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, 2000.
[ ] 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
------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
400 Oyster Point Blvd., Suite 114, South San Francisco, California 94080-1917
-------------------------------------------------------------------------------
(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, $0.001 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 [X]
NO [ ]
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, 2000: $3,114,720
As of December 20, 2000, non-affiliates of the issuer held voting stock with an
aggregate market value of $5,690,053 computed by reference to the average of the
bid and asked prices of such stock on such date.
As of December 20, 2000, there were 10,981,534 shares of common stock, no par
value, outstanding.
Portions of the following document are incorporated by reference:
Parts of the Proxy Statement for the Company's 2001 Annual Meeting of
Shareholders, to be filed with the Commission on or before 120 days after the
end of the 2000 fiscal year, are incorporated by reference into Part III hereof.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
AccuImage Diagnostics Corp. ("AccuImage" or "Company") has made
forward-looking statements in this annual report that are subject to risks and
uncertainties. Forward-looking statements include information concerning our
possible or assumed future results of operations. Also, when the Company uses
such words as "believe," "expect," "anticipate," "plan," "could," "intend" or
similar expressions, it is making forward-looking statements. You should note
that an investment in our securities involves certain risks and uncertainties
that could affect our future financial results. The Company's actual results may
differ materially as a result of certain factors, including those set forth in
this Form 10-KSB. Potential investors should consider carefully the stated risk
factors, as well as the more detailed information contained in this Form 10-KSB,
in evaluating the Company's business, financial condition, results of operations
and prospects before making a decision to invest in the common stock of the
Company.
PART I
Item 1. Description of Business
Business Development
--------------------
AccuImage 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 parties with interests in
three-dimensional medical technology invested. 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 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 is currently traded
on the NASD OTC Bulletin Board under the symbol "AIDP".
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 for interpreting the native images
generated by the medical imaging modalities. Efficiency gains and cost savings
may be realized through automated reporting tools 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 ("OEMs") 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.
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 database tools
complete the suite of capabilities offered by the AccuImage product line.
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
generally provides unlimited telephone support for one year along with on-site
and return-to-base support 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.
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 substantial discount 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 are 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.
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.
Effective February 17, 1997, the Company entered into a five year
license agreement with the National Electronics and Computer Technology Center
(NECTEC) in Bangkok, Thailand. This agreement allows the Company to act as
authorized reseller for its software known as CalScore 1.0 in Thailand.
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 has not filed patent applications with respect to certain
aspects of its technology, and it generally does not rely on patent protection
with respect to its products and technologies. Instead, the Company relies on
trade secrets and proprietary know-how that it seeks to protect, in part,
through appropriate employee and third-party confidentiality, non-disclosure 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. Furthermore, such
measures may not provide meaningful protection of its trade secrets, know-how or
other intellectual property in the event of any unauthorized use,
misappropration or disclosure. Others may independently develop similar
technologies or duplicate any technology developed by the Company. In addition,
to the extent that any patents are applied for, such applications may not result
in issued patents or, if issued, such patents may not be valid or of value. The
Company's products and technologies may infringe existing patents or
intellectual property rights of third parties. The costs of defending an
intellectual property claim could be substantial and could adverseldy affect the
business, even if the Company were ultimately successful in defending any such
claims. If its products or technologies were found to infringe the rights of a
third party, the Company could be required to pay significant damages or license
fees or cease production, which could have a material adverse effect on its
business.
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.
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 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.
Nonetheless, even if the Company obtains regulatory approvals from the FDA
to market a product, these approvals may entail limitations on the indicated
uses of the product. Product approvals by the FDA can also be withdrawn due to
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial approval. The FDA could also limit or prevent the
distribution of the Company's products and has the power to require the recall
of such products. FDA regulations depend heavily on administrative
interpretation, and future interpretations made by the FDA or other regulatory
bodies may adversely affect the Company's business. The FDA may inspect its
business and its facilities from time to time to determine whether the Company
is in compliance with various regulations relating to specification,
development, documentation, validation, testing, quality control and product
labeling. If the FDA determines that the Company is in violation of such
regulations, it could impose civil penalties, including fines, recall or seize
products and, in extreme cases, impose criminal sanctions.
Outside the U.S., there is no uniform method of approval for medical
devices. International regulatory bodies have established varying regulations
governing product standards, packaging and labeling requirements, import
restrictions, tariff regulations, duties and tax requirements. The Company;s
inability or failure to comply with the varying regulations, or the imposition
of new regulations, could restrict its ability to sell its products
internationally. 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.
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
$385,000 on such research and development in 2000 and $300,000 in 1999.
Personnel
---------
The Company currently has ten full time employees. The Company is engaged
in attempts to recruit sales, support and 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. Robert Taylor stepped down as the Company's Chief Executive Officer
on December 6, 2000 to resume his prior role as Chief Technology Officer. A
Management Committee led by Chairman of the Board Douglas P. Boyd and Director
John C. Klock is overseeing the Company while the Board searches for a new Chief
Executive Officer.
Historical Operating Losses
---------------------------
The Company had operating losses for the fiscal years ended September 30,
1999 and 1998, but the year 2000 was the first year the Company posted a
positive net income. While the Company is optimistic that it will increase its
revenues in fiscal year 2001, there can be no assurance that the Company will
continue to be profitable 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 completed its transition 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. The Company ended the year with accounts receivable of approximately
$525,000 and nearly $102,000 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 and maintain effective sales and distribution
channels, 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 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, 2000, sales to Imatron accounted
for almost sixty-seven 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.
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. The Board is currently searching for a new Chief Executive
Officer to replace Robert Taylor, who resigned on December 6, 2000. 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 the administrative,
operational and financial resources of AccuImage 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 and financial condition 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 1,500 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 expects to
renew the lease, increasing the monthly payment to $7,258 beginning February 1,
2001. A second office is located at 384 Oyster Point Blvd, # 12. The property is
a mixed-use facility composed of 1,000 square feet of office space along with
2,040 square feet of warehouse/manufacturing space. The lease for this second
office ends in October 2003 and the current rent is $3,648.00 per month. The
Company maintains tenant fire and casualty insurance on its property located in
both buildings in an amount deemed adequate by the Company.
Item 3. Legal Proceedings
The Company is not a party to any pending legal proceeding.
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, 2000.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market information
The Company's common stock is currently traded on the NASD OTC Bulletin
Board under the symbol "AIDP". From August 1999 through September 2000, the
Company's stock was traded on the National Quotation Bureau's Pink Sheets.
Before August 1999, it was trading on the OTC Bulletin Board. The price range of
high and low sale price of the Company's common stock for the periods shown is
set forth below:
Period High Low
------ ---- ---
07/01/00 - 09/30/00 1.2000 .4500
04/01/00 - 06/30/00 1.2500 .9000
01/01/00 - 03/31/00 1.1250 .2000
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
(b) Stockholders
As of December 20, 2000, there were approximately 91 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.
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
2001, 2000, 1999 and 1998 discussed below refer to the years ending September
30, 2001, 2000, 1999 and 1998 respectively.
Revenue
-------
In fiscal year 2000, total revenue increased 194% to $3,114,720 in 2000
compared with $1,059,138 in 1999. These increases were almost entirely the
result of increased sales of the Company's medical visualization and analysis
software. In 1999, the Company successfully finished its transition 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 fiscal year 2001, although this is a forward-looking
statement and actual results could vary materially from Company expectations.
Gross Margin
------------
The gross margin percentage decreased to 68% in 2000 from 77% in 1999. The
decrease of the 2000 result over the 1999 result is in part due to the Company's
transition from one hardware vendor to another more reliable and expensive
vendor for our workstation platforms. The remainder of the decrease in gross
margin is due to the increased purchases necessary to support the level of sales
activity during the year. While revenues almost tripled last year, the Company's
cost of good sold quadrupled. During 2001, the Company will attempt to negotiate
better discounts for the purchase of hardware and peripheral components for its
workstations, all of which should lead 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 $486,000 and
$160,000 in 2000 and 1999, respectively. The increase reflects the cost of
increased sales and marketing activity as well as the cost of having a presence
at an increasing number of conferences and trade shows throughout the year. The
Company expects sales and marketing costs to continue to increase as additional
sales personnel are hired and sales commissions increase. 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 $385,000 on research and development in
2000 and approximately $300,000 in 1999. 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 further recruitment of software
development expertise is warranted.
Operational and Administrative
------------------------------
Operational and administrative expenses were approximately $1,085,000 and
$1,029,000 in 2000 and 1999, respectively. The increase includes significant
compensation costs related to increased operational and administrative staffing
and professional, legal and accounting fees. The Company believes that
operational and administrative costs will increase in the future if the Company
successfully recruits new staff and management and augments its ability to
support present and future customers with additional technical support staff. As
a result of becoming a reporting company pursuant to the Securities Exchange Act
of 1934, the Company will likely increase its expenditures on legal and
financial expertise.
Results of Operations
---------------------
The increased revenues offset increased expenses for sales, marketing,
administrative and research and development resulting in an operating income of
$149,524 in 2000. The operating loss in 1999 was $517,404.
Liquidity and Capital Resources
-------------------------------
On September 30, 2000, the Company held accounts receivable of $525,000 as
well as $702,900 in cash. The Company also raised $710,000 in gross proceeds
from a private placement completed in February 2000.
During the next nine months, the Company anticipates that cash requirements
will be met by operational income from sales, with the possibility of additional
equity financing for research and development costs, 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. 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
Statement of Cash Flows...........................................F-5
Notes to the Financial Statements........................... F-6-F-16
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 1999, 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 its accountants.
PART III
The information required by Items 9, 10, 11 and 12 will be included in the
Company's definitive proxy statement or as an amendment to the Form 10-KSB,
which will be filed with the Securities and Exchange Commission no later than
120 days after the end of the fiscal year.
Item 13. Exhibits and Reports on Form 8-K
(a) The exhibits listed on the accompanying "Index to Exhibits" are filed or are
incorporated herein by reference as part of this report.
(b) Reports on 8-K. No reports on Form 8-K were filed during the fourth quarter.
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: December 28, 2000 By: /s/ Douglas P. Boyd
--------------------------------------
Douglas P. Boyd, Chairman of the Board
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/ Douglas P. Boyd December 28, 2000
---------------------------
Douglas P. Boyd, Ph.D.
Chairman of the Board and Principal Executive Officer
/s/ Chris Shepherd December 28, 2000
---------------------------
Chris Shepherd
Acting Chief Financial Officer and Director
/s/ Alexander Margulis December 28, 2000
---------------------------
Alexander Margulis, M.D.
Director
/s/ John C. Klock December 28, 2000
----------------------------
John C. Klock, MD
Director
<PAGE>
AccuImage Diagnostics Corporation
Financial Statements
September 30, 2000 and 1999
Independent Auditor's Report F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to the Financial Statements F-6 - F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
of AccuImage Diagnostic Corporation
We have audited the accompanying balance sheets of AccuImage Diagnostics
Corporation, a Nevada Corporation, as of September 30, 2000 and 1999, and the
related statements of operations, changes in stockholders' equity, and cash
flows for the fiscal years 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 audits. The financial
statements of the Company for the year ended September 30, 1998 were audited by
another auditor, whose report expressed an unqualified opinion on those
financial statements. Our opinion, in so far as it relates to the amounts
included for the year ended September 30, 1998, is based solely on the report of
the other auditor.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, the
financial statements referred to above present fairly, in all material respects,
the financial position of AccuImage Diagnostic Corporation as of September 30,
2000 and 1999, and the results of its operations and its cash flows for the
fiscal years then ended in conformity with generally accepted accounting
principles.
Berg & Company, LLP
San Francisco, CA
December 18, 2000
F-1
<PAGE>
ACCUIMAGE DIAGNOSTICS CORPORATION
Balance Sheets
As of September 30, 2000 and 1999
ASSETS
------
<TABLE>
<CAPTION>
2000 1999
------------------- -----------------
Current Assets
<S> <C> <C>
Cash $ 702,903 $ 34,201
Accounts Receivable 499,141 172,125
Employee Receivable - 31,274
Inventory 101,893 44,957
Prepaid License Fees - 16,370
Prepaid Expenses 3,648 4,489
------------------- -----------------
Total Current Assets 1,307,585 303,416
Property and Equipment, net of accumulated Depreciation 52,015 61,351
Other Assets
Trade Receivable - Non-current 11,375 -
Deposits 11,711 3,820
Goodwill, net of Accumulated Amortization 432,691 494,507
Other Intangible Assets 44,603 60,216
------------------- -----------------
Total Other Assets 500,380 558,543
TOTAL ASSETS $ 1,859,980 $ 923,310
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts Payable $ 137,995 $ 146,376
Wages payable 17,150 69,313
Accrued vacation 23,351 2,151
Other accrued liabilities 2,400 5,332
Product Warranty Reserves 246,785 84,270
Sales tax payable 3,282 4,190
Shareholder Notes Payable - 56,500
------------------- -----------------
Total Current Liabilities 430,963 368,132
Stockholders' Equity
Preferred stock - $0.001 Par value; 10,000,000 shares - -
Authorized; none issued or outstanding
Common stock - $0.001 Par value; 50,000,000 shares 10,982 9,748
Authorized; 10,981,534 and 9,748,200 issued and
Outstanding on September 30, 2000 and 1999 respectively
Additional Paid-In-Capital 2,443,470 1,740,662
Accumulated deficit (1,025,435) (1,195,232)
------------------- -----------------
Total Stockholders' Equity 1,429,017 555,178
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,859,980 $ 923,310
=================== =================
</TABLE>
See accompanying notes and auditor's report.
F-2
<PAGE>
ACCUIMAGE DIAGNOSTICS CORPORATION
Statements of Operations
For the Years Ended September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------------ ------------------ -----------------
<S> <C> <C> <C>
Sales $ 3,114,720 $ 1,059,138 $ 443,343
Cost of Sales 1,008,521 246,793 151,195
------------------ ------------------ -----------------
Gross Profit 2,106,199 812,345 292,148
Operating Expenses
Bad debts 10,093 16,619 -
Depreciation and amortization 97,781 114,784 210,219
Salaries and wages 693,009 551,120 245,945
Employee Benefits 15,017 64,361 37,061
General and administrative expenses 329,569 129,230 70,107
Legal and accounting 209,265 59,525 36,936
Professional Consulting 116,674 223,232 187,577
Rent 45,140 41,221 40,654
Marketing and promotion 429,526 121,172 121,372
Other operating expenses 10,601 8,485 29,680
------------------ ------------------ -----------------
Total Operating Expenses 1,956,675 1,329,749 979,551
Operating Income (Loss) 149,524 (517,404) (687,403)
Other (Income) and Expense
Interest expense 2,151 5,927 1,389
Other Income (200) (17,738) -
Interest Income (23,024) (3,209) (5,344)
------------------ ------------------ -----------------
Total Other (Income) and Expense (21,073) (15,020) (3,955)
Income (Loss) Before Taxes 170,597 (502,384) (683,448)
Provision for Taxes (800) (800) (800)
------------------ ------------------ -----------------
Net Income (Loss) $ 169,797 $ (503,184) $ (684,248)
================== ================== =================
Earnings per share
Basic $ 0.0163 $ (0.0530) $ (0.0796)
================== ================== =================
Diluted $ 0.0153 $ (0.0464) $ (0.0739)
================== ================== =================
Weighted Average Shares Outstanding
Basic 10,421,035 9,496,905 8,593,333
================ ================ ==============
Diluted 11,067,956 10,854,267 9,253,563
================ ================ ==============
</TABLE>
F-3
<PAGE>
ACCUIMAGE DIAGNOSTICS CORPORATION
Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Common Stock
-------------------------------- Accumulated
Paid-In Earnings
Shares Amount Capital (Deficit) Total
--------------- --------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
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
Shares issued for cash, net of 1,183,334 1,184 675,816 - 677,000
issuance costs
Options exercised during the year 50,000 50 20,450 - 20,500
Compensation recognized on options - - 6,542 - 6,542
granted
Net Income for Fiscal Year
ended September 30, 2000 - - - 169,797 169,797
--------------- --------------- --------------- ------------------ ---------------
Balance-September 30, 2000 10,981,534 $ 10,982 $ 2,443,470 $ (1,025,435) $ 1,429,017
=============== =============== =============== ================== ===============
</TABLE>
F-4
<PAGE>
ACCUIMAGE DIAGNOSTICS CORPORATION
Statements of Cash Flows
For the Years Ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ---------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income (Loss) $ 169,797 $ (503,184) $ (684,248)
Adjustment to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 97,781 112,599 210,219
Issuance of common stock for services - 134,910 -
Compensation expense on stock options granted 6,542 - -
Change in warranty reserve 162,515 54,605 -
Change in receivables (307,117) (186,173) 80,499
Change in inventory (56,936) (32,591) 23,208
Change in license rights 16,370 65,480 (81,850)
Change in prepaid assets 841 (822) 5,033
Change in deposits (7,891) 498 (3,917)
Change in accounts payable (8,381) 127,396 18,981
Change in accrued expenses (34,802) (8,551) (101,039)
----------------- ----------------- --------------
Net Cash Provided (Used) by Operating Activities 38,719 (235,833) (533,114)
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in Property and Equipment (11,017) (37,873) (7,741)
----------------- ----------------- ---------------
Net Cash Used by Investing Activities (11,017) (37,873) (7,741)
CASH FLOW FROM FINANCING ACTIVITIES:
Shareholder Note Payable Proceeds (Payments) (56,500) (100,000) 156,500
Sale of common stock, net of issuance cost 677,000 383,500 75,000
Exercise of options 20,500 - -
Deferred Private Offering Costs - 22,290 (22,290)
------------------ ----------------- ---------------
Net Cash Provided by Financing Activities 641,000 305,790 209,210
------------------ ------------------ --------------
NET INCREASE (DECREASE) IN CASH 668,702 32,084 (331,645)
CASH AT BEGINNING OF YEAR 34,201 2,117 333,762
------------------ ------------------ ---------------
CASH AT END OF YEAR $ 702,903 $ 34,201 $ 2,117
================== ================== ================
Supplemental Disclosure:
Income taxes paid $ - $ - $ -
Interest Paid During the Year $ 5,554 $ 3,750 $ -
================== ================== =================
Non-Cash Activities:
Compensation expense on stock options granted $ 6,542 $ - $ -
================== ================== =================
Common stock issued for services $ - $ 134,910 $ -
================== ================== =================
</TABLE>
F-5
<PAGE>
ACCUIMAGE DIAGNOSTICS CORPORATION
Notes to Financial Statements
September 30, 2000 and 1999
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, and 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, and 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 30,1999
fiscal year ending financial statements to conform to September 30,
2000 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
2000, 1999 and 1998 ended on September 30, 2000, September 30, 1999 and
September 30, 1998 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, 2000
were $633,842.
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, 2000 and 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 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.
F-7
<PAGE>
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 $41,758 and $1,490 for the fiscal years ended
on September 30, 2000 and 1999, 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 the financial statements of the Company if the
actual rate of unit failure is greater than what was estimated by the
Company in the calculation of its warranty reserve.
Comprehensive Income (Loss)
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) 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,
2000 and 1999 comprehensive income (loss) is equivalent to the
Company's net income (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").
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.
F-8
<PAGE>
In March 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation." This Interpretation
addresses certain practice issues related to APB Opinion No. 25. The
provisions of this Interpretation are effective July 1, 2000, and
except for specific transactions noted in paragraphs 94-96 of this
Interpretation, shall be applied prospectively to new awards, exchanges
of awards in business combinations, modifications to an outstanding
award, and exchanges in grantee status that occur on or after that
date. Certain events and practices covered in this Interpretation have
different application dates, and events that occur after an application
date but prior to July 1, 2000, shall be recognized only on a
prospective basis. Accordingly, no adjustment shall be made upon
initial application of the Interpretation to financial statements for
periods prior to July 1, 2000. Thus, any compensation cost measured
upon initial application of this Interpretation that is attributed to
periods prior to July 1, 2000 shall not be recognized. The Company
adopted the provisions of this Interpretation starting July 1, 2000.
Accounting Pronouncements
The FASB issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires that an enterprise recognize
all derivatives either as assets or as 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 have any derivative instruments or
conduct any hedging activities.
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, P.H.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 minority shareholder in Imatron, Inc.
On April 1999, AccuImage Diagnostics Corp. entered into an agreement
with Imatron, Inc. for Imatron to be the exclusive distributor of the
Company's products. Sales to Imatron, Inc. represented around 69% of
the Company's total revenue for the year.
Douglas Boyd and family members are majority shareholders of Imaging
Technology Group, Inc (ITG). Sales to ITG for the fiscal year ended
September 30, 2000 amounted to $70,000.
John Klock, a member of the Board of directors of the Company, is also
a 50 % shareholder of Holistica Inc. Sales to Holistica, Inc. for the
fiscal year ended September 30, 2000 amounted to $30,000.
A family member of Douglas Boyd, the chairman of the Board of Directors
of AccuImage Diagnostics Corp., provided software consulting services
to the Company, and received remuneration of $30,485 and options to
purchase 30,000 shares of the Company common stock.
4) ACCOUNTS RECEIVABLE - TRADE
---------------------------
Accounts receivable - trade is net of allowance for doubtful accounts
of $26,712 and $16,619 as of September 2000 and 1999 respectively, and
consists of the following at September 30:
<TABLE>
<S> <C> <C> <C> <C>
2000 2000 1999 1999
Amount Percentage Amount Percentage
------------------- ---------------- ------------------- ---------------
Customer A $ 258,003 52% $ 83,767 49%
Customer B 96,745 20% 51,457 30%
Customer C 34,992 7% 18,917 11%
All Others 109,401 21% 17,984 10%
------------------- ---------------- ------------------- ---------------
$ 499,141 100% $ 172,125 100%
</TABLE>
As of September 30, 2000 and 1999, the Company was owed $258,003 and
$83,767 respectively for sales to another entity controlled and owned
in part by Company stockholders.
F-9
<PAGE>
5) INVENTORIES
-----------
Inventories consist of personal computer components of $101,893 and
$44,957 for the years ended September 30, 2000 and 1999 respectively.
6) PROPERTY AND EQUIPMENT
----------------------
Property and Equipment consists of the following at September 30:
2000 1999
------------ ---------------
Computers & Equipment $ 66,989 $ 58,987
Furniture & Fixtures 35,208 32,193
Software 30,349 30,349
------------ --------------
132,546 121,529
Less Accumulated Depreciation (80,531) (60,178)
------------ -------------
$ 52,015 $ 61,351
============= =============
The useful lives of all assets are estimated to be 5 years.
Depreciation expense for the periods ended September 30, 2000 and 1999
was $20,353 and $35,340 respectively.
7) OTHER ASSETS
------------
The Company has a long-term trade receivable amounting to $11,375 as of
September 30, 2000. Security deposits were $11,711 and 3,820 for the
periods ended September 30, 2000 and 1999 respectively.
8) INTANGIBLE ASSETS
-----------------
Intangible assets consist of the following at September 30:
2000 1999
----------- ---------
AccuImage Software $ 125,716 $ 125,716
License Fees 15,200 15,200
--------------- -------------
$ 140,916 $ 140,916
Less Accumulated Amortization (96,313) (80,700)
--------------- -------------
$ 44,603 $ 60,216
=============== =============
Amortization expense for the periods ended September 30, 2000 and 1999
was $15,613 and $17,630 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. and
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.
F-10
<PAGE>
9) 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 its shareholders. These
notes bear a 5% interest rate and are due upon demand. The balances of
the notes payable due to shareholders at September 30, 2000 and 1999
were $-0- and $56,500, respectively.
Interest expense on all notes payable for the periods ended on
September 30, 2000 and 1999 was $2,151 and $5,928 respectively.
10) 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.
On January 25, 2000, the Company concluded a private placement offering
of up to 1,285,000 Units at $0.60 per Unit. Each Unit consisting of one
share of Company common stock and one common stock purchase warrant to
purchase one share of company common stock at an exercise price of
$1.50 per share at any time during a five-year term commencing on the
date of issuance. The Company paid a finder's fee in the amount of
$33,000 to a related party for services rendered in connection with the
placement of the Units.
The issuance of the securities was exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof. The total Units sold under the private placement
offering as of September 30, 2000 were 1,183,334. Net proceeds from the
private placement were $672,072.
In fiscal year 2000, the Company issued 50,000 shares of restricted
common stock upon the exercise of an option priced at $0.41 per share.
The issuance of the securities was exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to
section 4(2) thereof.
A summary of the Company's outstanding warrants as of September 30,
2000 and 1999 is presented below:
Average
Shares exercise price
------------- -------------------
Outstanding at September 30, 1998 150,000 $1.00
-----
Issued 780,000 $1.00
------- -----
Outstanding at September 30, 1999 930,000 $1.00
-----
Issued 1,183,334 $1.50
--------- -----
Outstanding at September 30, 2000 2,113,334 $1.28
========= =====
F-11
<PAGE>
11) 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.
For the 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
12) 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 $2,131,347 and $750,134 in revenues from Imatron,
Inc., another entity controlled and owned in part by Company
stockholders, during the years ended September 30, 2000 and 1999
respectively. The revenue from Imatron, Inc. represents approximately
69% of the total revenue generated by AccuImage Diagnostics Corp.
13) COMMITMENTS AND CONTINGENCIES
-----------------------------
Litigation
The Company has no litigation pending.
Employment and Consulting Agreements
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 granted
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.
Other
During the year ended September 30, 2000, the Company entered into an
agreement with a customer to advance it $86,000. On October 11, 2000,
the Company concluded the transaction. Terms for repayment call for
minimum monthly payments of $7,454 including interest at 10% maturing
on December 29, 2001. The note receivable is unsecured.
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 $45,140 and $41,221 for the
fiscal years ended on September 30, 2000 and 1999 respectively.
On August 31, 2000, the Company entered into a three-year operating
lease agreement for its second operating facility located at 384 Oyster
Point Blvd in South San Francisco, CA with Shelton International
Holdings, Inc., a Hawaii corporation. The commencement date of the
lease is November 1, 2000, and the expiration date is October 31, 2003.
F-12
<PAGE>
Minimum rental commitments under these operating lease agreements are
as follows:
Fiscal Year Ended September 30,
2001 $ 55,408
2002 45,381
2003 47,196
2004 3,946
-----------------
Total $ 151,931
=================
14) 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.
During 2000, the Board of Directors authorized the issuance of options
for an additional 500,000 shares of the Company 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 income (loss) and earnings (loss) per
share would be reduced to the pro forma amounts indicated below for the
years ended September 30:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
Net Income (loss):
<S> <C> <C>
As reported $ 169,797 $ (503,184)
Pro forma $ (39,599) $ (646,876)
Basic and diluted earnings (loss) per common share:
As reported:
Basic $ 0.0163 $ (.0530)
Diluted $ 0.0153 $ (.0464)
Pro forma:
Basic $ (.0038) $ (.0681)
Diluted $ (.0036) $ (.0596)
</TABLE>
F-13
<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; 2000: dividend yield of 0%; expected volatility of
200%; risk-free interest rate of 5.48%, and expected life of 5 years.
A summary of the status of the Company's stock option plan as of
September 30, 2000 and 1999 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- --------------------------------
Weighted Weighted
Number average average
of exercise Number of exercise
options price options price
---------------- -- ----------- -------------- -- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,446,280 $ 0.44 1,264,200 $ 0.39
Granted 526,199 0.95 827,080 0.49
Exercised (50,000) 0.41 (645,000) 0.40
Forfeited/Cancelled (90,000) 0.91 - -
---------------- -- ----------- -------------- -- -----------
Outstanding at end of year 1,832,479 $ 0.57 1,446,280 $ 0.44
================ ============== ============== ==============
Options exercisable at year end 969,867 474,405
================ ==============
Weighted average fair value of
Options granted during the year $ 0.92 $ 0.43
================ ==============
</TABLE>
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.
At September 30, 2000 and 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.
F-14
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices September 30, 1999 Life Price September 30, 1999 Price
---------------- --------------------------------------- ---------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$0.30 - $0.34 20,000 9.08 $ 0.31 15,000 $ 0.31
$0.36 - $0.40 615,000 8.29 $ 0.38 218,125 $ 0.38
$0.41 - $0.45 50,000 9.17 $ 0.41 - $ 0.41
$0.46 - $0.49 175,000 2.92 $ 0.47 175,000 $ 0.47
$0.50 586,280 9.66 $ 0.50 66,280 $ 0.50
----------------------- ----------------------
1,446,280 474,405
======================= ======================
Options Outstanding Options Exercisable
-----------------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices September 30, 2000 Life Price September 30, 2000 Price
----------------- --------------------------------------- ---------------------------------------- --------------
$0.30 - $0.34 20,000 8.08 $ 0.31 20,000 $ 0.31
$0.36 - $0.40 575,000 7.29 $ 0.38 346,875 $ 0.38
$0.41 - $0.49 175,000 1.92 $ 0.47 175,000 $ 0.47
$0.50 637,479 8.78 $ 0.50 326,229 $ 0.50
$0.51 - $0.99 50,000 9.50 $ 0.88 13,438 $ 0.88
$1.00 - $1.03 375,000 9.58 $ 1.01 88,325 $ 1.02
----------------------- ---------------------
1,832,479 969,867
======================= =====================
</TABLE>
15) GOODWILL - ACQUISITION OF ACCUIMAGE, INC.
-----------------------------------------
Amortization expense of Goodwill for the periods ended September 30,
2000 and 1999 was $61,814 and $61,814 respectively.
16) FOREIGN OPERATIONS
------------------
The Company has had revenue from sources outside the United States;
all sales were accounted for in U.S dollars.
Country 2000 1999
-------- ----- --------
Germany $ -0- $ 93,128
India -0- 19,975
Taiwan 8,300 -0-
Thailand -0- 504
Japan 26,152 -0-
------------- -------------
Total Foreign Sales $ 34,452 $ 113,607
============= =============
F-15
<PAGE>
17) INCOME TAXES
------------
Significant components of the provision for taxes based on income for
the years ended September 30 are as follows:
2000 1999
------------- --------------
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:
2000 1999
-------- ---------
Income tax provision (benefit) computed
at federal statutory rate 34.0% 34.0%
State 8.84% 8.84%
Increase in valuation allowance (42.28%) (42.84%)
Total 0.56% 0.0%
Significant components of the Company's deferred tax assets and
liabilities for income taxes consist of the following:
2000 1999
------------ ----------
Deferred tax asset
Net operating loss carryforwards $ 307,128 $ 656,625
Allowance for warranty costs 105,723 36,104
Depreciation/amortization 55,588 26,314
Other accruals and allowances 21,447 18,037
------------- -----------
489,886 737,080
Deferred tax liability
Deferred state income tax (20,198) (51,713)
-------------- -----------
469,688 685,367
Valuation allowance (469,688) (685,367)
-------------- -----------
$ - $ -
============== ===========
At September 30, 2000, the Company has approximately $839,514 net
operating loss carryforwards available to offset future federal and
state income taxes, which expire through 2010 and 2019.
The Company has elected to reserve fully the benefit of tax
carryforwards until such time as it is able to reasonably expect to
realize those benefits.
18) SUBSEQUENT EVENTS
-----------------
The Chief Executive Officer of the Company resigned effective December
6, 2000. A Management Committee comprised of Douglas P. Boyd, Chairman
of the Board, and John C. Klock, Director, is supervising the
operations of the Company while the Board conducts a search for a new
Chief Executive Officer.
F-16
<PAGE>
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 By-laws of the Company(1)
4.1 Form of Warrant issued to investors in Private Offering
concluded April 30, 2000(3)
10.1 Product Development, Distribution, and Warranty Support
Agreement, dated April 14, 1999(1)
10.2 AccuImage Stock Option Plan(4)
10.3 Form of Stock Option Agreement(1)
10.4 Poirson Employment Agreement(1)
10.5 Separation Agreement and General Release between Company and
Allen Poirson(2)
10.6 Robert Taylor Employment Agreement(2)
10.7 Form of Unit Purchase Agreement between the Company and
investors in the Private Offering which concluded April 30,
2000(3)
23.1 Consent of Schvaneveldt and Company, Independent Auditors
23.2 Consent of Berg & Company LLP, Independent Auditors
27 Financial Data Schedule
--------------------------------------------------------------------------------
[FN]
(1) Incorporated by reference to the Company's Registration Statement on Form
10, filed June 30, 1999.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB,
filed on March 20, 2000.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB,
filed on May 15, 2000.
(4) Incorporated by reference to the Company's Definitive Proxy Statement on
Form DEF 14A, filed June 6, 2000.
</FN>
