Prospectus. In the event of such issuance, the Company will
issue a warrant to the broker/dealer participating in the Offering to purchase
43,200 shares of Common Stock for an exercise price of $2.50 per share at any
time within two years from the date of issuance.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
EXPERTS
The financial statements of the Company as of December 31, 1996 and for the
year then ended have been audited by Singer Lewak Greenbaum & Goldstein, LLP,
independent certified public accountants, as indicated in their report with
respect thereto, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. The financial
statements of the Company for the year ended December 31, 1995 have been audited
by Lever, Lippe, Hellie & Company LLP, independent certified public accountants,
as indicated in their report with respect thereto, and are included in reliance
upon such report given upon the authority of such firm as experts in auditing
and accounting.
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC.
Report of Independent Certified Public Accountants for the year ended December 31, 1996. . . . . . . . .F-2
Report of Independent Certified Public Accountants for the year ended December 31, 1995. . . . . . . . .F-3
Balance Sheet as of December 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-4
Statements of Operations for the years ended December 31, 1996 and 1995. . . . . . . . . . . . . . . . .F-5
Statements of Changes in Shareholders' Equity from January 5, 1987 to
December 31, 1996 (Amounts to December 31, 1994 are unaudited) . . . . . . . . . . . . . . . . . . . .F-6
Statements of Cash Flows for the years ended December 31, 1996 and 1995. . . . . . . . . . . . . . . . .F-8
Notes to Financial Statements for the years ended December 31, 1996 and 1995 . . . . . . . . . . . . . .F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Myo Diagnostics, Inc.
We have audited the accompanying balance sheet of Myo Diagnostics, Inc. (a
development stage company) (the "Company") as of December 31, 1996, and the
related statements of operations, changes in shareholders' equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As more fully discussed in Note 1 to the financial statements, the Company has
omitted from the accompanying financial statements disclosures related to the
cumulative amounts for the period from January 5, 1987 (date of inception) to
December 31, 1996, that, in our opinion, should be disclosed to conform with
generally accepted accounting principles.
In our opinion, except for the omission from the financial statements of the
disclosures described in the preceding paragraph, the financial statements
referred to above present fairly, in all material respects, the financial
position of Myo Diagnostics, Inc. as of December 31, 1996, and the results of
its operations and cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the year ended December 31,
1996, the Company incurred a net loss of $1,235,054. In addition, the Company
is in the development stage at December 31, 1996. Recovery of the Company's
assets is dependent upon future events, the outcome of which is indeterminable.
In addition, successful completion of the Company's development program and its
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost structure.
These factors, among others, as discussed in Note 1 to the financial statements,
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Singer Lewak Greenbaum & Goldstein LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 7, 1997
F-2
<PAGE>
[Letterhead of Lever, Lippe, Hellie & Company LLP]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Myo Diagnostics, Inc.
Culver City, California
We have audited the balance sheet of Myo Diagnostics, Inc. (a development stage
company) a California corporation (the "Company"), as of December 31, 1995, and
the related statements of operations, shareholders' deficit, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Statement of Financial Accounting Standards No. 7 "Accounting and Reporting by
Development Stage Enterprises," requires the statement of operations and
statement of cash flows to present cumulative amounts from the Company's
inception. The accompanying financial statements do not disclose the cumulative
amounts for the period from January 5, 1987 (date of inception) to the year
ended December 31, 1994.
In our opinion, except for the omission from the financial statements of the
disclosures described in the preceding paragraph, such financial statements
present fairly, in all material respects, the results of its operations and its
cash flows for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Lever, Lippe, Hellie & Company LLP
LEVER, LIPPE, HELLIE & COMPANY LLP
Los Angeles, California
June 6, 1996
F-3
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1996
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash (note 2) $ 606,144
Accounts receivable, less allowance for doubtful accounts of $25,672 -
Prepaid expenses and other assets 5,417
------------
Total current assets 611,561
------------
Furniture and equipment, net (note 3) 204,112
Other assets (note 4) 35,412
------------
$851,085
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (note 9) $ 112,482
Notes payable to bank (note 5) 400,000
Current portion of obligations under capital leases 38,539
------------
Total current liabilities 551,021
------------
Obligations under capital leases 67,126
Commitments and contingencies (note 9)
Shareholders' equity (notes 10 and 11)
Preferred stock: no par value, 10,000,000 shares authorized,
no shares issued and outstanding -
Common stock: no par value, 50,000,000 shares authorized,
7,746,037 shares issued and outstanding 4,300,679
Deficit accumulated during the development stage (4,067,741)
------------
Total shareholders' equity 232,938
------------
$851,085
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Revenue $ 13,650 $ 67,600
Operating expenses
Research and development 256,211 239,307
Technical services 182,910 191,588
Sales and marketing 97,535 143,934
General and administrative 703,282 515,810
----------- -----------
Total operating expenses 1,239,938 1,090,639
----------- -----------
Loss from operations (1,226,288) (1,023,039)
Other income (expenses)
Interest expense (63,990) (49,251)
Interest income 56,024 5,810
----------- -----------
Loss before provision for income taxes (1,234,254) (1,066,480)
Provision for income taxes (note 8) 800 800
----------- -----------
Net loss $(1,235,054) $(1,067,280)
----------- -----------
----------- -----------
Net loss per share $ (0.17) $(0.16)
----------- -----------
----------- -----------
Weighted average common shares outstanding 7,195,757 6,599,036
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
JANUARY 5, 1987 (INCEPTION) TO DECEMBER 31, 1996
(AMOUNTS TO DECEMBER 31, 1994 ARE UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
------------------------------ Development
Shares Amount Stage Total
----------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Issued upon incorporation for services 910,000 $ 7,685 $ - $ 7,685
Issued for services 952,250 9,523 - 9,523
Net loss from inception through December 31, 1990 - - (20,367) (20,367)
----------- -------- ---------- ---------
Balance, December 31, 1990 1,862,250 17,208 (20,367) (3,159)
Issued for services 305,950 2,404 - 2,404
Issued for cash 11,230 25,000 - 25,000
Net loss - - (243,621) (243,621)
----------- -------- ---------- --------
Balance, December 31, 1991 2,179,430 44,612 (263,988) (219,376)
Net loss - - (258,180) (258,180)
----------- -------- ---------- --------
Balance, December 31, 1992 2,179,430 44,612 (522,168) (477,556)
Issued for cash 11,230 1,123 - 1,123
Net loss - - (421,341) (421,341)
----------- -------- ---------- --------
Balance, December 31, 1993 2,190,660 45,735 (943,509) (897,774)
Stock split 2,190,660 - - -
Issued for exchange of $174,090 of debt 144,619 174,090 - 174,090
Issued for services 60,000 600 - 600
Issued for net assets of limited partnership,
net of related expenses of $1,350 755,330 372,885 - 372,885
Issued for cash in a private placement,
net of related expenses of $6,600 245,400 300,150 - 300,150
Issued for cash in a private placement,
net of related expenses of $164,036 680,741 835,964 - 835,964
Net loss - - (821,898) (821,898)
----------- -------- ---------- --------
Balance, December 31, 1994 6,267,410 1,729,424 (1,765,407) (35,983)
Issued for cash 15,000 750 - 750
Issued for cash in a private placement,
net of related expenses of $67,609 125,000 157,391 - 157,391
Issued for cash in a private placement,
net of related expenses of $64,243 111,111 135,757 - 135,757
Issued for cash 2,738 5,000 - 5,000
Net loss - - (1,067,280) (1,067,280)
----------- -------- ---------- --------
Balance, December 31, 1995 6,521,259 2,028,322 (2,832,687) (804,365)
</TABLE>
(continued)
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
JANUARY 5, 1987 (INCEPTION) TO DECEMBER 31, 1996
(AMOUNTS TO DECEMBER 31, 1994 ARE UNAUDITED)
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------------- During the
Development
Shares Amount Stage TOTAL
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Balance forward 6,521,259 $ 2,028,322 $ (2,832,687) $ (804,365)
Issued for cash 27,778 50,000 - 50,000
Issued for cash in a private placement,
net of related expenses of $14,243 500,000 985,757 - 985,757
Issued for the forgiveness of accrued expenses 100,000 100,000 - 100,000
Issued for debt 25,000 50,000 - 50,000
Issued as consideration for late payment of
notes payable 42,000 75,600 - 75,600
Stock options exercised 50,000 5,000 - 5,000
Issued for cash in a private placement,
net of related expenses of $218,000 480,000 982,000 - 982,000
Issuance of stock options - 24,000 - 24,000
Net loss - - (1,235,054) (1,235,054)
----------- ------------ ------------ -----------
Balance, December 31, 1996 7,746,037 $ 4,300,679 $ (4,067,741) $ 232,938
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,235,054) $ (1,067,280)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 34,677 36,104
Bad debt expense 19,450 -
Compensation expense resulting from the issuance of stock options 24,000 -
Common stock issued in consideration for the extension
of the repayment terms for notes payable to related parties 75,600 -
(Increase) decrease in:
Accounts receivable 12,018 (26,269)
Prepaid expenses and other assets 242 (5,206)
Other assets (10,596) (12,867)
Increase (decrease) in:
Accounts payable and accrued expenses (130,086) 264,483
Accrued interest payable (45,520) -
------------ -------------
Net cash used in operating activities (1,255,269) (811,035)
------------ -------------
Cash flows from investing activities:
Purchase of furniture and equipment (61,777) (39,917)
------------ -------------
Net cash used in investing activities (61,777) (39,917)
------------ -------------
Cash flows from financing activities:
Borrowings on notes payable to related parties 95,500 12,000
Repayments on notes payable to related parties (191,500) (114,500)
Repayment on obligations under capital lease (6,597) -
Net proceeds from issuance of common stock 2,022,757 298,898
------------ -------------
Net cash provided by financing activities 1,920,160 196,398
------------ -------------
Net increase (decrease) in cash 603,114 (654,554)
Cash, beginning of period 3,030 657,584
------------ -------------
Cash, end of period $ 606,144 $ 3,030
------------ -------------
------------ -------------
Supplemental Cash Flow Information
Cash paid during the years for:
Interest $ 109,510 $ 49,251
------------ -------------
------------ -------------
Taxes $ 800 $ 800
------------ -------------
------------ -------------
</TABLE>
Non-cash Financing Activities
During 1996, $112,262 of furniture and equipment was acquired under capital
leases.
During 1996, 100,000 shares of common stock were issued for the forgiveness of
accrued expenses and 25,000 shares were issued for the conversion of debt.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND LINE OF BUSINESS
Myo Diagnostics, Inc. (a development stage company) (the "Company"), a
California corporation, was incorporated and commenced operations on
January 5, 1987 as AREX, Inc. On June 15, 1988, name was changed to Devion
Group and then to Myo Diagnostics, Inc. on September 15, 1989. The
principal activity of the Company is the research and development of Muscle
Pattern Recognition. Muscle Pattern Recognition provides an objective
evaluation of soft tissue muscle injuries.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, during the year ended December 31,
1996, the Company incurred a net loss of $1,235,054. In addition, the
Company is in the development stage at December 31, 1996. Recovery of the
Company's assets is dependent upon future events, the outcome of which is
indeterminable. In addition, successful completion of the Company's
development program and its transition to the attainment of profitable
operations is dependent upon obtaining adequate financing to fulfill its
development activities and achieving a level of sales adequate to support
the Company's cost structure. In view of these matters, realization of a
major portion of the assets in the accompanying balance sheet is dependent
upon the Company's ability to meet its financing requirements, and the
success of its plans to sell its products.
The Company has commitments from certain shareholders to purchase 480,000
shares of common stock for $2.50 per share. It is anticipated that these
shares will be issued within two weeks of the effective date of Form SB-2
filed by the Company with the Securities and Exchange Commission. The
Company believes that the capital received from the sale of the 480,000
shares described above and the revenue from anticipated sales will provide
enough working capital for the foreseeable future.
BUSINESS COMBINATION
The Company held a 97.2% sole general partner interest in Myo Diagnostics,
Ltd. (the "Partnership"), a California limited partnership, that began
operations on April 18, 1991. The Partnership researched and developed the
hardware and related software to perform Muscle Pattern Recognition.
Effective on December 19, 1994, the Partnership's assets and liabilities
were transferred to the Company at their book value and neither the
Partnership or Corporation recognized a gain or loss. The 2.8% limited
partners exchanged their interests in the Partnership, totaling $547,885,
for 755,330 shares of common stock and $175,000 in notes payable. The
business combination was recorded in a manner similar to a "pooling-of-
interest" method of accounting. Under this method, assets and liabilities
of the Partnership were recorded at historical cost.
F-9
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially all
of its present efforts to establish a new business and its planned
principal operations have not yet commenced. All losses accumulated since
inception have been considered as part of the Company's development stage
activities. SFAS No. 7 requires that cumulative amounts are presented for
the statement of operations and cash flows from the Company's inception.
Disclosures related to the cumulative amounts for the period from January
5, 1987 (date of inception) to December 31, 1996 have been omitted. It is
management's belief that it is impractical to develop the information due
to the lack of sufficient accounting records that are available for the
first seven years of the Company's existence.
Net sales to date have primarily been from the sale of in-house evaluations
of patients.
REVENUE
Revenue is reported at the estimated net realizable amounts from patients,
third-parties, and others for services rendered.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the related assets. The estimated useful lives as follows:
Furniture and equipment 5 to 7 years
Computer hardware and software 5 years
Leasehold improvements are amortized over three years, which is the shorter
of their estimated useful lives or the remaining term of the lease.
Expenditures for maintenance and repair are charged to operations as
incurred while renewals and betterments are capitalized. Gains or losses
on the disposal of furniture and equipment is recorded in the statement of
operations.
PATENT
Patents, which are included in other assets in the accompanying balance
sheet, consist of legal fees incurred in securing a patent for the
Company's product. These costs are amortized over a period of seventeen
years using the straight-line method.
F-10
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITAL LEASES
The Company is the lessee of certain equipment under capital leases
expiring in various years through 2001. The assets and liabilities under
capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset. The assets are
amortized over the lower of their related lease terms or their estimated
productive lives. Amortization of assets under capital leases is included
in depreciation expense for 1996.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. These
costs consist primarily of salaries and consulting fees.
INCOME TAXES
The Company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Prior to January 1, 1993, the Company had elected to be treated as an "S"
corporation for both federal and California state income tax purposes. The
shareholders of the "S" corporation were taxed on their proportionate share
of taxable income (loss).
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common and
common equivalent shares outstanding during each year. In connection with
the Company's filing of a registration statement on Form SB-2, stock
options and warrants issued for consideration below the offering per share
price during the twelve months before the filing of the registration
statement have been included in the calculation of common stock equivalent
shares using the treasury stock method, as if they had been outstanding for
all periods presented.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts receivable,
accounts payable, and accrued expenses, the carrying amounts approximate
fair value due to their short maturities. The amounts shown for notes
payable also approximate fair value because current interest rates offered
to the Company for notes payable of similar maturities are substantially
the same.
F-11
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company maintains cash deposits at a bank located in southern
California. Deposits at the bank are insured by the Federal Deposit
Insurance Corporation up to $100,000. As of December 31, 1996, the
uninsured portion of balances held at the bank aggregated to $557,556. The
Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash.
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1996 consist of the following:
Leasehold improvements $ 2,605
Furniture and equipment 108,832
Computer hardware and software 139,496
Equipment held under capital leases 112,262
---------
363,195
Less accumulated depreciation 159,083
---------
$ 204,112
---------
---------
NOTE 4 - OTHER ASSETS
Other assets at December 31, 1996 consist of the following:
Patents, net of accumulated amortization
of $3,544 $ 18,811
Security deposits 16,601
----------
$ 35,412
----------
----------
Amortization expense on patent costs charged to operations during the years
ended December 31, 1996 and 1995 was $1,279 and $1,188, respectively.
F-12
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 5 - NOTES PAYABLE TO BANK
The Company has six revolving lines of credit with a bank that provide for
borrowings up to a total of $400,000. Borrowings under these lines of credit
bear interest at the bank's prime rate (8.25% as of December 31, 1996) plus .75%
to 1.50%, payable monthly. These revolving lines of credit will mature
beginning January 10, 1997 through July 10, 1997, and are collateralized by
standby letters of credit issued by certain third parties. The Company has
$400,000 outstanding on these revolving lines of credit as of December 31, 1996.
As collateral for the bank revolving lines of credit, certain third parties (the
"Guarantors") have guaranteed the notes payable to bank by obtaining standby
letters of credit totaling $400,000. The Company granted stock options to the
Guarantors the Company's common stock as consideration for the guarantees.
These options entitle the Guarantors to purchase an aggregate of 400,000 shares
of common stock for $1.13 per share if certain conditions are met. The options
became exercisable at various dates during 1995 and expire upon certain
conditions. These options have not been exercised as of December 31, 1996 (see
note 11).
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES
Minimum future lease payments under capital leases as of December 31, 1996 for
each of the next five years are:
Years Ending
December 31,
------------
1997 $ 51,354
1998 34,618
1999 17,889
2000 17,889
2001 11,926
---------
Total minimum lease payments 133,676
Less amount representing interest 28,011
---------
Present value of minimum lease payment 105,665
Less current portion of obligations under capital leases 38,539
---------
$67,126
---------
---------
Interest rates on capitalized leases vary from 7% to 21.79% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.
F-13
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 7 - RELATED PARTY TRANSACTIONS
LICENSING AGREEMENT
The Company is obligated under a licensing agreement to a partnership whose
partners are officers and stockholders of the Company (see Note 9).
NOTE 8 - INCOME TAXES
As discussed in Note 1, the Company changed its tax status effective
January 1, 1993. As of December 31, 1996, the Company has approximately
$3,500,000 in federal net operating loss carryforwards, attributable to
losses incurred since the change in its tax status, that may be offset
against future taxable income through the year 2009. The deferred income
tax benefit of the loss carryforward of approximately $1,400,000 has been
offset by a valuation allowance of the same amount as management does not
believe the recoverability of this deferred tax asset is more likely than
not. Accordingly, no deferred income tax benefit has been recognized in
the 1996 and 1995 financial statements.
The provision for income taxes consists of current taxes payable in the
amount of $800, which represents the California minimum franchise tax.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facility and certain equipment under non-cancelable
operating leases expiring at various dates through 1999. Certain leases
contain renewal provisions. Future minimum lease payments under these
leases are as follows:
YEARS ENDING
DECEMBER 31,
------------
1997 $ 125,000
1998 124,000
1999 93,000
--------
$342,000
--------
--------
Rent expense under all operating leases was $70,316 and $41,309 for the
years ended December 31, 1996 and 1995, respectively.
F-14
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LICENSE AGREEMENT
The Company has a licensing agreement with Toomin Research Group ("TRG"), a
partnership, whose partners are also shareholders of the Company (see Note
7). Under the terms of the licensing agreement, the Company is entitled to
exclusive rights to the product under development by the Company, beginning
on August 1, 1993 and ending on August 1, 2013, unless terminated earlier.
As consideration for the exclusive rights to the product, the Company pays
TRG a royalty.
The royalty is payable quarterly under the following terms:
- The Company shall pay a royalty on the lesser of 10% of total revenue
or $30 per patient examined and reported upon up to the first 10,000
examinations. After the first 10,000 examinations, the Company shall
pay a royalty of 5% of total revenue but not less than $12.50 per
patient examined and reported upon.
- The Company shall pay a royalty of 5% of total revenue for each sale,
lease, rental, license, transfer or assignment of the product under
license to the extent that no royalty was paid on such total revenue.
- The Company shall pay a royalty of 3% of total revenue for any
derivative technology developed by the Company to the extent that no
royalty was paid on such total revenue.
Under the terms of this agreement, included in accounts payable and accrued
expenses are royalties payable of $1,350 as of December 31, 1996.
COMMON STOCK AND WARRANTS
The Company has commitments from certain shareholders to purchase 480,000
shares of common stock at $2.50 per share and warrants to purchase 120,000
shares of common stock, which warrants are exercisable at a price of $3.00
per share for one year from issuance. It is anticipated that these shares
will be issued within two weeks of the effective date of Form SB-2 filed by
the Company with the Securities and Exchange Commission registering the
resale of common stock by several shareholders, including the directors of
the Company. In the event of such issuance, the Company will also issue a
warrant to the broker/dealer participating in the offering to purchase
43,200 shares of common stock for an exercise price of $2.50 per share at
any time within two years from the date of issuance.
F-15
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 10 - SHAREHOLDERS' EQUITY
On May 4, 1994, the Board of Directors authorized a two-for-one stock split
of the Company's common stock for shareholders as of that date. As a
result of the split, 2,190,660 shares were issued. All references in the
accompanying financial statements to the per share amount have been
restated to reflect the stock split.
In 1996 the Company settled its obligation to pay $100,000 in connection
with services rendered in 1995 for 100,000 shares of common stock and
issued 25,000 shares of its common stock for debt totaling $50,000.
In 1996, the Company also issued to note holders 42,000 shares of common
stock valued at $75,600 as consideration for the note holders extending the
repayment terms pursuant to the terms of the note agreement.
NOTE 11 - STOCK OPTIONS AND WARRANTS
WARRANTS
As of December 31, 1996, the Company had outstanding warrants to purchase a
total of 568,755 shares of common stock that were issued in conjunction
with private placement offerings as follows:
NUMBER OF
SHARES WARRANT PRICE EXPIRATION
ALLOCATED PER SHARE DATE
------------- -------------- -----------
120,000 $3.00 12/05/97
100,000 1.50 12/23/97
83,333 1.75 06/23/98
43,200 2.50 12/05/98
222,222 2.00 12/31/98
These warrants have not been exercised as of December 31, 1996.
STOCK OPTION AGREEMENTS
Options were granted which under certain agreements allowing employees,
consultants, and Guarantors to purchase shares of common stock. These
options expire upon certain events.
The following summarizes the Company's stock option transactions under the
stock option agreements:
F-16
<PAGE>
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(SEE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
NOTE 11 - STOCK OPTIONS AND WARRANTS (CONTINUED)
STOCK OPTION AGREEMENTS (Continued)
<TABLE>
<CAPTION>
WEIGHTED-
SHARES UNDER AVERAGE
OPTION EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Options outstanding, January 1, 1994 50,000 $0.10
Granted 400,000 $1.13
----------
Options outstanding, December 31, 1994 450,000 $1.02
Granted 20,000 $0.44
----------
Options outstanding, December 31, 1995 470,000 $0.99
Granted 12,000 $0.50
Exercised (50,000) $0.10
----------
Options outstanding, December 31, 1996 432,000 $1.08
----------
----------
</TABLE>
As of December 31, 1996, 429,500 options were exercisable at a weighted-
average exercise price of $1.08.
In November 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. SFAS 123 establishes and encourages the
use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using
the fair value of stock-based compensation determined as of the date of
grant, and is recognized over the periods in which the related services are
rendered. SFAS 123 also permits companies to elect to continue using the
current implicit value accounting method specified in Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," to account for stock-based compensation. The Company has
elected to use the implicit value based method and has disclosed the pro
forma effect of using the fair value based method to account for its stock-
based compensation.
The Company is a nonpublic entity which allows it to use the "minimum
value" method for determining the fair value of stock options. The
expected life of the options is less than one year; therefore, the
compensation expense recognized under the fair value method in accordance
with SFAS 123 is not significantly different than the expense recognized
under the implicit value method. Due to the insignificant difference
between the two methods, the pro forma disclosures are not presented.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other individual has been authorized to give
any information or make any representations in connection with the Offering
covered by this Prospectus other than those contained in this Prospectus. If
given or made, such information or representations must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the Shares in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
TABLE OF CONTENTS
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . . . . . . . . . 10
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Principal and Selling Shareholders . . . . . . . . . . . . . . . . . . . . . 23
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 25
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .F-1
UNTIL _______________, 1997, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,255,561 Shares
MYO DIAGNOSTICS, INC.
Common Stock
--------------------
PROSPECTUS
--------------------
, 1997
-------------- ----
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary duties
in certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Registrant or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the Registrant or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary course
of performing a director's duties, of a risk of a serious injury to the
Registrant or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (vi) under Section 310 of the
California Corporations Code (the "California Code") (concerning contracts or
transactions between the Registrant and a director) or (vii) under Section 316
of the California Code (concerning directors' liability for improper dividends,
loans and guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not affect
the availability of injunctions and other equitable remedies available to the
Registrant's shareholders for any violation of a director's fiduciary duty to
the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization
for the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors,
officers, agents and employees. In addition, the Registrant, at its discretion,
may provide indemnification to persons whom the Registrant is not obligated to
indemnify. Registrant has entered into indemnity agreements with all directors
which provide the maximum indemnification permitted by law. These agreements,
together with the Registrant's Bylaws and Articles of Incorporation, may require
the Registrant, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status or service as directors
(other than liabilities resulting from willful misconduct of a culpable nature),
to advance expenses to them as they are incurred, provided that they undertake
to repay the amount advanced if it is ultimately determined by a court that they
are not entitled to indemnification, and to obtain directors' and officers'
insurance if available on reasonable terms.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant is currently reviewing director and officer liability
insurance policies and may purchase such a policy in the future.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
II-1
<PAGE>
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
DOCUMENT EXHIBIT NUMBER
- -------- -------------
Registrant's Amended and Restated Articles of
Incorporation. . . . . . . . . . . . . . . . . . . . . . . . . 3.1
Registrant's Bylaws. . . . . . . . . . . . . . . . . . . . . . . 3.2
Registrant's Form of Indemnification Agreement . . . . . . . . . 10.1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee:
Registration fee--Securities and
Exchange Commission. . . . . . . . . . . . . . . . . $ 2,388
Accounting fees and expenses . . . . . . . . . . . . . $ 7,500
Legal fees and expenses. . . . . . . . . . . . . . . . $ 35,000
Printing . . . . . . . . . . . . . . . . . . . . . . . $ 6,500
Miscellaneous. . . . . . . . . . . . . . . . . . . . . $ 1,000
---------
Total. . . . . . . . . . . . . . . . . . . . $ 52,388
---------
---------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1994 the Company issued 11,230 shares of Common Stock for $1,123
upon exercise of an option issued for a certain securities brokerage services
provided by Don Mockoviak, a securities broker. The issuance of these shares
was exempt from registration pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In August 1994 the Company issued options to purchase 400,000 shares of
Common Stock for $1.13 per share to six Canadian residents who provided letters
of credit to facilitate the Company's obtaining a revolving line of credit from
a commercial bank. The issuance of these shares was exempt from registration
pursuant to Regulation S and pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In December 1994 the Company issued 60,000 shares for $600 upon exercise of
an option granted to Wayne Cockburn, a Canadian resident, for financial
consulting and investment banking services provided by that individual. The
issuance of these shares was exempt from registration pursuant to Regulation S
and Section 4(2) of the Act as a transaction not involving any public offering.
In December 1994 the Company issued to 12 individuals an aggregate of
755,330 shares of Common Stock and notes in the aggregate principal amount of
$175,000 in exchange for limited partnership interests and revenue participation
interests of limited partners and others in Myo Diagnostics, Ltd., a limited
partnership for which the Company was the general partner (the "Partnership").
In June 1996 the Company issued 42,000 shares of Common Stock to said former
limited partners of the Partnership as a penalty for failing to timely pay
principal and interest on notes issued to such partners. The issuance of these
securities was exempt from registration pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In December 1994 the Company issued 680,741 shares of Common Stock and
warrants to purchase 183,333 shares of Common Stock for an aggregate of
$1,000,000 to the Ontario Municipal Employees Retirement Board, Ontario, Canada
("OMERB"). The issuance of these securities was exempt from registration
pursuant to
II-2
<PAGE>
Regulation S and pursuant to Section 4(2) as a transaction not involving any
public offering. The Company paid a brokerage commission of $100,000 to Michael
Ryshpan, Ontario, Canada, for services in connection with this transaction.
In December 1994 the Company issued 144,619 shares of Common Stock to
Gerald D. Appel, Chief Executive Officer, Chairman of the Board and principal
shareholder of the Company, in cancellation of indebtedness of $212,589 owed by
the Company to Mr. Appel for advances made by Mr. Appel to the Company. The
issuance of to these shares was exempt from registration pursuant to Section
4(2) as a transaction not involving any public offering.
In March 1995, the Company issued: (i) an option to purchase 15,000 shares
of Common Stock for $.10 per share to J. Steven Nelson, who was then an
executive officer of the Company, and (ii) an option to purchase 5,000 shares of
Common Stock for $1.17 per share to Harry Clark, an employee of the Company.
The issuance of these options was exempt from registration pursuant to Section
4(2) of the Act as a transaction not involving any public offering.
In April 1995 the Company issued 15,000 shares of the Common Stock for $750
upon an exercise of an option granted in 1992 to Dr. Norman Carabet, a physician
who had provided facilities and services in connection with clinical studies by
the Company. The issuance of these shares was exempt from registration pursuant
to Section 4(2) of the Act as a transaction not involving any public offering.
In August 1995 the Company issued 125,000 shares of Common Stock and
warrants to purchase 200,000 shares of Common Stock for an aggregate of $225,000
to Hydra Capital ("Hydra"), an institutional investment fund in Ontario, Canada,
and issued 113,849 shares of Common Stock and warrants to purchase 222,000
shares of Common Stock for an aggregate purchase price of $205,000 to OMERB.
The issuance of these securities was exempt from registration pursuant to
Regulation S and pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In January 1996 the Company issued 27,778 shares for an aggregate of
$50,000 to Mark Sekundiak, a shareholder of the Company who was a resident of
Canada. The issuance of these shares was exempt from registration pursuant to
Regulation S and pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In February 1996, the Company issued to Hydra a note in the amount of
$50,000 and warrants to purchase 20,000 shares of Common Stock for $2.50 per
share for an aggregate of $50,000. In December 1996, the Company issued to
Hydra 25,000 shares of Common Stock in cancellation of this note. The issuance
of these securities was exempt from registration pursuant to Regulation S and
pursuant to Section 4(2) of the Act as a transaction not involving any public
offering.
In May 1996, Registrant sold 500,000 shares of its Common Stock for $2.00
per share, or an aggregate purchase price of $1,000,000, to 17 Canadian
investors. The issuance of these securities was exempt from registration
pursuant to Regulation S and pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In June 1996, Registrant issued an option to purchase 12,000 shares of
Common Stock for $.50 per share to Dr. Howard Fullman, an individual who is on
the Medical Advisory Board of the Registrant, in satisfaction of certain
consulting services provided by this individual. The issuance of this option
was exempt from registration pursuant to Section 4(2) of the Act as a
transaction not involving any public offering by the Registrant.
In September 1996 the Registrant issued 50,000 shares of Common Stock for
$.10 per share upon exercise of an option granted in September 1993 to Dr.
Phillip Fagan, an individual who is on the Company's Medical Advisory Board, for
consulting services to the Registrant. The issuance of these shares was exempt
from registration pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In December 1996 the Registrant issued and sold 480,000 units to Altamira
Management Ltd. and Bona Vista Asset Management Ltd., Canadian institutional
investors for an aggregate of $1,200,000. Each unit was comprised of one share
of Common Stock and one quarter stock purchase warrant. Each whole warrant
entitles the holder to purchase one share of Common Stock at a price of $3.00
per share through December 1997. The Registrant utilized the services of
Griffiths McBurney & Partners, a broker/dealer in Ontario, Canada, in connection
with this
II-3
<PAGE>
transaction, which received a fee of $84,000 and warrants to purchase 43,200
shares of Common Stock at a price of $2.50 per share, exercisable through
December 1998. The issuance of these securities was exempt from registration
pursuant to Regulation S and pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
ITEM 27. EXHIBITS.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
3.1 Amended and Restated Articles of Incorporation of Registrant.*
3.2 Bylaws of Registrant.*
4.1 Specimen Stock Certificate of Common Stock of Registrant.*
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.
10.1 Form of Indemnification Agreement.*
10.2 Licensing Agreement, dated October 31, 1993, by and between
Registrant and Toomim Research Group, as amended.*
10.3 Securities Purchase Agreement, dated December 23, 1994, by and
among Registrant, OMERB, Gerald Appel and Hershel Toomim.*
10.4 Securities Purchase Agreement, dated August 18, 1995, by and
among Registrant, OMERB and Gerald Appel.*
10.5 Series A Warrant of OMERB, dated December 23, 1994, as amended.*
10.6 Series B Warrant of OMERB, dated December 23, 1994, as amended.*
10.7 Series C Warrant of OMERB, dated August 18, 1995, as amended.*
10.8 Waiver Letter, dated December 8, 1995, from OMERB to Registrant.*
10.9 Letter Agreement, dated July 8, 1996, by and between Registrant
and OMERB.*
10.10 Letter Agreement, dated December 13, 1994, by and among
Registrant and Donald Patterson, Ronald Goldsack, James
Connacher, Chris Skillen, Richard Reid and James Black, and Form
of Stock Option Agreement, dated December 19, 1994, by and among
Registrant and such persons, as amended.*
10.11 Lease Agreement, dated August 1, 1996, by and between Registrant
and The Urcis Family Trust.*
10.12 Non-transferable Warrant of Griffiths McBurney & Partners, dated
December 6, 1996.*
10.13 Form of Warrant, dated December 6, 1996, by and among Registrant
and persons purchasing units in private placement of December 6,
1996.*
10.14 Stock Option Agreement, dated March 23, 1995, by and between
Registrant and Steve Nelson.*
10.15 Business PrimeLine Promissory Notes, between Registrant and Wells
Fargo Bank, National Association, as amended.*
10.16 Master Equipment Lease Agreement, dated March 1, 1996 by and
between Registrant and Medical Consulting Imaging Co., and
Distribution Agreement, dated March 1, 1996, by and among
Registrant, Medical Consulting Imaging Co. and MCIC/HNI.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its
opinion to be filed as Exhibit 5.1 hereto).
23.2 Consent of Lever, Lippe, Hellie & Company LLP.
23.3 Consent of Singer Lewak Greenbaum & Goldstein, LLP.
24.1 Power of Attorney (included in signature page).*
27 Financial Data Schedule.
- --------------------------
* Previously filed.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form or prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer of controlling person of the registrant
in the successful defense of any action, suite of proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by a controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on March 7,
1997.
MYO DIAGNOSTICS, INC.
BY: /S/ GERALD D. APPEL
-----------------------------
GERALD D. APPEL, PRESIDENT, CHIEF
EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
----------- ------ -----
/s/ Gerald D. Appel President, Chief Executive March 7, 1997
- ------------------------ Officer and Chairman of
GERALD D. APPEL the Board of Directors
(Principal Financial and
Accounting Officer)
* Director March 7, 1997
- ------------------------
DR. HERSHEL TOOMIM, SC.D.
* Director March 7, 1997
- -------------------------
WAYNE C. COCKBURN
* By: /S/ GERALD D. APPEL
--------------------------------
GERALD D. APPEL,
HIS ATTORNEY-IN-FACT
II-6
<PAGE>
TROOP MEISINGER STEUBER & PASICH, LLP
LAWYERS
March 7, 1997
Myo Diagnostic, Inc.
3760 South Robertson
Culver City, CA 90232
Ladies/Gentlemen:
At your request, we have examined the Registration Statement on Form SB-2
(the "Registration Statement") to which this letter is attached as Exhibit 5.1
filed by Myo Diagnostics, Inc., a California corporation (the "Company"), in
order to register under the Securities Act of 1933, as amended (the "Act"),
2,730,006 shares of Common Stock, no par value, of the Company (the "Outstanding
Shares"), and 525,555 shares of Common Stock, no par value of the Company
underlying certain warrants (the "Underlying Shares").
We are of the opinion that the Outstanding Shares have been duly authorized
and are validly issued, fully paid and non-assessable.
We are of the opinion that the Underlying Shares have been duly authorized
and, upon exercise and payment of the exercise price therefor in accordance with
the terms of the warrants, will be validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to use of our name in the Prospectus constituting a part thereof.
Respectfully submitted,
/s/ Troop Meisinger Steuber & Pasich, LLP
TROOP MEISINGER STEUBER & PASICH, LLP
<PAGE>
MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
LESSOR LESSEE
- --------------------------------------------------------------------------------
Myo Diagnostics Inc. Medical Consulting Imaging Co.
3710 S. Robertson Blvd., #212 1621 Euclid Ave., Ste. 1620
Culver City, CA 90232 Cleveland, OH 44115
- --------------------------------------------------------------------------------
THIS LEASE CANNOT BE CANCELLED EXCEPT AS EXPRESSLY PROVIDED. THIS LEASE SHALL
BECOME EFFECTIVE UPON SIGNING BY LESSOR AND LESSEE.
THIS MASTER EQUIPMENT LEASE AGREEMENT is executed on this 1st day of March,
1996, by and between Lessor and Lessee as indicated above.
1. TERMS AND CONDITIONS - The term of each Scheduled Equipment Lease Agreement
("Scheduled Lease") under this Master Equipment Lease Agreement (the "Master
Lease") will be for 2 years (the "Original Term") commencing on the date
indicated on each Scheduled Lease attached hereto (the "Commencement Date") and
ending on the date indicated on each Scheduled Lease attached hereto (the
"Expiration Date"). In addition, Lessor and Lessee, upon mutual agreement, will
have the option to extend each Scheduled Lease for an additional 4 years (the
"Option Period") ending on the date indicated on each Scheduled Lease attached
hereto (the "Final Expiration Date") upon expiration of the Original Term.
Lessor agrees to lease and Lessee leases from Lessor the equipment described on
each Scheduled Lease and on any attached Schedule (the "Equipment") in
accordance with the terms and conditions stated in this Master Lease Agreement.
Lessee authorizes Lessor to insert in this Master Lease the appropriate
equipment lease addenda when determined by Lessor. This Master Lease is
concurrent with the Distribution Agreement between Lessor and Lessee and, with
the Distribution Agreement, constitutes the full and entire agreement between
the Lessor and Lessee in connection with the Equipment and merges any and all
other understandings. Neither party relies on any other statement or
representation made by the other or any third party. This Master Lease can
neither be cancelled nor modified except by written agreement signed by both
Lessor and Lessee and except as set forth in Section 7 of this Lease Agreement.
In the event the Distribution Agreement is terminated by either the Lessor or
Lessee, as allowed solely by the Distribution Agreement, such termination shall
act as proper written notice of termination of the Master Lease Agreement.
Lessee's acceptance of the Equipment shall be irrevocable unless Lessor receives
Lessee's written notice of substantial non-conformance of the Equipment within
ten (10) days after acceptance of the Equipment.
2. PAYMENT - The Monthly Lease Payment is indicated in Table 2 in each
Scheduled Lease. Lessee agrees to make all monthly Lease payments in advance on
the 1st day of each and every month commencing with the first full month after
delivery of the Leased Equipment, and to pay such other charges as provided in
this Agreement. Each payment
Page 1
<PAGE>
received will be applied to the oldest charge due under this Lease. Lessee
agrees to make payments regardless of any problems Lessee might or may have with
the Equipment and its operations regardless of any claim, set-off, counterclaim
or defense Lessee might or may have against the Vendor or Manufacturer (the
"Supplier"), Salesperson or other Third Party. Without Lessor's prior written
consent, any payment to Lessor of a smaller sum than due at any time under this
Agreement shall not constitute release or an accord or satisfaction for any
greater sum due or to become due regardless of any restrictive endorsement.
Lessee shall be solely responsible for any filing and payment due for property
tax associated with the possession of the Equipment.
3. LESSEE'S AND GUARANTOR'S WARRANTIES TO LESSOR - Lessee and any guarantor
expressly warrant to Lessor and Lessor relies on the fact that Lessee and any
guarantor: (a) have read and understood this Master Lease before it was signed;
(b) have selected and are fully satisfied with the Leased Equipment for the
purposes set forth in this Master Lease; (c) freely acknowledge that neither the
manufacturer nor the supplier of the Equipment nor any of its salespersons are,
or have acted as, Lessor's agents or employees; (d) have provided accurate and
correct financial information and other statements and same will be updated upon
Lessor's request during the term of the Master Lease; (e) are currently meeting
all debts as such come due;(f) will use the Equipment exclusively for Lessee's
business purposes and not for personal, family or household purposes; (g) have
unrestricted power to enter into this Master Lease, have duly authorized the
person executing it and certify that all signatures are authentic.
4. LESSEE'S WAIVER OF DAMAGES AND WARRANTIES FROM LESSOR - Lessee acknowledges
that: (a) Lessee shall hold Lessor harmless and shall be responsible for any
loss, damage or injury to persons or property caused by the Equipment; (b) no
representation or warranty by the manufacturer, supplier or salesperson is
binding on Lessor nor shall breach of such warranty relieve Lessee of Lessee's
obligations to Lessor; and (c) in no case shall Lessor be liable to Lessee for
special, indirect or consequential damages.
5. OWNERSHIP AND TITLE - Lessor is the sole owner of the Equipment, has sole
title to the Equipment, has the right to inspect the Equipment and has the right
to affix and display notice of Lessor's ownership thereon subject to 24 hour
notice given by Lessor to Lessee. The Equipment shall remain Lessor's personal
property whether or not affixed to realty and shall not be part of any real
property on which it is placed. All additions, attachments and accessories
placed on the Equipment become part of the Equipment and Lessor's property.
Lessee agrees to maintain the Equipment so that it may be removed from the
property or building where located without damage.
6. OPERATION AND TERMINATION - Lessee shall be solely responsible for the
operation and day to day handling of the Equipment, shall keep it in good
condition and running order and shall use and operate the Equipment in
compliance with applicable law. Lessee shall be responsible for securing
maintenance service from Lessor or from an independent party as determined by
Lessor and shall be responsible for repair and/or
Page 2
<PAGE>
replacement costs that may be necessary as a result of improper or negligent use
and/or handling of the Equipment or loss the Equipment. Lessor will be
responsible for the cost of any upgrade of Equipment, as may be required from
time to time by a change in system specifications, and Equipment repair due to
mechanical failure. Lessee agrees to keep and use the Equipment only at the
Domicile Location specified above ("Equipment Location") and to never relinquish
possession of the Equipment except to Lessor's agent. At the end of the Master
Lease Term, Lessee must contact Lessor who will designate the return location
within the continental United States, and Lessee shall, at Lessee's expense,
immediately crate, insure and return the Equipment to the designated location in
as good a condition as when Lessee received it, excepting only reasonable wear
and tear. Until Lessor actually receives the Equipment at the return location,
the Master Lease renews automatically from month to month and Lessee agrees to
continue to make lease payments at the last effective rate under the Master
Lease.
Upon early termination of the Distributor Agreement by Company without cause or
by Distributor for cause and upon receipt by Company of all Scheduled Equipment
in good repair, this lease shall be terminated at no additional cost to
Distributor. Upon early termination of the Distributor Agreement by the Company
for cause or by the Distributor without cause, and upon receipt by Company of
all Scheduled Equipment in good repair, the Company will use its best efforts to
lease all of the Scheduled Equipment under all addenda to current or new
Distributors so as to relieve Distributor of further lease schedule payments.
If the Distributor requests in writing, early termination of one or more
schedules, the Company will use its best efforts to re-lease the equipment as
indicated above. The Company makes no promise or guarantee that the
aforementioned best efforts will be successful and Distributor unconditionally
agrees to continue making scheduled lease payments according to this Master
Lease until notified by Company that such payments shall be terminated.
7. RISK OF LOSS AND INSURANCE - Until Lessee has returned the Equipment to the
designated location, Lessee bears the entire risk of loss or damage to the
Equipment regardless how arising. Lessee shall immediately notify Lessor of the
occurrence of any loss or other occurrence affecting Lessor's interests and
shall make repairs or corrections at Lessee's expense. In such event, Lessee
agrees to continue to meet all payment and other obligations under the Master
Lease. Lessee agrees to keep the Equipment insured at Lessee's expense against
risk of loss or damage from any cause whatsoever. Lessee agrees that such
insurance shall be not less than $50.000. Lessee also agrees that the insurance
shall be in such additional amount as is reasonable to cover Lessor for public
liability and property damage arising from the Equipment or Lessee's use of it.
Lessee agrees to name Lessor as the loss payee. Each policy shall provide that
the Insurance cannot be cancelled without thirty (30) days prior written notice
to Lessor. Upon request by Lessor, Lessee agrees to furnish proof of each
insurance policy including a certificate of insurance and a copy of the policy.
The proceeds of such insurance shall be applied at Lessor's sole election toward
the replacement or repair of the Equipment or payment towards Lessee's
obligations. Lessee appoints Lessor as attorney-in-fact to make any claim for,
receive payment of, or execute or
Page 3
<PAGE>
endorse all documents, checks or drafts for loss or damage or return of premium
under such insurance.
8. INDEMNITY - Lessee agrees to indemnify and hold Lessor harmless from and
against any and all losses, damages, injuries, demands and expense (a "Claim"),
including any and all attorneys' fees and legal expenses, arising from or caused
directly or indirectly by any actual or alleged use, possession, maintenance,
condition (whether or not latent or discoverable), operation, location, delivery
or transportation of any item of Equipment. Should Lessee be entitled under
applicable law to revoke its acceptance of the Equipment, Lessee agrees to pay
and indemnify Lessor for any payment by Lessor to the manufacturer or supplier
of the Equipment.
9. COLLECTION CHARGES AND ATTORNEYS' FEES - If any part of any sum due to
Lessor is not received by Lessor within ten (10) days of the due date or if any
sum paid by check shall be dishonored or returned to Lessor on account of
uncollected funds or for insufficient funds, Lessee agrees to pay Lessor an
interest charge for every month after the first month in which the sum is late
to compensate Lessor for the Inability to reinvest the sum, such interest charge
to be stipulated and liquidated at 1 1/2% per month or the maximum allowed by
applicable law, whichever is less.
10. LESSEE AND ANY GUARANTOR AGREE TO PAY LESSOR'S REASONABLE ATTORNEYS' FEES
AS DAMAGES AND NOT COSTS - In all proceedings arising under this Master Lease,
such proceedings including any arbitration, bankruptcy proceeding, civil action,
mediation or counterclaim on which Lessor prevails seeking relief from stay in
bankruptcy or post-judgment action or appeal with respect to any of the
foregoing, Lessor shall be granted reasonable attorneys' fees.
11. DEFAULT - Lessee shall be in default of this Master Lease on any of the
following events: (a) Lessee fails to pay any month's rent within ten (10) days
after it first becomes due; (b) Lessee assigns, pledges, subleases, sells or
relinquishes possession of the Equipment or attempts to do so, without Lessor's
prior written authorization; (c) Lessee breaches any of its warranties or other
obligations under this Master Lease or any other agreement with Lessor and fails
to cure such breach within ten (10) days after Lessor sends Lessee a notice of
the existence of such breach; (d) any execution or writ of process is issued in
any action or proceeding to seize or detain the Equipment; (e) Lessee or any
guarantor gives Lessor reasonable cause to be insecure about Lessee's
willingness or ability to perform obligations under the Master Lease or any
other agreement with Lessor; (f) Lessee or any guarantor dies, becomes insolvent
or unable to pay debts when due, stops doing business as a going concern,
consolidates, merges, transfers all or substantially all of its assets, makes an
assignment for the benefit of creditors, appoints a trustee or receiver or
undergoes a substantial deterioration of financial health; or (g) Lessor or any
guarantor fails to reaffirm this lease obligation within thirty (30) days of the
filing of any petition for protection under the United States Bankruptcy Code.
Page 4
<PAGE>
12. REMEDIES - Should Lessee default, Lessor has the right to exercise any or
all of the following: Lessor may without notice accelerate all sums under the
Master Lease and require Lessee to immediately pay Lessor all sums that are
already due and the discounted value of those that will become due and require
the immediate return of the Equipment to Lessor. Lessor has the right to
immediately retake possession of the Equipment without any court or other
process of law and for such purpose may enter upon any premises where the
Equipment may be and remove the same. Lessor has the right to exercise any
remedy at law or equity, notice thereof being expressly waived by Lessee and any
guarantor. Lessor's action or failure to act on any one remedy constitutes
neither an election to be limited thereon nor a waiver of any other remedy nor a
release of Lessee from the liability to return the Equipment or for any Loss or
Claim with respect thereto. The provisions of this Master Lease are severable
and shall not be affected or Impaired if any one provision is held
unenforceable, invalid or illegal. Any provision held in conflict with any
statute or rule of law shall be deemed inoperative only to the extent of such
conflict and shall be modified to conform with such statute or rule.
13. ARBITRATION - Lessor or Lessee may, at its option, submit any matter
arising out of this Master Lease Agreement, including any claim, counterclaim,
setoff or defense to binding arbitration by the American Arbitration Association
in the City of Los Angeles, State of California. Irrespective of the fact that
neither the Lessee, any guarantor or the Equipment may be located in that City
now or then. The decision and award of the arbitrator(s) shall be final and
binding and may be entered as rendered in any court having jurisdiction thereof.
14. CONSENT TO JURISDICTION, VENUE AND NON-JURY TRIAL - Lessee and any
guarantor consent, agree and stipulate that: (a) this Master Lease shall be
deemed fully executed and performed in the State of California and shall be
governed by and construed in accordance with the laws thereof; and (b) in any
action, proceeding, or appeal on any matter related to or arising out of this
Master Lease, Lessor, Lessee and any guarantor: (i) shall be subject to the
personal jurisdiction of the State of California including any state or federal
court sitting therein and all court rules thereof; (ii) shall accept venue in
any federal or state court in California; and (iii) expressly waive any right to
a trial by jury so that trial shall be by and only to the court. Nothing
contained herein is intended to preclude Lessor from commencing any action
hereunder in any court having jurisdiction thereof.
15. CONSENT TO SERVICE OF PROCESS - Lessee and any guarantor agree that any
process served for any action or proceeding shall be valid if mailed by
Certified Mail, return receipt requested, with delivery restricted to either the
addressee, its registered agent or any agent appointed in writing to accept such
process.
16. SCHEDULED LEASE ADDENDA - Lessee may, from time to time, wish to lease
additional equipment as described in subsequent Scheduled Leases. Such
Scheduled Leases shall be attached as additional addenda in the same format as
the Scheduled Lease 1-040596 attached hereto and shall be subject to all of the
terms and conditions of this Master Lease.
Page 5
<PAGE>
The parties hereto have executed this Master Lease on the dates specified next
to their respective signatures.
ACCEPTED BY LESSEE:
/s/ Ian C.P. Woodburn Dated: April 5, 1996
- -------------------------------
by Ian C.P. Woodburn
its President
ACCEPTED BY LESSOR:
/s/ Gerald D. Appel Dated: April 5, 1996
- -------------------------------
by Gerald D. Appel,
its President
Page 6
<PAGE>
ADDENDUM 1
SCHEDULED EQUIPMENT LEASE 1-040596
- --------------------------------------------------------------------------------
TABLE 1 - LEASED EQUIPMENT
- --------------------------------------------------------------------------------
QTY DESCRIPTION SERIAL NO(S).
- --------------------------------------------------------------------------------
1 Myo D 1600T Data Collector See Attached Schedule 1A
1 Futrex Adipose Measuring Device See Attached Schedule 1A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE 2- LEASE PAYMENT SCHEDULE
- --------------------------------------------------------------------------------
PERIOD MONTHLY LEASE PAYMENT
- --------------------------------------------------------------------------------
ORIGINAL TERM Months 1-24 $1,500
OPTION PERIOD Months 25-36 $1,500
Months 37-72 $ 500
- --------------------------------------------------------------------------------
SECURITY DEPOSIT: An advance payment of $3,000 (the "Security Deposit") shall be
held by Lessor as a security deposit for the faithful performance of this Lease.
Upon termination of this Lease Addendum 1 and upon receipt of the Leased
Equipment, this Security Deposit shall be returned less any cost for non
warranted repairs required to bring the Leased Equipment to first class running
order.
ADVANCE LEASE PAYMENT: An advance payment of $3,000 constituting the first month
and the last months lease payment has been paid by Lessee and receipt is
acknowledged by Lessor.
RESIDENT EQUIPMENT LOCATION: Domicile For Use: CLEVELAND OHIO
SCHEDULE 1A - SCHEDULE OF LEASED EQUIPMENT
- --------------------------------------------------------------------------------
DESCRIPTION SERIAL NO.
- --------------------------------------------------------------------------------
MYO D 1600 DATA COLLECTOR
- Computer Docking Station w/ MPI DSP Board*
(including 2x10' Fiber Optic Cables)
- Sensor Amplifiers w/ Cords and Other Accessories
- Calibration Box w/Battery and Charger
OTHER
- Futrex Adipose Measuring Device
- --------------------------------------------------------------------------------
The Myo D 1600T Data Collector system must be integrated with a compatible
laptop
Page 7
<PAGE>
computer (the "Laptop"). Lessor will purchase the Laptop on behalf of Lessee
and integrate it with the Myo D 1600T Data Collector system. The Laptop is not
included as part of the Leased Equipment. Lessee will be invoiced for the cost
of the Laptop and will be required to reimburse Lessor according to the terms of
the invoice. Lessee will assume all costs and responsibilities associated with
the maintenance and ownership of the Laptop.
Lessee acknowledges that all of the items set forth in the above Table 1 -
Leased Equipment, and Schedule 1A - Schedule of Leased Equipment as itemized
above have been received by Lessee; that all required installation, preparation,
set-up and other work has been performed; and that in all respects, the Lease
Equipment is satisfactory and is hereby accepted by Lessee.
The parties hereto have executed this Scheduled Lease 1-040596 and agree to the
terms, Security Deposit and Lease Payment Schedule as outlined above and which
Scheduled Lease shall be effective on the dates specified next to their
respective signatures. The parties agree that this Scheduled Lease shall be
affixed to the Master Lease as Addendum 1 and shall be subject to all the terms
and conditions of the Master Lease.
ACCEPTED BY LESSEE:
BY /s/ Ian C. P. Woodburn Dated: April 5, 1996
--------------------------
Ian C.P. Woodburn
its President
ACCEPTED BY LESSOR:
BY /s/ Gerald D. Appel Dated: April 5, 1996
--------------------------
Gerald D. Appel
its President
Page 8
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT, effective as of the 1st day of March, 1996, by and between
Myo Diagnostics Inc., a California Corporation (hereinafter called "Company")
and Medical Consultants Imaging Co., an Ohio Partnership and MCIC/HNI, a Joint
Venture in Michigan, (hereinafter collectively called "Distributor").
The parties hereto agree as follows:
ARTICLE I.SERVICES
A. APPOINTMENT OF DISTRIBUTOR. Company hereby appoints Distributor as A
NON-EXCLUSIVE DISTRIBUTOR to promote and solicit orders for Company's Muscle
Pattern Imaging ("MPI") muscle evaluation services and to hire and maintain MPI
Certified Technicians ("Technicians") certified by the Company as approved to
provide MPI examination services for all patients and subjects sold by
Distributor as described on Exhibit "A" hereto (hereinafter referred to as
"Services") only to customers authorized by Company set forth on Exhibit "B"
hereto (the "Authorized Accounts") in the geographical area described on Exhibit
"C" hereto (the "Territory") in accordance with the terms and conditions of this
Agreement.
B. DUTIES OF COMPANY.
1. Company shall provide MPI Reports ("Reports") for all patients and
subjects who have had an MPI examination administered by a Technician and which
data has been transmitted to the Company main office, such reports to be faxed
or mailed to the location designated by Distributor not later than 48 hours from
receipt of the examination data;
2. Company shall train and certify Technicians to perform the Services
for the Authorized Accounts;
3. Company shall rent or lease data collection equipment to Distributor
as required which has FDA 510K pre-market approval and which has UL approved
power supply;
4. Company shall provide proprietary supplies to Distributor as required
and Distributor shall have the option to purchase generic supplies from the
Company or direct from supplier;
5. Company shall provide technical information, scientific validation and
clinical study results as required by the Distributor;
6. Company shall provide all hardware and software updates and revisions
at no cost to the Distributor;
7. Company shall carry a minimum of $1.0 million per occurrence liability
and/or
-1-
<PAGE>
errors and omissions insurance;
8. Company shall provide Distributor with copies of all correspondence
between Company and Distributor's Registered Authorized Accounts at the time it
is sent or received.
C. DUTIES OF DISTRIBUTOR.
1. Distributor hereby accepts said appointment by Company as A
NON-EXCLUSIVE DISTRIBUTOR and agrees:
a. that it shall provide Services to Authorized Accounts (i) at
their respective locations, (ii) at a location of their designation
provided such location is within 100 miles traveling distance of the
nearest certified Technician maintained by Distributor, or (iii) at any
existing Distributor location. If the Authorized Accounts do not desire
Services to be performed at their respective locations or at any existing
Company locations, and if the designated location is outside the 100 mile
range but Within the Territory, Distributor shall provide Services at its
sole option;
b. that it shall solicit orders for Services from Authorized
Accounts only in the Territory defined in Schedule C and sufficient
quantities to enable Distributor to meet the minimum annual Performance
Requirements as set forth on Schedule 1 hereto;
c. that it will not, at any time during the term of this Agreement,
directly or indirectly, promote or solicit orders for Services from any
persons or entities other than Authorized Accounts in the Territory except
pursuant to an agreement entered into in accordance with Section IV(D)
hereof;
d. that it shall only utilize personnel, whether employees or
independent contractors, to solicit orders for Services hereunder, who are
trained by Company or according to the Company's Training Manual and
further that it shall be responsible for causing such personnel only to
make representations authorized by Company in connection with the
solicitation of orders for Services;
e. to sign and to cause each of its employees and independent
contractors who assist in Distributor's performance of this Agreement to
sign a confidentiality and non-competition agreement, in the form of
Exhibit D hereto, the breach of which shall constitute a breach of this
Agreement also unless such breach is not found valid in a court of law;
f. to make available upon request to the Company copies of all
correspondence between Distributor or its agents and Authorized Accounts at
the time it is sent or received;
g. to perform all of its obligations and to exercise all of its
rights hereunder
-2-
<PAGE>
strictly in accordance with such policies as Company may establish from time to
time, to comply with all laws, rules and regulations applicable to its
performance pursuant to this Agreement, to procure and maintain all licenses and
permits necessary to the performance of its business and to conduct its business
in a manner so as not to bring discredit upon the reputation of Services or
Company;
h. to promptly forward to Company all payments for services provided
by Company according to the terms included in Section II in this agreement
subject to amendment by mutual agreement;
i. to permit Company to inspect and make copies of any of its books
and records relating to Distributor's performance of its obligations
pursuant to this Agreement;
j. to furnish written or verbal reports relating to Distributor's
activities pursuant to this Agreement as may be requested by Company from
time to time;
k. to present services at trade shows, seminars and appropriate
meetings and to advise Company of opportunities to present Services at such
trade shows;
l. to provide customer service to its Registered Authorized Accounts
which have entered into agreements with Distributor including without
limitation, (i) to maintain communication with such Authorized Accounts,
(ii) to train such Authorized Accounts to provide patient referrals,
(iii) to facilitate communication between Company and such Authorized
Accounts, (iv) to use its best efforts to assist Company in performing any
required services requested by such Authorized Accounts in the Territory;
(v) at Company's request, to use its best efforts to assist Company in
adjusting any complaints or disputes that may arise in connection with
sales of Services to such Authorized Accounts in the Territory (provided,
however, that all allowances, adjustments and returns must be first
approved by Company in writing);
m. agrees to devote a minimum of one full time employee devoted
solely to the sale and marketing of MPI and to devote the full time
services of Technicians as required in the Performance Requirements in
Schedule 1 attached hereto;
n. agrees to provide a minimum of $1.0 million liability and/or
errors per occurrence and omissions insurance per technician employed.
2. Distributor acknowledges and agrees that Company shall have the right,
in its sole discretion, to:
a. establish and/or adjust from time to time, all prices, discounts
and other terms and conditions governing the purchase of services to be
provided by the Company ("Company Services"), said price increases to be
not in excess of 5% per any two year
-3-
<PAGE>
contract term; and that if Distributor were to demonstrate a decline in the
average third party insurance reimbursement in excess of 20% Company will
discuss price adjustments;
b. suspend or cancel Services to any Authorized Account for any
reason which Company and Distributor mutually agree to be sufficient;
c. add or, upon mutual agreement with Distributor, delete from
Exhibit "A" certain items of Services or discontinue or change any Services
at any time and from time to time; and
d. promote and sell services to any persons outside of the Territory
and, in the event that Distributor fails to meet the Performance
requirements in Schedule 1 attached, to appoint other persons or entities
as non-exclusive Distributors to promote and solicit orders for the sale of
Services to Authorized Accounts or any other persons in the Territory, to
promote and solicit orders for the sale of Services to Authorized Accounts
or any other persons outside of the Territory and to contract with such
nonexclusive and exclusive Distributors in connection therewith without
notice or liability of any kind to Distributor.
3. Company acknowledges and agrees that Distributor shall have the right
in its sole discretion to: subcontract with qualified individuals and entities
subject to Company's prior approval which shall not be unreasonably withheld.
Distributor hereby assumes all responsibility for the management and supervision
of such subcontractors and to cause such subcontractors to comply with all
applicable terms and conditions set forth in this Agreement.
ARTICLE II. PAYMENT FOR COMPANY SERVICES
A. PAYMENT
1. Except as otherwise expressly provided herein, as full compensation
for services rendered by Company during the term of this Agreement, Distributor
shall pay the Company for providing reports, leasing or renting equipment,
providing supplies and collateral sales material, training Technicians, and all
other Services provided for the benefit of Distributor and/or Distributor's
Registered Authorized Accounts in the Territory in accordance with this Section
II and the Payment Schedule attached hereto as Schedule 2, or such other
Schedule determined by Company to which Distributor may agree orally or in
writing except as per Section I(2)(a). The term "Authorized Accounts" shall be
defined as an Account which consists of a single person or entity with sole
authority to enter into agreements with Distributor or Company to acquire
Company Services for itself or its different business locations. Each such
entity, each affiliate, parent or subsidiary of an entity, or division or
separate geographic location of an entity with the aforementioned authority
shall constitute a separate Authorized Account. For example, if XYZ Hospital
Chain, Inc. had multiple subsidiary corporations which operated divisions or
geographically separate locations each with the authority to enter into
agreements to acquire Services from Company, the parent company, each
subsidiary, each division, and each location,
-4-
<PAGE>
would each constitute a separate Authorized Account. Any dispute related to the
identity or separate nature of an Authorized Account shall be resolved by
Company in its reasonable discretion after consultation with Distributor and/or
any other Distributor affected.
2. Except as otherwise expressly provided herein, payments for all
Company Services Sales shall be deemed due and payable on the thirtieth (30th)
day following the last day of any month during which Company has provided such
services, and Distributor agrees that prompt payment for such Services in
accordance with this Section II and Schedule 2 attached to this Agreement on or
before such date is a material condition of this Agreement. Unless the amount
of any invoice is questioned by Distributor within ten ninety (90) days after
its receipt thereof, the amount of such invoice shall be deemed to be accurate
and Distributor shall be deemed to have waived any rights it may have to make
any claims with respect to same. Failure to make payment according to the terms
of this Section II will result in a late payment fee of 5% of the face value of
the outstanding invoice.
3. Report Fees shall be waived and shall not be deemed owed and payable
with respect to Company Services which are provided for scientific studies
and/or clinical confirmation studies performed by Distributor i) ONLY IF SAID
STUDIES HAVE BEEN PREVIOUSLY APPROVED IN WRITING BY AN AUTHORIZED OFFICER OF THE
COMPANY; ii) ONLY FOR THOSE QUANTITIES SPECIFICALLY PRE-AUTHORIZED IN WRITING BY
THE COMPANY, AND iii) ONLY IF COMPANY SERVICES ARE PROVIDED TO ANY PERSONS OR
ENTITIES OTHER THAN AUTHORIZED ACCOUNTS FOR WHICH BILLABLE COMPANY SERVICES ARE
PROVIDED.
4. Notwithstanding anything set forth herein above, Company may, in its
sole discretion, change the rates for Company Services or establish special
arrangements or discounts in circumstances where it deems such arrangements to
be necessary, including, but not limited to, situations where an Authorized
Account is serviced by two or more Company Distributors, such changes not to be
an increase in the rates for Company Services unless agreed in writing by
Distributor.
5. Company shall not be liable to Distributor in any way whatsoever for
any failure, delay or errors in rendering Services to Authorized Accounts,
whether or not caused by conditions not within the reasonable control of the
Company and Distributor shall have no obligation to pay for any said Services.
B. EFFECT OF EXPIRATION OR TERMINATION ON COMPENSATION.
1. Upon expiration of this Agreement or upon its TERMINATION BY COMPANY
FOR CAUSE OR BY DISTRIBUTOR WITHOUT CAUSE, Distributor shall be obligated to pay
the Company as provided for in Section H of this Agreement on those Company
Services which have been provided by Company to Distributors's Registered
Authorized Accounts in the Territory on or before the date of expiration or
termination of this Agreement. Upon TERMINATION OF THIS AGREEMENT BY COMPANY
WITHOUT CAUSE PURSUANT TO SECTION VIII(B)(1), OR BY DISTRIBUTOR FOR CAUSE AS SET
FORTH IN SECTION VIII(B)(4) HEREOF, Distributor shall pay the Company for all
-5-
<PAGE>
Company Services which have been provided to Authorized Accounts sold prior to
the date of termination and the Company shall continue to provide Services for
which the Distributor shall pay at a rate equal to seventy five per cent (75%)
of the Schedule 2 then in force during the three month period after such
termination.
2. Distributor shall not be entitled to further consideration of any kind
upon expiration or termination of this Agreement.
C. EXPENSES. Any expenses incurred by Distributor in connection with this
Agreement shall be for its own account and shall not be subject to reimbursement
by Company.
ARTICLE III. REGISTRATION OF AUTHORIZED ACCOUNTS
A. REGISTERED ACCOUNTS. An Authorized Account shall be "registered" in
the name of Distributor if Distributor is the first of those persons entitled to
sell or procure sales for Services to procure orders from such Account for five
or more MPI reports for which revenue is realized by the Company. The
Authorized Account shall remain exclusively registered in Distributor's name
until the earlier of the expiration of this Agreement, or the passage of ninety
(90) consecutive days without a single MPI report being provided by Company on
behalf of such Account whereupon the Account will automatically cease to be
Registered in the name of Distributor and be treated like any other Authorized
but unregistered Account. The Company agrees that Authorized Accounts
registered to Distributor shall be only serviced by Distributor and Distributor
agrees not to solicit Authorized Accounts which are Registered Accounts of
others. All Authorized Accounts shall be eligible for registration.
B. COMMISSIONS TO OTHERS. Company shall not pay commissions to any other
Distributor, agent or finder on Distributor's registered Prospects or Leads
without Distributor's consent and approval of terms except as otherwise provided
hereto such as pursuant to Section IV(c) hereof regarding shared commissions.
Company shall use its best efforts to prohibit authorized or unauthorized
Distributors from contacting Distributor's Authorized Accounts, Prospects or
Leads. Commissions paid to others at Distributors' request shall be reimbursed
to the Company by Distributor according to the Payment Terms in Section II of
this Agreement.
ARTICLE IV. AUTHORIZED MARKET
A. Distributor is authorized to solicit business and establish Service
Centers solely in the territory defined in Schedule C attached hereto.
Distributor shall restrict activities to this (these) area(s) subject to the
other terms and conditions of this Agreement including without limitation those
pertaining to the registration of Authorized Accounts.
B. SERVICE AREAS Company requires a minimum continuing case lead of 75
reports per month to consider that a regional service center in a specific
geographical area has been established outside the territory as established in
Exhibit C. Further, Distributor must develop its service centers in a careful,
methodical, and businesslike progression. It must view
-6-
<PAGE>
expansion from the perspective of its available and trained, professional,
technical, administrative and clerical personnel in connection with the decision
to open a new service center. Subject to the Performance Requirements defined
in Schedule I attached hereto, Company understands that Distributor will have to
exercise its reasonable judgment in determining whether or not to open a service
center in a given new location even if a case load of 75 evaluations per month
were available.
C. SHARED REVENUE If there is a question about registration of
Authorized Accounts or if an account is sold where no registration exists or if
Distributor requests another authorized Distributor to assist in a sale, or if
the Company generates sales from National Accounts and asks Distributor to
perform Services in its Territory, Distributor agrees to share the revenue with
the other authorized Distributors or the Company when those Distributors or the
Company have performed services warranting a payment for services. The division
of revenue is to be mutually agreed upon among the parties. In the event of a
dispute among such Distributors regarding the division revenues generated by any
account, the parties shall meet and attempt to amicably resolve the dispute. If
the parties are unable to resolve the dispute within 30 days, Distributor agrees
that Company shall have the sole authority to resolve the dispute by making a
determination of a fair distribution of payment of commissions to govern present
and future revenues.
D. SALES OUTSIDE TERRITORY. Company may, at its sole discretion,
authorize Distributor to sell services outside his territory on a one time
non-exclusive basis or on a continuing basis under terms and conditions to be
established. This can be accomplished by appending an addendum to this
Agreement or by negotiating a new Agreement acceptable to both parties.
ARTICLE V. PROPERTY RIGHTS
A. OWNERSHIP OF RECORDS.
1. All records of the accounts of Authorized Accounts and any other
records and books relating in any manner whatsoever to Authorized Accounts,
Services or to the Company, whether prepared by Distributor or otherwise coming
into its possession, shall be the exclusive property of Distributor. The
Company shall have a reasonable right to inspect such records per Section
I(l)(J).
2. Distributor shall not make or retain copies of any "confidential"
materials or information with which it may have been entrusted, including, but
not limited to, customer lists, customer ordering patterns and pricing
structures or discount information. Such materials or information shall be kept
confidential and not communicated, disclosed or divulged to any other person or
entity, or used for any purpose other than soliciting orders for Services,
without the express written consent of Company. Distributor's obligation to
keep said information confidential shall remain in full force and effect until
Distributor receives a written release thereof from Company.
-7-
<PAGE>
B. OWNERSHIP OF OTHER MATERIALS. Upon termination or expiration of this
Agreement, Distributor shall return all samples, literature, catalogs, displays
and sales aids of every kind supplied to Distributor by Company in accordance
with Company's instructions. Distributor shall submit a paid invoice and
Company shall reimburse Distributor for the cost of any such material returned
which had been previously purchased.
ARTICLE VI. LACK OF AGENCY STATUS AND INDEMNIFICATION.
A. LACK OF AGENCY. Distributor shall not be constituted the employee,
agent or legal representative of Company for any purpose whatsoever.
Distributor shall maintain its own place of business and engage such persons or
entities as may be necessary to perform its obligations hereunder. Distributor
is not granted any express or implied right or authority to assume or create any
obligation or responsibility on behalf of or in the name of Company or to bind
Company in any manner. All persons employed or otherwise engaged by Distributor
shall be deemed to be the agents, employees or representatives of Distributor
and Distributor shall be solely responsible for the acts or omissions of such
persons. Distributor shall make no representations, warranties or commitments
about, or with respect to, Services except as may be first approved in writing
by Company.
B. OTHER MANUFACTURERS. During the term of this Agreement, Distributor
shall be free to represent the products of other manufacturers or distributors;
provided, however, that Distributor agrees (a) that neither Distributor nor any
owner, officer, director or partner of Distributor shall, directly or
indirectly, promote, sell, solicit orders for or otherwise represent (or own any
interest in any entity which promotes, sells, solicits orders for or otherwise
represents) the products or services of any other manufacturers or distributors
or persons, which products or services Company, in its sole discretion, deems to
compete with Services, and (b) to promptly advise Company of such other
manufacturers or distributors for whom it is providing services during the term
hereof.
C. INDEMNIFICATION. Distributor and Company shall indemnify and hold
each other, its parents, subsidiaries and affiliates and the officers,
directors, employees and agents of any of them, harmless from all damages,
liabilities, judgments, settlements, penalties, claims and expenses (including
attorneys' fees) arising out of or in any way related to the performance or
failure of performance by Distributor, or Company or their respective owners,
officers, directors, employees or agents, of its or their obligations under this
Agreement.
ARTICLE VII. TRADEMARKS AND TRADE NAMES
Company hereby grants Distributor the non-exclusive right to use with
respect to its obligations to solicit sales and promote Services during the term
of this Agreement the names "Company," "Myo Diagnostics," "MPI," "Muscle Pattern
Imaging" and such other trademarks and trade names as are used by Company in
connection with Services (the "Company Marks"). Nothing herein contained shall
be construed as conferring upon Distributor any right or interest in the Company
Marks. In no event shall Distributor incorporate any of the Company Marks
8
<PAGE>
into the name under which it does business, nor shall Distributor in any way
hold itself out, through the use of the Company Marks or otherwise, to be an
employee, agent, affiliate or subsidiary of Company. Distributor shall
immediately discontinue the use of the Company Marks upon Company's request and,
in any event, upon expiration or termination of this Agreement.
ARTICLE VIII. TERM
A. TERM.
1. This Agreement shall become effective as of the date first set forth
above, and, unless earlier terminated in accordance with Section VIII(B) of this
Agreement, shall continue in effect for an initial period of two (2) years and
shall thereafter be automatically renewed for additional successive periods of
four (4) years each if Distributor achieves the Performance Requirements
specified in Schedule 1, "Performance Requirements." In the event that
Distributor has achieved the aforementioned Performance Requirements for two
successive terms then future renewal periods shall be for a term of four (4)
years. New Performance Requirements for successive terms shall be determined as
part of the renewal of the agreement.
2. If Performance Requirements are not met in the initial term or any
subsequent annual or biannual term hereof Company may in its sole discretion
notify Distributor of its desire to renew at least ninety (90) days after
completion of such initial or subsequent term of this Agreement. If Distributor
agrees to the renewal, the Agreement shall continue for an additional term with
the same terms and conditions including automatic renewal if the Distributor
achieves its Performance Requirements during such new term or automatic
termination (subject again to Company's discretionary right to offer renewal
within 90 days after expiration) if Distributor fails to achieve its Performance
Requirements during such new term.
B. TERMINATION OF AGREEMENT.
1. The parties hereto may voluntarily terminate this Agreement upon a
mutual agreement in writing signed by a duly authorized representative of each
party.
2. Notwithstanding anything set forth hereinabove, this Agreement may be
terminated by Company on written notice to Distributor upon the occurrence of
any of the following events:
a. The breach by Distributor of any of its obligations pursuant to
this Agreement, including without limitation the failure to meet minimum
Performance Requirements pursuant to Section I(c)(1)(b) of this Agreement;
b. Distributor or any of its owners, officers or directors making,
committing or being charged with misrepresentation of Company's equipment
or Services or otherwise, fraud, unfair trade practices, misappropriation
or embezzlement from or with respect to Services, Company or any Authorized
Account or failure by Distributor timely
-9-
<PAGE>
to pay its employees or independent contractors in connection with their
solicitation of orders for Services;
c. The insolvency of or filing of a voluntary petition in bankruptcy
by Distributor, the filing of a petition to have Distributor declared
bankrupt, the appointment of a receiver or trustee for Distributor, or the
execution by Distributor of an assignment for the benefit of creditors;
d. Any attempted sale, transfer or assignment by Distributor of this
Agreement or any of the rights or privileges granted Distributor by this
Agreement, or any attempted transfer, assignment or delegation by
Distributor of any of the responsibilities assumed by Distributor under
this Agreement, without the prior written consent of Company;
e. Any dispute, disagreement or controversy between or among
Distributor's owner(s) (or, if Distributor is a corporation, its directors
or officers; or, if Distributor is a partnership, its general or limited
partners) relating to the ownership or management of Distributor or to its
operations which, in the opinion of Company, may adversely affect
Distributor's operations and which is not cured in 60 days after the
Company has given such written notice to Distributor; or
f. Distributor's engaging in or having any interest in any person,
firm, corporation or business (whether directly or indirectly or by or
through any owner, officer, director or partner of Distributor) which
engages in the wholesale or retail sale or promotion of any product,
system, device or service directly or indirectly competitive with Company
or with the Services at any time during the term of this Agreement;
provided, however, that this Section VIII(B)(3)(g) shall in no way prohibit
the ownership by Distributor (or any owner, officer, director or partner
thereof) of a minority interest which does not confer control of a
corporation whose stock is publicly traded, and provided further that MRI,
CT scan and X-Ray shall not be considered competitive products hereunder.
3. This Agreement may be terminated by Distributor immediately on written
notice to Company upon the occurrence of any of the following events:
a. The breach by Company of its obligation to supply Company
Services according to this Agreement;
b. The insolvency or filing of a voluntary petition in bankruptcy by
Company, the filing of a petition to have Company declared bankrupt, the
appointment of a receiver or trustee for Company or the execution by
Company by assignment for the benefit of creditors; or
c. Company or any of its owners, officers or directors making,
committing
-10-
<PAGE>
or being charged with misrepresentation of Company's equipment or Services or
otherwise, fraud, unfair trade practices, misappropriation or embezzlement from
or with respect to Services, Distributor or any Authorized Account.
C. FAILURE TO SERVICE REGISTERED AUTHORIZED ACCOUNTS. If Distributor does not
provide the services required by Section I(C)(1)(m) hereof with regard to one or
more Registered Authorized Accounts in Company's reasonable judgment, Company
may in addition to its other remedies hereunder, including termination of this
Agreement under Section VIII(B)(3)(a), at its election, assume the
responsibility to provide these services to such Registered Authorized Accounts.
Company shall only make this election after it has first given written notice to
Distributor describing Distributor's failure to provide the services required by
Section I(C)(1)(m) hereof and secondly, after the continuation of such failure
to provide service for 30 days or more after Company's having given such written
notice to Distributor.
D. RIGHTS OF TERMINATION ABSOLUTE. The aforesaid rights of termination are
absolute; neither party shall be liable to the other for any indemnity, loss, or
damage (whether direct, indirect, special, consequential or incidental) by
reason of the reasonable exercise of said rights to terminate this Agreement and
all claims therefor are hereby expressly waived (including, but not limited to,
any claims for loss of commissions or profits or relating to any expenditures,
investments, capital improvements, leases or other commitments made by either
party in connection with its business or in reliance upon this Agreement).
ARTICLE IX. GENERAL PROVISIONS
A. WAIVER. The failure of either party to enforce at any time, or for any
period, the provisions of this Agreement shall not be construed as a waiver of
such provisions or of the right of such party thereafter to enforce each and
every such provision. No claim or fight arising out of the breach of this
Agreement can be discharged in whole or in part by a waiver or renunciation of
the claim or right unless the waiver or renunciation is in writing and signed by
the aggrieved party.
B. AGREEMENT NOT ASSIGNABLE. Because of the special, unique and extraordinary
character of Distributor's services, it may not sell, assign or otherwise
transfer this Agreement, by operation of law or otherwise. Any such assignment
or transfer by Distributor shall be null and void and of no effect whatsoever.
C. CONSTRUCTION OF AGREEMENT. No course of prior dealing between the parties
and no usage of the trade shall be relevant to supplement, explain or vary any
of the terms used in this Agreement.
D. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California. In the event any provision
hereof is held by an arbitrator to be invalid, unenforceable or to violate any
applicable law, it shall be deemed null and void to the extent thereof, without
affecting the balance of this Agreement.
-11-
<PAGE>
E. CURE PERIOD. In the event that either party determines that a material
breach of this Agreement has occurred, Notice (per Paragraph F below) shall be
given to the other and the party creating the breach shall have a period of 60
days to cure the breach and return to compliance with the terms of the
Agreement.
F. NOTICES. Any notice, request, demand or other communication required or
permitted hereunder shall be deemed to be properly given when delivered in
person by fax or by registered or certified mail, postage prepaid, return
receipt requested, addressed to Company or to Distributor at their respective
addresses which appear on the signature page of this Agreement, or at such other
address as either party may have previously designated by written notice to the
other party.
G. LIMITATION OF LIABILITY. Company shall use its best efforts to provide,
within a reasonable time, Services in fulfillment of sales to Authorized
Accounts which are accepted by Company; however, Company shall not be liable to
Distributor for any failure or delay in providing services. Neither Company nor
Distributor makes any warranties or representations not included in this
Agreement with respect to any of the products, Services, supplies, equipment or
materials relating to the subject matter hereof. In no event shall Company be
liable to Distributor for indirect, special or consequential damages or for loss
anticipated commissions or profits whether as a result of an Authorized Account
not making payments or otherwise.
H. COMPLETENESS OF INSTRUMENT. There are no understandings not contained in
this Agreement, and this Agreement shall supersede and cancel all previous
contracts, arrangements or understandings that may have existed or may exist
between the parties with respect to the subject matter of this Agreement.
Except as otherwise expressly set forth herein, this Agreement may be amended
only by a written instrument signed by a duly authorized representative of
Company and Distributor.
I. ARBITRATION. In the event of any controversy, breach or dispute arising
out of this Agreement, or relating to the interpretation of any term or
provision of this Agreement, the parties shall meet and endeavor to resolve in
good faith any such controversy or dispute. If the parties are unable to
resolve such controversy or dispute within 30 days, then such controversy or
dispute shall be heard in Los Angeles by a single arbitrator with at least 10
years experience as a certified public accountant who shall be appointed by and
conduct the arbitration in accordance with the rules of, the American
Arbitration Association. The arbitrator shall decide all issues of fact and law
and issue all legal and equitable relief appropriate under the circumstances.
The arbitrator shall apply California law. Each party shall bear its own costs
including attorneys fees which costs shall not be recoverable in the arbitration
unless punitive damages are awarded in which case these costs shall not in any
part be born by the prevailing party. The arbitrator's decision shall be final
and binding.
-12-
<PAGE>
This Agreement is executed as of the date first written above.
DISTRIBUTOR: Medical Consulting Imaging Co.
By: /s/ Ian C.P. Woodburn
-----------------------------
Ian C.P. Woodburn
its President
Address: 1621 Euclid Ave., Ste. 1620
Cleveland, Ohio 44115
COMPANY: MYO DIAGNOSTICS INC.,
by Myo Diagnostics, Inc.
By: /s/ Gerald D. Appel
-----------------------------
Gerald D. Appel
Its President
Address: 3710 Robertson Boulevard
Culver City, CA 90232
-13-
<PAGE>
EXHIBIT "A"
SERVICES
(Services sold by Company for which
Distributor may solicit Registered Authorized Accounts)
MPI Muscle Pattern Imaging
-i-
<PAGE>
EXHIBIT "B"
AUTHORIZED ACCOUNTS
(Customers from whom Distributor
may solicit orders for Services)
Physicians, hospitals, health insurance companies, self-insured employers,
self-funded employers, health maintenance organizations, preferred provider
organizations, medical foundations, health care management services
organizations, federal, state and local governmental agencies and other
qualified health care providers but only to chiropractors practicing in
conjunction with a licensed medical doctor(s).
-ii-
<PAGE>
EXHIBIT "C"
TERRITORY
(Geographical area in which Distributor
may promote and solicit the sale of Services)
Distributor is authorized for the states of Ohio, Michigan, Indiana, and
Kentucky as defined below and in the western portion of the state of
Pennsylvania with limitations as defined below.
The Distributor agrees to establish Metropolitan Centers as follows:
Metropolitan areas in Ohio to include Cleveland, Akron, Toledo, Columbus,
Cincinnati, Youngstown and Dayton. All other areas in the state to be serviced
from one of the Metropolitan Centers.
Metropolitan areas in Michigan to include Detroit, Grand Rapids and Kalamazoo.
All other areas in the state to be serviced from one of the Metropolitan
Centers.
Metropolitan areas in Indiana to include Indianapolis and Gary/South Bend.
All other areas in the state to be serviced from one of the Metropolitan
Centers.
Metropolitan areas in Kentucky to include Louisville and Lexington.
All other areas in the state to be serviced from one of the Metropolitan
Centers.
Metropolitan areas in Pennsylvania limited to Pittsburgh and Harrisburg.
Only areas in Pennsylvania west of those Metropolitan Centers shall be serviced
under this agreement.
-iii-
<PAGE>
EXHIBIT "D"
FORM OF CONFIDENTIALITY
AND NON COMPETITION AGREEMENT
ON FILE
-iv-
<PAGE>
SCHEDULE 1
PERFORMANCE REQUIREMENTS
Performance Requirements are defined as the performance required from
Distributor in order to maintain the representation Agreement in force. It also
defines the performance standards established to earn performance bonuses.
Performance requirements define:
the number of full time Technicians employed by Distributor AT THE END OF
THE PERIOD; the total number of reports for which Company Services are
billed DURING THAT PERIOD.
TECHNICIAN EMPLOYMENT AND REPORT STANDARDS MUST BOTH BE MET TO FULFILL
PERFORMANCE REQUIREMENTS.
MINIMUM PERFORMANCE STANDARDS
- --------------------------------------------------------------------------------
YEAR MONTH 6 MONTH 12
ONE ----------------------------------------------------------------------
No. Techs. Total Reports No. Techs. Total Reports
employed Billed in 6 Mos. employed Billed in 12 Mos.
- --------------------------------------------------------------------------------
MINIMUM 3 500 8 3,000
STANDARD
- --------------------------------------------------------------------------------
YEAR MONTH 18 MONTH 24
TWO ----------------------------------------------------------------------
No. Techs. Total Reports No. Techs. Total Reports
employed Billed in 6 Mos. Employed Billed in 12 Mos.
- --------------------------------------------------------------------------------
MINIMUM 12 3.500 18 7,500
STANDARD
- --------------------------------------------------------------------------------
PERFORMANCE REQUIREMENTS FOR SUBSEQUENT YEARS SHALL BE DETERMINED UPON RENEWAL
OF THIS AGREEMENT AND SHALL BE A MATERIAL CONSIDERATION FOR SUCH RENEWAL.
/S/ I.C.P.W. /S/ G.D.A
---------------------- ---------------------
Initialed by Distributor Initialed by Company
-v-
<PAGE>
SCHEDULE 2
FEES FOR COMPANY SERVICES
SCHEDULE OF REPORT FEES
MONTHLY USAGE COST PER REPORT
Per report from 0 to 100 $330 per report
Per report from 101 to 250 $300 per report
Per report from 251 to 500 $240 per report
Per report from 501 to 750 $225 per report
Per report from 751 to 1,250 $200 per report
Per report 1,251 and more $180 per report
Report Fees shall be billed on the last day of each month using the 25th day of
the month as the cutoff date. The invoice generated for the current month will
include report fees from the 26th day of the prior month to the 25th day of the
current month.
TERMS: NET/30TH OF THE FOLLOWING MONTH
LATE PAYMENT CHARGE: 5% OF THE INVOICE
ALL REPORTS GENERATED BY THE COMPANY SHALL BE BILLED EXCEPT ACCORDING TO THE
TERMS OF SECTION II(A)(3) HEREIN.
EQUIPMENT LEASE (Separate Equipment Lease Agreement on File)
Term: 4 years (subject to cancellation if Company terminates this
Agreement)
Rental Fee: Year 1 $1,500 per month
Year 2: $1,500 per month
Year 3: $1,500 per month
Year 4: $ 500 per month
Year 5 $ 500 per month
Due on Signing rental agreement: $6,000
($3,000-1st and last month's rent; Security Deposit-$3,000)
SUPPLIES PRICE LIST (subject to change on 30 day notice)
(Separate Price List dated January 1996 on File)
-vi-
<PAGE>
[Letterhead of Lever, Lippe, Hellie & Company LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 6, 1996, in the Registration Statement on Form SB-2
and related Prospectus of Myo Diagnostics, Inc. for the registration of
3,255,561 shares of its Common Stock.
/s/ Lever, Lippe, Hellie & Company LLP
LEVER, LIPPE, HELLIE & COMPANY LLP
Los Angeles, California
March 7, 1997
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Form SB-2 of our
report dated February 7, 1997 on our audit of the financial statements of Myo
Diagnostics, Inc. for the year ended December 31, 1996. We also consent to the
reference to our firm under the caption "Experts."
/s/ Singer Lewak Greenbaum & Goldstein LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC. DATED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 606,144
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 25,672
<INVENTORY> 0
<CURRENT-ASSETS> 611,561
<PP&E> 363,195
<DEPRECIATION> 159,083
<TOTAL-ASSETS> 851,085
<CURRENT-LIABILITIES> 551,021
<BONDS> 0
0
0
<COMMON> 4,300,679
<OTHER-SE> (4,067,741)
<TOTAL-LIABILITY-AND-EQUITY> 851,085
<SALES> 13,650
<TOTAL-REVENUES> 13,650
<CGS> 97,535
<TOTAL-COSTS> 1,239,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,990
<INCOME-PRETAX> (1,234,254)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,235,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,235,054)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
