SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[x] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended September 30, 1999.
[_] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to .
Commission file number: 000-26555
ACCUIMAGE DIAGNOSTICS CORP.
(Name of Small Business Issuer in its Charter)
Nevada 33-0713615
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
400 Oyster Point Blvd., Suite 114,
South San Francisco, California 94080-1917
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (650) 875-0192
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES [ ] NO [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for fiscal year ended September 30, 1999: $1,059,138
As of February 8, 2000, non-affiliates of the issuer held voting stock with an
aggregate market value of $4,909,212 computed by reference to the average of the
bid and asked prices of such stock on such date.
As of February 8, 2000, there were 9,748,200 shares of common stock, no par
value, outstanding.
Portions of the following document are incorporated by reference: None
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
AccuImage Diagnostics Corp. (the "Company") is including the following
cautionary statement in this Annual Report to make applicable and take advantage
of the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 for any forward looking statements made by, or on behalf of, the Company.
Forward looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions, and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, these risks and uncertainties
include, but are not limited to, uncertainties affecting the Company's ability
to market its products, establish effective distribution, sales and support
channels and to maintain a responsive and competitive research and development
team capable of responding to and keeping pace with the highly competitive
technological marketplace in which the Company operates. The Company disclaims
any obligation to update any forward looking statements to reflect events or
circumstances after the date hereof.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
AccuImage Diagnostics Corp. ("AccuImage", "Company" or "Issuer") was
incorporated in Nevada on February 2, 1990 as Black Pointe Holdings, Inc. which
was established in order to identify and acquire a medical equipment leasing
business. Early attempts to do this were unsuccessful, and the company was
inactive for a number of years until new investors with interests in
three-dimensional medical technology got involved. In 1996, the Company changed
its name to AccuImage Diagnostics Corp., and it entered into a licensing
arrangement with AccuImage Inc., a Nevada corporation, which owned the exclusive
rights to certain computer software and technology, and began to further develop
the medical imaging software that the Company sells today. On September 30,
1997, pursuant to a Stock Exchange Agreement, the Company obtained all of the
outstanding shares of AccuImage Inc., which was subsequently dissolved. On June
30, 1999, the Company filed a Form 10-SB to become a reporting company under the
Securities Exchange Act of 1934. The Company's Common Stock currently trades on
the National Quotation Bureau's Pink Sheets under the symbol "AIDP". The
Company's website is www.accuimage.com.
BUSINESS OF ISSUER
AccuImage is engaged in the development, marketing and support of software
for the visualization, analysis and management of medical imaging data. The
software's primary function is to enhance physicians' interpretation of data
from medical imaging modalities such as computed tomography ("CT"), magnetic
resonance ("MR") and ultrasound through the application of three-dimensional
("3D") computer graphics and image processing technologies. This enhanced
analysis can support physicians in clinical diagnosis, surgical planning and
medical research. Three-dimensional visualization allows communication of
findings in a form readily understood by physicians and others without the
specialized training otherwise required to interpret the native images generated
by the medical imaging modalities. Efficiency gains and cost savings may be
realized through automated reporting tools
(1)
<PAGE>
and provision for electronic distribution of the medical imaging data and
post-processed results via internal networks and the Internet.
The AccuImage software was conceived and developed on the same hardware
platform that it is now distributed on: standard, high-performance, low cost
personal computer ("PC") workstations running the Windows operating system from
Microsoft. The software interfaces with medical imaging modalities via the
standard medical imaging DICOM protocol and uses the Internet and standard PC
networks for subsequent distribution of images and post-processed results.
Through this combination of standard underlying products and protocols,
AccuImage is able to offer to physicians cost-effective, easy-to-use yet
powerful visualization, analysis and laborsaving tools for everyday use.
The Company markets its products to radiology departments, imaging centers
and original equipment manufacturers ("OEM's") of diagnostic imaging systems
both through a direct sales force, a non-exclusive distributor in the United
States and independent distributors in international markets.
THE MEDICAL IMAGING INDUSTRY BACKGROUND
The application of scanning and imaging techniques to medicine has been
responsible for a revolution in medical practices since the development of the
CT scanner in the mid-1970's. The CT scanner provided the ability to view
anatomical images of the interior of the human body as a collection of
cross-sectional "slices". In addition to CT, magnetic resonance imaging and
ultrasound are two more recently developed techniques that are being
increasingly applied. These processes use radio and ultra-sound waves,
respectively, to non-invasively image the interior of the body, often with
greater effect than with X-ray technology. Positron Emission Tomography scanning
and Nuclear Medicine cameras are also capable of imaging cross sectional slices
of the body. These innovative technologies have been rapidly adopted and
incorporated in new physician-care practices based on the imaging information
they provide.
The cross-sectional images from these imaging devices are traditionally
transferred in batches to large-format film for review (similar in appearance to
conventional x-ray film), but as computer and networking technologies improve,
companies are offering systems that provide for the electronic storage and
transmission of images as well as providing computerized viewing stations,
eliminating the need for film. Further technological advances have made possible
viewing and manipulation of the data as complete, three-dimensional
visualizations reconstructed by software from the cross-sectional data.
In parallel with the development of these cross-sectional imaging
techniques, conventional X-ray imaging increasingly is being performed in a
digital format. Fluoroscopic images are digitized into a digital video stream.
Conventional X-ray films are increasingly scanned and stored in a digital
format. New digital image sensors have been developed that replace film and
provide the digital image without an intervening X-ray film (Digital
Radiography). This collection of techniques is known as Picture Archiving and
Communications Systems ("PACS"). It is believed that PACS will be the way that
modern hospitals in the near future manage radiological image review, transport
and storage.
This digital revolution in medical imaging means that images can be shared
inside and outside the hospital or imaging center with the aid of network
technology including the Internet and private Intranets. The American College of
Radiology, the National Electrical Manufacturers' Association and other
professional organizations have in recent years sponsored the development of a
standard image storage and communication protocol so that images from various
devices can be shared in a common display format. This standard is known as
DICOM (Digital Imaging and Communications in Medicine). The widespread adoption
of the DICOM standard creates the business opportunity for AccuImage and others
to participate in the developing a market for applications software that
provides visualization and analysis solutions for users of network distributed
medical images.
(2)
<PAGE>
A number of trends are evident in the highly competitive medical imaging
industry. Successive generations of scanning devices bring increased scanning
speed and image detail, and consequently increasing numbers of cross-sectional
slices are being produced in a single study. This is tending to make the viewing
of printed images on x-ray-like film logistically impractical and expensive,
favoring a computerized visualization system that can rapidly browse the large
dataset and integrate it directly with 3-dimensional reconstructions of the
subject anatomy.
Furthermore, younger generations of physicians are increasingly familiar
and confident with computerized systems, and there is increasing clinical
acceptance of electronic visualization and analysis as teaching institutions
rely more heavily on computerized review, storage and communications systems.
In addition to the trends observable in the medical imaging industry which
may benefit the Company in the future, the Company's advanced visualization and
analysis tools already offer radiologists enhanced ability to analyze
radiological studies, with the potential to extract more information that is
available from the slice views alone. Three-dimensional reconstructions are also
easier for untrained personnel to understand, enhancing the radiologist's
ability to communicate findings to others.
Beyond radiology, enhanced visualization and analysis tools may provide
surgeons with valuable and useful information to aid with pre-surgical planning
and post-surgical follow-up. In a similar fashion, the oncologist may benefit
from three-dimensional visualization of planned treatment sites, and
post-treatment follow-up of the same.
Finally, the use of the global Internet to communicate medical imaging data
and findings brings the potential for enhanced collaboration between physicians
and remote expert consultation and examination.
THE ACCUIMAGE TECHNOLOGY
The core technology of the AccuImage software is a special application of
three-dimensional computer graphics known as "Volume Rendering". Volume
Rendering applies the power of modern computer systems to the cross-sectional
image data in order to create three-dimensional visualizations of the subject of
the original scan. Often semi-transparent and colorful images are produced to
enhance the understanding of the graphics. Volume rendering can display some
parts of the data to allow hard, solid tissue such as bone to be viewed
"through" and "behind" softer tissue such as muscle, which can be made to appear
as semi-transparent. This allows the physician to rapidly view inaccessible body
areas and look for the abnormal details necessary for a reliable medical
diagnosis. This can be done safely, painlessly and with no side effects.
The Company's software development team successfully implemented Volume
Rendering technology in software developed exclusively for the Microsoft Windows
operating system using Intel Processors, to take advantage of the latest
multi-processor systems with ever-increasing clock speeds and enhanced processor
features such as SSE (Streaming SIMD Extensions). This technology in conjunction
with sophisticated analysis and review software forms the technology "core" of
the AccuImage product line.
In support of the visualization and analysis technology the AccuImage
software provides, the software also features data communication and management,
which is crucial to the efficient workflow of a modern imaging center or
radiology department. The DICOM standard is used for transfer of images within a
facility, with web-based Internet distribution provided for secure and rapid
remote access, transfer and review. Automated reporting and databasing tools
complete the suite of capabilities offered by the AccuImage product line.
(3)
<PAGE>
TARGET MARKETS FOR ACCUIMAGE PRODUCTS
AccuImage seeks to place its products in the developing market for
computerized medical imaging review, visualization and communication. The
customers in this market specialize in a range of activities from advanced
visualization and analysis, to imaging center management, filmless operation and
image distribution. The market is developing to include centralized and
distributed radiology (i.e. Teleradiology), remote diagnosis and consultation,
pre-surgical planning and post-surgical follow-up, cancer assessment and
treatment planning, as well as educational applications for the technology.
Hence the customers for these applications include radiology, surgery and
oncology departments of hospitals, leading research centers, imaging centers,
clinics and physician groups.
THE ACCUIMAGE MARKETING STRATEGY
The Company's main strategy for marketing its technology is direct sales to
radiology professionals through its sales force and distribution network. Since
radiologists represent the physician base closest to and most actively involved
in medical imaging, the Company believes they will represent the best
opportunity for placement of the Company's products in the short to medium term.
Radiology represents a developing market for both advanced visualization/
analysis techniques and networked distribution and efficiency enhancing
products. In order to develop the AccuImage brand in the radiology community,
the Company will continue to place demonstration units with leading research and
teaching institutions involved in the development and research of future
techniques and procedures, while selling directly to institutions through
advertising, trade show presence and direct sales.
In the long term, the Company seeks to expand its market to the broader
physician base, beyond radiology, through an active program of education,
sponsorship and participation in media coverage of the emerging opportunities to
enhance patient care offered by the technology the Company markets. The Company
plans to develop its website to provide a comprehensive and active forum for
physicians to use for education and collaboration on the application of
three-dimensional imaging in general. Through this program, the Company hopes to
expand knowledge and acceptance of its products, expanding its target market and
supporting its sales force in direct sales.
In order to help establish the Company's product line in the medical
community, an aggressive program of web-based marketing of free review and
low-cost basic 3D browsing software will be launched to help rapidly increase
the number of physicians involved in the Company's technology.
Finally, the Company will continue to develop its strong OEM relationship
and seek other such relationships as well as other distribution channels both
domestically and abroad.
PRODUCTS AND DEVELOPMENT
AccuImage has completed the initial development phase of its product line
and is proceeding with distribution. However since the Company operates in a
fiercely competitive software market, further deployment of considerable
resources for continued development and product enhancement is an ongoing
requirement. The Company's main products are the eStation3D web-based image
distribution system and the scalable AccuView workstation for advanced analysis,
postprocessing and image management.
o AccuView Workstation: A scalable solution for medical imaging
applications.
The product is supplied either as a software-only item or together as a
hardware and software item. In the latter case, the Company buys standard PC
equipment and combines them with the software to make a complete workstation. In
the former case, the buyer installs the workstation software on their own PC
equipment. The workstation consists of several software modules which are
capable of functioning independently. The Company occasionally supplies these
modules individually, either as software-only items, or as software and
hardware items combined, where the hardware is standard PC equipment. In order
to support its workstation business, the Company offers on-site training by its
applications personnel, and in the cases where it supplies the hardware, it
generlaly provides unlimited telephone support for one year along with on-site
and return-to-base options. Software-only sales generally include telephone
support for one year.
The complete workstation configuration features full-color, 3D volume
rendering, fly-through/fly-around path planning and coronary artery calcium
scoring software, with an emphasis on ease of use and procedural workflow.
(4)
<PAGE>
The AccuView Workstation is capable of taking a CT dataset of hollow
vessels (such as the windpipe) and generating a 3D view which simulates what one
might see from "inside" the vessel, looking down its length or up at its walls.
The effect is similar to the view generated by an Endoscope, a medical device
which is physically placed inside a patient with a small camera and a light
attached at the end. The image from the camera is then displayed on a TV screen.
The AccuView approach is more comfortable for the patient since no medical
instruments need be inserted.
The modular, scalable architecture of the AccuView workstation allows the
Company to market the product in one form which can later be upgraded, offering
continuing sales prospects and a continuing revenue stream.
o eStation3D web-based distribution system.
The eStation3D provides a simple approach for web-based image distribution
and remote image management. Ideally suited to imaging centers and radiology
departments wishing to provide competitive service to a referring physician base
or reading physician staff. The eStation3D server receives images from scanners
or PACS systems using the standard DICOM protocol, then compresses and encrypts
them for publication on the Internet external to the facility's private network.
The facility administrator assigns the study to a particular receiving
physician, who then later logs in via a standard web browser to download the
images and associated reports.
The downloadable eStation3D image review software supports basic slice
review and simple 3D browsing of the dataset, and can be upgraded to the full
AccuView workstation capability, again representing sales prospects and a
continuing revenue stream.
MARKETING AND DISTRIBUTION
AccuImage markets its products through direct sales to radiology
professionals in hospitals and independent imaging centers. The Company
maintains an advertising presence in major radiology periodicals and journals,
and ensures that the Company web site is always vibrant and up to date. The
Company also actively courts related press in order to develop a presence in
editorial comment on subjects related to the Company's activities. In order to
enhance its marketing capability, the Company seeks to develop an active forum
for 3D imaging on its website where any interested physician can come to learn
and discuss the benefits of 3D imaging and medical imaging communication
technology.
The Company's products are primarily distributed directly by its own sales
and installation staff, with the rest of the product distribution managed by
Imatron Inc. ("Imatron"), a non-exclusive US distributor of AccuImage
workstations, and several international distributors.
In April 1999, Imatron entered into a five-year non-exclusive product
development and distribution agreement with the Company. Under this agreement,
Imatron agreed to distribute fully-configured AccuView workstations with new
sales of the Imatron EBT scanner, a special type of high-speed CT scanner, in
the US and abroad. The Company successfully met all the target milestones in the
development schedule and has entered into the distribution phase of the
agreement.
The Company has distributors in Italy, Germany, India and Taiwan.
Distributors are sold the software at a discounted rate of 30% off our published
MSRP and then install it on hardware they purchase themselves. The Company
supplies the distributors with marketing materials and responds to distributors'
requests for minor improvements and enhancements as required to ensure success
in particular sales.
The majority of AccuImage sales to end-users and distributors represents
the sale of a combination of "off-the-shelf" hardware and the Company's software
product. The Company purchases standard hardware products such as computer
system and related peripherals and integrates its software product, performing
quality assurance and testing of the completed workstation prior to shipping to
the customer or distributor.
(5)
<PAGE>
A second mode of distribution that the Company is seeking to develop
further is software-only distribution where the Company delivers only the
software and the accompanying license, with the end-user or distributor
integrating or installing the software on their own hardware. This distribution
channel is compatible with Internet marketing of the product enabling the user
to download the software directly from the Company's website.
MANUFACTURING, INSTALLATION, TRAINING, SERVICE AND SUPPORT
The only manufacturing activity the Company undertakes is the integration
of its software with off-the-shelf computer systems. AccuImage staff performs
Service and support by telephone, remote system administration, and on-site or
return-to-base arrangements with customers.
The Company handles all installation for direct sales of its workstations.
Complete systems are integrated and tested for quality assurance at the
AccuImage premises, then shipped to the customer. AccuImage personnel travel to
the customer site (usually for 2-3 days) to install the system and integrate it
with the customer's local network and medical imaging devices. The cost of this
training is factored into the price of each workstation.
For software-only sales, the software is sent to the customer on CD-ROM or
downloaded by the customer over the Internet. Installation can often be
performed from the instructions provided with the software, although AccuImage
staff generally provides telephone support during the installation process in
this situation.
Customer training in the use of the software is performed on-site by
AccuImage staff and is separately quoted at the time of purchase. Additional
training days can be purchased subsequent to the initial installation.
The Company budgets for approximately 8% of sale price in annual warranty
support liability, and new systems are sold with one year's service and support
included. The sales of subsequent support contracts to its existing customers do
not yet make up a large part of the Company's revenue.
INTELLECTUAL PROPERTY AND MARKET PROTECTION
The Company acquired the initial framework technology for its product under
a contract from a German developer. Subsequently, the Company performed in-house
product development for the majority of the product it currently markets. The
Company has relied upon the secret and proprietary source code in protecting its
special technology from the competition. It has plans to, but at this time has
not, filed for copyright protection in the U.S. as well as other countries.
Nonetheless, such protection does not prevent competitors from producing digital
displays similar to those of the AccuImage proprietary software.
The Company also relies on trade secrets and proprietary know-how that it
seeks to protect, in part, through appropriate confidentiality and proprietary
information agreements. These agreements generally provide that all confidential
information developed or made known to the individual by the Company during the
course of the individual's relationship with the Company is not to be disclosed
to third parties, except in specific circumstances, and that all inventions
conceived by the individual in the course of rendering services to the Company
shall be the Company's exclusive property. There can be no assurance that such
agreements will not be breached, that remedies for any breach would be adequate,
or that the Company's trade secrets will not otherwise become known to, or
independently developed by, competitors.
(6)
<PAGE>
A significant corollary to the above comments, however, is the fact that
the Company's competitive position is largely influenced by its ability to
maintain responsiveness to the developing market in which it is engaged and to
ensure continuing development of its software in order to keep pace with the
competition and developing market trends and needs. Due to this aspect of the
market in which the Company operates, the risk of negative impact on the
Company's operations due to potentially inadequate protection of intellectual
property is perhaps reduced.
LICENSING AGREEMENTS
Prior to September 17, 1998, the Company held an exclusive licensing
arrangement with a another corporation for the supply of visualization software
that the Company then marketed, sold, trained, installed and supported. At that
time, the Company's own software was not sufficiently developed to be
distributed, and the Company was primarily engaged in the distribution of the
third-party software product. Before terminating the licensing agreement on
September 17, 1998, the Company secured sufficient licenses for resale to enable
its operations to continue until such time as its own software was mature enough
to be marketed and distributed. By the end of the fiscal year 1999, the Company
was distributing only its own products.
COMPETITION
AccuImage's 3D visualization and analysis products face competition from
the manufacturers of imaging equipment, other companies offering similar
software products, and in-house development projects at Universities and
hospitals to which the Company would otherwise be able to sell its products.
Nearly all manufactures of CT and MRI scanners offer some form of 3D
visualization workstation as an optional accessory for their scanners. The
principal companies include GE Medical Systems, Philips Medical Systems, Picker
International, Siemens Medical Systems, and Toshiba Medical Systems which all
supply a workstation as an option on their imaging device. Independent suppliers
of 3D visualization products include ISG Technologies Inc., Vital Images Inc.,
and Voxar, which similar to the Company, act as third party vendors of a
workstation product. In addition, ultrasound imaging is beginning to enter the
3D visualization market with companies such as Medison Co., Ltd, Life Imaging
Systems Inc, and Hewlett-Packard Co. offering products.
Many of these competitors have substantially greater financial, marketing
and technical resources than the Company, and should one or more of the
diagnostic imaging system suppliers distribute more competitive visualization
products than the ones offered by the Company, the Company's business, financial
condition and results of operations could be materially adversely affected. The
Company believes that continuing quality of service and ability to respond
rapidly to customer needs and market trends represent its best defense against
such developments. Additionally, because it uses a windows-based PC as its
platform, the Company has lower costs and higher margins than many of its
competitors who are committed to more expensive, less widely available hardware
platforms.
GOVERNMENTAL REGULATION
Within the United States, the use of devices in medical procedures is
restricted to those that have been granted approval by the Food and Drug
Administration ("FDA") under the Federal Food, Drug and Cosmetic Act. This
approval is known as Pre Market Approval ("PMA"). Although limited marketing for
use of products on an experimental basis is possible without full approval, no
material commercial demand may exist unless the device has received full
approval. Furthermore, medical providers will be hesitant to acquire devices
that utilize unapproved procedures.
The FDA either grants or refuses approval after a formal written request,
known as the Pre Market Notification, is made for a specific device to be used
for a specific procedure. Ordinarily, the applicant must demonstrate, to the
satisfaction of the FDA, that the use of that device for the proposed procedure
or product would be reliable and safe and, if applicable, will have no side
effects currently or in the future. This process can require extensive testing,
often lasting over an extended period and costing
(7)
<PAGE>
large sums. However, if a substantially similar device has previously received
approval for the same or similar applications, Section 510(k) of the Food, Drug
and Cosmetic Act allows the FDA to grant PMA without extensive testing and data.
AccuImage has received 510(k) clearance to market its products from the FDA.
Outside the U.S., there is no uniform method of approval for medical
devices. The Company plans to apply for and obtain the necessary approvals from
those countries in which the projected volume of sales warrant the effort. In
certain instances, those applications may be arranged through existing sales
representative organizations in the countries with which the Company develops
relationships. As no approvals are required for this technology in most of the
Middle East, Central America and South America, sales may commence in those
areas as soon as the Company has a distribution network in place.
THIRD PARTY RE-IMBURSEMENT
The federal governmental and certain states have enacted cost containment
measures such as the establishment of maximum fee standards in an attempt to
limit the extent and cost of governmental reimbursement of allowable medical
expenses under Medicare, Medicaid and similar governmental programs. A number of
states have adopted or are considering the adoption of similar measures. Such
limitations have led to a reduction in, and may further limit funds available
for, diagnostic testing, and as a result may inhibit or reduce demand by
healthcare providers for the Company's products. Additionally, hospitals may
continue to face other capital constraints that prevent them from investing in
such equipment. While the Company cannot predict what effect the policies of
governmental entities and other third-party payers will have on future sales of
the Company's products, there can be no assurance that such policy would not
have a material adverse impact on the business of the Company.
COST OF RESEARCH AND DEVELOPMENT ACTIVITIES
During the last two years the Company has engaged in extensive research and
development activities. The Company estimates that it spent approximately
$300,000 per year on such research and development in both fiscal years 1998 and
1999.
PERSONNEL
The Company currently has seven full time employees and two independent
contractors. The Company is engaged in attempts to recruit sales, support and
management staff as well as technical staff to expand its software development
team. The Company competes for such personnel with other companies and
organizations that in many cases can offer superior facilities and resources. In
its favor, the Company is able to offer prospective employees the opportunity to
make a large contribution in an exciting, growing and dynamic environment.
IMPORTANT FACTORS
The following important factors should be considered carefully in
connection with any evaluation of the Company's business, financial condition,
results of operations and prospects. The following factors could cause the
Company's results to materially differ from those reflected in any
forward-looking statements.
(8)
<PAGE>
HISTORICAL OPERATING LOSSES
The Company had operating losses for the years ended September 30th, 1999,
1998 and 1997. While the Company is optimistic that it will increase its
revenues in fiscal year 2000, there can be no assurance that the Company will be
profitable at any time in the future.
SHORT OPERATING HISTORY.
Although the Company was incorporated in February 1990, it has had no
significant operations or business assets until just recently, and is yet in its
early, development stage. The Company has been in actual operation under its
current management for a relatively short time. It faces all of the risks
inherent in a new business and those risks specifically inherent in the
development and operation of a new business. The likelihood of the Company's
success must be considered in light of the problems, expense, difficulties and
delays frequently encountered in connection with a new business, including, but
not limited to, uncertainty as to the ability to develop a market for a new
product in a new area. The purchase of the securities offered hereby must be
regarded as the placing of funds at risk in a new or "start-up" venture with all
of the unforeseen costs, expenses, problems and difficulties to which such
ventures are subject.
MARKET DEPENDENCE
The Company's operations are currently focused entirely in the medical
imaging industry, and the market for the Company's products is still developing,
led by advances in technology, as well as education and marketing performed by
the Company and its competitors. There can be no assurance that the industry
will continue to develop in the manner it has to date, or in the manner expected
by the Company. Hence there can be no assurance that the Company will continue
to enjoy growth opportunities and a viable market for its products. The success
of the Company's products will depend on its ability to successfully market its
products, its ability to maintain competitive and responsive product support and
development, and the ability and willingness of the medical community to embrace
the benefits offered by the visualization, analysis and image management
capabilities of the Company's software products. Of this, there can be no
guarantee. In an effort to limit its exposure to this risk, the Company will
continue to seek alternative applications of its technology in order to retain
the option of diversifying should unfavorable conditions develop in its current
marketplace.
CAPITAL REQUIREMENTS
In 1999, the Company successfully transitioned from distributing
third-party software to distributing its own product developed internally.
Additionally, the Company successfully completed the initial development phase
of it product development and distribution agreement with Imatron. It ended the
year with accounts receivable of approximately $188,000 and nearly $45,000 in
inventory.
If AccuImage's operations progress as anticipated, of which there can be no
assurance, the Company believes that cash flows should be sufficient to satisfy
its cash requirements for the next twelve months. Nonetheless, the Company
believes that a faster rate of growth will be possible with additional capital
contributions. The Company's actual future capital requirements, however, will
depend on the ability of the Company to successfully market its products, the
impact of competition in the marketplace in which the Company operates, the
ability of the Company to build an effective sales and distribution channel, and
the ability of the Company to maintain a development team responsive to the
evolving market. To the extent that AccuImage's operations do not progress as
anticipated, additional capital may be required sooner. There can be no
assurance that such additional capital will be available on acceptable terms, or
at all, and the failure to obtain any such required capital would have a
material adverse effect on
(9)
<PAGE>
the Company's business. The issuance of additional equity capital may result in
dilution of current shareholder voting and ownership interests
COMPETITIVE MARKETPLACE AND TECHNOLOGICAL OBSOLESCENCE RISK
The evolving marketplace in which the Company operates has been
characterized to date by rapid innovation and technological change. The Company
expects this trend to continue and hence the Company's success will be strongly
dependent on its ability to keep pace with the advancing technology. This task
requires continual research and development by the Company's development team,
which the Company must maintain and improve.
There can be no assurance that the Company will be able to achieve this
task and compete effectively in the marketplace, and it may come to pass that
products developed by its competitors will outshine its own products, pushing
them towards obsolescence or rendering them non-competitive.
Certain companies competing with AccuImage are large, established
manufacturers of medical imaging equipment. While these companies do not apply
the same corporate focus on advanced visualization and analysis products as
AccuImage, they nevertheless have significantly greater capital and staffing
resources for research and development so critical to success in this
marketplace. Such companies also have established marketing and distribution
networks and may have a competitive advantage in marketing products similar to
the Company's. Furthermore, competition in the broader marketplace of
computerized medical image management exists in the form of PACS vendors and
internal projects at universities and hospitals. There can be no assurance that
the Company will be able to compete effectively with these entities.
DEPENDENCE ON MAJOR CUSTOMERS
For the fiscal year ended September 30, 1999, sales to Imatron accounted
for almost seventy-five percent of the Company's revenue. In April 1999, the
Company entered into a five-year product development and distribution agreement
with Imatron whereby Imatron agreed to distribute complete AccuImage
workstations with new sales of its EBT scanner.
An advanced visualization and analysis workstation such as the Company's is
generally required as an integral part of the EBT scanner installation, so the
Company believes that sales to Imatron will continue to represent a large
portion of the Company's revenue while other distribution channels and direct
sales are developing and maturing. However there can be no assurance of the
success of Imatron's own marketing and distribution channels, and no guarantee
of revenue under the distribution agreement. Furthermore, there is competition
from other independent vendors of visualization and analysis products even in
the Imatron EBT scanner market, and the Company will need to maintain
competitive development and marketing in the EBT market in the same way that it
maintains competitive development and marketing in the market at large.
A strong competitive advantage enjoyed by the Company in the EBT market in
particular is that through the development and distribution agreement, Imatron's
support, training, sales and marketing networks are working in the Company's
favor. In turn, the Company is gaining invaluable feedback on the performance of
its product in a highly demanding, day-to-day workflow environment. This is
enabling the Company to rapidly mature the software in a well-supported
environment that would otherwise not be available to a Company this size.
Nevertheless, a reduction in orders from Imatron or any other future
significant customers could have a material adverse effect on the Company's
operating results.
(10)
<PAGE>
NEED FOR ADDITIONAL PERSONNEL
The Company's ability to grow will depend in part upon its ability to
attract and retain experienced professionals to staff a significant expansion of
its activities. There can be no assurance that the Company will not need to hire
additional management and other personnel which meets its long-term goals or
that the Company will be able to find and attract qualified persons to fill such
additional positions.
MANAGEMENT OF GROWTH
The Company's business strategy involves rapid expansion during the next 18
months. This growth will place significant strain on AccuImage's'
administrative, operational and financial resources and increase demands on its
systems and controls. The Company's ability to manage its growth successfully
will require it to develop improved systems and controls. If the Company's
management is unable to manage growth effectively, the Company's operating
results could be adversely affected.
PRODUCT LIABILITY
The Company's business exposes it to potential product liability claims
that are inherent in the manufacture and sale of medical devices, and as such
the Company may face substantial liability to patients for damages resulting
from the faulty design or manufacture of products. The Company is in the process
of obtaining product liability insurance coverage, however it does not currently
maintain such coverage. There can be no assurance that product liability claims
will not exceed coverage limits or that such insurance will continue to be
available at commercially reasonable rates, if at all. Consequently, a product
liability claim or other claim in excess of insured liabilities or with respect
to uninsured liabilities could have a material adverse effect on the Company.
PRODUCT RECALLS
Complex medical devices, such as the Company's products, can experience
performance problems in the field that require review and possible corrective
action by the manufacturer. The Company periodically receives reports from users
of its products relating to performance difficulties they have encountered.
While no serious issues have arisen to date, these or future product problems
could result in market withdrawals or recalls of products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal office is located at 400 Oyster Point Blvd., Suite
114, South San Francisco, California 94080. The property is a seven-room suite
of approximately 2,500 square feet. The property is leased from an unaffiliated
third party for a period of two years ending January 2001 for an annual rental
of $45,000 payable monthly in the amount of $3,750. The Company maintains tenant
fire and casualty insurance on its property located in such building in an
amount deemed adequate by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding.
(11)
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company's common stock is currently traded in the over-the-counter
securities market and quoted on the National Quotation Bureau's "Pink Sheets"
under the symbol "AIDP". The common stock was previously traded on the NASD's
OTC Bulletin Board but was delisted in August, 1999, because the Company was not
in compliance with the OTC Bulletin Board eligibility rules. AccuImage filed a
Form 10-SB with the SEC on June 30, 1999 and received comments from the SEC to
which the Company is in the process of responding.
The price range of high and low bids for the Company's common stock for the
periods shown is set forth below:
PERIOD HIGH LOW
------ ---- ---
10/01/99 - 12/31/99 1.1250 .1250
07/01/99 - 09/30/99 .8750 .1250
04/01/99 - 06/30/99 .6250 .2800
01/01/99 - 03/31/99 .8125 .2500
10/01/98 - 12/31/99 .9375 .1875
07/01/98 - 09/30/98 .8125 .2812
04/01/98 - 06/30/98 1.0000 .4375
01/01/98 - 03/31/98 .6875 .4062
10/01/97 - 12/31/97 .8125 .3750
08/01/97 - 09/30/97 1.7500 .5625
(B) STOCKHOLDERS
As of February 8, 2000, there were approximately ninety-four listed
shareholders of record of AccuImage common stock, not including an unknown
number of beneficial holders in street name. No shares of preferred stock have
been issued.
(C) DIVIDENDS
The Company has never declared a cash dividend and does not intend to do so
in the foreseeable future. Nevada Revised Statutes section 78.288 limits the
Company's ability to pay dividends on its common stock if any such dividend
would render the Company insolvent.
(12)
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company's fiscal year end falls on September 30th, and references to
2000, 1999, 1998 and 1997 discussed below refer to the years ending September
30th, 2000, 1999, 1998 and 1997 respectively.
REVENUE
In fiscal year 1999, total revenue increased 139% to $1,059,138 in 1999
compared with $443,343 in 1998. These increases were almost entirely the result
of increased sales of the Company's medical visualization and analysis software.
In 1999, the Company successfully transitioned from distributing software
developed by a third party and licensed to the Company, to distributing its own
software that was developed in-house. The Company expects continued revenue
growth in 2000, although this is a forward-looking statement and actual results
could vary materially from Company expectations.
GROSS MARGIN
The gross margin percentage increased to 77% in 1999 from 65% in 1998. The
increase of the 1999 result over the 1998 result is primarily due to the
Company's transition from distribution of a third party product to distribution
of its own software, since license and royalty fees were no longer payable.
During 2000, the Company will attempt to negotiate better discounts for the
purchase of the underlying hardware and peripheral components that form part of
its workstations, which it anticipates leading to improvement in the gross
margin. This forward-looking statement will be influenced primarily by the
Company's ability to secure favorable discounts along with the evolution of the
Company's product line.
SALES AND MARKETING
The Company's sales and marketing expenses were approximately $200,000 and
$110,000 in 1999 and 1998, respectively. The increase largely reflects the cost
of increased sales and marketing activity. The Company expects sales and
marketing costs to continue to increase as additional sales personnel are
recruited and sales commissions increase, although this forward looking
statement will be influenced by the actual sales levels attained by the
Company's sales force.
RESEARCH AND DEVELOPMENT
The Company spent approximately $300,000 on research and development in
1999 and a similar amount in 1998. These costs are associated with the in-house
development of the software that the Company is now distributing, and largely
represents salaries and fees for software developers and independent
contractors. The Company anticipates that software development costs will at
least continue at this level and may increase if the Company is successful in
further recruitment of software development expertise.
OPERATIONAL AND ADMINISTRATIVE
Operational and administrative expenses were approximately $725,000 and
$510,000 in 1999 and 1998, respectively. The increase includes significant
compensation costs related to the resignation of the Company's former Chief
Executive Officer as well as increased operational and administrative staff, and
professional, legal and accounting fees. The Company believes that operational
and administrative
(13)
<PAGE>
costs will increase in future if the Company is successful in its intention to
recruit new staff and expand its operations in these areas. As a result of
becoming a reporting company pursuant to the Securities Exchange Act of 1934,
the Company will likely increase its expenditures on investor relations and
legal and financial expertise.
RESULTS OF OPERATIONS
The increased expenses for sales, marketing, administrative and research
and development offset the Company's increased revenues resulting in an
operating loss of $523,331 in 1999. The operating loss in 1998 was $668,792.
LIQUIDITY AND CAPITAL RESOURCES
The operating loss of $523,331 was funded in part by approximately $450,000
raised through equity financing under a Private Offering that closed in February
1999. The Company also secured a $100,000 loan in September 1998 through a
private party, which was repaid before the end of September 1999. The Company
currently holds $56,000 in notes payable, held since September 1998. On
September 30th 1999, the Company had $34,201 in cash.
During the next nine months, the Company anticipates that cash requirements
will be met by a combination of operational income, bank financing and
additional equity financing, however there can be no guarantee that such income
and financing will be forthcoming and the inability of the Company to secure
such capital would have a material adverse effect on the Company's business.
FOREIGN CURRENCY TRANSACTIONS
All the Company's transactions are negotiated, invoiced and paid in U.S.
dollars.
INFLATION
Management believes the Company's operations and financial condition have
suffered no adverse material effect due to inflation.
SHARE PRICE VOLATILITY
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results,
changes in earnings estimates by analysts, announcements of technological
innovations or new products by the Company or its competitors, general
conditions in the software and computer industries and other events or factors.
In addition, in recent years the stock market in general, and the shares of
technology companies in particular, have experienced extreme price fluctuations.
This volatility has had a substantial effect on the market price of securities
issued by many companies for reasons unrelated to the operating performance of
the specific companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.
YEAR 2000 IMPACT.
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions with internal
administrative and operational software, software
(14)
<PAGE>
developed by the Company, software integrated in the Company's products, and
third-party systems to which the Company's products interface.
With regard to internal use of software products, the Company inspected
financial and accounting software vendors whose products are in use by the
Company and reached a level of reasonable assurance that the software packages
used by the Company would behave correctly after the onset of year 2000.
With regard to software developed by the Company, the software development
team adopted procedures to avoid potential issues and conducted "roll-forward"
testing of the Company's products. Minor issues that arose during this testing
were corrected far in advance of year 2000.
With regard to software integrated into the Company's products, the Company
took steps to determine what measures in terms of software upgrades and fixes
needed to be taken in order to render all integrated software products year 2000
compliant and adopted the appropriate versions as part of its integration
procedure. The Company's installed base was similarly updated.
With regard to third-party systems to which the Company's products
interface, the Company conducted a survey of the information transferred to its
products from such third-party systems in collaboration with the manufacturers
of these systems and modified its software in order to render them year 2000
compliant.
To date, the Company's has not experienced any year 2000 issues with any of
its internal systems or products, and it does not expect to experience any in
the future. To date, its has not experienced any year 2000 issues related to any
of its key third party suppliers, distributors and customers nor does it expect
to experience any in the future. Costs associated with remediating the Company's
internal systems and software were not material.
FORWARD-LOOKING STATEMENTS
The discussion contained in this Item 6 and the prior section, Item 1, is
"forward looking" as that term is contemplated by Section 27A of the Securities
Act of 1933 and Section 12E of the Securities exchange Act of 1934, including,
without limitation, statements regarding the Company's expectations, beliefs,
intentions or strategies regarding future business operations and projected
earnings from its products and services, which are subject to many risks.
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The Company's
actual results may differ materially as a result of certain factors, including
those set forth hereafter and elsewhere in this Form 10-KSB. Potential investors
should consider carefully the previously stated factors, as well as the more
detailed information contained elsewhere in this Form 10-KSB, before making a
decision to invest in the common stock of the Company.
ITEM 7. FINANCIAL STATEMENTS
The following consolidated financial statements are filed as a part of this
Form 10-KSB and are included immediately following the signature page.
Independent Auditors' Report .................................. F-1
Balance Sheet ................................................. F-2
Statement of Operations ....................................... F-3
Statement of Changes in Shareholders' Equity .................. F-4
(15)
<PAGE>
Statement of Cash Flows ....................................... F-5
Notes to the Financial Statements ............................. F-6-F-18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
From approximately April 1997 through August 1999, the Company's accountant
was Schvaneveldt and Company of Salt Lake City, Utah. From August through
December 1999, the Company's account was James R. Kerr CPA of San Mateo,
California. In December, Berg & Company LLP of San Francisco, California became
the Company's independent accountants. During the two most recent fiscal years,
there have been no disagreements between the Company and their accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company and their respective
ages are as follows:
NAME AGE POSITION
- ---- --- --------
Douglas P. Boyd, Ph.D. 58 Director and Chairman of the Board
(appointed in 1997)
Alexander R. Margulis, M.D. 78 Director (appointed in 1998)
Chris Shepherd 53 Director, Acting Chief Financial Officer
(appointed in 1997)
Robert Taylor, Ph.D. 31 Chief Executive Officer and Director
(effective August 24, 1999)
Allen B. Poirson, Ph.D. 39 President, Chief Executive Officer and
Director (resigned effective August 23,
1999)
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. Aside from expenses to
attend the Board of Directors meetings, the Company has not compensated its
directors for service on the Board of Directors or any committee thereof. The
Board of Directors appoints officers annually and each executive officer serves
at the discretion of the Board of Directors. There are no family relationships
between any of the directors and executive officers. The Company does not have
any standing committees at this time.
DOUGLAS P. BOYD, PH.D, DIRECTOR. Dr. Boyd received a Bachelor of Science
degree from the University of Rochester in 1963 and Doctor of Philosophy in
Physics from Rutgers University in 1969. He was a member of the technical staff
of the Bell Telephone Laboratories, Murray Hill, from 1968-1969. From 1969-1976
he was a Research Physicist at Stanford University. From 1976 to 1982 he was a
Professor of Radiology at the University of California, San Francisco and, since
that date and continuing presently, is an Adjunct Professor of Radiology with
the University. From 1981 to present, he has been employed by Imatron Inc., a
publicly traded Company he founded and a leading supplier of Ultrafast CT
Scanners for general medical and cardiac diagnostic imaging. At Imatron Dr. Boyd
served as CEO until 1988 and is currently Chairman of the Board and Chief
Technology Officer. He is also a Director of InVision Technologies, Inc., a
public Company that manufactures and sells an advanced scanner system for
explosives detection in airport baggage. He has published more than 100
scientific and technical articles in the fields of medical imaging and related
technology and holds numerous U.S. patents for his inventions including several
patents in the field of CT scanning using fan beams, Xenon detectors, and
scanning electron beams. He has been nominated for various awards in the fields
of medical imaging and explosives detection including the Professor Sabino Di
Rienzo International Award and the Conway Safe Skies Award.
(16)
<PAGE>
ALEXANDER R. MARGULIS, M.D., DIRECTOR. Dr. Margulis graduated from Harvard
Medical School with an M.D. degree in 1950, following which he performed his
residency in Radiology at the University of Michigan, Ann Arbor, Michigan. He
was admitted to the American Board of Radiology in 1954. Assistant Professor,
University of Minnesota, Minneapolis. Assistant, Associate and Full Professor,
Washington University, St. Louis. Professor & Chairman, Department of Radiology,
University of California, San Francisco 1963-1989, 1980-1993 Professor of
Radiology, Associate Chancellor & Special Projects Director, Magnetic Resonance
Science Center. 1993-present Special Consultant to the Vice Chancellor for
University Advancement & Planning, University of California, San Francisco, and
Professor of Radiology. Seven (7) honorary doctorates Aix-Marseilles; Catholic
University, Louvain Medical College of Wisconsin. Karolinska Institute,
Stockholm: University of Munich, Germany. University of Toulouse, France,
University of Montpellier, France. Multiple gold medals. Multiple honorary
memberships in radiologic societies throughout the world. Honorary Professor,
Karolinska Institute. Foreign member, Serbia Academy of Arts & Sciences 1989.
Foreign member, Russian Academy of Medical Sciences 1995. Senior member,
Institute of Medicine. President, Society of Gastrointestinal Radiology 1972,
Association University Radiologists, USA 1966. San Francisco Radiologic Society
1967. Society of Chairmen Academic Radiology Departments (SCARD) 1968.
California Academy of Medicine 1979. Society of Magnetic Resonance in Medicine
1983-1984. Member of numerous editorial board of medical journals. Over 250
articles concerned with intestinal radiology, magnetic resonance imaging in
magnetic resonance spectroscopy and radiologic and health policy issues. Most
important books - Alimentary Tract Radiology, four (4) editions (C.V. Mosby, St.
Louis), Clinical Magnetic Resonance Imaging, 1983, and Biomedical Magnetic
Resonance Imaging, 1984 (both Radiology Research and Education Foundation).
Scientific Director, STAR (Schering Training in Advances in Radiology) 1993.
Chairman of the Board of the Medical Advisory Board, R-2 Technologies, Los
Angeles, 1995.
CHRIS R. SHEPHERD, DIRECTOR AND ACTING CFO. Mr. Shepherd was raised in
Regina, Saskatchewan and attended University of Regina, matriculating in the
B.A. Economics Program. From 1971 to 1981, he was an employee or independent
distributor for a Toronto based international engineered building manufacturing
Company. His current positions in private companies include President, Arco
Structures Inc., an Alberta Company; President, Seacrest Development Corp.,
Surrey, B.C.; President, Olympic Silver Resources Inc., a Nevada Company;
Director, Vanasia International Educational Consultancy Ltd., Vancouver, B.C.
Mr. Shepherd has been involved in the financing, strategic planning, and
marketing of syndicated real estate investment projects. He has been a
consultant to several public companies requiring seed capital financing or
investor relations consulting services.
ROBERT TAYLOR, PH.D., CHIEF EXECUTIVE OFFICER. Dr. Taylor, age 31, is an
accomplished developer and marketer of commercial software for PC-based
visualization and analysis applications. He received both his B.S. (1990) and
his Ph.D. (1996) in Physics from Imperial College of Science, Technology and
Medicine, London, England, where his former career as a physicist resulted in
numerous refereed publications on his computational and experimental research,
particularly in the realm of three dimensional simulation and visualization. He
also has over ten years of experience with commercial software development in a
broad range of settings, from healthcare systems to computer games.
COMPLIANCE WITH SECTION 16(A)
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers, and any
persons holding more than 10% of the outstanding common stock of the Company to
file reports with the Commission concerning their initial ownership of common
stock and any subsequent changes in that ownership.
(17)
<PAGE>
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during fiscal year 1999,
Dr. Boyd filed late one Form 3, Dr. Taylor filed late one Form 3, Mr. Shepherd
filed late one Form 3, Mrs. Celestre filed late Form 3, and Dr. Margulis filed
late one Form 3.
ITEM 10. EXECUTIVE COMPENSATION
The Summary Compensation Table shows certain compensation information for
the Chief Executive Officer and the Company's most highly paid executive
officers (collectively referred to as the "Named Executive Officers").
Compensation data for other executive officers is not presented in the graphs
because aggregate compensation for such executive officers does not exceed
$100,000 for services rendered in all capacities during the fiscal year. This
information includes the dollar value of base salaries, bonus awards, the number
of SARs/options granted, and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid by the
Company to certain named individuals for services rendered during the periods
indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation Awards
- -------------------------------------------------------------------------------------------------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying
Position Year Salary Bonus Compensation(c) Award Options/SARs
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allen B. Poirson, 1999 $93,333 -0- $1,000 -0- $82,250(e)
Former President and 1998 $70,000 -0- -0- -0- -0-
Chief Executive Officer(a)
- -------------------------------------------------------------------------------------------------------------------
Robert Taylor, 1999 $52,000 -0- -0- -0- $19,850(e)
Chief Executive Officer(b)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Dr. Poirson was appointed President and Chief Executive Officer on June 15,
1998 and resigned effective August 23, 1999.
(b) Dr. Taylor was appointed Chief Executive Officer effective August 24, 1999.
He was the Company's Chief Technology Officer from July 1, 1999 to August
23, 1999. Prior to that time, he was an independent contractor with the
Company.
(c) Represents the Company's matching contributions to its 401(k) plan.
(e) Represents vested options granted by the Company at the value of the
exercise price.
Effective August 23, 1999, Dr. Poirson resigned as a director and as
President and Chief Executive Officer of the Company. The Company and Dr.
Poirson entered into a Separation Agreement and General Release, whereby the
Company agreed to pay Dr. Poirson a separation payment of $23,333.33 and awarded
him 50,000 fully vested options in recognition of his services to the Company.
Effective August 24, 1999, the Company appointed Robert Taylor, its Chief
Technology Officer, as the Chief Executive Officer and a director. Pursuant to
his Employment Agreement, Dr. Taylor is entitled to a base salary equivalent to
$126,500, and he was granted an option to purchase 150,000 shares of the
Company's common stock. Additionally, he is entitled to several incentive
bonuses based on the Company's quarterly and annual revenues and net profit.
(18)
<PAGE>
Additionally, the Company has various employment and consulting agreements
with other non-named individuals that provide for issuance of the Company's
stock options in exchange for services rendered to the Company.
STOCK OPTION PLAN
During 1997, the Company started a Stock Option Plan that authorized the
issuance of options for up to 1,600,000 shares of the Company's common stock.
Under this plan, no option may be exercised after the expiration date of ten
years from the date of grant and no option may be exercised as to less than one
hundred (100) shares at any one time. There are two categories of options:
Incentive Stock Options (ISO) and Non-Qualified Stock Options (NSO).
ISOs are granted to employees and the purchase price shall not be less than
the Fair Market Value of the common stock share at the date of grant and no ISO
shall be exercisable more than ten (10) years from date of grant except that in
the case of any person who owns more than 10% of the voting power of all classes
of stock, no ISO shall be exercisable more than five (5) years from date of
grant.
NSOs may be granted to any eligible participant. The purchase price shall
not be less than 85% of the Fair Market Value of the shares at the time except
that when the grantee owns more than 10% of the voting power of all classes of
stock at the time of grant, the price is be 110% of the Fair Market Value of the
shares at the time of the grant. No NSO shall be exercisable more than ten (10)
years from the date of grant.
In general, granted ISO's expire three months after the termination date.
If employment termination is due to cause, the options shall expire immediately;
and if employment termination is due to permanent and total disability, the
options may be exercised up to one year following termination. The vesting
period is usually related to the length of employment or consulting contract
period, but is at the Board's discretion.
As of September 30, 1999, the Company granted to its employees and other
eligible participants, including executive officers, options exercisable for the
Company common stock. The exercise price varies depending on the trading price
of the Company's common stock on the date of issuance among other factors. The
Board intends to submit the Plan for approval by the shareholders at the next
annual meeting.
(19)
<PAGE>
OPTIONS GRANTED IN THE LAST FISCAL YEAR
The following table sets forth the option granted during the last fiscal
year to each of the named executive officers of Company. No stock appreciation
rights were granted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
================================================================================
Individual Grants
- --------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS/SARS EMPLOYEES IN ($/SH) EXPIRATION DATE
NAME GRANTED (#) FISCAL YEAR (a)
Allen Poirson 50,000 6.7% $0.47 8/23/09
Robert Taylor 8,600 1.1% $0.50 11/06/2008
3,000 0.4% $0.50 11/26/2008
8,500 1.1% $0.50 01/08/2009
6,000 0.8% $0.50 04/06/2009
6,400 0.9% $0.50 04/20/2009
3,000 0.4% $0.50 05/28/2009
300,000 40.4% $0.50 07/01/2009
150,000 20.2% $0.56 08/24/2009
(a) Based on 742,080 options granted to all employees and contractors.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES.
The following table sets forth the options exercised during the last fiscal
year by named executive officer of Registrant.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED AND OPTION VALUES IN FISCAL YEAR 1999
===================================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs at
Option/SARs at FY-End FY-End ($)
----------------------------------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Allen Poirson -0- -0- 175,000/0 -0-
Robert Taylor -0- -0- 49,075/440,625 -0-
</TABLE>
COMPENSATION OF DIRECTORS
Directors are reimbursed for expenses relating to attendance at Board of
Directors meetings. There are no standard arrangements pursuant to which the
Company's directors are compensated for any services provided as director,
although in fiscal year 1999, Dr. Margulis received $2,000 relating to his
service as a director.
(20)
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, to the best knowledge of the
Company as of February 8, 2000, with respect to each person known by the Company
to own beneficially more than 5% of any class of the Company's outstanding
common stock.
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership(a) of Class
-------------- ---------------- ------------ --------
Common Stock Douglas P. Boyd 1,698,232(b) 17.4%
1115 Lakeview Drive
Hillsborough, CA 94010
Common Stock Geraldine Celestre 1,135,732 11.7%
254 Loyola Drive
Millbrae, CA 94030
Common Stock Chris Shepherd 548,916(c) 5.6%
2317 150B Street
White Rock, BC V4A 8B1
Common Stock Chung Lew 500,000 5.1%
c/o US Trust
114 West 47th Street
New York, NY 10036
(a) As of February 8, 2000, 9,748,200 shares of common stock were issued and
outstanding. Unless otherwise noted, the security ownership disclosed in
the table is of record and beneficial. The term beneficial ownership with
respect to a security is defined by Rule 13d-3 under the Securities
Exchange Act of 1934 as consisting of sole or shared voting power
(including the power to vote or direct the vote) and/or sole or shared
investment power (including the power to dispose or direct the disposition)
with respect to the security through any contact, arrangement,
understanding, relationship, or otherwise.
(b) Includes 1,485,732 shares owned directly and 187,500 vested stock options
as of February 8, 2000 or within sixty days thereafter. Also includes
25,000 shares owned by Dr. Boyd's wife to which Dr. Boyd disclaims any
beneficial interest.
(c) Includes 366,666 shares owned directly and 81,250 vested stock options as
of February 8, 2000 or within 60 days thereafter. Also includes 101,000
shares owned by Mr. Shepherd's wife to which Mr. Shepherd disclaims any
beneficial interest.
(21)
<PAGE>
(B) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information, to the best knowledge of the
Company as of February 8, 2000, with respect to the beneficial ownership of each
officer and director, and all directors and executive officers as a group:
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership(1) of Class
-------------- ---------------- ------------ --------
Common Stock Robert Taylor, Ph.D. 55,450(2) 0.6%
c/o AccuImage Diagnostics Corp.
400 Oyster Point Blvd., #114
S. San Francisco, CA 94080
Common Stock Douglas P. Boyd, Ph.D. 1,698,232(3) 17.4%
1115 Lakeview Drive
Hillsborough, CA 94010
Common Stock Alexander R. Margulis, M.D. 71,250(4) 0.7%
504 EAST 63RD Street, Apt. 36R
New York, NY 10021
Common Stock Chris Shepherd 548,916(5) 5.6%
2317 150B Street
White Rock, BC V4A 8B1
Common Stock All directors and executive 2,373,848 24.4%
officers as a group (5 persons)
(1) As of February 8, 2000, 9,748,200 shares of common stock were issued and
outstanding. Unless otherwise noted, the security ownership disclosed in
this table is of record and beneficial. The term beneficial ownership with
respect to a security is defined by Rule 13d-3 under the Securities
Exchange Act of 1934 as consisting of sole or shared voting power
(including the power to vote or direct the vote) and/or sole or shared
investment power (including the power to dispose or direct the disposition)
with respect to the security through any contact, arrangement,
understanding, relationship, or otherwise.
(2) Consists of vested stock options as of February 8, 2000 or within 60 days
thereafter.
(3) Includes 1,485,732 shares owned directly and 187,500 vested stock options
as of February 8, 2000 or within sixty days thereafter. Also includes
25,000 shares owned by Dr. Boyd's wife to which Dr. Boyd disclaims any
beneficial interest.
(4) Includes 56,250 vested stock options, as of February 8, 2000 or within
sixty days thereafter, and 15,000 shares owned by Dr. Margulis' wife to
which Dr. Margulis disclaims any beneficial interest.
(5) Includes 366,666 shares owned directly and 81,250 vested stock options as
of February 8, 2000 or within sixty days thereafter. Also includes 101,000
shares owned by Mr. Shepherd's wife to which Mr. Shepherd disclaims any
beneficial interest.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) TRANSACTIONS DURING THE LAST TWO YEARS INVOLVING ANY DIRECTOR OR
EXECUTIVE OFFICER OF THE COMPANY:
Douglas P. Boyd, Ph.D., a director and greater-than-10% shareholder of the
Company, is also Chairman of the Board of Imatron Inc., a New Jersey
corporation, based in South San Francisco, California. Imatron is engaged in the
business of providing imaging technology and services for its products and for
the products of others. On April 14, 1999, Imatron and the Company entered into
a Product Development, Distribution, and Warranty Support Agreement which
provides for Imatron to be the distributor of AccuImage products to certain new
Imatron customers and to be its provider of on-site
(22)
<PAGE>
corrective maintenance, warranty and customer support for such systems.
Approximately, seventy-five percent of the Company's revenue in the fiscal year
ended September 30, 1999 came from its development and distribution arrangement
with Imatron. Dr. Boyd is not a party to the agreement nor was he involved in
the negotiations between the Company and Imatron.
EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT NAME
- ----------- ------------
2.1 Rescission and Transfer Agreement, dated June 30, 1998(1)
2.2 Stock Allocation Agreement, dated June 30, 1998(1)
3.1 Articles of Incorporation of Company, filed February 2, 1990(1)
3.2 Certificate of Amendment of Articles of Incorporation of Company,
filed June 27, 1996(1)
3.3 Bylaws of the Company(1)
10.1 Product Development, Distribution, and Warranty Support Agreement,
dated April 14, 1999(1)
10.2 Company 1998 Stock Option Plan(1)
10.3 Company 1998 Stock Option Agreement(1)
10.4 Poirson Employment Agreement(1)
10.5 Separation Agreement and General Release between Company and Allen
Poirson
10.6 Robert Taylor Employment Agreement
23.1 Consent of Schvaneveldt & Company, Certified Independent Auditors
23.2 Consent of Berg & Company, Certified Independent Auditors
27 Financial Data Schedule
- --------------------------------------------------------------------------------
FOOTNOTES
(1) Incorporated by reference to the Company's Registration Statement on Form
10, filed June 30, 1999.
(23)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and Exchange Act
of 1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCUIMAGE DIAGNOSTICS CORP.
DATE: MARCH 10, 2000 BY: /s/ ROBERT TAYLOR
--------------------------------------
Robert Taylor, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ ROBERT TAYLOR March 10, 2000
- -----------------------------
Robert Taylor, Ph.D.
Chief Executive Officer and Director
/s/ DOUGLAS P. BOYD March 7, 2000
- -----------------------------
Douglas Boyd, Ph.D.
Chairman of the Board
/s/ CHRIS SHEPHERD March 7, 2000
- -----------------------------
Chris Shepherd
Chief Financial Officer and Director
/s/ ALEXANDER MARGULIS March 7, 2000
- -----------------------------
Alexander Margulis, M.D.
Director
(24)
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(25)
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Independent Auditors' Report F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Changes in Shareholders' Equity F-4
Statement of Cash Flows F-5
Notes to the Financial Statements F-6 - F-18
(26)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of AccuImage Diagnostics Corp.
We have audited the accompanying balance sheet of AccuImage Diagnostics Corp., a
Nevada Corporation, as of September 30, 1999, and the related statement of
operations, changes in shareholders' equity, and cash flows for the fiscal 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. The financial statements of the Company for the
years ended September 30, 1997 and 1998 were audited by another auditor, whose
reports expressed an unqualified opinion on those financial statements. Our
opinion, in so far as it relates to the amounts included for the years ended
September 30, 1997 and 1998, is based solely on the reports of the other
auditor.
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.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of AccuImage Diagnostics Corp. as of September 30, 1999,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Berg & Company, LLP
San Francisco, CA
February 15, 2000
F-1
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND 1998
ASSETS
------
1999 1998
---------- ----------
Current Assets
Cash $ 34,201 $ 2,117
Accounts Receivable 172,125 17,226
Employee Receivable 31,274 --
Inventory 44,957 12,366
Prepaid License Fees 16,370 81,850
PREPAID EXPENSES 4,489 3,667
---------- ----------
Total Current Assets 303,416 117,226
Property and Equipment, net of accumulated Depreciation 61,351 58,819
Other Assets
Deposits 3,820 4,318
Deferred Private Offering Costs -- 22,290
Goodwill, net of accumulated Amortization 494,507 556,321
Other Intangible Assets 60,216 77,846
---------- ----------
Total Other Assets 558,543 660,775
TOTAL ASSETS $ 923,310 $ 836,820
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts Payable $ 146,376 $ 19,181
Accrued Payroll and Taxes 71,464 11,623
Accrued Expenses 5,332 74,629
Product Warranty Reserves 84,270 29,665
Other Accrued Liabilities 4,190 5,270
Notes Payable - Other -- 100,000
Shareholder Notes Payable 56,500 56,500
---------- ----------
Total Current Liabilities 368,132 296,868
Stockholders' Equity
Common Stock Shares Authorized -
Issued and Outstanding 9,748 8,732
Additional Paid-In Capital 1,740,662 1,223,268
Retained Earnings (1,195,232) (692,048)
---------- ----------
Total Stockholders' Equity 555,178 539,952
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 923,310 $ 836,820
========== ==========
See accompanying notes and accountants' report.
F-2
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
----------- ---------- ----------
Sales $ 1,059,138 $ 443,343 $ --
Cost of Sales 246,793 151,195 --
----------- ---------- ----------
Gross Profit 812,345 292,148 --
Operating Expenses
Bad debts 16,619 -- --
Depreciation and amortization 112,599 210,219 --
Salaries and wages 551,120 245,945 --
Employee Benefits 64,361 37,061 --
General and administrative expenses 131,415 70,107 --
Legal and accounting 59,525 36,935 --
Interest 5,927 1,389 --
Professional Consulting 223,232 187,577 --
Rent 41,221 40,654 --
Marketing and promotion 121,172 121,372 --
Other Operating Expenses 8,485 29,680 --
----------- ---------- ----------
Total Operating Expenses 1,335,676 980,939 --
Operating Income (Loss) (523,331) (668,791) --
Other Income and Expense
Other Income (17,738) -- --
Interest Income (3,209) (5,344) --
----------- ---------- ----------
Total Other Income and Expense (20,947) (5,344) --
Income (Loss) Before Taxes (502,384) (683,447) --
Provision for Taxes (800) (800) (800)
----------- ---------- ----------
Net Income (Loss) $ (503,184) $ (684,247) $ (800)
=========== ========== ==========
Earnings per share
Basic $ (0.0530) $ (0.0796) $ --
Diluted $ (0.0464) $ (0.0739) $ --
Shares Outstanding
Basic 9,496,905 8,593,333 4,037,100
Diluted 10,854,267 9,253,563 4,037,100
See accompanying notes and accountants' report.
F-3
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
---------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance-September 30, 1996 3,592,100 $3,592 $ 3,408 $ (7,000) $ --
Stock sold through Private Placement 990,000 990 989,010 -- 990,000
Shares issued in acquisition of
Accuimage, Inc. 4,000,000 4,000 156,000 -- 160,000
Net Loss for Fiscal Year Ended
September 30, 1997 -- -- -- (800) (800)
--------- ------ ---------- ---------- ----------
Balance-September 30, 1997 8,582,100 8,582 1,148,418 (7,800) 1,149,200
--------- ------ ---------- ---------- ----------
Shares Issued for cash 150,000 150 74,850 -- 75,000
Net Loss for Fiscal Year Ended
September 30, 1998 -- -- -- (684,248) (684,248)
--------- ------ ---------- ---------- ----------
Balance-September 30, 1998 8,732,100 8,732 1,223,268 (692,048) 539,952
Shares issued for cash 780,000 780 382,720 -- 383,500
Shares issued for compensation 236,100 236 134,674 -- 134,910
Net Loss for Fiscal Year Ended
September 30, 1999 -- -- -- (503,184) (503,184)
--------- ------ ---------- ---------- ----------
Balance-September 30, 1999 9,748,200 $9,748 $1,740,662 $(1,195,232) $ 555,178
========= ====== ========== ========== ==========
</TABLE>
See accompanying notes and accountants' report.
F-4
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $(503,184) $(684,248) $ (800)
Adjustment to reconcile net loss to net cash net cash
used by operating activities:
Depreciation and amortization 112,599 210,219 --
Change in warranty reserve 54,605 -- --
Change in receivables (186,173) 80,499 --
Change in inventory (32,591) 23,208 --
Change in license rights 65,480 (81,850) --
Change in prepaid assets (822) 5,033 --
Change in deposits 498 (3,917) --
Change in accounts payable 127,396 18,981 --
CHANGE IN ACCRUED EXPENSES (8,551) (101,039) --
--------- --------- -----------
Net Cash Used by Operating Activities: (370,743) (533,114) (800)
Cash Flow from Investing Activities:
Acquisition of Accuimage, Inc. -- -- (815,438)
Investment in Property and Equipment (37,873) (7,741) --
--------- --------- -----------
Net Cash Used by Investing Activities (37,873) (7,741) (815,438)
Cash Flow From Financing Activities:
Note Payable Proceeds (Payments) (100,000) 100,000
Shareholder Note Proceeds -- 56,500
Sale of common stock 518,410 75,000 990,000
Stock issued for acquisition -- -- 160,000
Deferred Private Offering Costs 22,290 (22,290)
--------- --------- -----------
Net Cash Provided by Financing Activities 440,700 209,210 1,150,000
--------- --------- -----------
Net Increase (Decrease) in Cash 32,084 (331,645) 333,762
Cash at Beginning of Year 2,117 333,762
--------- --------- -----------
Cash at End of Year $ 34,201 $ 2,117 $ 333,762
========= ========= ===========
Interest Paid During the Year $ 3,750 $ 1,388 $ --
========= ========= ===========
Non-Cash Activities:
Non-cash compensation $ 134,910 $ -- $ --
========= ========= ===========
Acquisition of Accuimage, Inc. - Stock Issued $ -- $ -- $ 160,000
========= ========= ===========
</TABLE>
See accompanying notes and accountants' report.
F-5
<PAGE>
1) ORGANIZATION
The Company was organized on February 2, 1990, under the Laws of the State
of Nevada as Black Pointe Holdings, Inc. On June 26, 1996, The Company
changed its the name to AccuImage Diagnostics Corp. (the Company).
On September 30,1997, pursuant to a Stock Exchange Agreement, the Company
acquired all of the outstanding shares of AccuImage, Inc., a Nevada
corporation, which owned the exclusive rights to certain computer software
and technology which the Company had been licensing. Subsequent to the
exchange, AccuImage, Inc. was dissolved.
AccuImage Diagnostics Corp. is based in South San Francisco and is engaged
in the development, marketing and sales of Internet enabled software used
for medical data and interactive medical image visualization. The software,
which runs on a personal computer, interprets images obtained from leading
equipment manufacturers and imaging modalities (e.g. CT, MRI, Ultrasound).
The Company provides its software to three different markets. First, the
Company offers hospitals, clinics and medical professionals a scalable
solution for transmitting data on the Internet, and enhancing the
diagnostic value of data already obtained. Second, the Company sells to
Original Equipment Manufacturers (OEMs) of medical acquisition devices
(e.g. GE, Siemens, Imatron) a customizable version that adds value to their
core products. Third, the Company offers vendors who sell Picture and
Archiving Communication Systems (PACs) a medical diagnostic software
package that complements and enhances their existing product line.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company presents its financial statements on the accrual basis of
accounting in accordance with generally accepted accounting principles.
RECLASSIFICATION OF FINANCIAL STATEMENTS PRESENTATION
Certain reclassifications have been made to the September 30,1998 fiscal
year ending financial statements to conform to September 30, 1999 fiscal
year ending financial statement presentation. Such reclassifications had no
effect on net income as previously reported.
FISCAL YEAR
The Company has a fiscal year that ends on September 30. Fiscal years 1999,
1998 and 1997 ended on September 30, 1999, September 30, 1998 and September
30, 1997 respectively.
CONCENTRATION OF CASH
The Company at times maintains cash balances in an account that is not
fully federally insured. Uninsured balances as of September 30, 1999 were
$34,201.
F-6
<PAGE>
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid securities purchased with maturity of three months or less to
be cash equivalents. As of September 30, 1999, there are no cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and Equipment are stated at cost. Depreciation is computed for
financial reporting purposes using the straight-line method over the
estimated useful lives of the assets. Repairs and maintenance that do not
extend the useful life of property and equipment are charged to expense as
incurred. When property and equipment are retired or otherwise disposed of,
the asset and its accumulated depreciation are removed from the accounts
and the resulting profit or loss is reflected in income.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, the Company reviews the carrying values of its long-lived assets and
identifiable intangibles for possible impairment whenever events or changes
in circumstances indicate that the carrying amount of assets to be held and
used may not be recoverable.
INTANGIBLE ASSETS
Purchased technology and other intangible assets, (software and
intellectual property licenses) are amortized on a straight-line basis over
the expected periods to be benefited, generally five to ten years. The
Company evaluates the recoverability of these intangible assets at each
period end using the undiscounted estimated future net operating cash flows
expected to be derived from such assets. If such evaluation indicates a
potential impairment, the Company uses the fair value to determine the
amount of these intangible assets that should be written off.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development costs in accordance
with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed. Costs incurred internally to create a
computer software product or to develop an enhancement to an existing
product are charged to expense when incurred as research and development
until technological feasibility has been established for the product or
enhancement. Thereafter, all software production costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for
general release to customers. Software development costs are amortized on a
product basis at the greater of the amounts computed using (a) the ratio of
current gross revenues for a product or enhancement to the total current
and anticipated future gross revenues for that product or enhancement, or
(b) the straight-line method over the remaining estimated economic life of
the product or enhancements, not to exceed five years. The Company
evaluates the net realizable value of its software development costs at
each period end using undiscounted estimated future
F-7
<PAGE>
net operating cash flows expected to be derived from the respective
software product or enhancement. If such evaluation indicates that the
unamortized software costs exceed the net realizable value, the Company
writes off the amount by which the unamortized software development costs
exceed net realizable value.
WARRANTY RESERVE
Based upon historical costs and its sales agreements, the Company maintains
a reserve of 8% of product sales to cover anticipated warranty costs
related to software sold. This reserve is continually compared to actual
costs by management and revised as necessary.
ADVERTISING COSTS
The Company expenses advertising costs as they are incurred. Advertising
expenses were $1,490 and $10,618 for the fiscal years ended on September
30, 1999 and 1998, respectively.
SOFTWARE REVENUE AND COSTS
According to SOP 97-2 "Software Revenue Recognition", revenue is recognized
when the receipt of payment is probable, the selling price is known, the
software has been delivered, and the contract is enforceable. The company
follows these guidelines to recognize revenue. Research and Development
costs related to both future and present products are charged to expense as
incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Income taxes are provided for the tax
effects of transactions reported in the financial statements and consist of
deferred taxes related to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets
and liabilities represent the future tax return consequences of those
differences, which will be either taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized
for operating losses that are available to offset future taxable income.
USE OF ACCOUNTING ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ materially from those
estimates.
The actual results with regard to warranty expenditures could have a
material impact on financial statements of the Company if the actual rate
of unit failure is greater than estimated by the Company in the calculation
of its warranty reserve.
COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), which is effective for financial statements for periods
beginning after December 15, 1997. This pronouncement establishes standards
for reporting and display of comprehensive income (loss)
F-8
<PAGE>
and its components in a full set of general-purpose financial statements.
The Company, however, does not have any components of comprehensive income
(loss) as defined by SFAS 130 and therefore, for the years ended September
30, 1999, 1998 and 1997 comprehensive loss is equivalent to the Company's
net loss.
NET LOSS PER SHARE
The Company follows SFAS No. 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share ("EPS") and
applies to entities with publicly held common stock or potential common
stock. SFAS No. 128 replaces the presentation of primary EPS with "basic
EPS," and fully diluted EPS with "diluted EPS." It also requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS is computed by dividing net income (loss) by the weighted average
number of common shares outstanding. The dilutive EPS calculation gives
effect to all dilutive potential common shares, such as stock options or
warrants, which were outstanding during the period. Shares issued during
the period and shares repurchased by the Company are weighted for the
portion of the period that they were outstanding for both basic and diluted
EPS calculations.
STOCK-BASED COMPENSATION
The Company accounts for its stock based compensation plan based on
accounting Principles Board ("APB") Opinion No. 25. In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123, Accounting for
Stock-Based Compensation. The Company has determined that it will not
change to the fair value method and will continue to use APB Opinion No. 25
for measurement and recognition of any expense related to employee stock
based transactions. As such, compensation expense would generally be
recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires that an
enterprise recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The statement is effective for the Company's fiscal year ending
September 30, 2000. The Company does not believe that the adoption of the
provisions of SFAS No. 133 will have a material impact on its financial
position or results of operations.
The FASB issued SFAS No. 131 on "Disclosures about Segments of an
Enterprise and Related Information" effective in 1998. The Company
evaluated SFAS No. 131 and determined that the Company operates in only one
segment.
3) RELATED PARTY TRANSACTIONS
Douglas Boyd, Ph.D. is the Chairman of The Board of Directors and a
shareholder in the Company. Mr. Boyd is also a member of the Board of
Directors of Imatron Inc. and a shareholder in Imatron Inc.
F-9
<PAGE>
4) ACCOUNTS RECEIVABLE - TRADE
Accounts receivable - trade is net of allowance for doubtful accounts of
$16,619 and consists of the following at September 30, 1999:
AMOUNT PERCENTAGE
------ ----------
Customer A $ 83,767 49%
Customer B 51,457 30%
Customer C 18,917 11%
ALL OTHERS 17,984 10%
-------- ---
$172,125 100%
======== ===
As of September 30, 1999, the Company was owed $83,767 for sales to another
entity controlled and owned in part by Company stockholders.
5) INVENTORIES
Inventories consist of personal computer components of $44,597 and $12,366
for the years ended September 30, 1999 and 1998, respectively.
6) PREPAID LICENSING FEES
The Company held an Exclusive Licensing agreement with Neo Imagery
Technology, Inc. (NIT), which expired on September 17, 1998. The Company
prepaid license fees to NIT and expenses the fees as it sold the related
products. The remaining license fees will be expensed during fiscal 2000.
Licensing fees under this agreement were $65,480 and $132,961 for the years
ended September 30, 1998 and 1999, respectively.
7) PROPERTY AND EQUIPMENT
Property and Equipment consists of the following at September 30:
1999 1998
-------- --------
Computers & Equipment $ 58,987 $ 34,135
Furniture & Fixtures 32,193 19,172
SOFTWARE 30,349 30,349
-------- --------
Less Accumulated Depreciation (60,178) (24,836)
-------- --------
$ 61,351 $ 58,820
======== ========
The useful lives of all assets are estimated to be 5 years. Depreciation
expense for the periods ended September 30, 1999, 1998 and 1997 was
$35,340, $9,360 and $-0- respectively.
8) DEFERRED PRIVATE OFFERING COSTS
Professional fees associated with a private equity financing were charged
to equity, as units in the offering were sold.
F-10
<PAGE>
9) INTANGIBLE ASSETS
Intangible assets consist of the following at September 30:
1999 1998
--------- ---------
AccuImage Software $ 125,716 $ 125,716
License Fees 15,200 15,200
--------- ---------
$ 140,916 $ 140,916
Less Accumulated Amortization (80,700) (63,070)
--------- ---------
$ 60,216 $ 77,846
========= =========
Amortization expense for the periods ended September 30, 1999, 1998 and
1997 was $13,470, $200,859 and $ -0- respectively.
ACCUIMAGE SOFTWARE
On September 30,1997, the Company acquired AccuImage Inc. which had entered
into an agreement with the developer of a 3D medical imaging software
package referred to as MIDP. The developer granted to the AccuImage Inc. an
exclusive license to use and sell the MIDP software for a period of ten
years.
The Company subsequently assumed all the rights under the license agreement
when AccuImage Inc. was acquired. The value of the software was capitalized
as part of the purchase price of AccuImage, Inc. as is being amortized over
its expected useful life of 10 years,
On November 1, 1998, the developer of the software, pursuant to an
employment settlement, transferred all rights in the software to the
Company.
OTHER LICENSE FEES
Included in other license fees is a $10,000 fee the Company paid to
National Science and Technology Development Agency, Bangkok Thailand, for a
License to act as an "Exclusive authorized reseller" of hardware and
software known as CalScore 1.0. The license, which commenced February 17,
1997, is being amortized over its term of 5 years.
10) NOTES PAYABLE
NOTES PAYABLE - OTHER
The Company borrowed $100,000 in 1997 on a short-term note. The note bore
interest of 12% per annum and was due upon demand. The note was repaid
during the year ended September 30, 1999.
SHAREHOLDERS NOTE PAYABLE
The Company has notes payable to a number of shareholders. These notes bear
a 5% interest rate and are due upon demand. The balances of the notes
payable at September 30, 1999 and 1998 were $56,500 and $56,500,
respectively.
Interest expense on all notes payable for the periods ended on September
30,1999 and 1998 was $5,928 and $1,389 respectively.
F-11
<PAGE>
11) STOCKHOLDERS' EQUITY
Starting in August 1998, the Company commenced a private placement offering
which offered for sale up to 1,200,000 Units at $0.80 per Unit. Each Unit
consists of one share of common stock and one warrant which entitles the
holder to purchase one share of common stock at an exercise price of $1.00
per share, subject to adjustment.
The common stock and the warrants are separately transferable. Each warrant
will be immediately exercisable upon issuance and shall remain exercisable
for a period of five years from its date of issuance. The Company may call
all of its warrants for redemption at $0.01 per warrant commencing one year
from the date of closing of the offering. The minimum purchase per investor
is 31,250 Units ($25,000) except that the Company in its sole discretion
may accept subscriptions for fewer Units. Thirteen individuals purchased
930,000 Units as of September 30, 1999.
A summary of the Company's outstanding warrants as of September 30, 1999
and 1998 is presented below:
Outstanding at September 30, 1997 --
Issued 150,000
Outstanding at September 30, 1998 150,000
Issued 780,000
-------
Outstanding at September 30, 1999 930,000
=======
12) PRODUCT DEVELOPMENT, DISTRIBUTION, AND WARRANTY SUPPORT AGREEMENT
On April 14, 1999, the Company entered into a five year agreement with
Imatron Inc., a New Jersey Corporation and related party, which allows
Imatron to be the exclusive authorized distributor and service provider of
the Company's products to Imatron's new customers. Imatron is responsible
for promotion, installation, sales, and applications training of all
hardware and software products distributed by them.
Under the agreement, the Company continues to provide service to the prior
installed base of Imatron customers and can still solicit sales from these
customers for new products. The Company agrees not to sell below the
published selling price of its products to these customers without the
prior review and written approval of Imatron. The Company provides Imatron
with a 30% discount from the Company's published software prices
For Company's products sold by Imatron, Imatron provides on-site
applications training and installation. Each sale includes a one-year
warranty that covers parts and on-site service and phone support plan. The
Company agrees to further pay Imatron 5% of the selling price of the
Company's products purchased by Imatron to offset these costs
For single sales over $40,000, the Company offers an additional one-year
warranty that covers parts and on-site service performed by Imatron. The
Company will pay an additional 5% of product's list selling price to
Imatron for providing these services
F-12
<PAGE>
13) CONCENTRATIONS
The Company derives all of its revenues from organizations operating in the
medical field, from medical professionals, and from other companies which
are in the business of manufacturing and selling medical equipment and
devices.
The Company derived $750,134 in revenues from Imatron Inc., another entity
controlled and owned in part by Company stockholders.
14) COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company has no litigation pending.
EMPLOYMENT AND CONSULTING AGREEMENTS
In June 1998, the Company entered into an agreement with its then President
under which the President was to receive $140,000 per year and an annual
bonus of up to $60,000 based on criteria mutually agreed upon. Under the
agreement, either party may terminate the agreement upon thirty days
written notice without cause. On August 23, 1999, the President resigned
and the parties jointly agreed to a severance agreement.
In June 1999, the Company entered into an agreement with its Chief
Technology Officer. The agreement included an annual salary of $110,000,
health and retirement benefits and 300,000 stock options. In August 1999,
the Chief Technology Officer assumed the position of Chief Executive
Officer, and was granted a salary of $126,500 and was given an additional
150,000 stock options.
The Company has various employment and consulting agreements less material
in nature that provide for issuance of the Company's stock options in
exchange for services rendered to the Company. These agreements relate
primarily to professional services rendered in connection with product
development, sales and technical support.
LEASES
On January 22, 1998, the Company entered into a three-year operating lease
agreement for its main operating facility located at 400 Oyster Point Blvd
in South San Francisco, CA with Kashiwa Fudosan America, Inc, a California
Corporation. The commencement date of the lease is February 1, 1998, and
the expiration date is January 31, 2001. Rent expense under this lease
agreement was $41,221 and $40,654 for the fiscal years ended on September
30, 1999 and 1998 respectively. Minimum rental commitments under this lease
agreement are payable as follows:
Fiscal Year Ended September 30,
2000 $45,534
2001 $15,280
F-13
<PAGE>
15) STOCK OPTION PLAN
During 1997, the Company started a Stock Option Plan that authorized the
issuance of options for up to 1,600,000 shares of the Company's common
stock.
Under this plan, no option may be exercised after the expiration date of
ten years from the date of grant and no option may be exercised as to less
than one hundred (100) shares at any one time. There are two categories of
options: Incentive Stock Options (ISO) AND Non-Qualified Stock Options
(NSO).
ISOs are granted to employees and the purchase price shall not be less than
the Fair Market Value of the common stock share at the date of grant and no
ISO shall be exercisable more than ten (10) years from date of grant except
that in the case of any person who owns more than 10% of the voting power
of all classes of stock, no ISO shall be exercisable more than five (5)
years from date of grant.
NSOs may be granted to any eligible participant. The purchase price shall
not be less than 85% of the Fair Market Value of the shares at the time
except that when the grantee owns more than 10% of the voting power of all
classes of stock at the time of grant, the price is be 110% of the Fair
Market Value of the shares at the time of the grant. No NSO shall be
exercisable more than ten (10) years from the date of grant.
In general, granted ISO's expire three months after the termination date.
If employment termination is due to cause, the options shall expire
immediately; and if employment termination is due to permanent and total
disability, the options may be exercised up to one year following
termination.
The Company has adopted only the disclosure provisions of SFAS No. 123. It
applies APB Opinion No. 25 and related interpretations in accounting for
its stock option plan. Accordingly, no compensation cost has been
recognized for its stock option plan other than for options issued to
outside third parties. If the Company had elected to recognize compensation
expense based upon the fair value at the grant date for awards under this
plan consistent with the methodology prescribed by SFAS No. 123, the
Company's net loss and loss per share would be reduced to the pro forma
amounts indicated below for the years ended September 30:
1999 1998
--------- ---------
Net loss:
As reported $(503,184) $(684,248)
Pro forma $(646,876) $(721,562)
Basic and diluted loss per common share:
As reported:
Basic $ (.0530) $ (.0796)
Diluted $ (.0464) $ (.0739)
Pro forma:
Basic $ (.0681) $ (.0840)
Diluted $ (.0596) $ (.0780)
F-14
<PAGE>
Options are granted at prices are equal to the current fair value of the
Company's common stock at the date of grant. The vesting period is usually
related to the length of employment or consulting contract period.
The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: 1999: dividend yield of 0%; expected volatility of 50%;
risk-free interest rate of 6.0%, and expected life of 3 to 5 years; 1998:
dividend yield of 0%; expected volatility of 50%; risk-free interest rate
of 5.3%, and expected life of 5 years.
A summary of the status of the Company's stock option plan as of September
30, 1999 and 1998 and changes during the years ended on those dates is
presented below:
1999 1998
---------- ---------
Balance at beginning of year 1,264,200 --
Granted 827,080 1,264,200
Exercised -- --
Forfeited/cancelled (645,000) --
---------- ---------
Outstanding at year end 1,446,280 1,264,200
OPTIONS EXERCISABLE AT YEAR END 474,405 132,325
Weighted average fair value of options ========== =========
Granted During the Year $0.43 $0.28
===== =====
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its stock options.
As of September 30, 1999, the Company granted to its employees and other
eligible participants options exercisable for the Company common stock. The
exercise price varies depending on the trading price of the Company's
common stock on the date of issuance among other factors.
16) ACQUISITION OF ACCUIMAGE, INC.
On September 30, 1997, the Company completed the acquisition of all
outstanding shares of AccuImage, Inc., a provider of software and services
for the medical imaging, through the issuance of 4,000,000 shares of the
Company's common stock. The acquisition was accounted for as a purchase in
accordance with provisions of APB 16. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of the
acquisition.
The total purchase price of the acquisition was $815,438. The purchase
price was allocated to the assets acquired and liabilities assumed based on
their estimated fair values as determined by the Company:
F-15
<PAGE>
Current Assets $ 141,219
Equipment 62,519
License Rights and other
Purchased Technology 213,425
Other Assets 401
Goodwill 618,115
----------
Total Assets Acquired $1,035,679
----------
Liabilities Assumed $ 220,241
----------
Among the factors considered in determining the amount of the allocation of
the purchase price to the assets acquired various factors such as
estimating the stage of development of the software acquired and the
investments necessary to bring the technology to market. The intangibles,
including the value of purchased technology, software use licenses, and
other intangibles will be amortized on a straight-line basis over 5-10
years.
UNAUDITED PRO FORMA DISCLOSURES OF ACQUISITIONS.
The following unaudited pro forma consolidated results of operations give
effect to the acquisition of AccuImage, Inc. as if it occurred as of the
beginning of the period:
1997
----------
Net revenue $ 365,296
Net income (loss) $ (460,949)
Net loss per share - basic and diluted $ (0.1142)
Shares used in per share calculation -
basic and diluted 4,037,100
17) FOREIGN OPERATIONS:
The Company has had revenue from sources outside the United States; all
sales were accounted for in U.S. dollars.
Country 1999 1998
-------- -------
Germany $ 93,128 --
India $ 19,975 --
Taiwan -- $40,000
Thailand $ 504 $ --
-------- -------
Total Foreign Sales $113,607 $40,000
======== =======
F-16
<PAGE>
18) INCOME TAXES
Significant components of the provision for taxes based on income for the
years ended September 30 are as follows:
1999 1998
---- ----
Current tax expense
Federal $ -- $ --
State 800 800
---- ----
800 800
Deferred tax expense
Federal -- --
State -- --
---- ----
Provision for Income Taxes $800 $800
==== ====
A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to
income before provision for (benefit from) income taxes for the years ended
September 30 is as follows:
1999 1998
----- ------
Income tax provision (benefit)
computed at federal statutory rate 34.0% 34.0%
State 8.8% 8.8%
Increase in valuation allowance (42.8%) (42.8%)
Total 0.0% 0.0%
Significant components of the Company's deferred tax assets and liabilities
for income taxes consist of the following:
1999 1998
--------- ---------
Deferred tax asset
Net operating loss carryforwards $ 656,625 $ 466,948
Allowance for warranty costs 36,104 12,708
Depreciation/amortization 23,617 19,152
Other Accruals and Allowances 18,037 --
--------- ---------
734,383 498,808
Deferred tax liability
Deferred State Income Tax (51,713) (34,996)
--------- ---------
685,367 463,812
Valuation Allowance (685,367) (463,812)
--------- ---------
$ -- $ --
========= =========
At September 30, 1999, the Company has approximately $1,532,737 net
operating loss carryforwards available to offset future federal and state
income taxes, which expire through 2010 and 2019.
F-17
<PAGE>
The Company has elected to fully reserve the benefit of tax carryforwards
until such time as it is able to reasonably expect to realize those
benefits.
19) GOING CONCERN
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, the Company has experienced net
losses of $503,184 and $684,248 for the years ended December 31, 1999 and
1998, respectively. In addition, the Company continues to use, rather than
provide, cash from its operations and had negative working capital of
$64,716 at September 30, 1999.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. In view of the matters described above,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon the Company's ability to
raise sufficient capital to fund its working capital requirements until the
Company can generate sufficient sales volume to cover its operating
expenses. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or
amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management's agreement with Imatron (a related party) has greatly increased
the sales of Company's software products. Imatron is a public company that
produces a tomographic scanner and has agreed to sell the Company's
software along with its products. Additionally, the Company received FDA
approval of its software.
Additionally, subsequent to year end, the Company has obtained enough
additional capital to insure that it will have sufficient resources to
achieve sustainable profitability.
20) YEAR 2000 ISSUE
The year 2000 issue is the result of shortcomings in many electronic data
processing systems and other electronic equipment that may adversely affect
the Company's operations as early as fiscal year 1999.
The Company believes that the software applications that it uses or has
developed are year 2000 compliant. To the extent that any of these software
applications contain source code that is unable to appropriately interpret
the upcoming calendar year 2000, some level of modification or possible
replacement of such source code or applications will be necessary.
The Company is currently unable to predict the extent to which the year
2000 issue will affect its customers because of the unprecedented nature of
the year 2000 issue.
The final impact on the Company, if any, cannot be determined.
F-18
EXHIBIT 10.5
SEPARATION AGREEMENT AND GENERAL RELEASE
This SEPARATION AGREEMENT AND GENERAL RELEASE ("Agreement") is entered into
This 1St Day of September, 1999 ("Execution Date") by and between ACCUIMAGE
DIAGNOSTICS CORP, a Nevada corporation, with principal offices located at 400
Oyster Point Blvd., Suite 114, South San Francisco, California 94080 ("Company")
and Allen B. Poirson, Ph.D., an Individual Residing At 2 Guerrero St., Apt. 302,
San Francisco, CA 94103 ("Poirson").
RECITALS
A. Company has employed Poirson since June 15, 1998, as its President and
CEO. Additionally, Poirson was a Director of the Company for the same period;
and
B. Certain issues have been raised regarding the terms and conditions of
Poirson's employment, which the parties now wish resolve without dispute and
pursuant to the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual promises and undertakings in
this Agreement, it is mutually agreed as follows:
AGREEMENTS
1. TERMINATION OF EMPLOYMENT. Poirson has submitted his resignation, and
Company has accepted Poirson's resignation, effective on August 23, 1999 (the
"Termination Date"). As of that date, Poirson's employment and all positions and
assignments to and/or with the Company as well as all duties, responsibilities
and authorities with the Company terminated.
2. PAYMENT. Effective upon the Termination Date but subject to the
provisions of this Agreement, the parties agree as follows:
a) SEPARATION PAYMENT. Company agrees to pay Poirson a separation
payment consisting in the aggregate of the equivalent of two (2) months of his
current base salary (deemed to be the gross amount of Twenty-Three Thousand
Three Hundred Thirty-three Dollars and Thirty-three Cents ($23,333.33))
("Separation Payment"), payable by Company check on the Execution Date. Poirson
agrees to take all diligent and reasonable efforts to secure alternate
employment during this two month period from August 24, 1999 to October 23,
1999. In the event Poirson has not secured alternate employment as of October
23, 1999, Company agrees to pay Poirson for an additional four months, at the
rate of Five Thousand Eight Hundred Thirty-three Dollars and Thirty-three Cents
($5,833.33) per month (representing 50% of his current annual rate or any
pro-rata portion thereof), payable pursuant to the Company's regularly scheduled
payroll periods and practices ("Additional Separation Payments"), provided that
any portion of such Additional Severance Payments will cease on the earlier of
February 23, 2000 or the date on which Poirson secures alternate employment. All
Additional Separation Payments shall be made by Company check, mailed to the
address listed for Poirson above.
EXHIBIT 10.5
-1-
<PAGE>
b) STOCK OPTIONS. Effective as of the Termination Date, Company
grants to Poirson a bonus of 50,000 fully vested options exercisable to purchase
the Company's Common Stock at $0.47 per share in recognition of his services.
This grant is in addition to the 100,000 vested stock options previously granted
on his employment also exercisable at $0.47 per share, plus the 25,000 options
which are vesting in September, 1999 pursuant to his Employment Agreement. The
exercise period regarding all 175,000 stock options shall be extended to three
years following the Termination Date stated above. Poirson acknowledges that if
he exercises any previously granted incentive stock options more that three
months after the Termination Date, the favorable tax treatment afforded to
holders of incentive stock options will not be available to him.
c) DEFERRED COMPENSATION. Company acknowledges that Poirson
previously has deferred Fifty-Five Thousand Three Hundred Eighty-two Dollars and
Eighty-eight Cents ($55,382.88) of his compensation during his employment with
the Company and agrees to pay Poirson this amount, plus 5% interest accruing
from January 1, 1999 (which totals One Thousand Eight Hundred Fifty-five Dollars
and Thirty-two Cents ($1,855.32)), payable by Company check on the Execution
Date.
d) COMPANY AUTOMOBILE. Poirson will promptly transfer the title and
lease on the 1997 BMW 328ic over to Company's name, and Company agrees to pay
all fees incurred in connection with the transfer. Poirson will return the car
to the Company no later than the close of business on October 23, 1999, and
Company agrees to pay all fees, including lease fees and insurance fees, during
this period.
e) HEALTH BENEFITS. Company is not subject to the provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA").
Company will offer the coverage and pay the premiums necessary to enable the
Poirson to maintain his health coverage as currently provided under the
Company's group health plan from August 24, 1999 through the earlier of February
23, 2000 or whenever Poirson is eligible to obtain comparable coverage at
comparable cost through a subsequent employer.
f) FINAL EXPENSES. Company agrees to reimburse Poirson for his final
business expenses, which total One Thousand Seven Hundred Twenty Dollars and
Sixty-six Cents ($1,720.66), upon submission of appropriate documentation. This
payment is payable by Company check on the Execution Date. g) Poirson
specifically acknowledges that, as of the Termination Date, and except as
otherwise provided in this Agreement, he has received all salary, bonus,
vacation, commissions, compensation time and other payments to which he is or
may be entitled pursuant to law, any prior agreement, or any of the Company's
policies or programs, and that he accrues no other benefits, including health
insurance, or entitlements on or after the Termination Date, except as otherwise
provided in this Agreement.
3. COMPANY PROPERTY. Poirson represents that he has returned all items of
Company property he had or over which he had control, including, but not limited
to, any equipment belonging to the Company; all code and computer programs and
information of whatever nature; and any other materials, documents or
information, including, but not limited to, confidential information in his
possession or control that the Company owns all or some interest in and that he
will retain no copies thereof.
4. ACKNOWLEDGMENT AND RELEASE.
a) In consideration of the promises and undertakings contained in
this Agreement, which Poirson acknowledges exceed any payments, benefits and/or
other things of value to which he might otherwise be entitled under any policy,
plan, practice or procedure of the Company or pursuant to any prior agreement
and/or contract with the Company, Poirson agrees, for himself, his heirs,
executors, administrators
EXHIBIT 10.5
-2-
<PAGE>
and assigns to fully release and forever discharge the Company, including any
and all of its related and affiliated entities, employees, agents, attorneys,
shareholders, officers and/or directors, from any and all claims, causes of
action, liabilities, demands, damages, penalties, debts, obligations, whether
now known or unknown, existing, claimed to exist or which can ever arise out of
or result from or in connection with Poirson's employment with or termination
from the Company.
b) Without limiting the generality of the foregoing, Poirson
acknowledges that this Agreement shall operate as a complete bar to any
litigation, charges, complaints, grievances or based upon or in any way related
to (i) any prior employment agreements, incentive agreements or benefits or
retirement plans; (ii) any property, contract or tort claims, including wrongful
discharge, breach of employment contract, breach of the covenant of good faith
and fair dealing, retaliation, intentional or negligent infliction of emotional
distress, tortious interference with existing or prospective economic advantage,
negligence, misrepresentation, breach of privacy, defamation, loss of
consortium, breach of fiduciary duty, violation of public policy or any other
common law claim of any kind; (iii) any violation or alleged violation of Title
VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, as amended, the Older Workers Benefit Protection Act of 1990,
the Equal Pay Act, as amended, the Fair Labor Standards Act, the Employee
Retirement Income Security Act, the Americans With Disabilities Act, the
Consolidated Omnibus Budget Reconciliation Act, the California Fair Employment
and Housing Act, the California Family Rights Act, any and all provisions of the
California Labor Code, the California Unemployment Compensation Code, and the
California Workers' Compensation Act; (iv) any claims for severance pay, bonus,
sick leave, vacation or holiday pay, life insurance, health, disability or
medical insurance or any other fringe benefit; and (v) any claim relating to or
arising under any other local, state or federal statute or regulation or
principle of common law (whether in contract or in tort) governing the
employment of individuals, discrimination in employment and/or the payment of
wages or benefits.
c) Poirson understands that if any fact with respect to any matter
covered by this Agreement is found to be other than, or different from the facts
now believed by his to be true, he expressly accepts and assumes the risk of
such possible difference in facts and agree that this Agreement shall be, and
remain, in full force and effect notwithstanding such difference in fact.
Poirson acknowledges and warrants that there are no claims or actions currently
filed or pending relating to the subject matter of this Agreement.
5. CONSULTATION. As a material provision of this Agreement, Poirson
agrees, during the period of receiving Separation Payments, to make himself
available, at reasonable times and on a reasonable basis to consult with Company
and its several service providers, specifically including but not limited to the
members of its Board of Directors and Robert Taylor, and otherwise to provide
advice and professional services reasonably required in order to complete his
current projects and to provide for an orderly transition of Company's
management and administrative activities.
6. GENERAL RELEASE. The release set forth above is a general release and,
except as expressly provided herein, is intended to encompass all known and
unknown, foreseen and unforeseen claims which either party may have against the
other, including all Associated Persons up to and including the date of this
Agreement. It is further understood and agreed that the parties expressly waive
all rights under Section 1542 of the Civil Code of the State of California and
any similar law of any state or territory of the United States. Said section
provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
EXHIBIT 10.5
-3-
<PAGE>
7. CONFIDENTIALITY AND PROPRIETARY INFORMATION.
a) CONFIDENTIALITY OF AGREEMENT. The parties specifically agree to
keep the fact and terms of this Agreement confidential. Poirson agrees to
discuss it only with his attorney, advisors, accountant and immediate family.
Company agrees to discuss it only with officers, directors, or agents with a
specific need to know and to specifically instruct such persons regarding the
obligations of this Agreement, including but not limited to the confidentiality
and non-disparagement provisions.
b) CONFIDENTIAL AND PROPRIETARY INFORMATION. Poirson shall forever
hold in strictest confidence and trust all trade secrets and confidential or
proprietary information of any nature and in any form which is treated as
confidential by Company and which is not generally known to the public, and will
not disclose it except for legitimate Company purposes and with the Company's
express written consent. For these purposes, confidential information means all
business information of whatever nature regarding the Company, its employees,
directors, customers and suppliers; its procedures, business methods, financial,
personnel and salary information; and identities and all other information
regarding or otherwise related to its customers and suppliers of goods and
services, any or all of which information is not otherwise generally known to
the public at large.
c) The Parties agree that the remedy at law for any breach of the
foregoing will be inadequate, and that either Party shall be entitled to seek
appropriate injunctive relief in addition to any remedy at law in case of any
breach of these provisions of this Section.
8. AUTHORITY. Both Parties warrant and represent that each has the sole
right and exclusive authority to execute this Agreement and Release, and that
neither is restricted in so doing.
9. COMPLETE AGREEMENT. This Agreement expresses the full and complete
agreement between the parties regarding the subject matter hereof, and any
modification of this Agreement shall not be effective unless it is in a writing
signed by all parties to this Agreement. No party has been or is being
influenced to any extent or is relying upon any representation, covenant or
statement by any other person unless set forth in this Agreement.
10. NO LIABILITY. The Parties agree and understand that the payment of
monies and giving of other consideration, and the execution of this release and
the agreements contained herein do not constitute nor shall be construed as an
admission of any liability whatsoever by the parties thereto, or the admission
of the validity of any claim made by or against either party.
11. GOVERNING LAW. This Agreement shall be governed by the law of the
State of California applicable to contracts executed and wholly performed
therein.
EXHIBIT 10.5
-4-
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into and effective this
24th day of August, 1999 ("Effective Date") by and between ACCUIMAGE DIAGNOSTICS
CORP., a Nevada corporation ("Company") and ROBERT TAYLOR ("Executive"),
regarding the terms and conditions of his employment by and with the Company.
R E C I T A L S :
- - - - - - - -
WHEREAS, Company wishes to employ Executive and Executive wishes to be
employed to provide his services to Company on the terms and conditions set
forth below.
NOW, THEREFORE, for good and sufficient consideration, the parties agree as
follows:
A G R E E M E N T :
- - - - - - - - -
1. POSITION AND DUTIES: Executive will be employed as Chief Executive
Officer of Company, effective August 24, 1999, or such other position and duties
as the Company's Board of Directors ("Board") may determine and assign,
consistent with Executive's background, experience and performance. As Chief
Executive Officer, Executive will report to the Board, will have profit and loss
responsibility for the Company, as well as overall responsibility for directing
the Company toward the achievement of its business objectives as approved by the
Board, plus those duties of an executive officer of the Company established from
time to time by the board and such additional duties as may be mutually agreed
from time to time.
2. TERM: Executive's employment will be at will and for no specific term,
terminable at the will of either Executive or the Company on thirty (30) days
written notice, subject to the terms and conditions set forth below.
3. STANDARDS OF PERFORMANCE: Executive agrees to perform all of his
duties in a fully professional manner pursuant to the standards of skill,
competence and efficiency expected of his position, and subject to the direction
and control of the Board. He agrees to devote his full business time, energy and
attention and give his best efforts and skills exclusively to the furtherance
and best interests of the Company, and to the performance of his duties
hereunder.
The above notwithstanding, and specifically subject to Board approval and
the provisions of Section 6 below, the expenditure of reasonable amounts of time
for personal business, charitable, community or professional activities will not
be deemed a breach of this Agreement, provided that such activities,
individually or in the aggregate, do not interfere materially with the
performance of his duties hereunder, and further provided that in engaging in
such activities he complies fully with the non-compete and confidentiality
provisions of this Agreement and/or related policies of the Company, as they may
be modified from time to time. Executive understands and agrees that the
performance of his duties and his employment with the Company generally are
subject to all of the policies of the Company, the Board, the Company's Articles
of Incorporation and By-laws, and to and all laws and regulations applicable to
corporations generally and to the medical imaging industry in particular.
EXHIBIT 10.6
-1-
<PAGE>
4. COMPENSATION, BENEFITS, AND PERSONNEL POLICIES:
(a) As compensation for all services rendered pursuant to this
Agreement, including serving as a member of the Board, if so elected, Executive
shall be entitled to a base salary in a gross amount equivalent to $126,500
calculated on an annualized basis, and payable pursuant to the Company's regular
payroll practices. The base salary is subject to periodic review, not less
frequently than annually, and adjustment as recommended and approved by the
Board in its sole discretion.
(b) Executive is also entitled to receive the following incentive
bonuses:
(i) Should the Company make a before tax net profit ("EBT") of
$650,000 for fiscal year commencing October 1, 1999 and ending September 30,
2000 ("FY2000"), and net of any bonuses earned and payable pursuant to sections
4(b)(ii) and (iii), Executive shall be entitled to a profit sharing performance
bonus of $61,750; and
(ii) Should the Company's gross revenues for each quarter in
FY2000 exceed $600,000, Executive shall be entitled to a bonus of 1.9% of the
quarterly gross revenue. Such bonus will be calculated quarterly and shall be
payable within 45 days of the end of each quarter. The foregoing
notwithstanding, in the event that the Company's gross revenues do not exceed
$600,000 in any single quarter during FY2000 ("Deficit Quarter"), but the
aggregate annual gross revenues for the fiscal year to date exceed $600,000
times the number of elapsed quarters to date, Executive will nonetheless be
entitled to a bonus for the Deficit Quarter calculated at 1.9% of the revenues
for the Deficit Quarter. Solely by way of example, if the Company's gross
revenues for Q1 equal $1,000,000, Executive will be entitled to a bonus for that
quarter of 1.9% times $1,000,000. If the Company's gross revenues for Q2 equal
$300,000, Executive will be entitled to a bonus for that quarter of 1.9% times
$300,000, because the cumulative total of Q1 and Q2 exceeds two (2) times
$600,000 ($1,200,000). If the Company's gross revenue for Q3 also equals
$300,000, Executive will not be entitled to a bonus for that quarter, as the
cumulative total of Q1, Q2 and Q3 does not exceed three (3) times $600,000
($1,800,000). But if the Company's gross revenues for Q4 are $600,000, Executive
will still be entitled to a bonus for that quarter of 1.9% times $600,000, even
though the cumulative total of Q1, Q2, Q3, and Q4 does not exceed four (4) times
$600,000 ($2,400,000); and
(iii) Should the Company's gross revenues for FY2000 exceed
$2,500,000, Executive shall be entitled to a bonus of 0.95% of the gross
revenue. This bonus is in addition to any bonus received pursuant to sections
4(b)(i) and (ii) above and shall be payable within 90 days of the fiscal year
end.
(c) As of the Effective Date, Executive will be granted an option to
purchase One Hundred Fifty Thousand shares (150,000) shares of Company's common
stock at $0.56 per share, exercisable over a ten year period from the date of
grant, at an exercise price calculated at the market price of the Company's
stock as of the Effective Date, pursuant to a stock option agreement containing
additional terms and conditions as deemed appropriate by the Board, and vesting
over a four year period on a quarterly basis.
(d) Executive will also be covered by and/or entitled to participate
in Company's policies and/or plans regarding benefits of employment, including
all pension, profit sharing and other retirement plans, and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans, as are customarily available to and on the same terms as other
key executives. In addition, Executive's employment is subject to Company's
personnel and financial policies as they may be developed and modified from time
to time.
EXHIBIT 10.6
-2-
<PAGE>
(e) The Company will reimburse Executive promptly for reasonable
out-of-pocket expenses incurred in connection with the performance of his
duties, including but not limited to travel expenses, food and lodging while
away from home, and reasonable entertainment expenses, consistent with such
policies as the Company may establish from time to time and provided that
Executive provides appropriate and timely expense reports with appropriate
supporting documentation.
(f) During each calendar year of employment, Executive is entitled
paid vacation, sick leave and other paid leaves in accordance with the Company's
polices with respect to paid leaves for executives.
5. TERMINATION OF EMPLOYMENT:
(a) WITHOUT CAUSE. Company may terminate Executive's employment
without cause effective upon thirty (30) days' written notice. In the event that
the Company terminates Executive's employment without cause Executive shall be
entitled to: (i) payment of all earned but unpaid compensation through the date
of termination; (ii) payment of base salary and group health coverage for an
additional two month period, payable pursuant to the Company's regular payroll
practices at the time ("Severance Period"); and (iii) vesting of any options
that otherwise would have vested during the Severance Period. All
unvested/unvestable options shall be forfeit as of the date of termination and
the Company shall be relieved of any further obligations under the Agreement in
this regard.
(b) WITH CAUSE. The Company may also terminate Executive's
employment, at any time and without any prior notice, written or otherwise, for
cause which, for purposes of this Agreement, is defined as any one of the
following: (i) criminal conduct, an act of dishonesty or material breach of this
Agreement; (ii) repeated or demonstrated failure or refusal to perform the
material duties of his position after receiving at least ten (10) days' written
notice of the nature of the failure or refusal to perform, or any failure or
refusal to follow a lawful directive of the Board; or (iii) taking any action or
conducting himself in a manner which is contrary or inimical to the best
interests or reputation of the Company, its parent, subsidiaries or affiliated
companies. In the event the Company terminates Executive for cause, he will be
entitled only to compensation earned, pro rata, and any options that have vested
pursuant to their terms, up to the date of his termination. All unvested options
shall be forfeit as of the date of termination and the Company shall be relieved
of any further obligations hereunder.
(c) INCAPACITY. If during the period of his employment Executive
becomes temporarily disabled from performing his duties hereunder through
illness or otherwise, he will be entitled to a leave of absence with
continuation of base salary for the duration of the disability up to a maximum
in the aggregate of three (3) months. If it reasonably appears to the Company in
the good faith exercise of its judgment that the disability will be permanent,
or in any event if such disability lasts longer than three months, the Company
will have the right to terminate Executive's employment immediately thereafter
and Executive will be entitled to receive whatever benefits he may be entitled
to receive pursuant to the Company's benefit plans or policies.
(d) DEATH. If Executive should die while actively employed pursuant
to this Agreement, the Company shall pay to his estate or designated
beneficiaries within sixty (60) days: (i) any earned but unpaid base salary
through the date of death; (ii) any bonus as determined by the Board to be
appropriate, pro rata through the date of death; and (iii) any other death
benefit made available to similarly situated executives in accordance with the
terms and conditions of Company's regular policies or programs.
(e) RESIGNATION. In the event Executive elects to resign, Executive
shall provide at least thirty (30) days' written notice of such election to
resign and shall be entitled to payment of all
EXHIBIT 10.6
-3-
<PAGE>
earned but unpaid compensation and any options that have vested pursuant to
their terms, up to the date of termination. All unvested options shall be
forfeit as of the date of termination and the Company shall be relieved of any
further obligations under the Agreement.
6. NON-SOLICITATION AND NON-COMPETITION:
(a) During Executive's employment and during any Severance Period
thereafter, he will not engage, either directly or beneficially, in any outside
business or financial activity, nor render any service in any capacity to anyone
in the business of medical imaging technology. For purposes of this Section 6
and of Section 7, below, Executive agrees and understands that the Company is
defined to include any parent, subsidiary, predecessor, successor or affiliate
of the Company, and further that "engaging in business" or "rendering any
service" includes serving as an officer, director, employee, shareholder,
investor, consultant (with or without compensation) or adviser to any other
entity which engages in the Company's business in the United States. Executive
agrees that with respect to any other outside work during the employment period,
including self-employment, he is required to obtain the advance written approval
of the Company's Board of Directors, which will evaluate his request taking into
account such factors as his work schedule, duties and responsibilities, any
actual or apparent conflict or incompatibility of employment, and any potential
impact on his performance. The Board's determination shall be made in its sole
discretion, and shall be final.
(b) During his employment, during any Severance Period, and for one
year thereafter, except as required by his duties for the Company, Executive
will not, directly or indirectly, or in concert with others, employ nor solicit
nor influence nor otherwise cause any employee of the Company or any of its
affiliated companies to leave their employment with the Company.
7. CONFIDENTIALITY, TRADE SECRETS, AND ASSIGNMENT OF INVENTIONS:
(a) Executive acknowledges and agrees that during the course of his
employment with Company, and in preparation therefore and thereafter, he will be
privy to many trade secrets and/or proprietary and other confidential or
privileged information (together "Proprietary Information") regarding the
Company which may affect, among other things, the successful conduct,
furtherance and protection of the Company's business and good will. For these
purposes, confidential information means all business information of whatever
nature regarding the Company (including any and all parents, subsidiaries,
predecessors, successors or affiliates), or about any of its products or
services or potential products or services, business plans, executives,
employees, and methods of doing business, which is not generally known to the
public at large. Trade secrets means information which derives independent
economic value from not being generally known to the public or to others who can
derive economic value from its disclosure or use and is the subject of
reasonable efforts to maintain its secrecy. This Proprietary Information
specifically includes but is not limited to technological information, customer
lists, types and prices of merchandise and orders, future plans, sales methods,
and salary and other personnel information. Executive agrees to keep all such
information in strictest confidence and not to disclose it except for legitimate
purposes of the Company and with the Company's express written consent, either
during his employment or at any time thereafter.
(b) On termination of his employment, Executive shall promptly
deliver to the Company all equipment belonging to it, all code and computer
programs of whatever nature, as well as all manuals, letters, correspondence,
reports, price lists, customer lists, sales information, and all copies thereof,
and all other materials of a confidential nature regarding the Company's
business that are in his possession or control. Executive further agrees that
the remedy at law for any breach of the provisions of Sections 6 and 7 herein
will be inadequate, and that the Company will be entitled to seek appropriate
injunctive relief in addition to any remedy at law in case of any such breach.
EXHIBIT 10.6
-4-
<PAGE>
(c) Executive acknowledges and specifically agrees that fully all
work he performs within the scope of his employment, and/or all work which
relates at the time of conception or reduction to the Company's business, or
actual or anticipated research or development of the Company, and/or all work
which results from any work Executive performs for the Company, whether such
work is performed during regular business hours or otherwise, and whether
utilizing the Company's equipment, supplies, facilities or trade secret
information or otherwise, shall belong to the Company. Executive agrees to
assign, or offer to assign, or to take such other reasonable action to assure
that any and all rights to such work shall belong or otherwise be transferred to
the Company.
(d) Executive further agrees, as a condition of continued employment,
to promptly disclose to the Company all ideas, processes, inventions,
improvements, developments, methods, designs, analyses, drawings, reports and
discoveries coming within the scope of the Company's business or related to its
products or to any research, design, development, application or production work
carried on by the Company, or to any problems or programs specifically assigned
to Executive, conceived alone or with others during his employment, and whether
or not conceived during regular working hours. All such ideas, processes,
programs, applications, trademarks, inventions, improvements, developments and
discoveries, whether patentable or not, shall be the Company's sole and
exclusive property, and Executive assigns and hereby agrees to assign his entire
right, title and interest in and to the same to the Company, and to take such
other reasonable action to assure that such work shall belong to and be
protected on behalf of the Company.
8. GOVERNING LAW: This Agreement will be governed by and construed
according to the laws of the State of California.
9. RESOLUTION OF DISPUTES: Any controversy between Executive and the
Company involving his employment with the Company or termination thereof,
including but not limited to enforcement, construction, or application of any
term, provision, or condition of this Agreement, except with respect to
paragraphs 6 and 7 hereof, shall be referred to non-binding mediation by a sole
mediator to be selected by agreement between the parties within ten (10)
business days. The mediation shall be scheduled and conducted as promptly as
practicable, and the costs of mediation shall be borne equally by the parties.
If the parties cannot themselves agree on a mediator, or if mediation does
not resolve the matter, then either party shall submit the controversy or claim,
within 180 days, to final and binding arbitration in accordance with the Federal
Arbitration Act and the rules of the Judicial and Mediation Services ("JAMS")
then in effect, such arbitration to be conducted in the County of San Mateo,
California. Failure to initiate arbitration within such one hundred and eighty
(180) day period, or as mutually extended, shall constitute a waiver of any and
all such claims, and they shall be forever barred. Both parties will attempt to
agree upon a mutually acceptable arbitrator. If they are unable to agree upon an
arbitrator, then an arbitrator will be selected in accordance with the
then-current rules of the JAMS. The parties further agree that arbitrator shall
be entitled to award money damages, including reasonable attorneys' fees to the
prevailing party, but shall not be entitled to award any other remedy at law or
equity including but not limited to exemplary damages, specific performance or
injunctive relief. The costs of the arbitrator will be shared equally by both
parties. The parties agree that, except as specifically excepted herein,
arbitration will be their exclusive form for resolving disputes with one another
regarding the employment relationship and this Agreement, and they expressly
waive any entitlement they may have to have controversies between them decided
by a jury or a court of law.
10. ENTIRE AGREEMENT: This Agreement sets forth the entire agreement and
understanding between the parties relating to the subject matter of it, and
supersedes and merges all prior discussions between the parties about such
subject matter.
EXHIBIT 10.6
-5-
<PAGE>
11. SEVERABILITY: In the event that one or more of the provisions
contained in this Agreement are held to be invalid, illegal, or unenforceable in
any respect by a court of competent jurisdiction, such holding shall not impair
the validity, legality, or enforceability of the remaining provisions herein.
12. SUCCESSORS AND ASSIGNS: This Agreement is binding on Executive's
heirs, executors, administrators, and other legal representatives and will be
for the benefit of the Company, its successors, and assigns.
13. NOTICES: Any notice or other communication required or given hereunder
shall be in writing and delivered personally or sent by telecopier, certified,
registered, or express mail, postage prepaid, and shall be deemed given when so
delivered personally or by telecopier, or if mailed, two days after the date of
mailing, as follows:
If to the Company, addressed to it at:
AccuImage Diagnostics Corp.
400 Oyster Point Blvd.
So. San Francisco, CA 94080
Attention: Chairman
If to Executive, addressed to him at:
Robert Taylor, Ph.D.
3745 24TH Street, Apt. 2
San Francisco, CA 94114
or at such other address as either party may from time to time specify by giving
notice as provided herein.
14. INDEMNIFICATION AND INSURANCE. The Company will indemnify Executive to
the fullest extent permitted by the laws of the State of California, as in
effect at the time of the subject act or omission, and the Executive shall be
entitled to the protection of any insurance policies the Company may elect to
maintain generally for the benefit of its directors and officers insuring
against all costs, charges and expenses whatsoever incurred or sustained by the
Executive in connection with any action, suit or proceeding to which Executive
may be made a part by reason of being or having been an officer or employee of
the Company or any of its subsidiaries, predecessors, or serving or having
served any other enterprises at the request of the Company (other than any
dispute, claim or controversy brought by the Company against Executive for
breach of any provision of this Agreement).
15. SOURCE OF FUNDS. Any and all payments provided pursuant to this
Agreement shall be made in cash from the general funds of the Company and no
special or separate fund or insurance arrangement shall be established or
created and no other segregation of assets made to assure payment. To the extent
that any person acquires a right to receive payments from the Company hereunder,
such right shall be no greater than the right of an unsecured creditor of the
Company.
16. AMENDMENTS AND WAIVERS: This Agreement may not be amended, modified,
superseded, canceled, renewed, extended, or any terms waived, except by written
instrument signed by both parties, or in the case of waiver, by the party to be
charged.
EXHIBIT 10.6
-6-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this agreement as of
the month and date first above written.
EXECUTIVE:
-----------------------------------------
Robert Taylor, Ph.D.
ACCUIMAGE DIAGNOSTICS CORP.
-----------------------------------------
By: Douglas Boyd, Ph.D.
Its: Chairman of the Board
EXHIBIT 10.6
-7-
EXHIBIT 23.1
Consent of Schvaneveldt and Company
I consent to the reference to, in this Annual Report on Form 10KSB, my audit
report relating to the financial statements of AccuImage Diagnostic Corp., for
the years ended September 30, 1997. and 1999, which appears in such Annual
report. I also consent to the reference to me under the heading "Experts" in
such Annual Report.
/s/ SCHVANEVELDT & COMPANY
- --------------------------
Schvaneveldt & Company
March 8, 2000
EXHIBIT 23.1
EXHIBIT 23.2
Consent of Berg & Co.
We consent to the use in this Annual Report on Form 10-KSB of AccuImage
Diagnostics Corp. of our report dated February 15, 2000, relating to the
financial statements of AccuImage Diagnostics Corp., which appear in such Annual
Report. We also consent to the reference to us under the heading "Experts" in
such Annual Report.
/s/ BERG & COMPANY
- ------------------
Berg & Company
March 8, 2000
EXHIBIT 23.2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Annual
Report on Form 10-KSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
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<RECEIVABLES> 172,125
<ALLOWANCES> 0
<INVENTORY> 44,957
<CURRENT-ASSETS> 303,416
<PP&E> 121,529
<DEPRECIATION> (60,178)
<TOTAL-ASSETS> 923,310
<CURRENT-LIABILITIES> 368,132
<BONDS> 0
0
0
<COMMON> 555,178
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<TOTAL-LIABILITY-AND-EQUITY> 923,310
<SALES> 1,059,138
<TOTAL-REVENUES> 1,059,138
<CGS> (246,793)
<TOTAL-COSTS> (1,335,676)
<OTHER-EXPENSES> 20,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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<INCOME-TAX> (800)
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<EPS-BASIC> (.053)
<EPS-DILUTED> (.046)
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