FOR INFORMATION ONLY
As filed with the Securities and Exchange Commission on September 1, 2000.
Amendment No. 2 to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12 (b) or (g) of the Securities Exchange Act of 1934
ACCUIMAGE DIAGNOSTICS CORP.
(Name of Small Business Issuer in its Charter)
Nevada 33-0713615
--------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 per share
Preferred Stock, $0.001 per share
(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
--------------------
AccuImage Diagnostics Corp. ("AccuImage", "Company" or "Issuer") was
incorporated in Nevada on February 2, 1990 as Black Pointe Holdings, Inc. which
was established in order to identify and acquire a medical equipment leasing
business. Early attempts to do this were unsuccessful, and the company was
inactive for a number of years until new investors with interests in
three-dimensional medical technology became involved. In 1996, the Company
changed its name to AccuImage Diagnostics Corp., and it entered into a licensing
arrangement with AccuImage Inc., a Nevada corporation, which owned the exclusive
rights to certain computer software and technology. Simultaneously, AccuImage
Diganostics Corp. began to develop the medical imaging software that the Company
sells today. On September 30, 1997, pursuant to a Stock Exchange Agreement, the
Company purchased all of the outstanding shares of AccuImage Inc., which was
subsequently dissolved. On June 30, 1999, the Company filed a Form 10-SB to
become a reporting company under the Securities Exchange Act of 1934. The
Company's Common Stock currently trades on the National Quotation Bureau's Pink
Sheets under the symbol "AIDP". The Company's website is www.accuimage.com. This
amendment to Form 10-SB is in response to comments received from the Securities
and Exchange Commission ("SEC"). Among the comments received was a request to
revise certain statements on the Company's website relating to the Company's
eligibility on the OTC Bulletin Board that the SEC found to be misleading. The
Company immediately removed the misleading statements from its website in August
1999.
Business of Issuer
------------------
AccuImage is engaged in the development, marketing and support of software
for the visualization, analysis and management of medical imaging data. The
software's primary function is to enhance physicians' interpretation of data
from medical imaging modalities such as computed tomography ("CT"), magnetic
resonance ("MR") and ultrasound through the application of three-dimensional
("3D") computer graphics and image processing technologies. This enhanced
analysis can support physicians in clinical diagnosis, surgical planning and
medical research. Three-dimensional visualization allows communication of
findings in a form readily understood by physicians and others without the
specialized training otherwise required to interpret the native images generated
by the medical imaging modalities. Efficiency gains and cost savings may be
realized through automated reporting tools and provision for electronic
distribution of the medical imaging data and post-processed results via internal
networks and the Internet.
The AccuImage software was conceived and developed on the same hardware
platform that it is now distributed on: standard, high-performance, low cost
personal computer ("PC") workstations running the Windows operating system from
Microsoft. The software interfaces with medical imaging modalities via the
standard medical imaging DICOM protocol and uses the Internet and standard PC
networks for subsequent distribution of images and post-processed results.
Through this combination of standard underlying products and protocols,
AccuImage is able to offer to physicians cost-effective, easy-to-use yet
powerful visualization, analysis and laborsaving tools for everyday use.
The Company markets its products to radiology departments, imaging centers
and original equipment manufacturers ("OEM's") of diagnostic imaging systems
both through a direct sales force, a non-exclusive distributor in the United
States and independent distributors in international markets.
The Medical Imaging Industry Background
---------------------------------------
The application of scanning and imaging techniques to medicine has been
responsible for a revolution in medical practices since the development of the
CT scanner in the mid-1970's. The CT scanner provided the ability to view
anatomical images of the interior of the human body as a collection of
cross-sectional "slices". In addition to CT, magnetic resonance imaging and
ultrasound are two more recently developed techniques that are being
increasingly applied. These processes use radio and ultra-sound waves,
respectively, to non-invasively image the interior of the body, often with
greater effect than with X-ray technology. Positron Emission Tomography scanning
and Nuclear Medicine cameras are also capable of imaging cross sectional slices
of the body. These innovative technologies have been rapidly adopted and
incorporated in new physician-care practices based on the imaging information
they provide.
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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 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 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 as semi-transparent to allow hard, solid tissue such as bone
to be viewed "through" and "behind" softer tissue such as muscle. 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.
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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
systems 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 support and training services are included
in the price of the software products.
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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.
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. All
revenues realized by the Company are the result of sales of the above products
and services.
Marketing and Distribution
--------------------------
AccuImage markets its products through direct sales to radiology
professionals in hospitals and independent imaging centers. The Company
maintains an advertising presence in major radiology periodicals and journals,
and ensures that the Company web site is always vibrant and up to date. The
Company also actively courts related press in order to develop a presence in
editorial comment on subjects related to the Company's activities. In order to
enhance its marketing capability, the Company seeks to develop an active forum
for 3D imaging on its website where any interested physician can come to learn
and discuss the benefits of 3D imaging and medical imaging communication
technology.
The Company's products are primarily distributed directly by its own sales
and installation staff, with the rest of the product distribution managed by
Imatron Inc. ("Imatron"), a non-exclusive US distributor of AccuImage
workstations, and several international distributors.
In April 1999, Imatron entered into a five-year non-exclusive product
development and distribution agreement with the Company. Under this agreement,
Imatron agreed to distribute fully-configured AccuView workstations with new
sales of the Imatron EBT scanner, a special type of high-speed CT scanner, in
the US and abroad. The Company successfully met all the target milestones in the
development schedule and has entered into the distribution phase of the
agreement.
The Company has distributors in Italy, Germany, India and Taiwan.
Distributors are sold the software at a discounted rate of 30% off our published
MSRP and then install it on hardware they purchase themselves. The Company
supplies the distributors with marketing materials and responds to distributors'
requests for minor improvements and enhancements as required to ensure success
in particular sales.
The majority of AccuImage sales to end-users and distributors represents
the sale of a combination of "off-the-shelf" hardware and the Company's software
product. The Company purchases standard hardware products such as computer
systems 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.
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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. The Company
continues to pursue methods of distributing its products over the Internet. Its
plans a progressive campaign of releasing more and more of its product line for
sale on the Internet. Early experiments with web marketing have shown promising
returns, and the Company intends on further pursuing this potentially
high-margin avenue for sales.
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 perform
service and support by telephone, remote system administration, and on-site or
return-to-base arrangements with customers. When the Company makes a sale of the
AccuView workstation to a hospital or clinic, it provides unlimited telephone
support and on-site and/or return-to-base service for twelve months subsequent
to the sale.
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. In practice, the
system is very reliable due the stability of modern computers. After initial
setup and training, support requirements are minimal. Most of the Company's
support and service efforts are devoted to new users and sales. It currently has
approximately 20 such arrangements. 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 provide telephone support during the installation process in
this situation.
Customer training in the use of the software is performed on-site by
AccuImage staff and is separately quoted at the time of purchase. Additional
training days can be purchased subsequent to the initial installation.
The Company budgets for approximately 8% of sale price in annual warranty
support liability, and new systems are sold with one year's service and support
included. The sales of subsequent support contracts to its existing customers do
not yet make up a large part of the Company's revenue.
Intellectual Property and Market Protection
-------------------------------------------
The Company acquired the initial framework technology for its product under
a contract from a German developer. Subsequently, the Company performed in-house
product development for the majority of the product it currently markets. The
Company has relied upon the secret and proprietary source code in protecting its
special technology from the competition. It has plans to, but at this time has
not, filed for copyright protection in the U.S. as well as other countries.
Nonetheless, such protection does not prevent competitors from producing digital
displays similar to those of the AccuImage proprietary software.
The Company also relies on trade secrets and proprietary know-how that it
seeks to protect, in part, through appropriate confidentiality and proprietary
information agreements. These agreements generally provide that all confidential
information developed or made known to the individual by the Company during the
course of the individual's relationship with the Company is not to be disclosed
to third parties, except in specific circumstances, and that all inventions
conceived by the individual in the course of rendering services to the Company
shall be the Company's exclusive property. There can be no assurance that such
agreements will not be breached, that remedies for any breach would be adequate,
or that the Company's trade secrets will not otherwise become known to, or
independently developed by, competitors.
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.
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Licensing Agreements
--------------------
Prior to September 17, 1998, the Company held an exclusive licensing
arrangement with another corporation for the supply of visualization software
that the Company then marketed, sold, trained, installed and supported. At that
time, the Company's own software was not sufficiently developed for distibution
and the Company was primarily engaged in the distribution of the third-party
software product. Before terminating the licensing agreement on September 17,
1998, the Company secured sufficient licenses for resale to enable its
operations to continue until such time as its own software was mature enough to
be marketed and distributed. By the end of the fiscal year 1999, the Company was
distributing only its own products.
Competition
-----------
AccuImage's 3D visualization and analysis products face competition from
the manufacturers of imaging equipment, other companies offering similar
software products, and in-house development projects at Universities and
hospitals to which the Company would otherwise be able to sell its products.
Nearly all manufactures of CT and MRI scanners offer some form of 3D
visualization workstation as an optional accessory for their scanners. The
principal companies include GE Medical Systems, Philips Medical Systems, Picker
International, Siemens Medical Systems, and Toshiba Medical Systems, which all
supply a workstation as an option on their imaging device. Independent suppliers
of 3D visualization products include ISG Technologies Inc., Vital Images Inc.,
and Voxar, which, similar to the Company, act as third party vendors of a
workstation product. In addition, ultrasound imaging is beginning to enter the
3D visualization market with companies such as Medison Co., Ltd, Life Imaging
Systems Inc, and Hewlett-Packard Co. offering products.
Many of these competitors have substantially greater financial, marketing
and technical resources than the Company, and should one or more of the
diagnostic imaging system suppliers distribute more competitive visualization
products than the ones offered by the Company, the Company's business, financial
condition and results of operations could be materially adversely affected. The
Company believes that continuing quality of service and ability to respond
rapidly to customer needs and market trends represent its best defense against
such developments.
While current revenues do not reflect a large percentage of the market
share, the Company has spent much of its resources during the last year and a
half developing the technology that it believes gives it advantages over the
competition. The Company believes a key advantage is that it uses the
Windows-based PC as its platform. With few exceptions, its competitors are
committed to more expensive, less widely available hardware platforms. The
Company has lower costs and higher margins using the most powerful desktop
computer systems available. Additionally, the Company enjoys significant
advantages over its competition in terms of the quality and sophistication of
its product, the size and scalability of its organization, and its business and
marketing strategies.
The Company has also taken into account the effects on its products of any
upgrades by Microsoft to its operating system. Historically, Microsoft has
consistently provided "backward compatibility" in its Windows operating systems
which has meant that even the oldest software for the Microsoft PC platform can
still run under the newer Windows operating systems. The Company expects its
software to continue to operate under future releases of Windows, which is
consistent with almost every other developer writing software for the Microsoft
platform, including Microsoft itself.
Furthermore, when the Company sells a workstation, it specifically states
with which operating systems it is compatible. Should the customer wish to use
the software with another operating system, including future releases of
Windows, the Company is under no obligation to support them. The Company's
software is continually evolving to take advantage of advances in the underlying
PC hardware, in medical imaging techniques, and in software development
practices. This continual evolution is required to maintain the competitive
position of its product, as well as to maintain a stream of product advances.
The Company's only obligation to upgrade current users of its software
product relates to "bug" fixes and minor product revisions. Major revisions and
new product releases may be purchased by its existing customers as a new
transaction over and above their original purchase. The Company has no
agreements relating to the upgrade of hardware.
The Company acknowledges several competitive disadvantages. First, it lacks
a widely recognized brand name, which to overcome it must aggressively promote
its product and establish market share. The Company also currently lacks the
infrastructure to effectively support and service the large installed base it is
seeking to establish. However, it acknowledges these disadvantages and is
committed to addressing them efficiently. The Company perceives no fundamental
competitive disadvantage that it considers a serious threat to its continued
growth.
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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.
Outside the U.S., there is no uniform method of approval for medical
devices. The Company plans to apply for and obtain the necessary approvals from
those countries in which the projected volume of sales warrant the effort. In
certain instances, those applications may be arranged through existing sales
representative organizations in the countries with which the Company develops
relationships. As no approvals are required for this technology in most of the
Middle East, Central America and South America, sales may commence in those
areas as soon as the Company has a distribution network in place.
Third Party Reimbursement
--------------------------
The federal governmental and certain states have enacted cost containment
measures such as the establishment of maximum fee standards in an attempt to
limit the extent and cost of governmental reimbursement of allowable medical
expenses under Medicare, Medicaid and similar governmental programs. A number of
states have adopted or are considering the adoption of similar measures. Such
limitations have led to a reduction in, and may further limit funds available
for, diagnostic testing, and as a result may inhibit or reduce demand by
healthcare providers for the Company's products. Additionally, hospitals may
continue to face other capital constraints that prevent them from investing in
such equipment. While the Company cannot predict what effect the policies of
governmental entities and other third-party payers will have on future sales of
the Company's products, there can be no assurance that such policy would not
have a material adverse impact on the business of the Company.
Cost of Research and Development Activities
-------------------------------------------
During the last two years the Company has engaged in extensive research and
development activities. The Company estimates that it spent approximately
$300,000 per year on such research and development in both fiscal years 1998 and
1999.
Personnel
---------
The Company currently has seven full time employees and two independent
contractors. The Company is engaged in attempts to recruit sales, support and
management staff as well as technical staff to expand its software development
team. The Company competes for such personnel with other companies and
organizations that in many cases can offer superior facilities and resources. In
its favor, the Company is able to offer prospective employees the opportunity to
make a large contribution in an exciting, growing and dynamic environment.
Important Factors
-----------------
The following important factors should be considered carefully in
connection with any evaluation of the Company's business, financial condition,
results of operations and prospects. The following factors could cause the
Company's results to materially differ from those reflected in any
forward-looking statements.
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Historical Operating Losses
---------------------------
The Company had operating losses for the years ended September 30, 1999,
1998 and 1997. While the Company is optimistic that it will increase its
revenues in fiscal year 2000, there can be no assurance that the Company will be
profitable at any time in the future.
Short Operating History.
-----------------------
Although the Company was incorporated in February 1990, it has had no
significant operations or business assets until just recently, and is yet in its
early, development stage. The Company has been in actual operation under its
current management for a relatively short time. It faces all of the risks
inherent in a new business and those risks specifically inherent in the
development and operation of a new business. The likelihood of the Company's
success must be considered in light of the problems, expense, difficulties and
delays frequently encountered in connection with a new business, including, but
not limited to, uncertainty as to the ability to develop a market for a new
product in a new area. The purchase of the securities offered hereby must be
regarded as the placing of funds at risk in a new or "start-up" venture with all
of the unforeseen costs, expenses, problems and difficulties to which such
ventures are subject.
Market Dependence
-----------------
The Company's operations are currently focused entirely in the medical
imaging industry, and the market for the Company's products is still developing,
led by advances in technology, as well as education and marketing performed by
the Company and its competitors. There can be no assurance that the industry
will continue to develop in the manner it has to date, or in the manner expected
by the Company. Hence there can be no assurance that the Company will continue
to enjoy growth opportunities and a viable market for its products. The success
of the Company's products will depend on its ability to successfully market its
products, its ability to maintain competitive and responsive product support and
development, and the ability and willingness of the medical community to embrace
the benefits offered by the visualization, analysis and image management
capabilities of the Company's software products. Of this, there can be no
guarantee. In an effort to limit its exposure to this risk, the Company will
continue to seek alternative applications of its technology in order to retain
the option of diversifying should unfavorable conditions develop in its current
marketplace.
Capital Requirements
--------------------
In 1999, the Company successfully transitioned from distributing
third-party software to distributing its own product developed internally.
Additionally, the Company successfully completed the initial development phase
of it product development and distribution agreement with Imatron. It ended the
year with accounts receivable of approximately $188,000 and nearly $45,000 in
inventory.
If AccuImage's operations progress as anticipated, of which there can be no
assurance, the Company believes that cash flows should be sufficient to satisfy
its cash requirements for the next twelve months. Nonetheless, the Company
believes that a faster rate of growth will be possible with additional capital
contributions. The Company's actual future capital requirements, however, will
depend on the ability of the Company to successfully market its products, the
impact of competition in the marketplace in which the Company operates, the
ability of the Company to build an effective sales and distribution channel, and
the ability of the Company to maintain a development team responsive to the
evolving market. To the extent that AccuImage's operations do not progress as
anticipated, additional capital may be required sooner. There can be no
assurance that such additional capital will be available on acceptable terms, or
at all, and the failure to obtain any such required capital would have a
material adverse effect on the Company's business. The issuance of additional
equity capital may result in dilution of current shareholder voting and
ownership interests
-9-
<PAGE>
Competitive Marketplace and Technological Obsolescence Risk
-----------------------------------------------------------
The evolving marketplace in which the Company operates has been
characterized to date by rapid innovation and technological change. The Company
expects this trend to continue and hence the Company's success will be strongly
dependent on its ability to keep pace with the advancing technology. This task
requires continual research and development by the Company's development team,
which the Company must maintain and improve.
There can be no assurance that the Company will be able to achieve this
task and compete effectively in the marketplace, and it may come to pass that
products developed by its competitors will outshine its own products, pushing
them towards obsolescence or rendering them non-competitive.
Certain companies competing with AccuImage are large, established
manufacturers of medical imaging equipment. While these companies do not apply
the same corporate focus on advanced visualization and analysis products as
AccuImage, they nevertheless have significantly greater capital and staffing
resources for research and development so critical to success in this
marketplace. Such companies also have established marketing and distribution
networks and may have a competitive advantage in marketing products similar to
the Company's. Furthermore, competition in the broader marketplace of
computerized medical image management exists in the form of PACS vendors and
internal projects at universities and hospitals. There can be no assurance that
the Company will be able to compete effectively with these entities.
Dependence on Major Customers
-----------------------------
For the fiscal year ended September 30, 1999, sales to Imatron accounted
for almost seventy-five percent of the Company's revenue. In April 1999, the
Company entered into a five-year product development and distribution agreement
with Imatron whereby Imatron agreed to distribute complete AccuImage
workstations with new sales of its EBT scanner.
An advanced visualization and analysis workstation such as the Company's is
generally required as an integral part of the EBT scanner installation, so the
Company believes that sales to Imatron will continue to represent a large
portion of the Company's revenue while other distribution channels and direct
sales are developing and maturing. However there can be no assurance of the
success of Imatron's own marketing and distribution channels, and no guarantee
of revenue under the distribution agreement. Furthermore, there is competition
from other independent vendors of visualization and analysis products even in
the Imatron EBT scanner market, and the Company will need to maintain
competitive development and marketing in the EBT market in the same way that it
maintains competitive development and marketing in the market at large.
A strong competitive advantage enjoyed by the Company in the EBT market in
particular is that through the development and distribution agreement, Imatron's
support, training, sales and marketing networks are working in the Company's
favor. In turn, the Company is gaining invaluable feedback on the performance of
its product in a highly demanding, day-to-day workflow environment. This is
enabling the Company to rapidly mature the software in a well-supported
environment that would otherwise not be available to a Company this size.
Nevertheless, a reduction in orders from Imatron or any other future
significant customers could have a material adverse effect on the Company's
operating results.
Need for Additional Personnel
-----------------------------
The Company's ability to grow will depend in part upon its ability to
attract and retain experienced professionals to staff a significant expansion of
its activities. There can be no assurance that the Company will not need to hire
additional management and other personnel which meets its long-term goals or
that the Company will be able to find and attract qualified persons to fill such
additional positions.
Management of Growth
--------------------
The Company's business strategy involves rapid expansion during the next 18
months. This growth will place significant strain on AccuImage's'
administrative, operational and financial resources and increase demands on its
systems and controls. The Company's ability to manage its growth successfully
will require it to develop improved systems and controls. If the Company's
management is unable to manage growth effectively, the Company's operating
results could be adversely affected.
-10-
<PAGE>
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. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's fiscal year end falls on September 30, and references to
2000, 1999, 1998 and 1997 discussed below refer to the years ending September
30, 2000, 1999, 1998 and 1997 respectively.
-11-
<PAGE>
Revenue
-------
In fiscal year 1999, total revenue increased 139% to $1,059,138 in 1999
compared with $443,343 in 1998. These increases were almost entirely the result
of increased sales of the Company's medical visualization and analysis software.
For the three months ended June 30, 2000, revenue increased 133% to $694,567
compared with $297,826 for the same period in 1999. During 1999, the Company
successfully transitioned from distributing software developed by a third party
and licensed to the Company to distributing its own software that was developed
in-house. This transition was completed prior to the first quarter of fiscal
year 2000, and the third quarter results reported here are entirely related to
sales of the Company's own software. The Company expects continued revenue
growth in 2000, although this is a forward-looking statement and actual results
could vary materially from Company expectations.
Gross Margin
------------
The gross margin percentage increased to 77% in 1999 from 65% in 1998. The
increase of the 1999 result over the 1998 result is primarily due to the
Company's transition from distribution of a third party product to distribution
of its own software, since license and royalty fees were no longer payable. The
gross margin percentage for the third quarter 2000 was 71% compared to 66% for
the same period in 1999. Again, this increase in gross margin is largely due to
a reduced cost of goods sold now that the Company is distributing its own
software product, rather than having to pay a licensing fee for each sale to a
third party. During 2000, the Company will attempt to negotiate better discounts
for the purchase of the underlying hardware and peripheral components that form
part of its workstations, which it anticipates leading to improvement in the
gross margin. This forward-looking statement will be influenced primarily by the
Company's ability to secure favorable discounts along with the evolution of the
Company's product line.
Sales and Marketing
-------------------
The Company's sales and marketing expenses were approximately $200,000 and
$110,000 in 1999 and 1998, respectively. The Company's sales and marketing
expenses for the third quarter 2000 were $136,914. The increases reflect the
cost of increased sales and marketing activity. The Company expects sales and
marketing costs to continue to increase as additional sales personnel are
recruited and sales commissions increase, although this forward looking
statement will be influenced by the actual sales levels attained by the
Company's sales force.
Research and Development
------------------------
The Company spent approximately $300,000 on research and development in
1999 and a similar amount in 1998. During the third quarter 2000, the Company
spent $56,693 on research and development activities, compared to approximately
$83,683 for the same quarter 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 the Company is successful in
further recruitment of software development expertise. The Company does not
intend on reducing its research and development effort since maintenance of a
competitive position in the marketplace in which the Company operates requires
constant improvement and high-level development of the Company's software
products.
-12-
<PAGE>
Operational and Administrative
------------------------------
Operational and administrative expenses were approximately $725,000 and
$510,000 in 1999 and 1998, respectively. The increase includes significant
compensation costs related to the resignation of the Company's former Chief
Executive Officer as well as increased operational and administrative staff, and
professional, legal and accounting fees. Operational and administrative expenses
were $396,371 for the third quarter 2000 compared with $273,490 for the same
quarter in the previous year. Approximately 88% of this increase is explained by
an increase in headcount and salary expense with the remaining 12% explained by
an increase in sales and marketing promotions expense. The Company believes that
operational and administrative costs will increase in the future if the Company
is successful in its efforts to recruit new operational, manufacturing and
support staff and develop its capabilities in these areas. As a result of
becoming a reporting company pursuant to the Securities Exchange Act of 1934,
the Company will likely increase its expenditures on investor relations and
legal and financial expertise.
Results of Operations
---------------------
The increased expenses for sales, marketing, administrative and research
and development offset the Company's increased revenues resulting in an
operating loss of ($503,184) in 1999. The operating loss in 1998 was ($684,248).
The Company experienced an operating loss of ($99,539) for the three months
ended June 30, 2000 and operating income of $239,167 for the nine months ended
June 30, 2000 compared to operating losses of ($207,286) and ($339,722) for the
respective periods in the prior fiscal year.
Liquidity and Capital Resources
-------------------------------
The operating loss of $523,331 in fiscal year 1999 was funded in part by
approximately $450,000 raised through equity financing under a Private Offering
that closed in February 1999. The Company also secured a $100,000 loan in
September 1998 through a private party, which was repaid before the end of
September 1999. On September 30, 1999, the Company had $34,201 in cash.
In the quarter ending June 30, 2000, the Company generated an operating
loss of ($99,539) and secured financing through the sale of stock with net
proceeds of $672,072. On June 30, 2000, the Company had $744,034 in cash and
accounts receivable of $610,682. Accounts payable totaled $57,195.
The Company anticipates that cash requirements for the remainder of the
year will be met by a combination of existing cash on hand, further operational
income and additional equity financing. To this end, the Company has secured
further commitments from a group of investors to obtain enough additional
capital to ensure that it will have sufficient resources to achieve its
strategic objectives for the fiscal year ended September 30, 2000.
During the next twelve months, the Company anticipates that its cash
requirements will be met by a combination of operational income and the proceeds
of the equity financing from the private placement ended April 30, 2000. There
is no guarantee that such income will be forthcoming and the inability of the
Company to secure additional 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
----------------------
During the third quarter of fiscal year 2000, the Company's share price
experienced relative stability and some moderate growth towards the end of the
period. 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.
-13-
<PAGE>
Year 2000 Impact.
-----------------
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions with internal
administrative and operational software, software developed by the Company,
software integrated in the Company's products, and third-party systems to which
the Company's products interface.
With regard to internal use of software products, the Company inspected
financial and accounting software vendors whose products are in use by the
Company and reached a level of reasonable assurance that the software packages
used by the Company would behave correctly after the onset of year 2000.
With regard to software developed by the Company, the software development
team adopted procedures to avoid potential issues and conducted "roll-forward"
testing of the Company's products. Minor issues that arose during this testing
were corrected far in advance of year 2000.
With regard to software integrated into the Company's products, the Company
took steps to determine what measures in terms of software upgrades and fixes
needed to be taken in order to render all integrated software products year 2000
compliant and adopted the appropriate versions as part of its integration
procedure. The Company's installed base was similarly updated.
With regard to third-party systems to which the Company's products
interface, the Company conducted a survey of the information transferred to its
products from such third-party systems in collaboration with the manufacturers
of these systems and modified its software in order to render them year 2000
compliant.
To date, the Company's has not experienced any year 2000 issues with any of
its internal systems or products, and it does not expect to experience any in
the future. To date, its has not experienced any year 2000 issues related to any
of its key third party suppliers, distributors and customers nor does it expect
to experience any in the future. Costs associated with remediating the Company's
internal systems and software were not material.
Forward-looking Statements
--------------------------
We have made forward-looking statements in this registration statement that
are subject to risks and uncertainties. Forward-looking statements include
information concerning our possible or assumed future results of operations.
Also, when we use such words as "believe," "expect," "anticipate," "plan,"
"could," "intend" or similar expressions, we are making forward-looking
statements. You should note that an investment in our securities involves
certain risks and uncertainties that could affect our financial results. The
Company's actual results may differ materially as a result of certain factors,
including those set forth hereafter and elsewhere in this Form 10-SB. Potential
investors should consider carefully the previously stated factors, as well as
the more detailed information contained elsewhere in this From 10-SB, before
making a decision to invest in the common stock of the Company.
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The Company's
actual results may differ materially as a result of certain factors, including
those set forth hereafter and elsewhere in this Form 10-SB. Potential investors
should consider carefully the previously stated factors, as well as the more
detailed information contained elsewhere in this Form 10-SB, before making a
decision to invest in the common stock of the Company.
-14-
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
The Company's principal office is located at 400 Oyster Point Blvd., Suite
114, South San Francisco, California 94080. The property is a seven-room suite
of approximately 2,500 square feet. The property is leased from an unaffiliated
third party for a period of two years ending January 2001 for an annual rental
of $45,000 payable monthly in the amount of $3,750. The Company maintains tenant
fire and casualty insurance on its property located in such building in an
amount deemed adequate by the Company.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership Of Certain Beneficial Owners
The following table sets forth information, to the best knowledge of the
Company as of August 31, 2000, with respect to each person known by the Company
to own beneficially more than 5% of any class of the Company's outstanding
common stock.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership(a) of Class
-------------- ---------------- ---------------------- ----------
<S> <C> <C> <C>
Common Stock Douglas P. Boyd 1,729,482(b) 15.4%
389 Oyster Point Blvd.
So. San Francisco, CA 94080
Common Stock Geraldine Celestre 1,135,732 10.3%
254 Loyola Drive
Millbrae, CA 94030
Common Stock John C. Klock, M.D. 842,709(c) 7.4%
371 Bel Marin Keys Blvd.
Suite 210
Novato, CA 94949
Common Stock Chris Shepherd 589,541(d) 5.3%
2317 150B Street
White Rock, BC V4A 8B1
Common Stock Chung Lew 544,000 5.0%
c/o US Trust
114 West 47th Street
New York, NY 10036
----------
<FN>
(a) As of August 31, 2000, 10,981,534 shares of common stock were outstanding.
Unless otherwise noted, the security ownership disclosed in the table is of
record and beneficial. The term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934
as consisting of sole or shared voting power (including the power to vote
or direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition) with respect to the security
through any contact, arrangement, understanding, relationship, or
otherwise.
(b) Includes 1,485,732 shares owned directly and 218,750 vested stock options
as of August 31, 2000 or within sixty days thereafter. Also includes 25,000
shares owned by Dr. Boyd's wife to which Dr. Boyd disclaims any beneficial
interest.
(c) Includes 416,667 shares owned directly, 416,667 warrants, and 9,375 vested
stock options as of August 31, 2000 or within 60 days thereafter.
(d) Includes 366,666 shares owned directly and 121,875 vested stock options as
of August 31, 2000 or within 60 days thereafter. Also includes 101,000
shares owned by Mr. Shepherd's wife to which Mr. Shepherd disclaims any
beneficial interest.
</FN>
</TABLE>
-15-
<PAGE>
Security Ownership Of Management
The following table sets forth information, to the best knowledge of the
Company as of August 31, 2000, with respect to the beneficial ownership of each
officer and director, and all directors and executive officers as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Natureof Percent
Title of Class Beneficial Owner Ownership(a) of Class
-------------- -------------------- ------------------- ---------
<S> <C> <C> <C>
Common Stock Douglas P. Boyd, Ph.D. 1,729,482(b) 15.4%
Common Stock John Klock, M.D. 842,709(c) 7.4%
Common Stock Chris Shepherd 589.541(d) 5.3%
Common Stock Robert Taylor, Ph.D. 173,000(e) 1.6%
Common Stock Alexander R. Margulis, M.D. 80,625(f) 7.0%
Common Stock All directors and executive
officers as a group (5 persons) 3,415,357 28.9%
----------
<FN>
(a) As of August 31, 2000, 10,981,534 shares of common stock were outstanding.
Unless otherwise noted, the security ownership disclosed in this table is
of record and beneficial. The term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934
as consisting of sole or shared voting power (including the power to vote
or direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition) with respect to the security
through any contact, arrangement, understanding, relationship, or
otherwise.
(b) Includes 1,485,732 shares owned directly and 218,750 vested stock options
as of August 31, 2000 or within sixty days thereafter. Also includes 25,000
shares owned by Dr. Boyd's wife to which Dr. Boyd disclaims any beneficial
interest.
(c) Includes 416,667 shares owned directly, 416,667 warrants, and 9,375 vested
stock options as of August 31, 2000 or within 60 days thereafter.
(d) Includes 366,666 shares owned directly and 121,875 vested stock options as
of August 31, 2000 or within sixty days thereafter. Also includes 101,000
shares owned by Mr. Shepherd's wife to which Mr. Shepherd disclaims any
beneficial interest.
(e) Consists of vested stock options as of August 31, 2000 or within 60 days
thereafter.
(f) Includes 65,625 vested stock options, as of August 31, 2000 or within sixty
days thereafter, and 15,000 shares owned by Dr. Margulis' wife to which Dr.
Margulis disclaims any beneficial interest.
</FN>
</TABLE>
-16-
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company and their respective
ages are as follows:
<TABLE>
<S> <C> <C>
Name Age Position
---- --- ---------
Douglas P. Boyd, Ph.D. 58 Chairman of the Board (appointed in 1997)
John C. Klock, M.D. 55 Director (appointed in 2000)
Alexander R. Margulis, M.D. 78 Director (appointed in 1998)
Chris Shepherd 53 Director, Acting Chief Financial Officer (appointed in 1997)
Robert Taylor, Ph.D. 31 Chief Executive Officer and Director (effective August 24, 1999)
</TABLE>
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. Aside from expenses to
attend the Board of Directors meetings, the Company has not compensated its
directors for service on the Board of Directors or any committee thereof. The
Board of Directors appoints officers annually and each executive officer serves
at the discretion of the Board of Directors. There are no family relationships
between any of the directors and executive officers. The Company does not have
any standing committees at this time.
Douglas P. Boyd, Ph.D, Chairman of the Board. Dr. Boyd received a Bachelor
of Science degree from the University of Rochester in 1963 and Doctor of
Philosophy in Physics from Rutgers University in 1969. From 1981 to present, he
has been employed by Imatron Inc., a public company based in South San Francisco
that manufactures and distributes electron scanners, and is currently its
Chairman of the Board and Chief Technology Officer. He is also a Director of
InVision Technologies, Inc., a public company that manufactures and sells an
advanced scanner system for explosives detection in airport baggage.
John C. Klock, M.D., Director. Dr. Klock is a board-certified Internist and
Hematologist-Oncologist and was formerly an academic physician at the University
of California, San Francisco. He has been a founder of several biotechnical
companies including Glycomed, Inc., Glyko Biomedical, Ltd. and BioMarin
Pharmaceutical, Inc., and since 1996 has served as President and Director of
BioMarin Pharmaceutical Inc. and since 1990 has served as Chief Executive and
Director of Glyko Biomedical Ltd.
Alexander R. Margulis, M.D., Director. Dr. Margulis graduated from Harvard
Medical School with an M.D. degree in 1950. He was Professor and Chairman of the
Department of Radiology at University of California, San Francisco for
twenty-six years (1963-1989) and served as the school's Associate Chancellor for
four years (1989-1993). Dr. Margulis was also a founder and director of the
Magnetic Resonance Science Center at UCSF (1989-1993). From 1993 to 2000, Dr.
Margulis has been a Special Consultant to the Vice Chancellor for University
Advancement & Planning at UCSF. He is currently a Clinical Professor of
Radiology at Cornell University in New York City. He holds seven honorary
doctorates, multiple gold medals, and multiple honorary memerships in radiologic
socities throughout the world. He is also a member of the Institute of Medicine
of the National Academy of Sciences. Dr. Margulis has written over 250 articles
concerned with intestinal radiology, magnetic resonance imaging in magnetic
resonance spectroscopy and radiologic and health policy issues.
Chris R. Shepherd, Director and Acting CFO. Mr. Shepherd received a
Bachelor of Arts in Economics from the University of Regina. . From 1971 to
1981, he was an employee or independent distributor for a Toronto based
international engineered building manufacturing Company. His current positions
in private companies include President, Arco Structures Inc., an Alberta
Company; President, Seacrest Development Corp., Surrey, B.C.; President, Olympic
Silver Resources Inc., a Nevada Company; Director, Vanasia International
Educational Consultancy Ltd., Vancouver, B.C. Mr. Shepherd has been involved in
the financing, strategic planning, and marketing of syndicated real estate
investment projects. He has been a consultant to several public companies
requiring seed capital financing or investor relations consulting services.
-17-
<PAGE>
Robert Taylor, Ph.D., Chief Executive Officer and Director. Dr. Taylor,
received both his B.S. (1990) and his Ph.D. (1996) in Physics from Imperial
College of Science, Technology and Medicine, London, England. From October 1994
to August 1997, Dr Taylor was a research associate at Imperial College. From
August 1997 to August 1998, he was a freelance software developer. In August
1998, Dr. Taylor became an independent contractor with the Company. On July 1,
1999, the Board of Directors appointed him Chief Technology Officer, and was
subsequently appointed Chief Executive Officer on August 24, 1999.
ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table shows certain compensation information
for the Chief Executive Officer and the Company's most highly paid executive
officers (collectively referred to as the "Named Executive Officers").
Compensation data for other executive officers is not presented in the graphs
because aggregate compensation for such executive officers does not exceed
$100,000 for services rendered in all capacities during the fiscal year. This
information includes the dollar value of base salaries, bonus awards, the number
of SARs/options granted, and certain other compensation, if any, whether paid or
deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid by the
Company to certain named individuals for services rendered during the periods
indicated:
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------- --------------------------------
Annual Compensation Long Term Compensation Awards
-------------------------- --------- ------------- ------------ -----------------------------------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying
Position Year Salary Bonus Compensation(c) Award Options/SARs
-------------------------- --------- ------------- ------------ ------------------- ------------- ------------------
Allen B. Poirson, former 1999 $93,333 -0- $1,000 -0- $82,250(d)
President and Chief 1998 $70,000 -0- -0- -0- -0-
Executive Officer(a)
-------------------------- --------- ------------- ------------ ------------------- ------------- ------------------
Robert Taylor, Chief 1999 $52,000 -0- -0- -0- $19,850(d)
Executive Officer(b)
-------------------------- --------- ------------- ------------ ------------------- ------------- ------------------
<FN>
(a) Dr. Poirson was appointed President and Chief Executive Officer on June 15,
1998 and resigned effective August 23, 1999.
(b) Dr. Taylor was appointed Chief Executive Officer effective August 24, 1999.
He was the Company's Chief Technology Officer from July 1, 1999 to August
23, 1999. Prior to that time, he was an independent contractor with the
Company.
(c) Represents the Company's matching contributions to its 401(k)
plan.
(d) Represents vested options granted by the Company at the value of the
exercise price.
</FN>
</TABLE>
-18-
<PAGE>
Effective August 23, 1999, Dr. Poirson resigned as a director and as
President and Chief Executive Officer of the Company. The Company and Dr.
Poirson entered into a Separation Agreement and General Release, whereby the
Company agreed to pay Dr. Poirson a separation payment of $23,333.33 and awarded
him 50,000 fully vested options in recognition of his services to the Company.
Effective August 24, 1999, the Company appointed Robert Taylor, its Chief
Technology Officer, as the Chief Executive Officer and a director. Pursuant to
his Employment Agreement, Dr. Taylor is entitled to a base salary equivalent to
$126,500, and he was granted an option to purchase 150,000 shares of the
Company's common stock. Additionally, he is entitled to several incentive
bonuses based on the Company's quarterly and annual revenues and net profit. In
February 2000, the Board raised Dr. Taylor's salary to $151,800 and granted him
an additional 50,000 options to purchase common stock.
Additionally, the Company has various employment and consulting agreements
with other non-named individuals that provide for issuance of the Company's
stock options in exchange for services rendered to the Company.
Stock Option Plan
During 1998, 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. On
December 23, 1999, the Board authorized another 500,000 available for grant. The
shareholders approved the plan at the Company's annual meeting on June 29, 2000.
Under this plan, no option may be exercised after the expiration date of ten
years from the date of grant and no option may be exercised as to less than one
hundred (100) shares at any one time. There are two categories of options:
Incentive Stock Options (ISO) and Non-Qualified Stock Options (NSO).
ISOs are granted to employees and the purchase price shall not be less than
the Fair Market Value of the common stock share at the date of grant and no ISO
shall be exercisable more than ten (10) years from date of grant except that in
the case of any person who owns more than 10% of the voting power of all classes
of stock, no ISO shall be exercisable more than five (5) years from date of
grant.
NSOs may be granted to any eligible participant. The purchase price shall
not be less than 85% of the Fair Market Value of the shares at the time except
that when the grantee owns more than 10% of the voting power of all classes of
stock at the time of grant, the price is be 110% of the Fair Market Value of the
shares at the time of the grant. No NSO shall be exercisable more than ten (10)
years from the date of grant.
In general, granted ISO's expire three months after the termination date.
If employment termination is due to cause, the options shall expire immediately;
and if employment termination is due to permanent and total disability, the
options may be exercised up to one year following termination. The vesting
period is usually related to the length of employment or consulting contract
period, but is at the Board's discretion.
-19-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted during the last fiscal
year to each of the Named Executive Officers of the Company:
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
==================================================================================================
Individual Grants
---------------------- ---------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Number of % of Total
Securities Options/SARs Exercise or
Underlying Granted to Base Price
Options/SARs Employees in ($/Sh) Expiration Date
Name Granted (#) Fiscal Year(a)
--------------- ------------ --------------- ------------ ----------------
Allen Poirson 50,000 6.7% $0.47 08/23/2009
Robert Taylor 8,600 1.1% $0.50 11/06/2008
3,000 0.4% $0.50 11/26/2008
8,500 1.1% $0.50 01/08/2009
6,000 0.8% $0.50 04/06/2009
6,400 0.9% $0.50 04/20/2009
3,000 0.4% $0.50 05/28/2009
300,000 40.4% $0.50 07/01/2009
150,000 20.2% $0.56 08/24/2009
----------
<FN>
(a) Based on 742,080 options granted to all employees and contractors.
</FN>
</TABLE>
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the options exercised during the last fiscal
year by Named Executive Officers of the Company:
<TABLE>
<CAPTION>
Aggregated Options Exercised and Option Values in Fiscal Year 1999
===================================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs at
Option/SARs at FY-End FY-End ($)
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------ ------------------------- -------------------------
Allen Poirson -0- -0- 175,000/0 -0-
Robert Taylor -0- -0- 49,075/440,625 -0-
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Douglas P. Boyd, Ph.D., a director and greater-than-10% shareholder of the
Company, is also Chairman of the Board of Imatron Inc., a New Jersey
corporation, based in South San Francisco, California. Imatron is engaged in the
business of providing imaging technology and services for its products and for
the products of others. On April 14, 1999, Imatron and the Company entered into
a Product Development, Distribution, and Warranty Support Agreement which
provides for Imatron to be the distributor of AccuImage products to certain new
Imatron customers and to be its provider of on-site corrective maintenance,
warranty and customer support for such systems. Approximately, seventy-five
percent of the Company's revenue in the fiscal year ended September 30, 1999
came from its development and distribution arrangement with Imatron. Dr. Boyd is
not a party to the agreement nor was he involved in the negotiations between the
Company and Imatron.
-20-
<PAGE>
In connection with the private placement which commenced on January 25,
2000, the Company paid a finder's fee of $33,000 to Inyoung Boyd, wife of
Douglas P. Boyd, Chairman of the Board of the Company, for services rendered in
connection with the placement of the Units.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue two classes of shares, Common Stock and
Preferred Stock. The total number of shares of Common Stock the Company is
authorized to issue is Fifty Million shares with a par value of one tenth cent
each, of which 10,981,534 are outstanding. The total number of shares of
Preferred Stock the Company is authorized to issue is Ten Million shares with a
par value of one-tenth cent each, none of which are issued and outstanding.
Should the Company, in the future, deem it necessary or appropriate to issue
that stock, the Board of Directors has the authority, under the Articles of
Incorporation, to establish different series of any class of stock and to
determine the relative rights, preferences, privileges and limitations of each
such series.
According to Article IV of the Company's Articles of Incorporation, the
holders of the Common Stock shall always be entitled to one vote per share of
Common Stock in the election of directors and upon each other matter coming
before any vote of shareholders. Neither the Company's Articles of Incorporation
nor its bylaws provide for dividend, voting, or preemption rights. Nor are there
any provisions that would delay, defer, or prevent a change in control of the
Company.
There are currently 10,981,534 shares of Company Common Stock outstanding,
which includes 900,100 shares designated as "free trading" and 6,081,434
shares designated as "restricted securities". Of these "restricted securities,"
4,716,100 shares have satisfied the one year holding period of Rule 144 and may
be publicly sold in accordance with this Rule.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Market information
The Company's common stock is currently traded in the over-the-counter
securities market and quoted on the National Quotation Bureau's "Pink Sheets"
under the symbol "AIDP". The common stock was previously traded on the NASD's
OTC Bulletin Board but was delisted in August, 1999, because the Company was not
in compliance with the OTC Bulletin Board eligibility rules.
The price range of high and low sales prices for the Company's Common Stock
for the periods shown is set forth below:
Period High Low
------ ---- ---
04/01/00 - 06/30/00 1.2500 .5469
01/01/00 - 03/31/00 1.1250 .2031
10/01/99 - 12/31/99 1.1250 .1250
07/01/99 - 09/30/99 .8750 .1250
04/01/99 - 06/30/99 .6250 .2800
01/01/99 - 03/31/99 .8125 .2500
10/01/98 - 12/31/99 .9375 .1875
07/01/98 - 09/30/98 .8125 .2812
04/01/98 - 06/30/98 1.0000 .4375
01/01/98 - 03/31/98 .6875 .4062
10/01/97 - 12/31/97 .8125 .3750
08/01/97 - 09/30/97 1.7500 .5625
-21-
<PAGE>
Stockholders
As of August 31, 2000, there were approximately eighty-eight 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.
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 2. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
From approximately April 1997 through August 1999, the Company's accountant
was Schvaneveldt and Company of Salt Lake City, Utah. From August through
December 1999, the Company's account was James R. Kerr CPA of San Mateo,
California. In December, Berg & Company LLP of San Francisco, California became
the Company's independent accountants. Current Reports on Form 8-K were filed
for the last two change in accountants. During the two most recent fiscal years,
there have been no disagreements between the Company and their accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to a 1996 private placement offering, 990,000 shares of common
stock were sold to fifty-four non-U.S. residents to raise capital for the
Company. The shares were exempt under Rule 506 of Regulation D and Section 4(2)
of the Securities Act of 1933. A Form D was filed with the SEC.
On September 30, 1997, the Company completed the acquisition of all
outstanding shares of AccuImage, Inc., a provider of software and services for
the medical imaging, through the issuance of 4,000,000 shares of the Company's
common stock. The acquisition was accounted for as a purchase in accordance with
provisions of APB 16. Under the purchase method of accounting, the purchase
price is allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of the acquisition. The total purchase price
of the acquisition was $815,438. The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values as
determined by the Company. Shares in the following amounts were issued to:
Name Shares
---- ------
Geraldine and Carmelo Celestre, JTROS 1,710,000
Douglas Boyd, Ph.D. and Inyoung Boyd 1,710,000
Sam C.H. Wu 380,000
Uwe Mundry 200,000
The shares were exempt from registration under Rule 4(2) of the Securities Act
of 1933.
-22-
<PAGE>
On June 30, 1998, the above listed former shareholders of AccuImage, Inc.
surrendered to the Company 2,000,000 shares of the common stock they received in
the share exchange, and the Company reallocated those shares among the Company's
shareholders to follow the intent of the exchange transaction as originally
contemplated among the parties. See Exhibit 2.1, Rescission and Transfer
Agreement for share allocation. The issuance was exempt under Section 4(2) of
the Securities Act of 1933.
In September, 1998, the Company commenced a private placement offering of
up to 1,200,000 shares of "restricted" (as that term is defined under Rule 144
of the Securities Act of 1933) Common Stock pursuant to and Section 4(2) of the
Securities Act of 1933 to "accredited" investors at a price of $0.50 per Unit.
Ten individuals purchased 930,000 Units, which consisted of (1) one share of
common stock and (2) one warrant redeemable for Company common stock at a price
of $1.00 per share.
On June 8, 2000 the Company issued 50,000 shares of restricted common stock
to a former consultant upon the exercise of an option priced at $0.41 per share.
This option was exercised January 4, 2000. The issuance of the securities is
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof.
On January 25, 2000 the Company commenced a private placement offering of
up to 1,285,000 Units at $0.60 per Unit, which consists of (1) one share of
Common Stock and (2) one warrant to purchase one share of Common Stock at an
exercise price of $1.50 per share. Six accredited investors purchased 1,183,344
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, which exempts transations by an issuer not involving any public
offering. The purchasers were Accredited Investors as that term is defined under
Rule 501; they had the knowledge and experience in financial and business
matters to evaluate the merits and risks of the proposed investment; and they
acquired the shares for their own account, as an investment, and without any
intention to engage in a distribution thereof. The purchasers were referred by
Inyoung Boyd, wife of Douglas P. Boyd, Chairman of the Board of the Company. The
Company paid a finder's fee in the form of $33,000 to Mrs. Boyd for her services
rendered in conenction with the placement of the Units.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and bylaws authorize the Company to
provide indemnification of its directors and officers. The Company currently
does not maintain any such liability insurance.
Section 78.751(1) of the Nevada Revised Statutes ("NRS") authorizes a
Nevada corporation to indemnify any director, officer, employee, or corporate
agent "who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation" due to his or her corporate role. Section 78.751(1) extends
this production "against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with the action, suit or proceeding if he or she acted in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful."
-23-
<PAGE>
Section 78.751(2) of the NRS also authorizes indemnification of the
reasonable defense or settlement expenses of a corporate director, officer,
employee or agent who is sued, or is threatened with a suit, by or in the right
of the corporation. The party must have been acting in good faith and with the
reasonable belief that his or her actions were not opposed to the corporation's
best interests. Unless the court rules that the party is reasonably entitled to
indemnification, the party seeking indemnification must not have been found
liable to the corporation. To the extent that a corporate director, officer,
employee, or agent is successful on the merits or otherwise in defending any
action or proceeding referred to in Section 78.751(1) or 78.751(2), Section
78.751(3) of the NRS requires that he be indemnified "against expenses,
including attorneys' fees, actually and reasonably incurred by him or her in
connection with the defense."
Section 78.751(4) of the NRS limits indemnification under Section 78.751(1)
and 78.751(2) to situations in which either (a) the stockholders, (b) the
majority of a disinterested quorum of directors, or (c) independent legal
counsel determine that indemnification is proper under the circumstances.
Pursuant to Section 78.751(5) of the NRS, the corporation may advance an
officer's or director's expenses incurred in defending any action or proceeding
upon receipt of an undertaking. Section 78.751(6)(a) provides that the rights to
indemnification and advancement of expenses shall not be deemed exclusive of any
other rights under any by-law, agreement, stockholder vote or vote of
disinterested directors. Section 78.751(6)(b) extends the rights to
indemnification and advancement of expenses to former directors, officers,
employees and agents, as well as their heirs, executors and administrators.
Regardless of whether a director, officer, employee or agent has the right to
indemnity, Section 78.752 allows the corporation to purchase and maintain
insurance on his behalf against liability resulting from his or her corporate
role.
PART F/S
The Company's financial statements for the year ended September 30, 1999,
and for the interim period ending June 30, 2000 have been audited or examined to
the extent indicated in their report by Berg & Company, Certified Public
Accountants, and have been prepared in accordance with generally accepted
accounting principles and are included herein. Schvaneveldt and Company, of Salt
Lake City, audited the financial statements for the years ended September 30,
1998 and 1997 as indicated in their reports which are included in this
amendment.
Audited Financial Statements For The Fiscal Year End
AccuImage Diagnostics Corp.
Financial Statements
September 30, 1999
Independent Auditors' Report F-1
Balance Sheet F-4
Statement of Operations F-5
Statement of Changes in Shareholders' Equity F-6
Statement of Cash Flows F-7
Notes to the Financial Statements F-8
<PAGE>
INDEPENDENT AUDITORS' REPORTS
Schvaneveldt and Company
Certified Public Accountants
275 E. South Temple, Suite 300
Salt Lake City, Utah 84111
(801) 521-2392
Darrell T. Schvaneveldt, C.P.A.
Board of Directors
AccuImage Diagnostics Corp.
I have audited the accompanying balance sheets of AccuImage Diagnostics
Corp. as of September 30, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the fiscal years ended
September 30, 1998, 1997 and 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial satements are free of material
misstatements. 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 the significant estimates made by
management, as well as evaluating the overall financial statements presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of AccuImage Diagnostics Corp. as
of September 30, 1998 and 1997, and the results of its operations and its cash
flows for the fiscal years ended September 30, 1998, 1997 and 1996, in
conformity with generally accepted accounting principles.
May 7, 1998
Schvaneveldt & Company
F-1
<PAGE>
Schvaneveldt and Company
Certified Public Accountants
275 E. South Temple, Suite 300
Salt Lake City, Utah 84111
(801) 521-2392
Darrell T. Schvaneveldt, C.P.A.
Board of Directors
AccuImage Diagnostics Corp.
I have audited the accompanying balance sheets of AccuImage Diagnostics
Corp., as of September 30, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for the fiscal years ended
September 30, 1997, 1996 and 1995. These financial statements are the
responsibility of the Company's management. My responsbility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and diclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statements presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of AccuImage Diagnostics Corp., as
of September 30, 1997 and 1996, and the results of its operations and its cash
flows for the fiscal years ended September 30, 1997, 1996 and 1995, in
conformity with generally accepted accounting principles.
May 10, 1999
Schvaneveldt & Company
F-2
<PAGE>
Berg & Company, LLP
260 California Street, Ninth Floor
San Francisco, California 94111
(415) 399-1330
To the Board of Directors and Shareholders
of AccuImage Diagnostics Corp.
We have audited the accompanying balance sheet of AccuImage Diagnostics Corp., a
Nevada Corporation, as of September 30, 1999, and the related statement of
operations, changes in shareholders' equity, and cash flows for the fiscal year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company for the
years ended September 30, 1997 and 1998 were audited by another auditor, whose
reports expressed an unqualified opinion on those financial statements. Our
opinion, in so far as it relates to the amounts included for the years ended
September 30, 1997 and 1998, is based solely on the reports of the other
auditor.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of AccuImage Diagnostics Corp. as of September 30, 1999,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Berg & Company, LLP
San Francisco, CA
February 15, 2000
F-3
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
Balance Sheets
As of September 30, 1999 and 1998
ASSETS
1999 1998
---------- -------
Current Assets
Cash $ 34,201 $ 2,117
Accounts Receivable 172,125 17,226
Employee Receivable 31,274 -
Inventory 44,957 12,366
Prepaid License Fees 16,370 81,850
Prepaid Expenses 4,489 3,667
--------- ----------
Total Current Assets 303,416 117,226
Property and Equipment, net of accumulated
Depreciation 61,351 58,819
Other Assets
Deposits 3,820 4,318
Deferred Private Offering Costs - 22,290
Goodwill, net of accumulated Amortization 494,507 556,321
Other Intangible Assets 60,216 77,846
----------- -----------
Total Other Assets 558,543 660,775
TOTAL ASSETS $ 923,310 $ 836,820
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 146,376 $ 19,181
Accrued Payroll and Taxes 71,464 11,623
Accrued Expenses 5,332 74,629
Product Warranty Reserves 84,270 29,665
Other Accrued Liabilities 4,190 5,270
Notes Payable - Other - 100,000
Shareholder Notes Payable 56,500 56,500
------------ ------------
Total Current Liabilities 368,132 296,868
Stockholder's Equity
Common Stock Shares Authorized - Issued 9,748 8,732
and Outstanding
Additional Paid-In Capital 1,740,662 1,223,268
Retained Earnings (1,195,232) (692,048)
----------- ---------
Total Stockholders' Equity 555,178 539,952
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 923,310 $ 836,820
=========== ===========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See accompanying notes and accountants' report.
F-4
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
Statements of Operations
For the Years Ended September 30, 1999, 1998 and 1997
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
-------------- -------------- -----------
Sales $ 1,059,138 $ 443,343 $ -
Cost of Sales 246,793 151,195 -
------------- ------------- -----------
Operating Expenses
Bad debts 16,619 - -
Depreciation and amortization 112,599 210,219 -
Salaries and wages 551,120 245,945 -
Employee Benefits 64,361 37,061 -
General and administrative expenses 131,415 70,107 -
Legal and accounting 59,525 36,935 -
Interest 5,927 1,389 -
Professional Consulting 223,232 187,577 -
Rent 41,221 40,654 -
Marketing and promotion 121,172 121,372 -
Other operating expenses 8,485 29,680 -
-------------- ------------- -----------
Total Operating Expenses 1,335,676 980,939 -
Operating Income (Loss) (523,331) (668,791) -
Other Income and Expense
Other Income (17,738) - -
Interest Income (3,209) (5,344) -
-------------- ------------- ----------
Total Other Income and Expense (20,947) (5,344) -
Income (Loss) Before Taxes (502,384) (683,447) -
Provision for Taxes (800) (800) (800)
-------------- ------------- ----------
Net Income (Loss) $ (503,184) $ (684,247) $ (800)
============ ============ ==========
Earnings per share
Basic $ (0.0530) $ (0.0796) $ -
Diluted $ (0.0464) $ (0.0739) $ -
Shares Outstanding
Basic 9,496,905 8,593,333 4,037,100
Diluted 10,854,267 9,253,563 4,037,100
</TABLE>
See accompanying notes and accountants' report.
F-5
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Accumulated
Paid-In Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- ------------ -----
<S> <C> <C> <C> <C> <C>
Balance-September 30, 1996 3,592,100 $3,592 $3,408 $(7,000) $ -
Stock sold through Private
Placement 990,000 990 989,010 - 990,000
Shares issued in acquisition of
Accuimage, Inc. 4,000,000 4,000 156,000 - 160,000
Net Loss for Fiscal Year Ended
September 30, 1997 (800) (800)
-------- ------ ------- -------- ---------
Balance-September 30, 1997 8,582,100 8,582 1,148,418 (7,800) 1,149,200
Shares Issued for cash 150,000 150 74,850 - 75,000
Net Loss for Fiscal Year ended
September 30, 1998 - - (684,248) (684,248)
-------- ------ ------- -------- ---------
Balance-September 30, 1998 8,732,100 8,732 1,223,268 (692,048) 539,952
Shares issued for cash 780,000 780 382,720 - 383,500
Shares issued for compensation 236,100 236 134,674 - 134,910
Net Loss for Fiscal Year Ended
September 30, 1999 - - (503,184) (503,184)
-------- --------- ---------- -------- ---------
Balance-September 30, 1999 9,748,200 $9,748 $1,740,662 $(1,195,232) $ 555,178
=========== ========== ========== ============ ============
</TABLE>
See accompanying notes and accountants' report.
F-6
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
Statements of Cash Flows
For the Years Ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (503,184) $ (684,248) $ (800)
Adjustment to reconcile net loss to net cash net cash
Depreciation and amortization 112,599 210,219 -
Change in warranty reserve 54,605 - -
Change in receivables (186,173) 80,499 -
Change in inventory (32,591) 23,208 -
Change in license rights 65,480 (81,850) -
Change in prepaid assets (822) 5,033 -
Change in deposits 498 (3,917) -
Change in accounts payable 127,396 18,981 -
Change in accrued expenses (8,551) (101,039) -
--------------- ------------- ------------
Net Cash Used by Operating Activities: (370,743) (533,114) (800)
Cash Flow from Investing Activities:
Acquisition of Accuimage, Inc. - - (815,438)
Investment in Property and Equipment (37,873) (7,741) -
------------- ------------- ------------
Net Cash Used by Investing Activities (37,873) (7,741) (815,438)
Cash Flow from Financing Activities:
Note Payable Proceeds (Payments) (100,000) 100,000
Shareholder Note Proceeds - 56,500
Sale of common stock 518,410 75,000 990,000
Stock issued for acquisition - - 160,000
Deferred Private Offering Costs 22,290 (22,290)
------------- ------------ ------------
Net Cash Provided by Financing Activities 440,700 209,210 1,150,000
------------ ------------- ------------
Net Increase (Decrease) in Cash 32,084 (331,645) 333,762
Cash at Beginning of Year 2,117 333,762
------------ ------------- ------------
Cash at End of Year $ 34,201 $ 2,117 $ 333,762
Interest Paid During the Year $ 3,750 $ 1,388 $ -
================ ================ ===========
Non-Cash Activities:
Non-Cash compensation $ 134,910 $ - $ -
Acquisition of AccuImage, Inc. - Stock Issued $ - $ - $ 160,000
================ ================ ===========
</TABLE>
See accompanying notes and accountants' report.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
The Company was organized on February 2, 1990, under the Laws of the
State of Nevada as Black Pointe Holdings, Inc. On June 26, 1996, The
Company changed its the name to AccuImage Diagnostics Corp. (the
Company).
On September 30,1997, pursuant to a Stock Exchange Agreement, the
Company acquired all of the outstanding shares of AccuImage, Inc., a
Nevada corporation, which owned the exclusive rights to certain
computer software and technology which the Company had been licensing.
Subsequent to the exchange, AccuImage, Inc. was dissolved.
AccuImage Diagnostics Corp. is based in South San Francisco and is
engaged in the development, marketing and sales of Internet enabled
software used for medical data and interactive medical image
visualization. The software, which runs on a personal computer,
interprets images obtained from leading equipment manufacturers and
imaging modalities (e.g. CT, MRI, Ultrasound).
The Company provides its software to three different markets. First,
the Company offers hospitals, clinics and medical professionals a
scalable solution for transmitting data on the Internet, and enhancing
the diagnostic value of data already obtained. Second, the Company
sells to Original Equipment Manufacturers (OEMs) of medical acquisition
devices (e.g. GE, Siemens, Imatron) a customizable version that adds
value to their core products. Third, the Company offers vendors who
sell Picture and Archiving Communication Systems (PACs) a medical
diagnostic software package that complements and enhances their
existing product line.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company presents its financial statements on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Reclassification of Financial Statements Presentation
Certain reclassifications have been made to the September 30,1998
fiscal year ending financial statements to conform to September 30,
1999 fiscal year ending financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
Fiscal Year
The Company has a fiscal year that ends on September 30. Fiscal years
1999, 1998 and 1997 ended on September 30, 1999, September 30, 1998 and
September 30, 1997 respectively.
Concentration of Cash
The Company at times maintains cash balances in an account that is not
fully federally insured. Uninsured balances as of September 30, 1999
were $34,201.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid securities purchased with maturity of three months or
less to be cash equivalents. As of September 30, 1999, there are no
cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Property and Equipment
Property and Equipment are stated at cost. Depreciation is computed for
financial reporting purposes using the straight-line method over the
estimated useful lives of the assets. Repairs and maintenance that do
not extend the useful life of property and equipment are charged to
expense as incurred. When property and equipment are retired or
otherwise disposed of, the asset and its accumulated depreciation are
removed from the accounts and the resulting profit or loss is reflected
in income.
F-8
<PAGE>
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.
Warranty Reserve
Based upon historical costs and its sales agreements, the Company
maintains a reserve of 8% of product sales to cover anticipated
warranty costs related to software sold. This reserve is continually
compared to actual costs by management and revised as necessary.
Advertising Costs
The Company expenses advertising costs as they are incurred.
Advertising expenses were $1,490 and $10,618 for the fiscal years ended
on September 30, 1999 and 1998, respectively.
Software Revenue and Costs
According to SOP 97-2 "Software Revenue Recognition", revenue is
recognized when the receipt of payment is probable, the selling price
is known, the software has been delivered, and the contract is
enforceable. The company follows these guidelines to recognize revenue.
Research and Development costs related to both future and present
products are charged to expense as incurred.
<PAGE>
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Income taxes are provided for the tax
effects of transactions reported in the financial statements and
consist of deferred taxes related to differences between the basis of
assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will be either taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes are also recognized for operating losses that are
available to offset future taxable income.
Use of Accounting Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ materially from those estimates.
The actual results with regard to warranty expenditures could have a
material impact on financial statements of the Company if the actual
rate of unit failure is greater than estimated by the Company in the
calculation of its warranty reserve.
Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), which is effective for financial statements for
periods beginning after December 15, 1997. This pronouncement
establishes standards for reporting and display of comprehensive income
(loss) and its components in a full set of general-purpose financial
statements. The Company, however, does not have any components of
comprehensive income (loss) as defined by SFAS 130 and therefore, for
the years ended September 30, 1999, 1998 and 1997 comprehensive loss is
equivalent to the Company's net loss.
Net Loss Per Share
The Company follows SFAS No. 128, "Earnings per Share," which
establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or
potential common stock. SFAS No. 128 replaces the presentation of
primary EPS with "basic EPS," and fully diluted EPS with "diluted EPS."
It also requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
Basic EPS is computed by dividing net income (loss) by the weighted
average number of common shares outstanding. The dilutive EPS
calculation gives effect to all dilutive potential common shares, such
as stock options or warrants, which were outstanding during the period.
Shares issued during the period and shares repurchased by the Company
are weighted for the portion of the period that they were outstanding
for both basic and diluted EPS calculations.
Stock-Based Compensation
The Company accounts for its stock based compensation plan based on
accounting Principles Board ("APB") Opinion No. 25. In October 1995,
the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. The Company has determined
that it will not change to the fair value method and will continue to
use APB Opinion No. 25 for measurement and recognition of any expense
related to employee stock based transactions. As such, compensation
expense would generally be recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise
price.
<PAGE>
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires that an
enterprise recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. The statement is effective for the Company's fiscal year
ending September 30, 2000. The Company does not believe that the
adoption of the provisions of SFAS No. 133 will have a material impact
on its financial position or results of operations.
The FASB issued SFAS No. 131 on "Disclosures about Segments of an
Enterprise and Related Information" effective in 1998. The Company
evaluated SFAS No. 131 and determined that the Company operates in
only one segment.
(3) RELATED PARTY TRANSACTIONS
Douglas Boyd, Ph.D. is the Chairman of The Board of Directors and a
shareholder in the Company. Mr. Boyd is also a member of the Board of
Directors of Imatron Inc. and a shareholder in Imatron Inc.
(4) ACCOUNTS RECEIVABLE - TRADE
Accounts receivable - trade is net of allowance for doubtful accounts
of $16,619 and consists of the following at September 30, 1999:
Amount Percentage
------ ----------
Customer A $ 83,767 49%
Customer B 51,457 30%
Customer C 18,917 11%
All Other 17,984 10%
----------- ------
$172,125 100%
=========== =====
As of September 30, 1999, the Company was owed $83,767 for sales to
another entity controlled and owned in part by Company stockholders.
(5) INVENTORIES
Inventories consist of personal computer components of $44,597 and
$12,366 for the years ended September 30, 1999 and 1998, respectively.
(6) PREPAID LICENSING FEES
The Company held an Exclusive Licensing agreement with Neo Imagery
Technology, Inc. (NIT), which expired on September 17, 1998. The
Company prepaid license fees to NIT and expenses the fees as it sold
the related products. The remaining license fees will be expensed
during fiscal 2000. Licensing fees under this agreement were $65,480
and $132,961 for the years ended September 30, 1998 and 1999,
respectively.
<PAGE>
(7) PROPERTY AND EQUIPMENT
Property and Equipment consists of the following at September 30:
1999 1998
---- ----
Computers & Equipment $58,987 $34,135
Furniture & Fixtures 32,193 19,172
Software 30,349 30,349
-------- --------
Less Accumulated Depreciation (60,178) (24,836)
-------- --------
61,351 $58,820
The useful lives of all assets are estimated to be 5 years.
Depreciation expense for the periods ended September 30, 1999, 1998 and
1997 was $35,340, $9,360 and $-0- respectively.
(8) DEFERRED PRIVATE OFFERING COSTS
Professional fees associated with a private equity financing were
charged to equity, as units in the offering were sold.
(9) INTANGIBLE ASSETS
Intangible assets consist of the following at September 30:
1999 1998
---- ----
AccuImage Software $125,716 $125,716
License Fees 15,200 15,200
---------- ---------
$140,916 $140,916
Less Accumulated Amortization (80,700) (63,070)
--------- ---------
$ 60,216 $ 77,846
========= ========
Amortization expense for the periods ended September 30, 1999, 1998 and
1997 was $13,470, $200,859 and $ -0- respectively.
AccuImage Software
On September 30,1997, the Company acquired AccuImage Inc. which had
entered into an agreement with the developer of a 3D medical imaging
software package referred to as MIDP. The developer granted to the
AccuImage Inc. an exclusive license to use and sell the MIDP software
for a period of ten years. The Company subsequently assumed all the
rights under the license agreement when AccuImage Inc. was acquired.
The value of the software was capitalized as part of the purchase
price of AccuImage, Inc. as is being amortized over its expected
useful life of 10 years,
On November 1, 1998, the developer of the software, pursuant to an
employment settlement, transferred all rights in the software to the
Company.
<PAGE>
Other License Fees
Included in other license fees is a $10,000 fee the Company paid to
National Science and Technology Development Agency, Bangkok Thailand,
for a License to act as an "Exclusive authorized reseller" of hardware
and software known as CalScore 1.0. The license, which commenced
February 17, 1997, is being amortized over its term of 5 years.
(10) NOTES PAYABLE
Notes Payable - Other
The Company borrowed $100,000 in 1997 on a short-term note. The note
bore interest of 12% per annum and was due upon demand. The note was
repaid during the year ended September 30, 1999.
Shareholders Notes Payable
The Company has notes payable to a number of shareholders. These notes
bear a 5% interest rate and are due upon demand. The balances of the
notes payable at September 30, 1999 and 1998 were $56,500 and $56,500,
respectively.
Interest expense on all notes payable for the periods ended on
September 30,1999 and 1998 was $5,928 and $1,389 respectively.
(11) STOCKHOLDERS' EQUITY
Starting in August 1998, the Company commenced a private placement
offering which offered for sale up to 1,200,000 Units at $0.50 per
Unit. Each Unit consists of one share of common stock and one warrant
which entitles the holder to purchase one share of common stock at an
exercise price of $1.00 per share, subject to adjustment.
The common stock and the warrants are separately transferable. Each
warrant will be immediately exercisable upon issuance and shall remain
exercisable for a period of five years from its date of issuance. The
Company may call all of its warrants for redemption at $0.01 per
warrant commencing one year from the date of closing of the offering.
The minimum purchase per investor is 31,250 Units ($25,000) except that
the Company in its sole discretion may accept subscriptions for fewer
Units. Thirteen individuals purchased 930,000 Units as of September 30,
1999.
A summary of the Company's outstanding warrants as of September 30,
1999 and 1998 is presented below:
Outstanding at September 30, 1997 -
Issued 150,000
-------
Outstanding at September 30, 1998 150,000
Issued 780,000
-------
Outstanding at September 30, 1999 930,000
=======
<PAGE>
(12) PRODUCT DEVELOPMENT, DISTRIBUTION, AND WARRANTY SUPPORT AGREEMENT
On April 14, 1999, the Company entered into a five year agreement with
Imatron Inc., a New Jersey Corporation and related party, which allows
Imatron to be the exclusive authorized distributor and service provider
of the Company's products to Imatron's new customers. Imatron is
responsible for promotion, installation, sales, and applications
training of all hardware and software products distributed by them.
Under the agreement, the Company continues to provide service to the
prior installed base of Imatron customers and can still solicit sales
from these customers for new products. The Company agrees not to sell
below the published selling price of its products to these customers
without the prior review and written approval of Imatron. The Company
provides Imatron with a 30% discount from the Company's published
software prices
For Company's products sold by Imatron, Imatron provides on-site
applications training and installation. Each sale includes a one-year
warranty that covers parts and on-site service and phone support plan.
The Company agrees to further pay Imatron 5% of the selling price of
the Company's products purchased by Imatron to offset these costs
For single sales over $40,000, the Company offers an additional
one-year warranty that covers parts and on-site service performed by
Imatron. The Company will pay an additional 5% of product's list
selling price to Imatron for providing these services
(13) CONCENTRATIONS
The Company derives all of its revenues from organizations operating in
the medical field, from medical professionals, and from other companies
which are in the business of manufacturing and selling medical
equipment and devices.
The Company derived $750,134 in revenues from Imatron Inc., another
entity controlled and owned in part by Company stockholders.
(14) COMMITMENTS AND CONTINGENCIES
Litigation
The Company has no litigation pending.
Employment and Consulting Agreements
In June 1998, the Company entered into an agreement with its then
President under which the President was to receive $140,000 per year
and an annual bonus of up to $60,000 based on criteria mutually agreed
upon. Under the agreement, either party may terminate the agreement
upon thirty days written notice without cause. On August 23, 1999, the
President resigned and the parties jointly agreed to a severance
agreement.
<PAGE>
In June 1999, the Company entered into an agreement with its Chief
Technology Officer. The agreement included an annual salary of
$110,000, health and retirement benefits and 300,000 stock options. In
August 1999, the Chief Technology Officer assumed the position of Chief
Executive Officer, and was granted a salary of $126,500 and was given
an additional 150,000 stock options.
The Company has various employment and consulting agreements less
material in nature that provide for issuance of the Company's stock
options in exchange for services rendered to the Company. These
agreements relate primarily to professional services rendered in
connection with product development, sales and technical support.
Leases
On January 22, 1998, the Company entered into a three-year operating
lease agreement for its main operating facility located at 400 Oyster
Point Blvd in South San Francisco, CA with Kashiwa Fudosan America,
Inc, a California Corporation. The commencement date of the lease is
February 1, 1998, and the expiration date is January 31, 2001. Rent
expense under this lease agreement was $41,221 and $40,654 for the
fiscal years ended on September 30, 1999 and 1998 respectively. Minimum
rental commitments under this lease agreement are payable as follows:
Fiscal Year Ended September 30,
2000 $45,534
2001 $15,280
(15) STOCK OPTION PLAN
During 1997, the Company started a Stock Option Plan that authorized
the issuance of options for up to 1,600,000 shares of the Company's
common stock.
Under this plan, no option may be exercised after the expiration date
of ten years from the date of grant and no option may be exercised as
to less than one hundred (100) shares at any one time. There are two
categories of options: Incentive Stock Options (ISO) AND Non-Qualified
Stock Options (NSO).
ISOs are granted to employees and the purchase price shall not be less
than the Fair Market Value of the common stock share at the date of
grant and no ISO shall be exercisable more than ten (10) years from
date of grant except that in the case of any person who owns more than
10% of the voting power of all classes of stock, no ISO shall be
exercisable more than five (5) years from date of grant.
NSOs may be granted to any eligible participant. The purchase price
shall not be less than 85% of the Fair Market Value of the shares at
the time except that when the grantee owns more than 10% of the voting
power of all classes of stock at the time of grant, the price is be
110% of the Fair Market Value of the shares at the time of the grant.
No NSO shall be exercisable more than ten (10) years from the date of
grant.
In general, granted ISO's expire three months after the termination
date. If employment termination is due to cause, the options shall
expire immediately; and if employment termination is due to permanent
and total disability, the options may be exercised up to one year
following termination.
The Company has adopted only the disclosure provisions of SFAS No. 123.
It applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plan. Accordingly, no compensation cost has been
recognized for its stock option plan other than for options issued to
outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under this plan consistent with the methodology prescribed by
SFAS No. 123, the Company's net loss and loss per share would be
reduced to the pro forma amounts indicated below for the years ended
September 30:
<PAGE>
1999 1998
------------- -------------
Net loss:
As reported $(503,184) $(684,248)
Pro forma $(646,876) $(721,562)
Basic and diluted loss per common share:
As reported:
Basic $(.0530) $(.0796)
Diluted $(.0464) $(.0739)
Pro forma:
Basic $(.0681) $(.0840)
Diluted $(.0596) $(.0780)
Options are granted at prices are equal to the current fair value of
the Company's common stock at the date of grant. The vesting period is
usually related to the length of employment or consulting contract
period.
The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 1999: dividend yield of 0%; expected
volatility of 50%; risk-free interest rate of 6.0%, and expected life
of 3 to 5 years; 1998: dividend yield of 0%; expected volatility of
50%; risk-free interest rate of 5.3%, and expected life of 5 years.
A summary of the status of the Company's stock option plan as of
September 30, 1999 and 1998 and changes during the years ended on those
dates is presented below:
1999 1998
---------- ----------
Balance at beginning of year 1,264,200 -
Granted 827,080 1,264,200
Exercised - -
Forfeited/Cancelled (645,000) -
---------- ----------
Outstanding at year end 1,446,280 1,264,200
474,405 132,325
========== ==========
Weighted average fair value of options
granted during the year $ 0.43 $ 0.28
========== ==========
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
As of September 30, 1999, the Company granted to its employees and
other eligible participants options exercisable for the Company common
stock. The exercise price varies depending on the trading price of the
Company's common stock on the date of issuance among other factors.
<PAGE>
(16) ACQUISITION OF ACCUIMAGE, INC.
On September 30, 1997, the Company completed the acquisition of all
outstanding shares of AccuImage, Inc., a provider of software and
services for the medical imaging, through the issuance of 4,000,000
shares of the Company's common stock. The acquisition was accounted for
as a purchase in accordance with provisions of APB 16. Under the
purchase method of accounting, the purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair
values at the date of the acquisition.
The total purchase price of the acquisition was $815,438. The purchase
price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values as determined by the Company:
Current Assets $ 141,219
Equipment 62,519
License Rights and other Purchased Technology 213,425
Other Assets 401
Goodwill 618,115
----------
$1,035,679
Liabilities Assumed $ 220,241
----------
Among the factors considered in determining the amount of the
allocation of the purchase price to the assets acquired various factors
such as estimating the stage of development of the software acquired
and the investments necessary to bring the technology to market. The
intangibles, including the value of purchased technology, software use
licenses, and other intangibles will be amortized on a straight-line
basis over 5-10 years.
Unaudited Pro Forma Disclosures of Acquisitions.
The following unaudited pro forma consolidated results of operations
give effect to the acquisition of AccuImage, Inc. as if it occurred as
of the beginning of the period:
1997
----
Net revenue $ 365,296
Net income (loss) $ (460,949)
Net loss per share - basic and diluted $ (0.1142)
Shares used in per share calculation - basic and diluted 4,037,100
(17) FOREIGN OPERATIONS:
The Company has had revenue from sources outside the United States; all
sales were accounted for in U.S. dollars.
1999 1998
-------- --------
Country
Germany $ 93,128 -
India $ 19,975 -
Taiwan - $ 40,000
Thailand $ 504 $ -
-------- --------
Total Foreign Sales $113,607 $ 40,000
======== ========
<PAGE>
(18) INCOME TAXES
Significant components of the provision for taxes based on income for
the years ended September 30 are as follows:
1999 1998
---- ----
Current tax expense
Federal $ - $ -
State 800 800
-------- --------
800 800
Deferred tax expense
Federal - -
State - -
--------- ----------
Provision for income taxes $ 800 $ 800
========= =========
A reconciliation of the provision for income tax expense with the
expected income tax computed by applying the federal statutory income
tax rate to income before provision for (benefit from) income taxes for
the years ended September 30 is as follows:
1999 1998
------ ------
Income tax provision (benefit)
computed at federal statutory rate 34.0% 34.0%
State 8.8% 8.8%
Increase in valuation allowance (42.8%) (42.8%)
Total 0.0% 0.0%
Significant components of the Company's deferred tax assets and
liabilities for income taxes consist of the following:
1999 1998
---- ----
Deferred tax asset
Net operating loss carryforwards $656,625 $466,948
Allowance for warranty costs 36,104 12,708
Depreciation/amortization 23,617 19,152
Other accruals and allowances 18,037 -
---------- -----------
734,383 498,808
Deferred tax liability
Deferred state income tax (51,713) (34,996)
--------- ---------
685,367 463,812
Valuation allowance (685,367) (463,812)
--------- ---------
$ - $ -
========== ===========
At September 30, 1999, the Company has approximately $1,532,737 net
operating loss carryforwards available to offset future federal and
state income taxes, which expire through 2010 and 2019.
The Company has elected to fully reserve the benefit of tax
carryforwards until such time as it is able to reasonably expect to
realize those benefits.
(19) GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has experienced net losses of $503,184 and $684,248 for the years ended
December 31, 1999 and 1998, respectively. In addition, the Company
continues to use, rather than provide, cash from its operations and had
negative working capital of $64,716 at September 30, 1999.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. In view of the matters described above,
recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon the Company's
ability to raise sufficient capital to fund its working capital
requirements until the Company can generate sufficient sales volume to
cover its operating expenses. The financial statements do not include
any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
<PAGE>
Management's agreement with Imatron (a related party) has greatly
increased the sales of Company's software products. Imatron is a public
company that produces a tomographic scanner and has agreed to sell the
Company's software along with its products. Additionally, the Company
received FDA approval of its software.
Additionally, subsequent to year end, the Company has obtained enough
additional capital to insure that it will have sufficient resources to
achieve sustainable profitability.
(20) YEAR 2000 ISSUE
The year 2000 issue is the result of shortcomings in many electronic
data processing systems and other electronic equipment that may
adversely affect the Company's operations as early as fiscal year 1999.
The Company believes that the software applications that it uses or has
developed are year 2000 compliant. To the extent that any of these
software applications contain source code that is unable to
appropriately interpret the upcoming calendar year 2000, some level of
modification or possible replacement of such source code or
applications will be necessary.
The Company is currently unable to predict the extent to which the year
2000 issue will affect its customers because of the unprecedented
nature of the year 2000 issue.
The final impact on the Company, if any, cannot be determined.
<PAGE>
Interim Financial Statements
Balance Sheets as of June 30, 2000 (unaudited) and September 30, 1999 i
Statements of Operations (unaudited) for the Three and Nine Months
Ended June 30, 2000 and 1999 ii
Statements of Cash Flow (unaudited) for the Three Months
Ended June 30, 2000 and 1999 iii
Notes to Financial Statements iv
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
BALANCE SHEETS
JUNE 30, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C>
ASSETS June 30, 2000 September 30, 1999
Current Assets (UNAUDITED)
Cash $ 744,034 $ 34,201
Accounts Receivable 610,682 188,744
Less Allowance for Doubtful accounts (24,427) (16,619)
Other receivable - 31,274
Inventory 38,009 44,957
Prepaid Insurance - 745
Prepaid Rent - 3,744
Licenses For Resale 16,370 16,370
-----------------------------------------
Total Current Assets 1,384,668 303,416
Property and Equipment 53,440 61,351
Other Assets
Security Deposits 3,820 3,820
Deposits & License Fees 125,716 125,716
License TECH 5,200 5,200
License Fee NECTEC 10,000 10,000
Less Accumulated Amortization (92,424) (80,700)
Goodwill 618,140 618,140
Acc. Amort-Goodwill (169,995) (123,633)
-----------------------------------------
Total Other Assets 500,457 558,543
TOTAL ASSETS $1,938,565 $923,310
=========================================
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 2000 September, 30 1999
Current Liabilities
Accounts Payable $ 57,195 $ 146,376
Product Warranty Reserve 223,647 84,270
Sales Tax Payable 11,585 4,190
Wages & Payroll taxes Payable 34,412 71,464
Other Accrued Expenses 21,954 5,332
Notes Payable-related party 52,000 56,500
-----------------------------------------
Total Current Liabilities 400,793 368,132
Stockholders' Equity
Preferred Shares - $0.001 Par Value; 10,000,000 - -
shares Authorized; None issued or outstanding
Common Shares - $0.001 Par Value; 50,000,000 Authorized: 10,981 9,748
10,981,534 shares & 9,748,200 shares issued and outstanding on
June 30, 2000 and September 30, 1999 respectively
Paid-In-Capital 2,469,929 1,740,662
Accumulated Earnings (Deficit) (943,138) (1,195,232)
-----------------------------------------
Total Stockholder's Equity 1,537,772 555,178
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,938,565 $923,310
=========================================
</TABLE>
The accompanying notes are an integral part of these financial statements
i
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<S> <C> <C> <C> <C>
For the three months For nine months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
$ 694,567 $ 297,826 $ 2,372,369 $ 760,539
TOTAL REVENUES
COST OF GOODS SOLD 204,128 100,195 764,613 193,947
----------------------------------------------------------------
490,439 197,631 1,607,756 566,592
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 589,978 404,917 1,368,589 906,314
----------------------------------------------------------------
OPERATING INCOME (LOSS) (99,539) (207,286) 239,167 (339,722)
----------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest Income (9,481) (669) (13,329) (2,209)
Other Income - - (200) (3,602)
Franchise and Other 200 600 600 600
----------------------------------------------------------------
TOTAL OTHER INCOME AND EXPENSES (9,281) (69) (12,929) (5,211)
----------------------------------------------------------------
NET INCOME (LOSS) $ (90,258) $ (207,217) $ 252,096 $ (334,511)
================================================================
INCOME(LOSS) PER SHARE-BASIC ($0.0083) ($0.0213) $0.0246 ($0.0355)
INCOME(LOSS) PER SHARE-DILUTED ($0.0077) ($0.0211) $0.0228 ($0.0352)
Weighted Average Shares Outstanding
Basic 10,914,253 9,747,100 10,236,497 9,419,822
Diluted 11,731,543 9,831,002 11,053,787 9,503,724
</TABLE>
The accompanying notes are an integral part of these financial statements
ii
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP
STATEMENTS OF CASH FLOW (UNAUDITED)
FOR THE PERIOD OCTOBER 1, 1999 TO JUNE 30, 2000
and THE PERIOD FROM OCTOBER 1, 1998 TO JUNE 30, 1999
<TABLE>
<S> <C> <C>
June 30, June 30,
2000 1999
---- ----
Cash Flows from Operating Activities
Net Cash used by Operating Activities: $ (9,174) $ (215,382)
----------------------------------
Cash Flow from Investing Activities:
Investment in Property and Equipment (6,993) 6,510
----------------------------------
Net Cash Provided (Used) by Investing Activities (6,993) 6,510
----------------------------------
Cash Flow From Financing Activities:
Proceeds from Short-Term Debt - -
Repayment of Short-Term Debt (4,500) (75,750)
Proceeds from sales of Stock 730,500 387,000
------------- ---------
Net Cash Provided (Used) by Financing Activities 726,000 311,250
----------------------------------
Increase (Decrease) in Cash 709,833 102,378
Cash Balance at beginning of period 34,201 2,117
----------------------------------
Cash balance at end of period $744,034 $104,495
==================================
Supplemental Disclosure:
Interest Paid $0 $0
Income Taxes-Franchise tax $0 $0
Compensation paid in shares (Non-Cash) $0 $134,410
</TABLE>
The accompanying notes are an integral part of these financial statements
iii
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
(1) Basis of Presentation
In the opinion of the management, the accompanying consolidated financial
statements contain all adjustments necessary (consisting of only normal
recurring accruals) to present fairly the financial position at June 30, 2000,
the results of its operations for the three months and nine months ended June
30, 2000 and June 30, 1999; and a statement of cash flows for the two nine month
periods ended June 30, 2000; and June 30,1999. Certain information and footnote
disclosures normally included in financial statements that would have been
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although management of the Company believes that the
disclosures in these financial statements are adequate to make the information
presented therein not misleading. It is suggested that these condensed financial
statements and notes thereto be read in conjunction with the financial
statements and the notes thereto included in the Company's September 30, 1999
Form 10-KSB. The results of operations for the three months and nine months
ended June 30, 2000 are not necessarily indicative of the results of operations
to be expected for the full fiscal year ending September 30, 2000.
(2) Interim Period Cost of Goods Sold
Interim period cost of goods sold is calculated using the perpetual
inventory record. The Company reports any significant adjustments that result
from reconciliations of the perpetual inventory record to periodic and annual
physical inventory observations.
(3) Income Taxes
Significant components of the provision for taxes based on income for the
nine months ended June 30, 2000 and 1999 are as follows:
2000 1999
------- --------
Current tax expense
Federal $ 0 $ 0
State 600 600
-------- ---------
600 600
Deferred tax expense
Federal 0 0
State 0 0
--------- ---------
Provision for income taxes $ 600 $ 600
========= =========
At September 30, 1999, the Company has approximately $1,188,232 net
operating loss carryforwards available to offset future federal and state income
taxes, which expire through 2010 and 2019.
The Company has elected to fully reserve all tax benefits until such time
as it is able to reasonably expect to realize those benefits.
The accompanying notes are an integral part of these financial statements
iv
PART III.
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Exhibit Name
----------- ------------
2.1 Rescission and Transfer Agreement, dated June 30, 1998(1)
2.2 Stock Allocation Agreement, dated June 30, 1998(1)
3.1 Articles of Incorporation of Company, filed February 2,
1990(1)
3.2 Certificate of Amendment of Articles of Incorporation of
Company, filed June 27, 1996(1)
3.3 Bylaws of the Company(1)
4.1 Form of Warrant issued to investors in Private Offering
concluded April 30, 2000.(3)
10.1 Product Development, Distrivution, 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 conclude April 30,
2000(3)
-------------------------------------------------------------------------------
[FN]
Footnotes
---------
(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 Registration Statement on Form
10, Amendment No. 1, filed May 31, 2000.
</FN>
ITEM 2. DESCRIPTION OF EXHIBITS
See ITEM 1 above.
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ACCUIMAGE DIAGNOSTICS CORP.
(Registrant)
Date: September 1, 2000 By: /s/ Robert Taylor
-------------------------------------------
Robert Taylor, Chief Executive Officer
