<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997.
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
BIOSONICS, INC.
(Name of small business issuer in its charter)
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<S> <C> <C>
Pennsylvania 3845 23-2161932
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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260 New York Drive
Fort Washington, Pennsylvania 19034
(215) 646-7100
(Address and telephone number of principal executive offices)
260 New York Drive
Fort Washington, Pennsylvania 19034
(Address of principal place of business or intended principal place of business)
--------------------
Jack Paller, Chairman
Biosonics, Inc.
260 New York Drive
Fort Washington, Pennsylvania 19034
(215) 646-7100
(Name, address and telephone number
of agent for service)
--------------------
Copy to:
John W. Kauffman, Esquire
Duane, Morris & Heckscher LLP
One Liberty Place
Philadelphia, PA 19103-7396
--------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./ / ___________.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering./ / ___________.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box./ /
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
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Title of each class Proposed Proposed
of securities to be Amount to be maximum offering maximum aggregate Amount of
registered registered price per unit offering price registration fee
- ---------------------------------------------------------------------------------------------------------------------
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Common Stock,
$.0001 par value 51,074,420 shares $.09(1) $4,596,697.80(1) $1,393
=====================================================================================================================
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(1) Pursuant to paragraph (c) of Rule 457, the proposed maximum offering price
per share and the proposed maximum aggregate offering price have been
computed on the basis of $.09 per share, the average of the bid and asked
prices of the Common Stock of the Company on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. on August 15, 1997.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
SUBJECT TO COMPLETION, DATED AUGUST 22, 1997
PROSPECTUS
51,074,420 Shares
BIOSONICS, INC.
Common Stock
($.0001 par value)
This Prospectus relates to 51,074,420 shares of Common Stock, $.0001
par value, of Biosonics, Inc. (the "Company" or "Biosonics") that were acquired
by certain shareholders of the Company (the "Selling Shareholders") in private
transactions. See "Selling Shareholders." Some or all of the shares of Common
Stock to which this Prospectus relates may be sold from time to time by the
Selling Shareholders, or by pledgees, donees, transferees or other successors in
interest to the Selling Shareholders, at public or private sale at prevailing
market prices, prices related to prevailing market prices, negotiated prices or
fixed prices (and, in the case of sales through brokers, upon payment of normal
brokerage commissions). The Company will not receive any proceeds from the sale
of the shares of Common Stock offered hereby by the Selling Shareholders.
The Common Stock of the Company is quoted on the OTC Bulletin Board of
the National Association of Securities Dealers, Inc. under the symbol "BISN."
The last bid price of the Common Stock on the OTC Bulletin Board on August 15,
1997 was $.09 per share.
THE SHARES OF COMMON STOCK OF THE COMPANY OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus does not constitute an offer to sell securities in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction.
No person has been authorized by the Company to give any information or
to make any representations, other than as contained in this Prospectus, and,
if given or made, such information or representations must not be relied upon.
Neither delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof.
The date of this Prospectus is , 1997.
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TABLE OF CONTENTS
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PAGE NO.
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Available Information......................................................................... 2
Risk Factors.................................................................................. 3
The Company................................................................................... 8
Selling Shareholders.......................................................................... 9
Plan of Distribution.......................................................................... 10
Use of Proceeds............................................................................... 11
Market for Company's Common Stock and Related Shareholder Matters............................. 11
Dividend Policy............................................................................... 12
Capitalization................................................................................ 12
Selected Financial Data....................................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of Operations......... 14
Business and Properties....................................................................... 17
Legal Proceedings............................................................................. 24
Management.................................................................................... 24
Certain Transactions.......................................................................... 25
Beneficial Ownership of the Company's Securities.............................................. 25
Description of the Company's Securities....................................................... 26
Shares Eligible for Future Sale............................................................... 27
Disclosure of Commission Position on Indemnification for Securities Act Liabilities........... 27
Legal Matters................................................................................. 28
Experts....................................................................................... 28
Index to Financial Statements................................................................. 29
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AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the offices of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, as well as at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048; and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Commission maintains a Web site that contains such
materials at http://www.sec.gov.
The Company has filed with the Commission in Washington, DC a
registration statement on Form SB-2 (the "Registration Statement") under the
Securities Act of 1933 (the "Act") with respect to the securities covered by
this Prospectus. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed or incorporated as a part thereof. Statements
contained herein concerning the provisions of documents filed with, or
incorporated by reference in, the Registration Statement as exhibits are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable documents filed with the
Commission.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference herein, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein. Such requests should be addressed to Jack Paller, Chairman,
Biosonics, Inc., 260 New York Drive, Fort Washington, Pennsylvania 19034.
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<PAGE> 6
RISK FACTORS
Prospective investors should carefully consider the following factors,
in addition to the other information in the Prospectus, before purchasing shares
of Common Stock offered by this Prospectus.
DEVELOPMENT STAGE COMPANY; SUBSTANTIAL LOSSES TO DATE. The Company,
which was incorporated in 1980, is still in the development stage and has had no
substantial sales and no earnings from operations. The Company had a
shareholders' deficiency of $1,947,226 as of June 30, 1997, and its net loss
from inception to June 30, 1997 equaled $14,331,042. The Company had a net loss
for the year ended December 31, 1996 of $777,397 and a net loss for the three
months and six months ended June 30, 1997 of $215,569 and $412,664,
respectively. The report of independent auditors on the Company's financial
statements for the year ended December 31, 1996 included herein contains an
explanatory paragraph concerning the Company's ability to continue as a going
concern. The Company expects to incur additional losses unless and until the
development, marketing and sale of its products is successful, as to which no
assurance is given. The likelihood of the success of the Company must be
considered in the light of the problems, expenses, difficulties, complications
and delays it has encountered in connection with the development of its
technology and the competitive and regulatory environmental in which the Company
operates, and there can be no assurance that the Company will ever achieve
profitability.
NEED FOR ADDITIONAL FUNDS. At March 31, 1997, the Company had a
significant working capital deficiency. The Company needs additional working
capital to continue its operations and pay associated expenses, including
salary, rent and lease payments, to pay accrued expenses and accounts payable to
develop, test, obtain approvals for and market its products, including the
marketing of the Cystotron(TM) and Anotron(TM) Incontinence Control Systems. The
Company has no commitments for any additional financing, and no assurance exists
that any such financing can be obtained on favorable terms, if at all. Any such
financing may result in dilution to purchasers of the shares that are offered by
this Prospectus and may entail restrictions on the Company's right to declare
dividends or on the manner in which the Company conducts its business. If any
necessary financing is not obtained, the shareholders of the Company may lose
their entire investment.
STRINGENT GOVERNMENT REGULATION. The Company's products are subject to
extensive regulation by the U.S. Food and Drug Administration (the "FDA") and,
in some jurisdictions, by state and foreign governmental authorities. In
particular, the Company must obtain specific clearance or approval from the FDA
before it can market new products or certain modified products in the U.S. To
date, the Company has obtained FDA marketing clearance through the 510(k)
premarket notification process for its Anotron and Cystotron Incontinence
Control Systems and has received premarket approval ("PMA") necessary for
marketing of its Salitron(R) system. The Company's ability to market such
products is subject to the availability of funds. Certain other products,
modified existing products and future product applications, however, will
require approval or clearance by the FDA. The testing on humans of the Company's
devices, and the sale of such devices, are subject to federal and possibly other
regulation. The regulatory processes in the U.S. necessary to secure required
approval for clinical testing and marketing have significantly delayed the
testing and sale of such products, and have significantly increased the total
expenditures of the Company to date. Such regulatory processes may be expected
to result in further delay and additional expense in the future. There is no
assurance that all required clearances or approvals for sale of the Company's
devices in the U.S. (other than the Salitron System and the initial version of
the Anotron and Cystotron Incontinence Control Systems for which PMA approval
and clearance, respectively, have already been obtained) will be obtained. The
process of obtaining 510(k) clearances or PMA can be time consuming and
expensive, and there can be no assurance that all clearances or approvals sought
by the Company will be granted or that FDA review will not involve delays that
would adversely affect the
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marketing and sale of the Company's products. The Company is required to adhere
to applicable regulations setting forth current Good Manufacturing Practices,
which require that the Company manufacture its products and maintain its records
in a prescribed manner with respect to manufacturing, testing and control
activities. In addition, the Company is required to comply with FDA requirements
for labeling and promotion of its products. Failure to comply with applicable
federal, state or foreign laws or regulations could subject the Company to
enforcement action, including product seizures, recalls, withdrawal of
clearances or approvals, and civil and criminal penalties, any one or more of
which would have a material adverse effect on the Company. Medical device laws
and regulations with similar substantive and enforcement provisions are also in
effect in many of the foreign countries where the Company may eventually do
business. Federal, state and foreign laws and regulations regarding the
manufacture and sale of medical devices are subject to future changes. No
assurance can be given that such changes will not have a material adverse effect
on the Company. See "Business -- Government Regulation."
NO ASSURANCE OF SUCCESS. There is no assurance that any of the
Company's devices will be successfully marketed. None of the Company's systems,
including the Salitron system and the Cystotron and Anotron Incontinence Control
Systems (or any other products subsequently marketed by the Company) may be
accepted or recommended by the medical profession or gain market acceptance. The
public may not be interested in the products. There can be no assurance,
therefore, that the Company will be able to continue to successfully develop new
products, enhance existing products, manufacture these products in a
commercially viable manner, obtain required regulatory approvals or gain
satisfactory market acceptance for such products.
REIMBURSEMENT FROM THIRD PARTY PAYORS. The Company believes that the
overall escalating cost of medical products and services has led and will
continue to lead to increased pressures upon the health care industry to reduce
the cost of certain products and services, which may include those of the
Company. These cost pressures are leading to increased emphasis on the price and
cost-effectiveness of any treatment regimen and medical device. In addition,
third party payors, such as governmental programs, private insurance plans and
managed care plans that are billed by hospitals for such health care services,
are increasingly negotiating the prices charged for medical products and
services and may deny reimbursement if they determine that a device was not used
in accordance with cost-effective treatment methods as determined by the payor,
was experimental or was used for an unapproved indication. Although
approximately 35 private insurance carriers have reimbursed Biosonics for the
use of the Salitron System and Medicaid reimbursement approval has been obtained
in four states, there is uncertainty as to whether third party payors will
approve or continue to reimburse Biosonics for the devices and whether
reimbursement, if approved or continued, will be sufficient for purchasers of
the Company's products. On May 23, 1994, a proposed notice was published in the
Federal Register by the Federal Health Care Financing Administration ("HCFA")
that it intended to disapprove Biosonics' application for Medicare reimbursement
for the Salitron System, although no final notice has yet been published. In
1996, Biosonics met with HCFA officials to urge a reevaluation of its intent to
disapprove the Company's request for reimbursement approval. In February 1997,
HCFA advised Biosonics that it had examined its previous position and concluded
that absent additional information, Medicare reimbursement for the Salitron was
not warranted under current law. As a result, the Company has engaged a
Washington, DC law firm to explore with HCFA the extent of additional
information that HCFA will require in order to approve Medicare reimbursement
for the Salitron System. Biosonics cannot predict the effect, if any, on the
reimbursement from private insurance carriers and Medicaid in the event that
HCFA does publish a final notice of non-coverage of the Salitron System for
Medicare purposes, and there is a risk that some or all of the Medicaid
reimbursement approvals that the Company has obtained would be discontinued in
such event. Sales of the Company's devices may be adversely affected by the
difficulty of purchasers' obtaining sufficient reimbursement from third party
payors. There can be no assurance that the availability of third party
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<PAGE> 8
reimbursements will continue and that changes in levels of such reimbursement
will not adversely affect the profitability of the Company's products.
PRODUCT LIABILITY. Although the Company carries product liability
insurance, there is no assurance that the Company will not be subjected to
substantial claims based upon alleged injurious effects from the use of its
devices and that its product liability insurance will be maintained, will be
available on commercially reasonable rates or in adequate amounts, if at all,
or will be adequate to cover any claim made. If the Company does not or cannot
maintain its existing or comparable liability insurance, its ability to market
its products may be significantly impaired. Product liability claims or product
recalls in the future, regardless of their ultimate outcome, could result in
costly litigation and could have a material adverse effect on the Company's
business or reputation or on its ability to attract and retain customers for its
products. See "Business -- Product Liability and Insurance."
PATENT RIGHTS. Although the Company has obtained certain U.S. patents,
there is no assurance that the Company's patent rights will adequately protect
the Company's proprietary technology. See "Business -- Patents of Trademarks."
The Company also obtained foreign patents for its products that have lapsed due
to a lack of funds. Litigation, which could be costly and time-consuming, may be
necessary to protect the Company's patents, and the invalidation of patents
owned by the Company could permit increased competition with potential adverse
effects on the Company and its business prospects. Also, there can be no
assurance that the Company's products will not infringe patents or proprietary
rights of others, or that licensees that might be required for the Company's
products would be available on commercially reasonable terms, if at all.
Furthermore, no assurance exists that others may not develop or acquire know-how
similar to that of the Company. There has been substantial litigation regarding
patent and other intellectual property rights in the medical devices industry.
Future litigation may be necessary to enforce patent rights belonging to the
Company, to protect trade secrets or know-how owned by the Company or to defend
the Company against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of the Company and
others. Any such litigation could result in substantial cost to and diversion of
effort by the Company. Adverse determinations in any such litigation could
subject the Company to significant liabilities to third parties, could require
the Company to seek licenses from third parties and could prevent the Company
from manufacturing, selling or using certain of its products, any of which could
have a material adverse effect on the Company.
COMPETITION. The medical devices market is highly competitive.
Furthermore, the medical devices market is characterized by rapid product
development and technological change. While Biosonics is unaware of any other
company which is currently developing devices similar to the Salitron System,
there are other companies engaged in research and development using
electro-therapeutic devices. The Company is aware of at least three other
companies that have developed products similar to the Company's products,
including one company that has developed a product similar to the Cystotron
Incontinence System. The Company is not aware of any developed diagnostic tools
that would be in direct competition with the BIDDS(TM) Glove. It is possible
that the Company's products could be rendered obsolete or uneconomical by
technological advances by one or more of the Company's current or future
competitors. There are other companies engaged in research and development in
the medical field, many of which are well established with greater financial,
marketing and other resources than the Company. Some of these companies offer
products that address the same or similar medical problems as those addressed by
certain of the Company's products. One or more of such companies might develop
products similar to those being developed by the Company and be in a position to
market them more successfully than the Company.
SIGNIFICANT SHAREHOLDERS. Jack Paller, Chairman and Chief Executive
Officer of the Company, and International Management & Research Corporation
("IMRC") through its wholly-owned subsidiary
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IMRC Holdings, Inc. ("IMRCH") own an aggregate of approximately 42% of the
Company's outstanding Common Stock. Mr. Paller is also the President, director
and major shareholder of IMRC. Accordingly, it is likely that IMRC and Mr.
Paller would be able to elect most if not all of the Board of Directors of the
Company and have the legal ability to cause the Company to declare or refrain
from declaring dividends, to increase the Company's authorized capital, to issue
more capital stock and generally to direct the affairs of the Company and
control all matters requiring approval by the shareholders of the Company.
DEPENDENCE UPON JACK PALLER. At present, the Company is entirely
dependent upon Jack Paller, the Chief Executive Officer and the sole officer and
director of the Company, and currently has two vacancies on its Board of
Directors. The Company has no employment agreement with Mr. Paller and does not
carry a key-man life insurance policy with respect to Mr. Paller, who is 69
years old. The Company's future operations will depend, in part, upon its
ability to attract and retain highly qualified scientific and management
personnel. No assurance exists that the Company will be successful in hiring or
retaining qualified scientific or management personnel on acceptable terms.
SHARES ELIGIBLE FOR FUTURE SALE. Of the 306,364,536 shares of the
Company's Common Stock outstanding as of June 30, 1997, approximately
133,183,886 shares, including shares eligible to be sold under Rule 144(k) under
the Act, are freely tradeable without restriction or further registration under
the Act, unless purchased by "affiliates" of the Company as that term is defined
in Rule 144 under the Act. The approximately 173,180,650 remaining shares are
restricted securities (the "Restricted Shares"). Of these Restricted Shares,
121,706,230 Restricted Shares are currently eligible to be sold publicly in
accordance with Rule 144 under the Act. Of the remaining 51,474,420 Restricted
Shares, 51,074,420 Restricted Shares will become eligible for public sale
following the effectiveness of this Registration Statement, 100,000 Restricted
Shares will become eligible for sale in September 1997, and 300,000 Restricted
Shares will become eligible for sale in March 1998. Unaffiliated shareholders
may, as a general rule, sell their unregistered Common Stock under Rule 144
without limitation on volume after holding such stock for two years under Rule
144(k). IMRCH and Mr. Paller currently own in the aggregate approximately
121,606,230 Restricted Shares that have not been registered under the Act. The
Restricted Shares held by IMRCH and Mr. Paller are subject to a securities
restriction agreement with the Pennsylvania Securities Commission (the
"Securities Restriction Agreement"), which prevents any sales of the Company's
Common Stock by either of them at a price of less than $.05 per share. All of
the stock subject to the Securities Restriction Agreement has been held for more
than one year and, therefore, except as restricted by the Securities Restriction
Agreement, may be sold without registration, subject to the volume, current
public information and other limitations of Rule 144 under the Act. The Company
is unable to estimate the number of Restricted Shares that will be sold under
Rule 144 since this will depend in part on the market price of the Common Stock,
the personal circumstances of the sellers and other factors. Sales of
substantial amounts of the currently unregistered shares could adversely affect
the market value of the Company's Common Stock. See "Shares Eligible for Future
Sale."
As of June 30, 1997, the Company had outstanding options to purchase
5,000,000 shares of Common Stock at per share exercise price of $.01, options to
purchase 5,000,000 shares of Common Stock at a per share exercise price of $.02
and an option to purchase 250,000 shares of Common Stock at a per share exercise
price of $.05. The shares subject to these options, if exercised, would be
restricted from resale unless registered under the Act or unless sold under an
exemption from the registration requirements of the Act, such as Rule 144.
UNISSUED DEBENTURES. In 1989 Biosonics offered to its shareholders the
right to subscribe for 11 1/2% convertible subordinated debentures, which
offering was terminated by Biosonics prior to completion. The debentures were
never issued and, due to lack of funds the $207,000 proceeds of the offering,
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except for $4,000, were not returned to investors. In 1990, the Company offered
the investors the right to convert their debentures into Common Stock, and
investors who purchased an aggregate of $16,000 of the debentures converted such
amounts into 1,180,000 shares of Common Stock. As of June 30, 1997 the
outstanding principal balance owed by the Company in connection with such
debentures is $187,000 and the total interest owed is $164,352. While the
Company intends to offer shares of Common Stock to such investors in exchange
for such debt, subject to compliance with state and federal securities laws,
there is no assurance that the Company will be able to successfully complete
such transaction.
DEBT OWED TO IMRCH AND JACK PALLER. IMRCH and Mr. Paller have loaned
money to the Company to fund certain of the Company's operations from time to
time pursuant to promissory notes providing for interest at various rates. The
principal outstanding amount of the debt owed to Mr. Paller is $115,000. In
addition to the debt owed to Mr. Paller described above, the Company is indebted
to Mr. Paller for deferred salary in the aggregate amount of $669,500 for the
period through December 31, 1996.
NO DIVIDENDS. The Company has not paid any cash dividends on its Common
Stock in the past and does not anticipate paying any dividends in the
foreseeable future. See "Dividend Policy."
LIMITED TRADING MARKET. The Company's Common Stock is currently quoted
on the OTC Bulletin Board. There is no assurance that an active trading market
will develop in the future or be sustained, that the Company's Common Stock will
be traded on a recognized exchange or will continue to be traded on the OTC
Bulletin Board or that shareholders will be able to liquidate their investment
in the shares at some future time.
RELATIONSHIP WITH GROWTH FUND PARTNERSHIP, INC. On June 1, 1997, the
Company entered into an agreement with Growth Fund Partnership, Inc. ("Growth
Fund"), a Florida privately held corporation. According to the financial
statements provided to the Company by Growth Fund, which have not been
independently verified by the Company, Growth Fund had a book value as of
December 31, 1996 of approximately $2.6 billion, consisting primarily of mining
interests, undeveloped land in the United States and South America and an
interest in a financial services company. The Company has agreed to assist
Growth Fund in creating a new company for which the Company will receive 10% of
the stock of the new company and the Company's shareholders will receive an
aggregate of 10% of the stock of the new company. It is anticipated that the new
company will own all of the assets formerly owned by Growth Fund and will apply
to have the stock quoted for trading on the Nasdaq market. The final structure
of the transaction and the completion of the transaction is conditioned upon,
and is subject to further modification based upon, legal, accounting and
regulatory review. There can be no assurance that the transaction will ever be
completed, that the Company's shareholders will ever receive any stock or
interest in the assets of the new company or Growth Fund, or that there will
ever be a public market for the shares of stock in the new company that may be
received by the Company's shareholders. Furthermore, whether or not the
transaction is completed, the Company may be liable for the expenses to be
incurred in connection with this transaction, the total amount of which cannot
be estimated at this time. If the transaction does not occur, the costs incurred
by the Company may have an material adverse effect on the financial condition
and results of operations of the Company.
FORWARD-LOOKING STATEMENTS. All statements contained in this Prospectus
that are not historical facts, including but not limited to the Company's plans
for product development and marketing, are based on current expectations. These
statements are forward-looking (as defined in the U.S. Private Securities
Litigation Reform Act of 1995 and the Act) in nature and involve a number of
risks and uncertainties. Such statements can be identified by the use of
forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "believe," "estimate" or "continue," or the negative thereof or
other
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variations thereon or comparable terminology. Actual results may vary
materially, as discussed in this "Risk Factors" section. The factors that could
cause actual results to vary materially include: The availability of capital to
finance the Company's operations on terms satisfactory to the Company; the
availability of clearances or approvals of the Company's products by federal,
state and foreign governmental authorities; the market acceptance of the
Company's products; the availability of reimbursement by third party payors;
product liability claims; the availability of protection of the Company's
patents and future litigation relating to protection of its patent, trade
secrets and know-how; the Company's dependence on Jack Paller; the costs may be
incurred by the Company in connection with its relationship with Growth Fund;
general business and economic conditions and competition from products that
address the same or similar medical problems as those addressed by the Company's
products; and other risks that may be described from time to time in the reports
that the Company will be required to file with the Commission. The Company
cautions potential investors not to place undue reliance on any such
forward-looking statements.
THE COMPANY
The Company develops and has marketed electrodiagnostic/therapeutic
devices to manage and treat several intractable medical conditions, including
extreme dry mouth, nasal/sinus congestion, urinary incontinence and impotence.
The Company's non-invasive, electrodiagnostic/therapeutic systems offer relief
and improvement to such distressing disorders without drug-related side effects
or the ultimate need for surgery. None of the shares of the Company's Common
Stock covered by this Prospectus are being sold by the Company.
The Company is a Pennsylvania corporation formed in November 1980, and
is still a development-stage company. Its principal executive offices are
located at 260 New York Drive, Fort Washington, Pennsylvania 19034, and its
telephone number is (215) 646-7100.
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SELLING SHAREHOLDERS
The shares of the Company's Common Stock covered by this Prospectus
(the "Shares") are, or may be, offered by the Selling Shareholders. The names of
the Selling Shareholders are set forth in the table below. Except as otherwise
indicated, each Selling Shareholder has sole investment and voting power with
respect to the Shares listed below.
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COMMON STOCK TO
BE BENEFICIALLY
COMMON STOCK OWNED IF ALL SHARES
BENEFICIALLY OWNED THAT MAY BE OFFERED
ON JUNE 30, 1997 SHARES THAT MAY HEREUNDER ARE SOLD
-------------------- BE OFFERED ----------------------
NAME SHARES PERCENT HEREUNDER SHARES PERCENT
- ---- ------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Rafael Amor 200,000 * 200,000 0 *
Kenneth Baskin 100,000 * 100,000 0 *
William Batoff, IRA 100,000 * 100,000 0 *
Robert and Lori Beckman 440,000 * 200,000 240,000 *
Jack Birnholz 500,000 * 500,000 0 *
David Brent 1,090,000 * 300,000 790,000 *
Sara Bruckel 2,500,000 * 2,500,000 0 *
Joseph Cali 3,300,000 1.1% 3,300,000 0 *
Edward Catton 400,000 * 400,000 0 *
Lauri Cornell 1,600,000 * 1,600,000 0 *
Robert Dorsey 200,000 * 200,000 0 *
Thomas Downs 360,000 * 250,000 0 *
Kurt Eisenschmid 500,000 * 500,000 0 *
Yaffan Eliach 300,000 * 300,000 0 *
Yotau Eliach 180,700 * 175,220 5,480 *
Joseph Emmanuele 1,000,000 * 1,000,000 0 *
Jonathan Ferguson 50,000 * 50,000 0 *
Norman Gaylis 1,275,500 * 1,250,000 25,500 *
James Gottesman 130,500 * 30,000 100,500 *
Alan & Lynn Gottleib 400,000 * 250,000 150,000 *
Richard S. Gottleib 200,000 * 200,000 0 *
Richard Habrukowich 1,411,111 * 1,398,222 12,889 *
Mark Haltzman 760,000 * 500,000 260,000 *
Elaine Harris 52,500 * 50,000 2,500 *
Steven and Wendy Hart 250,000 * 250,000 0 *
Edward Hoffman 628,600 * 628,600 0 *
Lori Hughett 40,000 * 40,000 0 *
William Kardas 250,000 * 250,000 0 *
Charles William Lackey 600,000 * 600,000 0 *
LBC Capital Resources 300,000 * 200,000 100,000 *
Edwin Lee 4,200,600 1.4% 3,940,600 260,000 *
Ezra Levy 305,667 * 200,000 105,667 *
</TABLE>
-9-
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C> <C>
Todd Liebesfeld 7,575,000 2.57% 6,075,000 1,500,000 *
Judy McCannon 210,000 * 210,000 0 *
David Murkenhirn 8,750,000 2.9% 7,250,000 1,500,000 *
Minna Mukamal 150,000 * 150,000 0 *
Daniel Murray 2,400,000 * 2,400,000 0 *
Robert Paller 2,986,018 * 1,695,000 1,291,018 *
Judy Podwil 200,000 * 200,000 0 *
James Quinn 120,000 * 100,000 20,000 *
SB Stocks USA Inc. 250,000 * 250,000 0 *
Edward & Carolyn
Schmauder 500,000 * 500,000 0 *
Benno Silberman 150,000 * 150,000 0 *
Ray Simonetti 1,040,000 * 1,040,000 0 *
Gilbert Smigrod 2,000,000 * 2,000,000 0 *
Jaffa Smigrod 2,000,000 * 2,000,000 0 *
Evelyn Strongin 250,000 * 100,000 150,000 *
Kenneth Strongin 350,000 * 350,000 0 *
Norman Talal 522,000 * 340,000 182,500 *
Anthony Vicendese 850,000 * 850,000 0 *
Thomas Villano 551,778 * 551,778 0 *
James Wayes 500,000 * 500,000 0 *
Arthur Weiss 2,500,000 * 1,200,000 1,300,000 *
Donald Whitney 1,200,110 * 1,200,000 110 *
Robert Wolstenholm 1,000,000 * 500,000 500,000 *
Total 59,680,584 19.5% 51,074,420 8,606,164 2.8%
</TABLE>
- ------------------
*Less than 1%.
None of the Selling Shareholders listed above have held any positions
with the Company or have had a material relationship with the Company within the
past three years, except that Mark Haltzman has provided legal services to the
Company since 1993 and Norman Talal, Norman Gaylis, Jonathan Ferguson, Elaine
Harris and James Quinn have served on the Company's Salitron Medical Advisory
Board. See "Business - Salitron Medical Advisory Board." Also, Robert Paller,
who is an assistant secretary of the Company, is the son of Jack Paller, the
Chairman and CEO of the Company. Any pledgees, donees or transferees of or other
successors in interest to the Selling Shareholders will be identified in a
supplement to this Prospectus. If the number of Shares transferred is material,
the new holders of the Shares transferred will also be identified in a
post-effective amendment to the Registration Statement.
PLAN OF DISTRIBUTION
The Company has been advised that the distribution of the Shares by the
Selling Shareholders, or by pledgees, donees or transferees of or other
successors in interest to the Selling Shareholders, may be effected from time to
time in one or more transactions (which may involve block transactions) on the
OTC Bulletin Board or such other exchange or market in which the Common Stock
may from time to time be trading, in negotiated transactions or in a combination
of any such transactions. Such transactions may be effected by the Selling
Shareholders at market prices prevailing at the time of sale, at prices related
to
-10-
<PAGE> 14
such prevailing market prices, at negotiated prices or at fixed prices. The
Selling Shareholders may effect such transactions by selling Shares to or
through broker-dealers, including purchases by a broker-dealer as principal and
resale by such broker-dealer for its account pursuant to this Prospectus. Such
broker-dealers will receive compensation in the form of discounts or commissions
from the Selling Shareholders and may receive commissions from the purchasers of
Shares for whom such broker-dealers may act as agents (which discounts or
commissions from the Selling Shareholders or such purchasers, if in excess of
those customary for the types of transactions involved, will be disclosed in a
supplemental prospectus).
Any broker-dealer that participates with the Selling Shareholders in
the distribution of Common Stock may be deemed to be an "underwriter" within the
meaning of the Act, and any commissions or discounts received by such
broker-dealer and any profit on the resale of Shares by such broker-dealer may
be deemed to be underwriting discounts and commissions under the Act.
The costs and expenses of the registration of the Shares will be paid
by the Company. These costs and expenses borne by the Company will include,
without limitation, all registration and filing fees, blue sky fees, printing
expenses and costs of special audits incident to or required by the registration
of the Shares.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered hereunder by the Selling Shareholders.
MARKET FOR COMPANY'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
<TABLE>
<CAPTION>
High Bid Low Bid
<S> <C> <C>
1997
First Quarter .075 .045
Second Quarter .13 .045
Third Quarter (through 7/25/97) .115 .04
1996
First Quarter $ .08 $ .025
Second Quarter .12 .055
Third Quarter .195 .065
Fourth Quarter .12 .04
1995
First Quarter .055 .01
Second Quarter .065 .02
Third Quarter .05 .01
Fourth Quarter .042 .01
</TABLE>
The Company's Common Stock is quoted on the OTC Bulletin Board under
the symbol "BISN," and has been traded in recent periods only sporadically. The
quotations set forth above reflect inter-dealer prices without mark-up,
mark-down or commissions, and may not necessarily represent actual transactions
on the OTC Bulletin Board. The Company has not, since its inception, declared
any dividends.
-11-
<PAGE> 15
As of June 30, 1997, there were approximately 5,700 record holders of
the Company's Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The declaration
and payment of future dividends is in the sole discretion of the Board of
Directors and their amount, if any, depends upon the earnings, financial
condition and capital needs of the Company and certain other factors, including
provisions of the Pennsylvania Business Corporation Law of 1988.
CAPITALIZATION
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
Shareholders Deficiency:
Common stock: authorized, 750,000,000
shares, $.0001 par value;
issued and outstanding
306,364,536 shares ......... $ 30,636
Preferred Stock: authorized,
10,000,000 shares, no shares
issued and outstanding ..... --
Capital in excess of par value ...... 12,468,180
Notes receivable from sale of stock . (115,000)
Deficit accumulated during
development stage .......... (14,331,042)
------------
Total Shareholders' Deficit .................. $ (1,947,226)
</TABLE>
-12-
<PAGE> 16
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
Statement of Loss Data: ................ 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Development stage expenses:
Research and development costs .... $ 21,500 $ 20,117 $ 5,160 $ 8,669 $ 8,866
Professional fees ................. 130,050 54,697 49,507 101,750 77,448
Other development stage expenses .. 636,488 560,476 338,102 271,048 294,088
--------- --------- --------- --------- ---------
Total development stage expenses $ 788,038 $ 635,290 $ 426,713 $ 329,224 $ 404,624
Less: Revenue from cost recovery
program ........................ -- -- -- -- --
Net development stage expenses .... $ 788,038 $ 635,290 $ 426,713 $ 329,224 $ 404,624
Sales .................................. $ 40,774 $ 62,506 $ 21,939 $ 30,578 $ 26,687
Cost of sales .......................... 30,208 41,980 17,817 45,461 30,432
--------- --------- --------- --------- ---------
Gross profit (loss) .................... $ 10,566 $ 20,526 $ 4,122 $ (14,883) $ (3,745)
Other income:
Investment income ................. $ -- $ 5,279 $ -- $ -- $ --
Miscellaneous income .............. 75 -- -- -- --
Gain on sale of equipment ......... -- -- -- 75 2,778
--------- --------- --------- --------- ---------
Total other income ............. $ 75 $ 5,279 $ -- $ 75 $ 2,778
Net loss .......................... ($777,397) ($609,485) ($422,591) ($344,107) ($408,294)
========= ========= ========= ========= =========
Loss per common share ............. ($ .003) ($ .002) ($ .002) ($ .001) ($ .002)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Development stage expenses:
Research and development costs . $ 0 $ 0 $ 0 $ 0
Professional fees .............. 132,588 37,000 77,448 18,044
Other development stages
expenses ..................... 287,545 220,338 142,377 122,835
--------- --------- --------- ---------
Net development-stage expenses . 420,133 257,238 219,825 140,879
Sales ............................... 13,550 29,125 7,925 11,609
Cost of sales .................. 8,297 16,166 4,893 13,111
--------- --------- --------- ---------
Gross profit (loss) ............ 5,253 12,959 3,032 (1,502)
Other income:
Investment income and other
income ....................... 2,216 75 1,224 --
Gain on sale of fixed assets ... -- -- -- --
--------- --------- --------- ---------
Total other income ............. 2,216 75 1,224 --
Net loss ....................... ($412,664) ($244,204) ($215,569) ($142,381)
========= ========= ========= =========
Loss per common share .......... ($ .001) ($ .001) ($ .001) ($ .000)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of As of December 31,
June 30, -------------------------------------------------------------------------------
Balance Sheet Data: 1997 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Working Capital (Deficit) ($1,967,662) ($2,150,027) ($2,709,883) ($2,477,004) ($2,059,248) ($1,723,651)
Total Assets 99,627 96,190 133,650 119,445 125,009 160,803
Total Liabilities 2,046,853 2,222,779 2,810,091 2,574,151 2,157,124 1,848,811
Shareholders' Deficit (1,947,226) (2,126,589) (2,676,441) (2,454,706) (2,032,115) (1,688,008)
</TABLE>
-13-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Biosonics' primary sources of funds to date have been proceeds from the
sale of its securities and investment income on such proceeds including loans
and advances for security purchases through offerings.
In July 1996, the Company amended its Articles of Corporation pursuant
to which the Company increased the authorized number of shares of Common Stock
from 250,000,000 shares to 750,000,000 shares. On July 30, 1996, all stock that
had been previously purchased but unissued due to the unavailability of shares
of authorized Common Stock of the Company were issued. The total number of
shares issued was 14,200,000 shares. In addition, all holders of Preferred
Stock, including Series A, Series B and Series D, converted their shares of
Preferred Stock into Common Stock of the Company pursuant to the formula set
forth in their respective preferred stock agreements. The Series D Preferred
Stock terms were amended in May 1996 to increase the available Preferred Stock
from 5,000 shares to 10,000 shares. The Series B Preferred Stock terms were
amended in April 1996 to allow the holders of Series B to convert their stock.
The total number of shares of Common Stock issued as a result of the conversion
of all the Preferred Stock was 28,725,000 shares, including 7,000,000 shares
issued to IMRCH and 4,375,000 shares issued to Jack Paller pursuant to the
conversion of their respective shares of Series B Preferred Stock.
In addition to the foregoing issuances and conversions, in July 1996
(i) the Company issued an aggregate of 300,000 shares of Common Stock to the
Salitron Advisory Board and (ii) an aggregate of 280,000 shares of Common Stock
were issued to three doctors for medical consulting services rendered. Also, an
aggregate of 750,000 shares of Common Stock were issued in August and September
1996 to three outside consultants in connection with financial planning and
consulting services provided to the Company. In August 1996, IMRCH transferred
550,000 shares of the Company's Common Stock held by it to two outside
consultants for certain advertising and public relations services.
The Company also issued an aggregate 15,368,820 shares of Common Stock
in August 1996 to approximately 25 individuals in conversion of loans. These
loans were originally made to IMRC, which then loaned the money to the Company
to use for working capital. None of the individuals making the loans were
officers, directors or affiliates of the Company. The terms of the loans allowed
the loans to be converted into Common Stock of Biosonics held by IMRCH. In
consideration of the Company's assuming the obligations under the loans,
including the obligation to issue stock upon conversion of the loans, IMRCH
transferred to the Company 15,368,820 shares of Biosonics Common Stock owned by
IMRCH and canceled the indebtedness owed from the Company to IMRC.
The Company, as of December 31, 1996, owes an aggregate of $150,000 in
interest bearing loans, $115,000 of which is payable to Jack Paller, and an
aggregate of $138,000 in non-interest bearing loans. In 1989, Biosonics offered
to its shareholders the right to subscribe for 11-1/2% convertible subordinated
debentures, which offering was terminated by Biosonics prior to completion. The
debentures were never issued and, due to a lack of funds, except for $4,000
which was reimbursed to investors in 1990, the proceeds raised were never
returned to the investors. In 1990, Biosonics offered the investors the right to
convert their debentures into Common Stock, and investors who purchased an
aggregate of $16,000 of the debentures converted their debentures into 1,180,000
shares of Common Stock. As of June 30, 1997, the outstanding principal balance
of such debt was $187,000 and the accrued interest thereon was $164,352.
In February 1995, the Company granted to two non-employees options to
purchase an aggregate of 10,000,000 shares of Common Stock at an exercise price
of $.01 per share. In January and February
-14-
<PAGE> 18
1996, the Company granted options to purchase an aggregate of 6,000,000 shares
of Common Stock to two non-employees at a purchase price of $.02 per share.
These options were issued for services performed on the Company's behalf. In May
1996, the Company granted an option to an employee to purchase 250,000 shares to
an employee at an exercise price of $.05 per share. In March 1997, the Company
granted options to purchase 500,000 shares of Common Stock to an individual at
an exercise price of $.05 per share for services performed on the Company's
behalf. Transfer of the shares issuable upon exercise of the options is subject
to the registration requirements of the Act or an exemption from such
requirements such as Rule 144 under the Act.
During the quarter ended March 31, 1997, Biosonics issued Common Stock
shares as follows: (i) 310,000 shares at $.05 per share for payment of financial
consulting services, (ii) 12,000 shares at $.05 per share for payments to Dr.
Talal as final payment for his services on the Salitron Advisory Board, (iii)
10,000 shares at $.05 per share for interest payment on one loan established in
1991; and (iv) 5,000,000 shares at $.01 per share plus 1,000,000 shares at $.02
per share were issued to two investors, respectively, in exercise of stock
options, for which the Company received promissory notes in the aggregate
principal amount of the purchase price of $70,000 and for which such shares are
being held as collateral. In June 1997, the Company completed a private offering
of 11,130,600 shares of Common Stock at $.05 per share to a limited number of
accredited investors for which the Company received an aggregate of $556,530, of
which $536,530 was received in cash and $20,000 of which was received in the
form of promissory notes. These promissory notes were paid by the accredited
investors during the first half of July 1997. Also in June 1997, one person
exercised an option to purchase 500,000 shares of Common Stock at a purchase
price of $.05 per share, for which the Company received a promissory note in
the aggregate principal amount of $25,000 and for which such shares are being
held as collateral, and one person was issued 40,200 shares of Common Stock at
$.05 per share in payment for services. All shares issued during the quarters
ended March 31, 1997 and June 30, 1997 are restricted and may not be sold
except in accordance with the registration requirements under the Act or an
exemption from such requirements such as Rule 144.
Except for 500,000 shares, all of the shares issued by the Company from
September 1996 through June 1997 are being registered for such persons as
Selling Shareholders under this Prospectus.
Biosonics will require additional funds in the immediate future to
continue its operations. Biosonics may receive a portion of such funds from
sales of the Salitron System. Biosonics is considering obtaining funds through
venture capital or other private or public financing, joint venture or merger
transactions and research and development partnership financing. Biosonics has
engaged a consultant to find funding sources. There is no assurance, however,
that the Company will be successful in obtaining financing on terms favorable to
the Company, or at all.
Biosonics does not have any material commitments for capital
expenditures, although management is considering making capital expenditures
during 1997 in connection with the manufacturing of the Cystotron System, if
funds become available. The extent of the development or testing, if any, of
Biosonics' other devices will depend on the availability of funds, and there is
no assurance that development or testing of the devices will occur or be
successful.
RESULTS OF OPERATIONS
Biosonics' net development stage expenses increased $152,748, or 24%,
in 1996 as compared to 1995 primarily due to arrangements with consultants for
the Company in the areas of public relations and as medical advisors, and
one-time expenses incurred in connection with the Company's special shareholders
-15-
<PAGE> 19
meeting. Professional fees were increased due to the special shareholders
meeting and a retainer was paid to the new attorneys hired as counsel to the
Company with respect to securities-related issues.
Product sales decreased to $40,774 in 1996 as compared to $62,506 in
1995 as a result of the discontinuance of the marketing program of the Salitron
System due to lack of funds.
The lack of investment income during 1996 and 1994 reflects the absence
of funds available for investment, and the increase in 1995 as compared to 1996
and 1994 was due to Biosonics' private offering of its Preferred Stock in 1995.
During 1996 and 1995, Biosonics concentrated its efforts and resources on
obtaining Medicare approval of the Salitron System, which has not been obtained.
See "Business - Third-Party Reimbursement."
Biosonics' professional fees consist primarily of legal, accounting and
consulting fees. Other development stage expenses include primarily salaries,
rent, supplies, transfer agent fees, manufacturing, marketing, public relations
and travel expenses.
Net development-stage expenses for the six and three months ended June
30, 1997 of $420,133 and $219,825, respectively, were higher than those for the
comparable periods of 1996 of $257,728 and $140,879, respectively, due to funds
spent on consulting services, expenses relating to Biosonics' participation in
the Medical Device Industry conference, expenses in connection with the
preparation of Cystotron devices and consulting fees paid to the engineer hired
to prepare Biosonics for manufacturing the Cystotron devices. Other development
stage expenses include primarily salaries, rent, supplies, transfer agent fees,
manufacturing, marketing, public relations and travel expenses. The Company's
professional fees for the six and three months ended June 30, 1997 of $132,588
and $77,448, respectively, were higher than the professional fees of $37,000 and
$18,044, respectively, for the same periods of 1996 due to legal, accounting and
$60,000 of consulting expenses incurred. The Company's sales for the six and
three months ended June 30, 1997 were $13,550 and $7,925, respectively, as
compared to $29,125 and $11,609, respectively, for the same periods of 1996. The
decrease in sales resulted primarily from not having available funds to continue
the marketing program for its Salitron System.
The Company believes there will be no significant adverse impact from
inflation and changing prices on the Company's operations.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share." SFAS No. 128 will be effective for years ending
after December 15, 1997, and will require companies to report basic earnings per
share, as well as diluted earnings per share. As the Company has incurred
operating losses since its inception, the Company will not be required to
compute diluted earnings per share, and there will be no impact on the Company's
financial statements from this pronouncement.
INFORMATION ABOUT CAPITAL STRUCTURE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure." SFAS No. 129 will
be effective for years ending after December 15, 1997, and will require certain
disclosures regarding companies' capital structures. As these disclosures were
already required for companies whose securities were publicly traded, this
pronouncement will have no effect on the Company's financial statements.
-16-
<PAGE> 20
RELATIONSHIP WITH GROWTH FUND PARTNERSHIP, INC.
On June 1, 1997, Biosonics entered into an agreement with Growth Fund,
a Florida privately held corporation engaged in the business of accumulating
assets. According to the financial statements provided to Biosonics by Growth
Fund, which have not been independently verified by Biosonics, Growth Fund had a
book value as of December 31, 1996 of approximately $2.6 billion, consisting
primarily of mining interests, undeveloped land in the United States and South
America and an interest in a financial services company. Biosonics has agreed to
assist Growth Fund in creating a new company for which Biosonics will receive
10% of the stock of the new company and Biosonics shareholders will receive an
aggregate of 10% of the stock of the new company. It is anticipated that the new
company will own all of the assets formerly owned by Growth Fund and will apply
to have the stock quoted for trading on the Nasdaq market. The final structure
of the transaction and the completion of the transaction is conditioned upon,
and is subject to further modification based upon, legal, accounting and
regulatory review. There can be no assurance that the transaction will ever be
completed, that Biosonics' shareholders will ever receive any stock or interest
in the assets of the new company or Growth Fund or that there will ever be a
public market for the shares of stock in the new company that may be received by
Biosonics' shareholders, and substantial costs may be incurred by the Company
whether or not the transaction is completed. See "Risk Factors."
BUSINESS AND PROPERTIES
GENERAL
Biosonics was incorporated in Pennsylvania in November 1980 as a
subsidiary of IMRC. Since its inception, the Company has been involved in the
development and marketing of electrotherapeutic and diagnostic devices to manage
and treat several intractable medical conditions, including extreme dry mouth,
nasal/sinus congestion, urinary/fecal incontinence and impotence. The Company's
non-evasive, electrotherapeutic and diagnostic devices offer relief from and
improvement to such distressing disorders without drug related side effects or
the ultimate need for surgery. The Company has received six patents on its
devices. Furthermore, the Company has received FDA approval or clearance for
marketing the Salitron (dry mouth), Cystotron (urinary incontinence), Anotron
(fecal incontinence) and the BIDDS Glove (diagnostic tool).
The Company's initial focus was on the marketing of the Salitron, a
device which induces salivation in certain persons who otherwise do not salivate
normally. Recently, Biosonics has decided to concentrate its resources on
marketing the Cystotron device for urinary incontinence. In connection with this
effort, Dr. Kristene Whitmore, Chief of Urology at Graduate Hospital in
Philadelphia, has agreed to participate in market studies for the Cystotron
device. These studies would be conducted at assisted living environments and
retirement communities. There can be no assurances, however, that the Company
will be able to conduct such studies due to its limited financial resources.
PRODUCTS
The Company has developed various electrotherapeutic devices, six of
which have been patented, and four of which have received FDA 510(k) clearance
or PMA approval for marketing. The electrotherapeutic technology developed by
the Company is based on the stimulation of nerves using the body's natural
resources, to create a positive response in malfunctioning body organs and
systems. All of the Company's developed devices are portable, battery-operated,
non-surgical and non-invasive, and the Company believes that to date such
devices have had no adverse side effect in any active user.
-17-
<PAGE> 21
Biosonics plans to engage an electrical/medical engineer during 1997,
to negotiate with external manufacturing contractors for the manufacturing of
the Salitron and Cystotron devices, as well as the BIDDS Glove, assuming the
availability of funds for such a purpose. The manufacturing of these devices
will be subject to regulatory requirements as outlined in "Governmental
Regulation" herein and also to the availability of funds for such purposes.
Biosonics warrants that its devices will be free from malfunction caused by
manufacturing defects for 12 months from the date of purchase.
SALITRON. This device induces salivation in certain persons who
otherwise do not salivate normally. Lack of normal salivation can be caused by
Sjogrens Syndrome (an autoimmune disease), other diseases, medication,
radiation, surgery or aging. U.S. Patent No. 4,519,400, covering the method for
stimulating salivation utilized by a prior concept for the Salitron System, was
issued to Biosonics on May 28, 1985. Biosonics believes, although there is no
assurance, that the current versions of the Salitron are protected by such
patent. U.S. Patent No. 4,637,405, covering the apparatus utilizing that prior
concept, was issued to Biosonics on January 20, 1987. Biosonics also was issued
parallel patents by seven foreign countries, although such foreign patents have
lapsed due to a lack of funds. FDA clearance for commercial sale was received
through a PMA approval application process in May 1988 for use in treating
patients with dry mouth secondary to Sjogrens Syndrome.
In 1988, Biosonics commenced marketing the Salitron through five "Dry
Mouth Centers" that were owned by independent third parties. Centers were opened
in Philadelphia, Pennsylvania; North Miami Beach, Florida; Baltimore, Maryland;
Fairfield, Connecticut; and Denver, Colorado, and a center controlled by
Biosonics was opened in Milwaukee, Wisconsin. The independent dry mouth centers
were granted the exclusive marketing and distribution rights in their respective
territories. In 1990, however, as a result of the failure of the dry mouth
centers to meet minimum purchase requirements, Biosonics decided to discontinue
the centers.
Biosonics has lacked the necessary funds to implement a marketing
program for any of its devices. Biosonics' initial marketing efforts were for
the Salitron and involved efforts to obtain Medicare reimbursement for the
Salitron. On May 23, 1994, a proposed notice was published in the Federal
Register by the HCFA that it intended to disapprove Biosonics' application for
Medicare, although no final notice has yet been published. In 1996, Biosonics
met with HCFA officials to urge a reevaluation of its intent to disapprove the
Company's request for reimbursement approval. In February 1997, HCFA advised
Biosonics that it had examined its previous position and concluded that absent
additional information, Medicare reimbursement for the Salitron was not
warranted under current law. As a result, the Company has engaged a Washington
DC law firm to explore with HCFA the extent of additional information that HCFA
will require. Approximately 35 private insurance carriers have reimbursed
Biosonics for patients' use of the Salitron and Medicaid reimbursement approval
has been obtained in four states. There is no assurance that such reimbursement
will continue to be available or will be at price levels sufficient to realize
an appropriate return to Biosonics. Further, Biosonics cannot predict the
effect, if any, on the reimbursement from the private plans and Medicaid in the
event that HCFA does publish a final notice of non-coverage of the Salitron
system for Medicare purposes, and there is a risk that some or all of the
Medicaid reimbursement could be discontinued in such event.
Biosonics has been directing the marketing of the Salitron to
rheumatologists, ear nose and throat specialists, and dentists. Under this
program each physician and dentist is supplied with a Salitron, training
materials along with a video, and asked to test their patients who suffer from
dry mouth. This marketing effort was put on hold, however, because too many
potential patients are Medicare age who cannot afford to purchase the Salitron
without Medicare coverage.
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<PAGE> 22
CYSTOTRON AND ANOTRON SYSTEMS. These devices counteract urinary
(Cystotron) and fecal (Anotron) incontinence. The Cystotron and Anotron have
been cleared for sale by the FDA under two separate 510(k) submissions. See
"Governmental Regulation," below. Biosonics has received a patent covering the
Cystotron and Anotron and the method of treatment of incontinence utilized by
these devices (U.S. Patent No. 5,117,840).
Assuming funds are available, the Company intends to commence a
two-phase market study with respect to the Cystotron. This study will comprise
of two phases, assuming funds are available. Phase one will primarily be
directed at the retirement community. In 1996, Biosonics signed an agreement
with Dr. Kristene Whitmore, Chief of Urology at Graduate Hospital in
Philadelphia, who will act as Chief Investigator for phase one of the market
study. Phase two will primarily be directed to those in the post-birth delivery
age group. The purpose of this market study will be to confirm the safety and
effectiveness of the Cystotron for advertising purposes and to promote
recognition and acceptance in the medical community.
BIDDS GLOVE. This diagnostic tool is a modified surgical grade latex
glove on which is imprinted specialized electronic circuitry. The BIDDS Glove is
intended to be utilized in connection with certain of Biosonics' therapeutic
devices as a means of delivering or receiving electrical energy to or from the
patient. The market for the BIDDS Glove is, therefore, largely co-extensive with
the markets for the Company's other products. Biosonics was issued a United
States patent (U.S. Patent No. 4,510,939) covering a prototype version of the
BIDDS Glove on April 16, 1985 and was issued a United States patent (U.S. Patent
No. 4,765,343) covering the current version of the BIDDS Glove on August 23,
1988. The modified version is referred to as the BIDDS Glove II. Although
several foreign patents in favor of the BIDDS Glove were issued, Biosonics has
allowed them to lapse due to lack of funds.
Subject to the availability of funding, the Company intends to market
the BIDDS Glove as a diagnostic tool for the physicians use in testing the
patients. This test is designed to help the physician determine whether the
patient has the ability respond positively to the Company's therapeutic devices,
such as the Cystotron, Anotron and MEGS. The Company also intends to use the
BIDDS Glove in the studies outlined above regarding the Cystotron and Anotron
Systems.
MEGS. The MEGS(TM) (Male Electronic Genital Stimulator) is a device
designed to counteract male impotence. On September 24, 1985, Biosonics was
issued a United States patent (U.S. Patent No. 4,542,753) covering the method
and apparatus for stimulating erections utilized by the MEGS Stimulator.
Although several foreign patents were obtained, Biosonics allowed them to lapse
due to lack of funds. Biosonics has also received a patent (U.S. Patent No.
4,663,102) covering methods for making certain components of the MEGS
Stimulator. Further clinical studies are necessary before this device can be
submitted to the FDA for marketing clearance or approval.
NASOTRON. The Nasotron(TM) is a self-contained non-surgical device
intended to clear obstructed nasal-sinus passages, thereby countering pollen
responses and other allergies and postnasal problems without the use of drugs.
Biosonics has received United States Patent No. 4,590,942 with respect to the
Nasotron. Although several foreign patents were obtained, these patents have
lapsed due to lack of funds. Subject to the availability of additional funding,
Biosonics plans to commence dosage studies for the Nasotron on patients to
determine the optimal intensity and duration of the electronic impulse. After
completion of the dosage study, assuming funds are available, it is intended
that a double-blind clinical study performed under protocols acceptable to the
FDA be conducted and submitted to the FDA for approval prior to the commercial
sale of the Nasotron.
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<PAGE> 23
OTHER DEVICES. In addition to the products outlined above, Biosonics
has begun development or may in the future begin the development of other
medical devices. Additional funds will be required to further the development,
patent and submission for FDA approval of these devices. Biosonics is developing
the Vagitron(TM), which is a device designed to stimulate vaginal secretions in
women with vaginal secretory deficiencies and to aid normal sexual function. The
Immunotron(TM) is a device designed to influence the cerebral nervous system to
activate the body's immune system. Other devices in development stages are
intended to reduce cancerous cells in certain tumors in conjunction with
chemotherapy and a device intended to accelerate wound healing by stimulating
cell migration.
Biosonics believes that it will be required to raise substantial
additional capital through the issuance of equity and/or debt securities in
order to finance continuing research and development, regulatory approval,
marketing, manufacturing and other activities related to the successful
marketing and sale of the devices described above. There is no assurance that
such additional financing will be available on terms acceptable to it in the
future. No substantial development of any additional devices has occurred to
date and there is no assurance that any such development will be commenced or,
if commenced, will be successfully completed.
GOVERNMENTAL REGULATION
Biosonics' products are subject to extensive government regulation in
the United States and in other countries. In order to test, produce and market
products for use in the treatment of humans, Biosonics must first comply with
mandatory procedures and safety standards established by the FDA and comparable
state and foreign regulatory agencies. The Food, Drug and Cosmetic Act (the "FDC
Act") requires premarket clearance or premarket approval by the FDA prior to
commercialization of medical devices. Pursuant to the FDC Act, the FDA regulates
the manufacture, distribution and production of medical devices in the United
States.
Before a new device can be introduced into the market, the manufacturer
generally must obtain FDA clearance through either a 510(k) premarket
notification or a premarket approval application ("PMA"). A 510(k) clearance is
only available for devices which are "substantially equivalent" to devices that
have been previously approved by the FDA. The principal purpose of the 510(k)
procedure is to avoid costly and time-consuming clinical tests of devices that
have already been proven safe and effective by others. Applicants under the
510(k) procedure must prove that the device for which approval is sought is
substantially equivalent to a device on the market prior to the Medical Device
Amendments of 1976, or a device approved thereafter pursuant to the 510(k)
procedure.
A PMA must be filed if the proposed device does not satisfy the
foregoing conditions relating to the 510(k) procedure. The PMA procedure is more
complex, time-consuming and costly than the 510(k) procedure. In general, the
PMA procedure requires extensive clinical testing to determine the safety,
efficacy and potential hazards of the medical device. In order to obtain
permission to conduct human clinical studies under the PMA procedure, the
manufacturer is required to obtain an Investigational Device Exemption ("IDE")
from the FDA. If the IDE application is approved, human clinical trials may
begin at a specific number of investigational sites with a minimum specific
number of patients, as approved by the FDA. The clinical trials must be
conducted under the auspices of an independent Institutional Review Board
("IRB") established pursuant to FDA regulations. Upon the completion of all
required testing under the IDE, substantial proof of safety and efficacy must be
submitted to the FDA before the final PMA will be granted. The PMA process can
be expensive, uncertain and lengthy, frequently requiring from one to several
years from the date the PMA is accepted by the FDA. If granted, the PMA approval
may include significant limitations on the indicated uses for which a product
may be marketed and may require inspection of the manufacturing facility to
ensure compliance with the FDA's requirements.
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<PAGE> 24
Biosonics' clinical testing of its Salitron System was conducted
pursuant to IDEs obtained through IRBs. In May 1988, Biosonics received FDA
approval for the sale of the Salitron System. Biosonics received approval from
the FDA in November 1986 to sell the Anotron and Cystotron Incontinence Control
System under separate 510(k) notification submissions.
Biosonics has not obtained 510(k) clearance or PMA for any of its other
devices. Delays or the failure to receive such clearance or approval of such
devices could have an adverse impact on Biosonics.
Devices which have been developed by Biosonics, but which have not been
approved for commercial distribution in the United States, may be exported if
the FDA approves a request from Biosonics for permission for export. The FDA
requires that Biosonics obtain approval from the foreign country to which the
device will be exported and comply with the laws of the foreign country.
Nonetheless, the FDA could still deny permission to export if it determines that
export is contrary to public health and safety. Biosonics has not submitted such
a request to the FDA for the export of its products, and no decision has yet
been made whether it will do so in the near future.
Biosonics is also required to register with the FDA as a device
manufacturer. In addition, the Company is required to comply with the FDA's Good
Manufacturing Practices regulations. The FDA has authority to conduct detailed
inspections of manufacturing plants, to establish "good manufacturing practices"
which must be followed in the manufacture of medical devices, to require
periodic reporting of product defects to the FDA, to take regulatory actions
against devices that are adulterated and/or misbranded, and to pursue actions in
federal court against companies or individuals that violate the FDC Act. The
medical device reporting regulations require the Company to provide information
to the FDA whenever there is evidence to reasonably suggest that one of its
devices may have caused or contributed to death or serious injury, or that there
has occurred a malfunction that would be likely to cause or contribute to death
or serious injury if the malfunction were to recur.
The Safe Medical Device Act of 1990 (the "SMD Act") affects medical
device manufacturers in several areas, including post-market surveillance and
device tracking procedures. The SMD Act gives the FDA expanded emergency recall
authority, requires the submission of a summary of the safety and effectiveness
in the 510(k) process and adds design validation as a requirement of good
manufacturing practices. The SMD Act also requires all manufacturers to conduct
post-market surveillance on devices that potentially present a serious risk to
human health, and requires manufacturers of certain devices to adopt device
tracking methods to enable patients to receive required notices pertaining to
such devices they receive. Management does not believe that the SMD Act will
have a material impact on Biosonics or its operations.
Federal law preempts states or their political subdivisions from
regulating medical devices. Upon application, the FDA may permit state or local
regulation of medical devices which is either more stringent than federal
regulations or is required because of compelling local conditions. Biosonics
does not anticipate that any state or local requirements which may be exempted
from preemption will have a materially adverse effect on Biosonics financial
condition or operations. However, there is no assurance that, in the future,
state or local requirements may not have a substantial effect on Biosonics. If
Biosonics seeks to market its devices outside of the United States, Biosonics
may also be subject to regulation by foreign governments.
Health care reform is an area of national attention. If reform measures
are adopted, they could adversely affect the pricing of diagnostic and
therapeutic devices in the United States or the amount of reimbursement
available from third-party insurers. The impact of these measures upon Biosonics
cannot be predicted.
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<PAGE> 25
THIRD PARTY REIMBURSEMENT
The Company believes that the overall escalating cost of medical
products and services has led and will continue to lead to increased pressures
upon the health care industry to reduce the cost of certain products and
services, which may include those of the Company. These cost pressures are
leading to increased emphasis on the price and cost-effectiveness of any
treatment regimen and medical device. In addition, third party payors, such as
governmental programs, private insurance plans and managed care plans that are
billed by hospitals for such health care services, are increasingly negotiating
the prices charged for medical products and services and may deny reimbursement
if they determine that a device was not used in accordance with cost-effective
treatment methods as determined by the payor, was experimental or was used for
an unapproved indication.
As stated previously, on May 23, 1994, a proposed Notice was published
in the Federal Register by HCFA that it intended to disapprove Biosonics'
application for Medicare, although no final notice has yet been published. In
1996, Biosonics met with HCFA officials to urge a reevaluation of its intent to
disapprove the Company's request for reimbursement approval. In February 1997,
HCFA advised Biosonics that it had examined its previous position and concluded
that absent additional information, Medicare reimbursement for the Salitron was
not warranted under current law. As a result, the Company has engaged a
Washington DC law firm to explore with HCFA the extent of additional information
that HCFA will require. Approximately 35 private carriers have reimbursed
Biosonics for patients' use of the Salitron System and Medicaid reimbursement
approval has been obtained in four states. There is no assurance that such
reimbursement will continue to be available or will be at price levels
sufficient to realize an appropriate return to Biosonics. Further, Biosonics
cannot predict the effect, if any, on the reimbursement from the private plans
and Medicaid in the event that HCFA does publish a final notice of non-coverage
of the Salitron system for Medicare purposes, and there is a risk that some or
all of the Medicaid reimbursement could be discontinued in such event.
COMPETITION
Biosonics is unaware of any other company which is currently developing
devices similar to the Salitron System, although there are other companies
engaged in research and development using electrotherapeutic devices. The
Company is aware of at least three companies that have developed products
similar to the Company's products, including one company that has developed a
product similar to the Cystotron Incontinence System. Biosonics is not aware of
any device that would be in direct competition to the BIDDS Glove. It is
possible that the Company's products could be rendered obsolete or uneconomical
by technological advances by one or more of the Company's future competitors.
There are other companies engaged in research and development in the medical
field, many of which are well established and have greater financial and
marketing resources then the Company. One or more companies might develop
products that address the same or similar medical problems as those being
developed by Biosonics, and be in the position to market them more successfully
than Biosonics.
EMPLOYEES
As of June 30, 1997, Biosonics had seven employees, of which five are
full-time and two are part-time.
PRODUCTS LIABILITY AND INSURANCE
Since Biosonics' devices are intended for use in the treatment of human
diseases and conditions, Biosonics faces an inherent risk of exposure to product
liability claims in the event that the use of its
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<PAGE> 26
devices results in unanticipated personal injury. Although Biosonics carries
products liability insurance, there can be no assurance that it will be able to
maintain such insurance with the limits of liability necessary and at premiums
that are acceptable to it, that such coverage will be available on commercially
reasonable terms, if at all, or that liability will not exceed the insured
amount. At the present time, the Company's products liability coverage is
$1,000,000 per occurrence with a $5,000 deductible. If a substantial claim for
damages were to arise at a time when Biosonics did not have adequate insurance
or its coverage was insufficient to cover the claim, payment of such a claim
would have a material adverse impact on the financial condition of Biosonics and
on its ability to continue its business activities. In addition, the legal fees
and related costs of defending or settling a products liability action and the
negative publicity likely to arise therefrom would likely have a material
adverse impact on Biosonics, even if it ultimately prevailed in any such action.
SALITRON MEDICAL ADVISORY BOARD
Biosonics Salitron Medical Advisory Board (the "Advisory Board")
consists of individuals with expertise in the field related to Sjogrens
Syndrome. It is anticipated that the Advisory Board will consult informally with
Biosonics on an as-needed basis. Biosonics agreed to pay the Chairman of the
Advisory Board $25,000 for his first year of service and grant him 100,000
shares of Common Stock. The other members of the Advisory Board will each
receive 50,000 shares of Common Stock. The issuance of the shares is conditioned
upon the Advisory Board member serving for a minimum of two years. Except for
Elaine Harris, who is the founder of the Sjogrens Syndrome Foundation, all of
the members of the Advisory Board are employed by or retired from academic
institutions or are practicing physicians. Each member has other commitments to
other entities that may limit his or her availability to Biosonics. Members of
the Advisory Board are not expected to devote more than a small portion of their
time to Biosonics.
Although the Advisory Board did not formally meet in 1996, its members
assisted the Company in 1996 in the form of interviews published in various
magazine articles and broadcast radio shows regarding the Salitron System.
The names of the persons serving on the Advisory Board and their
respective institutional affiliation or former affiliation or occupation are as
follows:
<TABLE>
<CAPTION>
NAME INSTITUTIONAL AFFILIATION OR OCCUPATION
---- ---------------------------------------
<S> <C>
Norman Talal, M.D. Retired, The University of Texas
Norman Gaylis, M.D. Rheumatologist, Private Practice
Jonathan Ferguson, M.D. Rheumatologist, Private Practice
Elaine Harris Founder, Sjogrens Syndrome Foundation
James Quinn, D.D.S. Retired, Louisiana State University, School of Dentistry
</TABLE>
PROPERTIES OF THE COMPANY
Biosonics leases approximately 2,500 square feet of office space in
Fort Washington, Pennsylvania pursuant to a lease that terminates in September
1998. Lease payments are currently $3,336 per month.
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<PAGE> 27
RELATIONSHIP WITH GROWTH FUND PARTNERSHIP, INC.
On June 1, 1997, Biosonics entered into an agreement with Growth Fund,
a Florida privately held corporation engaged in the business of accumulating
assets. According to the financial statements provided to Biosonics by Growth
Fund, which have not been independently verified by Biosonics, Growth Fund had a
book value as of December 31, 1996 of approximately $2.6 billion, consisting
primarily of mining interests, undeveloped land in the United States and South
America and an interest in a financial services company. Biosonics has agreed to
assist Growth Fund in creating a new company for which Biosonics will receive
10% of the stock of the new company and Biosonics shareholders will receive an
aggregate of 10% of the stock of the new company. It is anticipated that the new
company will own all of the assets formerly owned by Growth Fund and will apply
to have the stock quoted for trading on the Nasdaq market. The final structure
of the transaction and the completion of the transaction is conditioned upon,
and is subject to further modification based upon, legal, accounting and
regulatory review. There can be no assurance that the transaction will ever be
completed, that Biosonics' shareholders will ever receive any stock or interest
in the assets of the new company or Growth Fund or that there will ever be a
public market for the shares of stock in the new company that may be received by
Biosonics' shareholders, and substantial costs may be incurred by the Company
whether or not the transaction is completed. See "Risk Factors."
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
MANAGEMENT
SOLE OFFICER AND DIRECTOR
Jack Paller, age 69, is currently the sole officer and director of the
Company. Mr. Paller has been Treasurer and a director of the Company since its
inception in 1980. In January 1987, he became Chairman and Chief Executive
Officer of Biosonics. He also served as President of the Company from its
inception until January 1987, from October 1987 to December 1987 and since May
1990 to the present. Currently, Mr. Paller also serves as President and a
director of IMRCH and serves as President, Treasurer and director of IMRC, the
sole shareholder of IMRCH.
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Annual Compensation
Principal Position Year Salary ($) (1) Bonus (1)
- ------------------ ---- -------------- ---------
<S> <C> <C> <C>
Jack Paller, 1996 $103,000 --
Chairman, President, 1995 103,000 --
Treasurer and Secretary 1994 103,000 --
</TABLE>
- ------------------------------
(1) Mr. Paller, the Company's sole director and executive officer, has
deferred the receipt of his salary every year from the year ended
December 31, 1990 through December 31, 1996, and Mr. Paller
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<PAGE> 28
did not receive or defer any other benefits or compensation for serving
as an executive officer of Biosonics during those years. In his
capacity as an executive officer of IMRC, Mr. Paller deferred his
salary from IMRC for the years ended December 31, 1989 through 1996,
including $42,000 of deferred salary per year for the years ended
December 31, 1994, 1995 and 1996.
Since 1990, Directors have received no fees for their services in that
capacity. See "Biosonics - Salitron Medical Advisory Board."
CERTAIN TRANSACTIONS
During 1989, Mr. Paller and his late spouse loaned $250,000 to
Biosonics at an interest rate of 1 1/2 % over the prime rate charged by
CoreStates Bank, not to exceed an annual rate of 18%. The loan is payable on
demand and is secured by all of Biosonics' assets. During 1989, 1,250 shares of
Biosonics' Series B Preferred Stock were issued to Mr. Paller and his spouse in
satisfaction of the principal amount of $125,000 of their loan. During 1991, Mr.
Paller loaned Biosonics an additional $10,000. The highest principal amount
outstanding under these loans during 1996 was $135,000. Mr. Paller has also
loaned $11,000 to IMRC. During 1996, Mr. Paller converted his shares of Series B
Preferred Stock to Biosonics Common Stock, and loan payments were made to Mr.
Paller which reduced the total outstanding principal balance to $115,000.
The Company also issued 15,368,820 shares of Common Stock to
approximately 25 individuals in conversion of loans during 1996. These loans
were originally obligations of IMRC, which then loaned the money to the Company
to use for working capital. None of the individuals making the loans were
officers, directors or affiliates of the Company. The terms of the loans allowed
the loans to be converted into Common Stock of Biosonics held by IMRCH. In
consideration of the Company's assuming the obligations under the loans,
including the obligation to issue stock upon conversion of the loans, IMRCH,
transferred to the Company 15,368,820 shares of Biosonics Common Stock owned by
IMRCH and canceled the indebtedness from the Company to IMRC.
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
The following table lists the number of shares of the Company's Common
Stock beneficially owned as of June 30, 1997 by all persons known to the Company
to be beneficial owners of more than 5% of the Company's Common Stock and by the
sole director and officer of Biosonics and the percentage of all outstanding
shares held by such person:
<TABLE>
<CAPTION>
Number of Shares Percent
Beneficially Owned Beneficially Owned
------------------ ------------------
Name of Beneficial Owner
- ------------------------
<S> <C> <C>
Jack Paller...................................... 11,467,300 4.0%
260 New York Drive
Fort Washington, Pennsylvania 19034
IMRC Holdings, Inc.(1)........................... 110,138,930 38.3%
106 Quigley Boulevard
New Castle, Delaware 19720
</TABLE>
- ----------------------------------
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<PAGE> 29
(1) IMRC Holdings, Inc. is a wholly owned subsidiary of IMRC. As of June
30, 1997 Jack Paller owned 40.2% of the outstanding shares of IMRC.
All of the shares of common stock of Biosonics owned by IMRCH and Jack
Paller are subject to a securities restriction agreement which prevents any
sales by them of the Common Stock of Biosonics at less than $.05 per share.
DESCRIPTION OF THE COMPANY'S SECURITIES
COMMON STOCK OF THE COMPANY
The authorized capital stock consists of 750,000,000 shares of Common
Stock, $.0001 par value, and 10,000,000 shares of Preferred Stock, par value
$1.00 per share. As of June 30, 1997, 306,364,536 shares of Common Stock held by
approximately 5,700 holders of record were issued and outstanding and no shares
of Preferred Stock were issued and outstanding. The transfer agent for the
Company's Common Stock is American Stock Transfer & Trust Co., 99 Wall Street,
New York, New York.
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of shareholders of the Company, including the
election of directors. The holders of Common Stock do not have cumulative voting
rights or preemptive rights. Dividends may be paid to holders of Common Stock
when and if declared by the Board of Directors from funds legally available for
dividends. The Company has never paid cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."
Of the 10,000,000 shares of Preferred Stock authorized, (i) 1,000
shares of Series A Preferred Stock were authorized, all of which were previously
issued and subsequently converted into Common Stock, (ii) 10,000 shares of
Series B Preferred Stock were authorized, of which 3,250 shares were previously
issued and subsequently converted into Common Stock; and (iii) 10,000 shares of
Series D Preferred Stock were authorized, of which 8,050 shares were previously
issued and subsequently converted into Common Stock. Although authorized but
unissued shares of Series A, Series B, Series C and Series D remain designated
under the Company's Articles of Incorporation, no shares of Preferred Stock are
currently outstanding, and the Company has no current plans to issue more shares
of Series A, Series B, Series C and Series D Preferred Stock. The Board of
Directors, however, has the authority to issue 9,979,000 shares of the Company's
Preferred Stock in one or more series and to determine the designations,
relative rights, preferences and limitations of each series, without obtaining
approval of the Company's shareholders.
The issuance of Preferred Stock, while providing flexibility in
connection with possible financings, acquisitions and other corporate purposes,
could, among other things, adversely affect the voting power of the holders of
Common Stock and, under certain circumstances, make it more difficult for a
third party to gain control of the Company, deny shareholders the receipt of a
premium on their shares of capital stock and have a dilutive effect on the
market price thereof. Management of the Company is not aware of any such
threatened transactions to obtain control of the Company.
OUTSTANDING STOCK OPTIONS
As of June 30, 1997, the Company had outstanding (i) options to
purchase an aggregate of 5,000,000 shares of Common Stock at an exercise price
of $.01 per share granted to one non-employee, (ii) options to purchase an
aggregate of 5,000,000 shares of Common Stock at an exercise price of $.02
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<PAGE> 30
per share granted to two non-employees and (iii) an option to purchase 250,000
shares of Common Stock at a purchase price of $.05 per share granted to one
employee. The transfer of the shares issuable upon exercise of the options will
be subject to the registration requirements of the Act or an exemption from such
requirements such as Rule 144 under the Act.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 306,364,536 shares of the Company's Common Stock outstanding as
of June 30, 1997, approximately 133,183,886 shares, including shares eligible to
be sold under Rule 144(k) under the Act, are freely tradeable without
restriction or further registration under the Act, unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the Act.
The approximately 173,180,650 remaining shares are Restricted Shares. Of these
Restricted Shares, 121,706,230 Restricted Shares are currently eligible to be
sold publicly in accordance with Rule 144 under the Act. Of the remaining
51,474,420 Restricted Shares, 51,074,420 Restricted Shares will become eligible
for public sale following the effectiveness of this Registration Statement,
100,000 Restricted Shares will become eligible for sale in September 1997, and
300,000 Restricted Shares will become eligible for sale in March 1998.
Unaffiliated shareholders may, as a general rule, sell their unregistered Common
Stock under Rule 144 without limitation on volume after holding such stock for
two years under Rule 144(k). IMRCH and Mr. Paller currently own in the aggregate
approximately 121,606,230 Restricted Shares that have not been registered under
the Act. The Restricted Shares held by IMRCH and Mr. Paller are subject to a
Securities Restriction Agreement with the Pennsylvania Securities Commission,
which prevents any sales of the Company's Common Stock by either of them at a
price of less than $.05 per share. All of the stock subject to the Securities
Restriction Agreement has been held for more than one year and, therefore,
except as restricted by the Securities Restriction Agreement, may be sold
without registration, subject to the volume, current public information and
other limitations of Rule 144 under the Act. The Company is unable to estimate
the number of Restricted Shares that will be sold under Rule 144 since this will
depend in part on the market price of the Common Stock, the personal
circumstances of the sellers and other factors. Sales of substantial amounts of
the currently unregistered shares could adversely affect the market value of the
Company's Common Stock.
As of June 30, 1997, the Company had outstanding options to purchase
5,000,000 shares of Common Stock at per share exercise price of $.01, options to
purchase 5,000,000 shares of Common Stock at a per share exercise price of $.02
and an option to purchase 250,000 shares of Common Stock at a per share exercise
price of $.05. The shares subject to these options, if exercised, would be
restricted from resale unless registered under the Act or unless sold under an
exemption from the registration requirements of the Act, such as Rule 144.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
As permitted by the provisions for indemnification of directors and
officers in the Pennsylvania Business Corporation Law, the Company's Bylaws
provide for indemnification of directors and officers for all expenses,
liability and loss (including attorneys' fees, judgments, fines, taxes,
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such persons in legal proceedings unless the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. Such right to indemnification
includes the right to have expenses incurred by an indemnitee is defending any
proceeding paid by the Company in advance of final disposition thereof, provided
that the indemnitee must provide an understanding to repay all amounts
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<PAGE> 31
advanced without interest if it is ultimately determined that such person is not
entitled to indemnification under the Bylaws or otherwise. The Bylaws of the
Company also avail directors of the Pennsylvania law limiting directors'
liability for money damages except in those cases where they have breached their
fiduciary duty and such breach constitutes self-dealing, willful misconduct or
recklessness.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the above-described provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
LEGAL MATTERS
The validity of the issuance of the Shares to be sold by the Selling
Shareholders hereunder has been passed upon for the Company by Mark S. Haltzman
& Associates. Mark S. Haltzman & Associates has performed legal services for the
Company since 1993. In 1997, Mr. Haltzman was granted an option to purchase
500,000 shares of Common Stock at a purchase price of $.05 per share. This
option has been exercised and the shares purchased under the option are
registered for sale under this Prospectus.
EXPERTS
The balance sheets of the Company as of December 31, 1996 and 1995 and
the related statements of operations, changes in shareholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31, 1996
appearing in this Prospectus and in the Registration Statement have been audited
by Morris J. Cohen & Co., P.C., independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
-28-
<PAGE> 32
INDEX TO FINANCIAL STATEMENTS
BIOSONICS, INC.
(A Development Stage Enterprise)
CONTENTS
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Auditors' Report F-1 & F-2
Financial Statements:
Balance Sheets (Restated) at December 31, 1996 and 1995 F-3 & F-4
Statements of Operations (Restated) for Each of the Three Years in the
Period Ended December 31, 1996 and the Period from November 13, 1980
(Inception) to December 31, 1996 F-5
Statements of Changes in Shareholders' Equity (Deficiency) (Restated)
for the Period from November 13, 1980 (Inception) to
December 31, 1996 F-6 through F-13
Statements of Cash Flows (Restated) for Each of the Three Years in the
Period Ended December 31, 1996 and the Period from November 13, 1980
(Inception) to December 31, 1996 F-14 & F-15
Notes to Financial Statements F-16 through F-29
Balance Sheets at June 30, 1997 (Unaudited) and
December 31, 1996 F-30
Statement of Loss for the Three and Six Months Ended June 30, 1997 and
1996 and the Period from November 13, 1980 (Inception) to June 30,
1997
(unaudited) F-31
Statements of Deficit Accumulated for the Six Months Ended June 30,
1997 and 1996 and the Period from November 13, 1980 (Inception) to
June 30, 1997
(unaudited) F-32
Statements of Cash Flows for the Six Months ended June 30, 1997 and
1996 and for the Period from November 13, 1980 (Inception) to June 30,
1997
(unaudited) F-33 & F-34
Statements of Changes in Shareholders' Equity
(Deficiency)-Paid-in-Capital November 30, 1980 (Inception) to June 30,
1997
(unaudited) F-35 through F-38
Notes to Unaudited Financial Statements F-39
</TABLE>
-29-
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
Board of Directors
Biosonics, Inc.
(A Development Stage Enterprise)
We have audited the accompanying balance sheets of Biosonics, Inc. (a
development stage enterprise) as of December 31, 1996 and 1995, and the related
statements of operations, changes in shareholders' equity (deficiency) and cash
flows for each of the three years in the period ended December 31, 1996. Such
financial statements have been restated as described in Note 3 to the financial
statements. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Biosonics, Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
F-1
<PAGE> 34
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company has suffered recurring losses from operations
and has a net shareholders' deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 4. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 3 to the financial statements, certain errors
resulting from the Company's not recording stock options issued in 1996 and 1995
were subsequently discovered by management. Accordingly, the Company has
restated its 1996 and 1995 financial statements to conform with generally
accepted accounting principles.
Also, in our opinion, the amounts shown in the statements of operations
and cash flows under the caption "Period from November 13, 1980 (Inception) to
December 31, 1996" have been properly compiled from the financial statements for
the period November 13, 1980 (Inception) to December 31, 1980 and for each of
the sixteen years in the period ended December 31, 1996.
MORRIS J. COHEN & CO., P.C.
February 21, 1997
(except for Notes 3 and 10, as to which
the date is July 18, 1997)
F-2
<PAGE> 35
BIOSONICS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS (RESTATED)
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current assets
Cash $ 260 $ 260
Accounts receivable (net of
allowance for doubtful
accounts of $2,000 in 1996
and $6,000 in 1995) 8,196 21,013
Inventories 64,271 70,084
Prepaid expenses and other
current assets 25 8,851
------- --------
Total current assets 72,752 100,208
Equipment, furniture and leaseholds,
net of accumulated depreciation
and amortization 15,007 25,011
Deposits 8,431 8,431
------- --------
Total assets $96,190 $133,650
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 36
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current liabilities
Notes payable $ 288,000 $ 660,444
Accounts payable and accrued
expenses 1,707,779 1,691,647
Payments received for unissued
debentures 187,000 187,000
Payments received for unissued
securities 40,000 271,000
------------ ------------
Total current liabilities 2,222,779 2,810,091
------------ ------------
Commitments and contingencies (Note 12)
Shareholders' deficiency
Preferred stock - authorized
10,000,000 shares (inclusive
of Series A, B, C and D) at
$1 par value
Series A, authorized 1,000 shares,
issued and outstanding 1,000 shares
in 1995 1,000
Series B, authorized 10,000 shares,
issued and outstanding 3,250
shares in 1995 3,250
Series D, authorized 10,000 shares
in 1996, 5,000 shares in 1995,
issued and outstanding 3,000 shares
in 1995 3,000
Common stock - $.0001 par value;
authorized 750,000,000 shares in 1996, 250,000,000
shares in 1995, issued and outstanding 287,863,936
shares in 1996, 243,333,936 shares in 1995 28,787 24,333
Capital in excess of par value 11,763,002 10,432,957
Deficit accumulated during
development stage (13,918,378) (13,140,981)
------------ ------------
Shareholders' deficiency (2,126,589) ( 2,676,441)
------------ ------------
Total liabilities and
shareholders' deficiency $ 96,190 $ 133,650
============ ============
</TABLE>
F-4
<PAGE> 37
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS (RESTATED)
<TABLE>
<CAPTION>
Period from
November 13,
1980
(Inception)
to
Year Ended December 31, December 31,
--------------------------------------------
1996 1995 1994 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Development stage
expenses
Research and develop-
ment costs $ 21,500 $ 20,117 $ 5,160 $ 4,166,053
Professional fees 130,050 54,697 83,451 2,752,487
Other development
stage expenses 636,488 560,476 338,102 8,165,558
--------- --------- --------- ------------
Total development
stage expenses 788,038 635,290 426,713 15,084,098
Less - Revenue from
cost recovery program 118,082
--------- --------- --------- ------------
Net development
stage expenses 788,038 635,290 426,713 14,966,016
--------- --------- --------- ------------
Sales 40,774 62,506 21,939 837,377
Cost of sales 30,208 41,980 17,817 544,985
--------- --------- --------- ------------
Gross profit 10,566 20,526 4,122 292,392
--------- --------- --------- ------------
Other income
Investment and
other income 75 5,279 727,626
Management fees 20,000
Gain on sale of
equipment 7,620
--------- --------- --------- ------------
75 5,279 755,246
--------- --------- --------- ------------
Net loss ($777,397) ($609,485) ($422,591) ($13,918,378)
========= ========= ========= ============
Loss per common
share ($ .003) ($ .002) ($ .002) ($ .056)
========= ========= ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 38
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Capital subscriptions received
Net loss for the period from
November 13, 1980 (Inception) to
December 31, 1980
Balance, December 31, 1980
Common stock issued January 1981
($.0001 per share) 125,010,000 $12,501
Common stock issued January 1981
($.0001 per share) 24,990,000 2,499
Common stock issued January 1981
($.025 per share) 4,400,000 440
Common stock issued January 1981
($.025 per share) 200,000 20
Common stock issued March 1981
($.025 per share) 200,000 20
Common stock issued October 1981
($.05 per share) 20,000,000 2,000
Offering expenses
Warrants to purchase 1,000,000
shares of common stock at $.06
per share issued October 1981
($.0001 per share)
Net loss for the year ended
December 31, 1981
----------- -------
Balance, December 31, 1981 174,800,000 17,480
Common stock issued November 1982
($.40 per share) 20,000 2
Common stock issued November 1982
($.20 per share) 97,500 10
Common stock issued pursuant to
exercise of warrants December
1982 ($.06 per share) 1,000,000 100
Adjustment of offering expenses
Net loss for the year ended
December 31, 1982
----------- -------
Balance, December 31, 1982 175,917,500 17,592
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Preferred Stock Deficit Shareholders'
Series A, B and D Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
- ------ ------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
$ 65,000 $ 65,000
($ 50) ( 50)
---------- ---------- ----------
65,000 ( 50) 64,950
12,501 (1)
1 2,500 (3)
44,560 45,000 (3)
4,980 5,000 (2)
4,980 5,000 (2)
998,000 1,000,000 (3)
( 277,766) ( 277,766)
100 100
( 150,446) ( 150,446)
---------- ---------- ----------
839,855 ( 150,496) 706,839
7,998 8,000 (2)
19,490 19,500 (2)
59,900 60,000 (3)
1,500 1,500
( 428,634) ( 428,634)
---------- ---------- ----------
928,743 ( 579,130) 367,205
</TABLE>
F-6
<PAGE> 40
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Balance forward at December 31, 1982 175,917,500 17,592
Common stock issued January 1983
($.20 per share) 22,500 2
Common stock issued March 1983
($.020 per share) 30,000 3
Common stock issued pursuant to
exercise of stock options April
1983 ($.235 to $.305 per share) 100,000 10
Common stock issued June 1983
($.50 per share) 20,000 2
Common stock issued November 1983
($.50 per share) 6,500,000 650
Offering expenses
Common stock issued December 1983
($.50 per share) 800,000 80
Net loss for the year ended
December 31, 1983
----------- ------
Balance, December 31, 1983 183,390,000 18,339
Common stock issued pursuant to
exercise of Series A warrants
March 1984 to December 1984 ($.50
per share) 5,948 1
Common stock issued pursuant to
exercise of Series B warrants
March 1984 to October 1984 ($1.00
per share) 390
Common stock issued May 1984 to
December 1984 ($.25 per share) 76,500 8
Common stock issued May 1984 and
September 1984 ($.375 per share) 3,000
Common stock issued December 1984
($.20 per share) 350,000 35
Adjustment of offering expenses
Net loss for the year ended
December 31, 1984
----------- ------
Balance, December 31, 1984 183,825,838 18,383
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
Preferred Stock Deficit Shareholders'
Series A, B and D Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
- ------ ------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
928,743 ( 579,130) 367,205
4,498 4,500 (2)
5,997 6,000 (2)
28,740 28,750 (4)
9,998 10,000 (2)
3,249,350 3,250,000 (3)
( 94,685) ( 94,685)
399,920 400,000 (3)
( 702,429) ( 702,429)
---------- ---------- ----------
4,532,561 ( 1,281,559) 3,269,341
2,973 2,974 (3)
390 390 (3)
19,117 19,125 (2)
1,125 1,125 (2)
69,965 70,000 (2)
( 8,129) ( 8,129)
( 1,071,417) ( 1,071,417)
---------- ---------- ----------
4,618,002 ( 2,352,976) 2,283,409
</TABLE>
F-7
<PAGE> 42
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Balance forward at December 31, 1984 183,825,838 18,383
Common stock issued January 1985 to
October 1985 ($.28 per share) 26,500 3
Common stock issued March 1985 ($.34
per share) 5,000
Common stock issued March 1985 ($.25
per share) 20,000 2
Common stock issued pursuant to exercise
of Series A ($.50 per share) and
Series B ($1.00 per share) warrants 550
Common stock issued August 1985
($.375 per share) 2,000
Common stock issued November 1985
($.156 per share) 7,500 1
Net loss for the year ended
December 31, 1985
----------- ------
Balance, December 31, 1985 183,887,388 18,389
Common stock issued January 1986 to
October 1986 ($.19 per share) 85,000 8
Common stock issued February 1986
($.28 per share) 11,650 1
Common stock issued March 1986 ($.22
per share) 100,000 10
Common stock issued March 1986 ($.18
per share) 10,665,000 1,067
Offering expense
Common stock issued April 1986 to
September 1986 ($.16 per share) 202,000 20
Common stock issued November 1986 and
December 1986 ($.31 per share) 70,000 7
Common stock issued pursuant to
exercise of Series A ($.50 per
share) and Series B ($1.00 per
share) warrants 6,882 1
Common stock issued pursuant to
exercise of Series A and Series B
($.20 per share) warrants 134,855 13
Net loss for the year ended
December 31, 1986
----------- ------
Balance, December 31, 1986 195,162,775 19,516
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
Preferred Stock Deficit Shareholders'
Series A, B and D Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
- ------ ------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
4,618,002 ( 2,352,976) 2,283,409
7,450 7,453 (2)
1,719 1,719 (2)
4,998 5,000 (2)
300 300 (3)
750 750 (2)
1,171 1,172
( 1,649,361) ( 1,649,361)
---------- ---------- ----------
4,634,390 ( 4,002,337) 650,442
15,929 15,937 (2)
3,244 3,245 (2)
21,865 21,875 (2)
1,928,670 1,929,737 (5)
( 94,415) ( 94,415)
31,542 31,562 (2)
21,868 21,875 (2)
3,472 3,473 (3)
26,958 26,971 (3)
( 1,790,003) ( 1,790,003)
---------- ---------- ----------
6,593,523 ( 5,792,340) 820,699
</TABLE>
F-8
<PAGE> 44
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Shares Amount
<S> <C> <C>
Balance forward at December 31, 1986 195,162,775 19,516
Common stock issued January 1987
($.33 per share) 263,430 26
Common stock issued May and June 1987
($.25 per share) 145,500 14
Common stock issued July 1987
($.14 per share) 7,000 1
Common stock issued August 1987
($.24 per share) 67,180 7
Common stock issued October 1987
($.31 per share) 15,000 2
Common stock issued October 1987
($.20 per share) 240,000 24
Common stock issued December 1987
($.22 per share) 100,000 10
Common stock issued pursuant to
exercise of Series A and Series B
warrants ($.20 per share) 7,613,551 761
Net loss for the year ended
December 31, 1987
----------- ------
Balance, December 31, 1987 203,614,436 20,361
Common stock issued January 1988
($.25 per share) 125,000 12
Common stock issued January 1988
($.22 per share) 2,500 1
Common stock issued March 1988
($.20 per share) 10,000 1
Common stock issued March 1988
($.25 per share) 100,000 10
Common stock issued June 1988
($.20 per share) 4,227,000 423
Common stock issued September 1988
($.16 per share) 25,000 2
Common stock issued December 1988
($.01 per share) 11,000 1
Preferred stock-Series A issued
December 1988 ($100.00 per share)
Net loss for the year ended
December 31, 1988
----------- ------
Balance, December 31, 1988 208,114,936 20,811
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
Preferred Stock Deficit Shareholders'
Series A, B and D Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
<S> <C> <C> <C> <C>
6,593,523 ( 5,792,340) 820,699
87,657 87,683 (4)
36,723 36,737 (4)
999 1,000 (3)
16,163 16,170 (4)
4,686 4,688 (4)
47,976 48,000 (3)
21,865 21,875 (4)
1,521,949 1,522,710 (3)
( 1,655,959) ( 1,655,959)
----------- ----------- ----------
8,331,541 ( 7,448,299) 903,603
31,238 31,250 (2)
546 547 (2)
1,999 2,000 (3)
24,990 25,000 (3)
844,977 845,400 (3)
3,904 3,906 (2)
142 143 (2)
1,000 $1,000 99,000 100,000 (3)
( 1,372,913) ( 1,372,913)
- ----- ------ ----------- ----------- ----------
1,000 1,000 9,338,337 ( 8,821,212) 538,936
</TABLE>
F-9
<PAGE> 46
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Balance forward December 31, 1988 208,114,936 20,811
Common stock issued March 1989 and
May 1989 ($.08 per share) 500,000 50
Common stock issued May 1989 ($.09
per share) 3,000
Preferred stock-Series B issued
June 1989 and September 1989
($100.00 per share)
Net loss for the year ended
December 31, 1989
----------- ------
Balance, December 31, 1989 208,617,936 20,861
Common stock issued January 1990
($.01 per share) 25,000 3
Common stock issued July 1990
($.01 per share) 20,311,000 2,031
Common stock issued December 1990
($.01 per share) 10,500,000 1,050
Net loss for the year ended
December 31, 1990
----------- ------
Balance, December 31, 1990 239,453,936 23,945
Common stock issued January 1991
($.01 per share) 1,200,000 120
Common stock issued January 1991
($.0625 per share) 48,000 5
Common stock issued April 1991
($.01 per share) 1,500,000 150
Common stock issued April 1991
($.01 per share) 600,000 60
Common stock issued April 1991
($.0625 per share) 32,000 3
Common stock issued June 1991
($.01 per share) 500,000 50
Net loss for the year ended
December 31, 1991
----------- ------
Balance, December 31, 1991 243,333,936 24,333
Net loss for the year ended
December 31, 1992
----------- ------
Balance, December 31, 1992 243,333,936 24,333
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Preferred Stock Deficit Shareholders'
Series A, B and D Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
- ------ ------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
1,000 1,000 9,338,337 ( 8,821,212) 538,936
39,950 40,000 (3)
281 281 (2)
3,250 3,250 321,750 325,000 (6)
( 1,116,882) ( 1,116,882)
- ----- ------ ----------- ----------- ----------
4,250 4,250 9,700,318 ( 9,938,094) ( 212,665)
247 250 (2)
201,080 203,111 (3)
103,950 105,000 (3)
( 1,046,939) ( 1,046,939)
- ----- ------ ----------- ----------- ----------
4,250 4,250 10,005,595 ( 10,985,033) ( 951,243)
11,880 12,000 (4)
2,995 3,000 (7)
14,850 15,000 (4)
5,940 6,000 (7)
1,997 2,000 (7)
4,950 5,000 (7)
( 371,471) ( 371,471)
- ----- ------ ----------- ----------- ----------
4,250 4,250 10,048,207 ( 11,356,504) ( 1,279,714)
( 408,294) ( 408,294)
- ----- ------ ----------- ----------- ----------
4,250 4,250 10,048,207 ( 11,764,798) ( 1,688,008)
</TABLE>
F-10
<PAGE> 48
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Balance forward December 31, 1992 243,333,936 24,333
Net loss for the year ended
December 31, 1993
Balance, December 31, 1993 243,333,936 24,333
----------- ------
Net loss for the year ended
December 31, 1994
----------- ------
Balance, December 31, 1994 243,333,936 24,333
Stock options granted February
1995
Preferred stock-Series D issued
between June 1995 and December
1995 ($100.00 per share)
Net loss for the year ended
December 31, 1995
----------- ------
Balance, December 31, 1995 243,333,936 24,333
Stock options granted January
and February 1996
Preferred stock-Series D issued
January 1996 to July 1996
Common stock issued pursuant to
the conversion of preferred stock,
July 1996 Series A ($.08 per share),
Series B ($.0286 per share) and Series
D ($.05 per share) 28,725,000 2,873
Common stock contributed to the
Company by IMRCH August 1996 (15,368,820) (1,537)
Common stock issued July 1996
($.01 per share) 1,300,000 130
Common stock issued July 1996
($.02 per share) 12,900,000 1,290
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
Preferred Stock Deficit Shareholders'
Series A, B and D Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
<S> <C> <C> <C> <C>
4,250 4,250 10,048,207 ( 11,764,798) ( 1,688,008)
( 344,107) ( 344,107)
----- ------ ----------- ----------- ----------
4,250 4,250 10,048,207 ( 12,108,905) ( 2,032,115)
( 422,591) ( 422,591)
----- ------ ----------- ----------- ----------
4,250 4,250 10,048,207 ( 12,531,496) ( 2,454,706)
87,750 87,750
3,000 3,000 297,000 300,000 (3)
( 609,485) ( 609,485)
----- ------ ----------- ----------- ----------
7,250 7,250 10,432,957 ( 13,140,981) ( 2,676,441)
75,530 75,530
5,050 5,050 499,950 505,000 (3)
(12,300) (12,300) 9,427 -0-
1,537 -0-
12,870 13,000 (3)
256,710 258,000 (3)
</TABLE>
F-11
<PAGE> 50
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Common stock issued August 1996
($.02 per share) 11,150,000 1,115
Common stock issued August 1996
($.0238 per share) 420,000 42
Common stock issued August 1996
($.0258 per share) 350,000 35
Common stock issued July 1996
($.03 per share) 300,000 30
Common stock issued August 1996
($.035 per share) 428,600 43
Common stock issued August 1996
($.0345 per share) 1,695,000 170
Common stock issued August 1996
($.04 per share) 250,000 25
Common stock issued November 1996
($.04 per share) 75,000 7
Common stock issued July 1996
to November 1996 ($.05 per share) 480,000 48
Common stock issued
($.05 per share) August 1996 1,075,220 108
Common stock issued September 1996
($.065 per share) 100,000 10
Common stock issued July 1996
($.08 per share) 400,000 40
Common stock issued September 1996
($.085 per share) 250,000 25
Net loss for the year
ended December 31, 1996 ----------- -------
287,863,936 $28,787
=========== =======
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
Preferred Stock
Series A, B and D Deficit Shareholders'
- ----------------- Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
- ------ ------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
221,885 223,000 (10)
9,958 10,000 (10)
8,997 9,032 (10)
8,970 9,000 (10)
14,957 15,000 (10)
59,005 59,175 (10)
9,975 10,000 (10)
2,993 3,000 (10)
23,952 24,000 (10)
53,654 53,762 (10)
6,490 6,500 (10)
31,960 32,000
21,225 21,250 (10)
( 777,397) ( 777,397)
- ------ -------- ----------- ----------- ----------
-0- $ -0- $11,763,002 ($13,918,378) ($2,126,589)
====== ======== =========== =========== ==========
</TABLE>
F-12
<PAGE> 52
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)(RESTATED)(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
(1) Shares were issued to International Management & Research
Corporation in consideration for all rights to develop certain
products. The rights were valued at the par value of the shares
issued.
(2) Shares were issued in consideration for services rendered at
various dates. The services were valued at the market price of
the stock on the date of the transaction.
(3) Shares were issued for cash.
(4) Shares were issued for cash and services.
(5) Shares were issued for cash and surrendering of warrants
as a credit against the March 1986 offering.
(6) Shares were issued for cash and repayment of a note
payable in the amount of $125,000.
(7) Shares were issued as repayment of funds received for
convertible debentures, which were never issued.
(8) Shares were issued as repayment of notes payable.
(9) Shares were issued as payment of interest on loans.
(10) Shares were issued as payment for liabilities of IMRC,
assumed by Biosonics, Inc.
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 53
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (RESTATED)
<TABLE>
<CAPTION>
Period from
November 13,
1980
Year Ended December 31, (Inception) to
------------------------------------------------------ December 31,
1996 1995 1994 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss ($777,397) ($609,485) ($422,591) ($13,918,378)
-------- -------- -------- -----------
Adjustments to
reconcile net loss
to net cash used
in operating
activities
Depreciation and
amortization 10,004 20,117 4,835 378,687
Increase (decrease)
in allowance for
doubtful accounts ( 4,000) ( 7,000) 2,000
Increase (decrease)
in reserve for
inventory
obsolescence ( 13,000) 27,000
Loss on lease
abandonment 19,550
Gain on sale of
equipment ( 7,620)
Common stock issued
for services 85,750 543,959
Common stock
options issued
for services 75,530 87,750 163,280
Common stock
issued for
product rights 12,501
Changes in
operating assets
and liabilities
Accounts
receivable 16,817 ( 16,543) 10,161 ( 10,196)
Inventories 18,813 15,603 3,687 ( 91,271)
Prepaid expenses
and other
current assets 8,828 ( 2,121) ( 6,119) ( 25)
Accounts payable
and accrued
expenses 213,655 225,940 176,483 1,973,304
-------- -------- -------- -----------
412,397 330,746 182,047 3,011,169
-------- -------- -------- -----------
Net cash used
in operating
activities ( 365,000) ( 278,739) ( 240,544) ( 10,907,209)
-------- -------- -------- -----------
</TABLE>
F-14
<PAGE> 54
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (RESTATED)
(Continued)
<TABLE>
<CAPTION>
Period from
November 13,
1980
Year Ended December 31, (Inception) to
--------------------------------------------- December 31,
1996 1995 1994 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from
investing activities
Capital expenditures ( 31,261) ( 363,305)
Proceeds from sale
of equipment 10,825
Issuance of note
receivable ( 30,000)
Increase in deposits ( 8,431)
Decrease in note
receivable 30,000
Patent expenditures ( 45,690)
-------- -------------
Net cash used in
investing activities ( 31,261) ( 406,601)
-------- -------------
Cash flows from
financing activities
Payments received for
unissued debentures
and securities 40,000 498,000
Principal payments
of note payable (235,000) ( 307,000)
Proceeds from issuance
of notes payable 45,000 10,000 240,544 834,444
Increase in capitalized
organization costs ( 7,453)
Proceeds from
issuance of
preferred stock 505,000 300,000 1,105,000
Proceeds from issuance
of common stock 10,000 9,191,079
------- -------- -------- -------------
Net cash provided
by financing
activities 365,000 310,000 240,544 11,314,070
------- -------- -------- -------------
Net increase in cash 260
Cash, beginning 260 260 260
------- -------- -------- -------------
Cash, ending $ 260 $ 260 $ 260 $ 260
======= ======== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 55
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1. Organization
Since November 1980, Biosonics, Inc. has pursued the development of medical
devices. Since the Company has not significantly commenced the production
and sale of the medical devices, it is classified as a development stage
enterprise in accordance with Statement of Financial Accounting Standard
No. 7.
IMRC Holdings, Inc. (IMRCH) owned 38% and 50% of the Company's common stock
at December 31, 1996 and 1995, respectively. IMRCH is a wholly-owned
subsidiary of International Management & Research Corporation (IMRC). The
Company's president owns approximately 4% of the common stock of the
Company and also owns approximately 40% of the common stock of IMRC.
2. Summary of significant accounting policies
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash transactions
During 1996, 1995 and 1994, IMRC acted as the receiving and disbursing
agent for all cash receipts and disbursements for the Company.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by use of the first-in, first-out method. The Company provides a reserve
for inventories which may become obsolete.
Equipment, furniture and leaseholds
Equipment, furniture and leaseholds are recorded at cost. Depreciation for
financial and income tax reporting purposes is provided over the estimated
useful lives of the assets using the straight-line and double
declining-balance methods.
F-16
<PAGE> 56
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
2. Summary of significant accounting policies (Continued)
Loss per share
Loss per share was calculated based on the weighted average number of
shares outstanding of 261,976,354 in 1996 and 243,333,936 in 1995 and 1994.
Common stock equivalents, including convertible preferred stock and common
stock options outstanding, are not included in the calculation of loss per
share amounts for each period because they would be anti-dilutive.
Deferred income taxes
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax bases of the Company's assets and
liabilities.
Stock based compensation
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," which
encourages, but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued To Employees," and the related
interpretations. Accordingly, compensation cost is measured as the excess
of the quoted market price of the Company's stock on the grant date over
the price which the employee must pay to acquire the stock. Also in
accordance with SFAS No. 123, the Company records an expense for the fair
value of stock options issued in exchange for services provided by
non-employees.
3. Restatement of financial statements
The Company has restated its financial statements for the years ended
December 31, 1996 and 1995. This was necessary because the Company had
granted stock options to non-employees in 1996 and 1995 in exchange for
various services provided to the Company. The value of these options and
the related services received were not previously reflected in the
Company's 1996 and 1995 financial statements.
The effect on the Company's financial statements as originally reported is
as follows:
F-17
<PAGE> 57
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
3. Restatement of financial information (Continued)
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------------
As reported As restated As reported As restated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other development
stage expenses $ 560,958 $ 636,488 $ 472,726 $ 560,476
Net loss (701,867) (777,397) (521,735) (609,485)
Loss per common
share ($.003) ($.003) ($.002) ($.002)
Capital in excess
of par value 11,599,722 11,763,002 10,345,207 10,432,957
Accumulated
deficit, ending (13,755,098) (13,918,378) (13,053,231) (13,140,981)
</TABLE>
4. Results of operations
The Company incurred net losses of $777,397, $609,485 and $422,591 for the
years ended December 31, 1996, 1995 and 1994, respectively, and at December
31, 1996, the Company had a shareholders' deficiency of $2,126,589.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered
recurring losses from operations and has a net shareholders' deficiency
that raise substantial doubt about its ability to continue as a going
concern.
Management plans to meet its financial requirements necessary to continue
in operations by seeking additional equity and debt financing through
private placement or public offerings, joint venture arrangements and
product sales. Management believes that the steps it has taken in revising
its operating and financial requirements provides the Company with the
ability to continue in existence. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
5. Inventories
Inventories at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Raw material 20,166 $ 36,803
Finished goods 71,105 73,281
------- --------
91,271 110,084
Less reserve for obsolescence 27,000 40,000
------- --------
$64,271 $ 70,084
======= ========
</TABLE>
F-18
<PAGE> 58
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
6. Equipment, furniture and leaseholds
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Leasehold improvements $ 3,100 $ 3,100
Machinery and equipment 48,745 48,745
Office equipment 64,325 64,325
Furniture and fixtures 138,636 138,636
-------- --------
254,806 254,806
Less accumulated depreciation
and amortization 239,799 229,795
-------- --------
$ 15,007 $ 25,011
======== ========
</TABLE>
Depreciation expense was $10,004 in 1996, $20,117 in 1995 and $4,835 in
1994.
7. Accounts payable and accrued expenses
Included in accounts payable and accrued expenses are amounts due from (to)
affiliates totalling $70,574 and ($24,571) at December 31, 1996 and 1995,
respectively.
8. Notes payable
Notes payable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Unsecured notes payable on demand to
an officer of the Company, bearing
interest at prime plus 1.5% per
annum (effective rate of 8.25% at
December 31, 1996) $115,000 $135,000
Two notes payable on demand,secured
by inventory, bearing interest at 12%
per annum on $10,000 and 11 1/2%
per annum on $25,000 35,000 35,000
Unsecured, non-interest bearing
notes payable on demand 138,000 93,000
Unsecured notes payable on demand to
IMRC, bearing interest at 7% per
annum 397,444
-------- --------
$288,000 $660,444
======== ========
</TABLE>
See also Note 12 - "Unissued Securities".
F-19
<PAGE> 59
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
9. Payments received for unissued debentures and securities
Payments received for unissued debentures and securities at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
In October 1989, the Company offered
to its shareholders the right to
subscribe to 11.5% convertible
debentures. Interest is accrued at
11.5% on these funds (See Note 12). $187,000 $187,000
Cash received for stock, not yet
issued (See Notes 10 & 12). 40,000 271,000
-------- --------
$227,000 $458,000
======== ========
</TABLE>
10. Shareholders' equity
IMRCH and the Company's current officers and directors held in the
aggregate, approximately 42% of the Company's outstanding common stock at
December 31, 1996 and 59% at December 31, 1995. Some of these shares have
been gifted to various entities and individuals. These shares are subject
to a securities restriction agreement which provides that such shareholders
will not sell any of their shares of the Company's common stock for less
than $.05 per share.
In July 1996, the Company amended its articles of incorporation to increase
the number of shares of authorized common stock from 250,000,000 to
750,000,000. The Company then issued a total of 1,300,000 shares to various
entities who performed consulting services for the Company. The Company
also issued 14,200,000 shares to individuals who had given the Company a
total of $271,000 for common and preferred stock in prior years, when the
Company did not have enough shares authorized to issue them.
The Company received 15,368,820 shares of its common stock in July 1996
from IMRCH and then issued these shares to various individuals to settle
liabilities of IMRC (See Note 12).
F-20
<PAGE> 60
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
10. Shareholders' equity (Continued)
In 1987, the Company issued 591,110 shares of common stock to individuals
as compensation for services rendered.
During the year ended December 31, 1983, the Company issued 7,300,000
warrants to purchase Company common stock at $.50 per share until November
23, 1984 ("Series A warrants") and 3,650,000 warrants to purchase Company
common stock at $1.00 per share until April 23, 1985 ("Series B warrants")
in connection with the sale to its shareholders of 3,650,000 units,
consisting of two shares of common stock, two Series A warrants and one
Series B warrant, at $1.00 per unit. On October 15, 1984, the Company
extended the expiration date for the Series A warrants and Series B
warrants to November 23, 1985 and April 23, 1986, respectively.
On March 31, 1986, the Company extended the expiration date of the Series A
and B warrants to April 23, 1987 and the exercise price of such warrants
was reduced to $.20 per share. As a result, the terms of the Series A and B
warrants were identical. There were 9,446,286 Series A and B warrants
outstanding at December 31, 1986. In 1987, 7,613,551 Series A and Series B
warrants were exercised. As a result, the Company issued 7,613,551 shares
of common stock and received $1,522,710 of additional equity. The remaining
1,832,735 of Series A and Series B warrants expired on April 23, 1987.
During the year ended December 31, 1983, the shareholders approved an
incentive stock option plan for the Company's employees. Two million shares
of common stock were reserved for issuance under the plan. Under the plan,
options may be granted to purchase shares of the Company's stock at a price
equal to at least the average of the closing bid and asked prices of the
Company's stock on the date of grant. The options generally become
exercisable upon the achievement of certain milestones in the development
of the Company's products. The options terminate after ten years from the
date of grant or after termination of the individual's services to the
Company, whichever comes first. No charge to income will result from the
grant or exercise of the options. As of December 31, 1996 and 1995, there
were no options outstanding under the employee incentive stock option plan.
F-21
<PAGE> 61
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
10. Shareholders' equity (Continued)
In December 1988, the Company sold 1,000 shares of its preferred
stock-Series A for $100,000 ($100 per share). Each share of preferred
stock-Series A is convertible, upon the option of the holder, into 1,250
shares of common stock. In addition, the holders of the preferred
stock-Series A shall have the right to vote on all matters as to which
holders of common stock have a right to vote, and such voting rights shall
be exercised on an as-converted basis.
In June 1989, the Company sold 2,000 shares of its preferred stock-Series B
for $200,000 ($100 per share). The preferred stock-Series B is non-voting
and does not participate in dividends. Each share of the preferred
stock-Series B is entitled to a liquidation preference of $100. These
shares are redeemable for cash at the option of the Company at $105 per
share.
In September 1989, the Company issued 1,250 shares of its preferred
stock-Series B to an officer in exchange for $125,000 of a demand note
payable. In April, 1996 the Company amended its resolution of June 1989,
which authorized preferred stock, Series B, to allow shares to be
convertible, upon the option of the holder, into 3500 shares of common
stock.
The Company has authorized 1,000 shares of preferred stock-Series C, none
of which was issued at December 31, 1995 and 1994. Each share of preferred
stock-Series C is convertible, upon the option of the holder, into 10,000
shares of common stock and does not participate in dividends. In addition,
the holders of the preferred stock-Series C shall have the right to vote on
all matters as to which holders of common stock have a right to vote, and
such voting rights shall be exercised on an as-converted basis.
F-22
<PAGE> 62
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
10. Shareholders' equity (Continued)
Between June and December, 1995, the Company authorized 5,000 and issued
3,000 shares of its preferred stock-Series D for $300,000 ($100 per share).
Between January and July 1996, the Company authorized an additional 5,000
shares and issued an additional 5,050 shares of its preferred stock-Series
D for $505,000 ($100 per share). Each share of preferred stock-Series D is
convertible, upon the option of the holder, into 2,000 shares of common
stock. Each share of the preferred stock-Series D is entitled to a
liquidation preference of $100. These shares are redeemable for cash at the
option of the Company at $120 per share any time on or after May 1, 1997.
In addition, the holders of the preferred stock-Series D shall have the
right to vote on all matters as to which holders of common stock have a
right to vote, and such voting rights shall be exercised on an as-converted
basis.
In July 1996, all holders of preferred stock - Series A, B and D converted
their shares of preferred stock into common stock of the Company, pursuant
to the formulas in the respective preferred stock agreements. The total
number of shares of common stock issued as a result of these conversions
was 28,725,000, including 7,000,000 to IMRC and 4,375,000 to the Company's
president.
In February 1995, the Company granted to non-employees common stock options
for 10,000,000 shares, exercisable at .01 per share. In January and
February 1996, the Company granted common stock options to non-employees
for 6,000,000 shares, exercisable at .02 per share. These options were
issued in exchange for various services performed on the Company's behalf.
Transfer of the shares, issued upon the exercise of the options, will be
restricted subject to registration requirements of the Securities Act of
1933 or an exemption from such requirements such as Rule 144 of the SEC.
The fair value of these options was estimated on the grant dates using the
Black-Scholes option-pricing model with the following assumptions used for
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 125%-132% 138%
Risk-free interest rate 6% 6%
Expected lives 2 years 2-4 years
Discount for lack of marketability 35% 35%
Estimated fair value $75,530 $87,750
</TABLE>
The estimated fair value of these options is included in other development
stage expenses in the accompanying financial statements.
F-23
<PAGE> 63
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
10. Shareholders' equity (Continued)
In May 1996, the Company issued a stock option to an employee for 250,000
shares, exercisable at .05 per share. Transfer of the shares, issued upon
the exercise of the options, will be restricted subject to registration
requirements of the Securities Act of 1933 or an exemption from such
requirements such as Rule 144 of the SEC. The Company has adopted the
disclosure- only provisions of Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for this option. Had compensation
costs been recognized for this option, the Company's 1996 net loss would
have been increased by $10,644 and there would have been no effect on the
Company's loss per common share. This estimated fair value was also based
on the Black-Scholes option-pricing model with the following assumptions:
Dividend yield of 0%; expected volatility of 128%; risk-free interest rate
of 6%; expected life of 2 years; discount for lack of marketability of 35%.
At December 31, 1996, none of the stock options issued in 1996 and 1995 had
been exercised.
11. Income taxes
The Company has available at December 31, 1996, unused operating loss
carryforwards and tax credits, which may provide future tax benefits
expiring as follows:
<TABLE>
<CAPTION>
Year of expiration Carryforwards Credits
------------------ ------------- -------
<S> <C> <C>
1997 $ 384,000 $224,000
1998 766,000
1999 1,055,000 7,000
2000 1,642,000 2,000
2001 1,781,000
2002 1,617,000
2003 1,364,000
2004 1,105,000
2005 788,000
2006 434,000
2007 278,000
2008 250,000
2009 308,000
2010 401,000
2011 643,000
----------- --------
$12,816,000 $233,000
=========== ========
</TABLE>
F-24
<PAGE> 64
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
11. Income taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforwards $4,357,000 $4,220,000
Tax credits 79,000 79,000
Accrued payroll, officer 228,000 193,000
Stock options outstanding 55,000 30,000
Other temporary differences 14,000
---------- ----------
4,733,000 4,522,000
Less valuation allowance 4,733,000 4,522,000
---------- ----------
Net deferred tax asset $ -0- $ -0-
========== ==========
</TABLE>
SFAS No. 109 requires that the Company record a valuation allowance when it
is "more likely than not that some portion or all of the deferred tax
assets will not be realized." It further states that "forming a conclusion
that a valuation allowance is not needed is difficult when there is
negative evidence such as cumulative losses in recent years." As the
ultimate utilization of net operating loss carryforwards and tax credits
depends on the Company's ability to generate sufficient taxable income in
the future, the losses in recent years and the Company's desire to be
conservative make it appropriate to record a valuation allowance.
12. Commitments and contingencies
Lease
The Company leases its executive offices under a noncancellable operating
lease which expires in September 1998. The minimum future rental payments
required under this lease are $40,035 in 1997 and $30,026 in 1998.
Rent expense was $39,333, $33,861 and $31,206 for the years ended December
31, 1996, 1995 and 1994, respectively.
Liens
Included in accounts and notes payable are liabilities for which certain
vendors and officers have secured liens against the Company's assets.
F-25
<PAGE> 65
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
12. Commitments and contingencies (Continued)
Consulting arrangement
The Company formed a Salitron Medical Advisory Board whose chairman is
entitled to receive compensation in the amount of $25,000 at December 31,
1995. In addition, upon serving a minimum of two years, board members are
entitled to certain shares of the Company's common stock. In 1996, 300,000
shares valued at $9,000 were issued under this arrangement.
Legal matters
Convertible debenture offering
In 1989 Biosonics, Inc. raised $207,000 through a public offering of its
11.5% convertible debentures. The Company terminated the offering prior to
completion. Debentures were not returned to the investors with the
exception of $4,000. Biosonics did offer investors the right to convert
amounts paid for the unissued debentures into the Company's common stock
and $16,000 of said amount was converted into 1,180,000 shares of common
stock.
Unissued securities
In 1996, Biosonics, Inc. received $40,000 for 800,000 shares of common
stock which are expected to be issued in 1997. In 1990 and 1992 Biosonics
raised $271,000 for common and convertible preferred stock which was issued
in 1996.
During 1993 and 1994, IMRC borrowed an aggregate of $335,000, $120,000 of
which was pursuant to loans that were convertible into Biosonics common
stock owned by IMRCH, at $.01 and $.02 per share. With respect to $215,000
of the loans, IMRCH agreed to issue to the lenders 3,000,000 shares of
Biosonics common stock owned by IMRCH. These shares were issued by IMRCH in
1996. In addition, during 1994, IMRCH raised $190,161 through the sale of
Biosonics common stock owned by IMRCH at a range of $.02 to $.05 per share.
In 1996, Biosonics assumed the obligations of the IMRC loans totaling
$335,000. In addition, Biosonics assumed IMRC's obligation in connection
with the $190,161 raised by IMRC for the sale of Biosonics stock. Biosonics
also assumed $68,207 in loans and accrued interest owed to family members
of the Company's president by IMRC. These obligations were then settled by
Biosonics through the conversion of these liabilities into 15,368,820
shares of Biosonics common stock.
F-26
<PAGE> 66
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
11. Commitments and contingencies (Continued)
Legal matters (Continued)
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and entities owning more than ten per cent of a Company's common
stock to file reports of changes in ownership with the SEC and to provide
the Company with copies of such forms.
The Company has noted that IMRCH may have been required to file and has not
filed required forms reporting the transactions described in the preceding
paragraph. In addition, the Company's president did not file required forms
reflecting gifts aggregating approximately 3,800,000 shares of the
Company's stock in 1992, 1993 and 1996, and the conversions of preferred
stock to common stock in 1996.
Other
The Company and its president were parties to a lawsuit filed by a
shareholder in March 1996 in connection with certain of the Company's
common stock restricted under Rule 144 of the Securities Exchange Act. The
suit alleged that the Company and its President failed to provide
documentation to the shareholder for release of the Rule 144 restriction.
The shareholder sought damages in excess of $50,000. The lawsuit was
settled and voluntarily terminated by the shareholder in May 1996. Neither
the Company or its president incurred any liability in connection with
resolution of the matter.
12. Supplemental disclosure of cash flow information
<TABLE>
<CAPTION>
Period from
November 13,
Year Ended December 31, 1980 (Inception)
------------------------------------ to December 31,
1996 1995 1994 1996
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Cash paid for
Interest $-0- $128 $-0- $33,031
=== ==== === =======
</TABLE>
F-27
<PAGE> 67
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
12. Supplemental disclosure of cash flow information (Continued)
Supplemental schedule of noncash financing activities
The Company issued the following amounts of common stock for noncash
consideration:
<TABLE>
<CAPTION>
Period from
November 13,
Year Ended December 31 1980 (Inception)
------------------------------------ to December 31,
1996 1995 1994 1996
-------- ------- ------- ----------
<S> <C> <C> <C> <C>
Common stock not
previously
issued $271,000 -- -- $ 271,000
Employee
compensation,
consulting
services 82,750 -- -- 536,959
Services provided
in exchange for
stock options 75,530 87,750 -- 163,280
Loan origination
fee -- -- -- 4,000
Acquisition of
product rights -- -- -- 12,501
Repayment of
accrued expenses
to IMRC 197,524 -- -- 197,524
Interest expense 3,000 -- -- 3,000
Repayment of
notes payable
to IMRC 182,444 -- -- 182,444
-------- ------- ------- ----------
$812,248 $87,750 $ -0- $1,370,708
======== ======= ======= ==========
</TABLE>
In September 1989, preferred stock-Series B was issued upon the conversion
of $125,000 of demand note payable.
In 1993, the Company converted accounts payable to a note payable on demand
for $68,000.
13. Interest expense
Interest expense for the years ended December 31, 1996, 1995, and 1994 was
$55,608, $66,742 and $52,129, respectively.
F-28
<PAGE> 68
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
13. Interest expense (Continued)
Included in interest expense is $11,917, $13,591 and $11,872 for loans from
the Company's president for the years ended December 31, 1996, 1995 and
1994, respectively.
Also included in interest expense is $14,595, $27,646 and $15,193 for a
loan from IMRC for the years ended December 31, 1996, 1995 and 1994,
respectively.
14. Quarterly results (Unaudited)
<TABLE>
<CAPTION>
Gross
Profit Net Loss
Sales (Loss) Net Loss Per Share
----- ------ -------- ---------
<S> <C> <C> <C> <C>
1996 - 1st Quarter $17,516 $ 8,918 ($177,353) ($.001)
2nd Quarter 11,609 3,855 (142,381) (.001)
3rd Quarter 5,786 (1,164) (324,708) (.001)
4th Quarter 5,863 (1,043) (132,955) (.000)
------- -------- --------- -----
Total $40,774 $ 10,566 ($777,397) ($.003)
======= ======== ========= =====
1995 - 1st Quarter $10,595 $ 3,618 ($244,453) ($.001)
2nd Quarter 11,931 3,833 (158,632) (.001)
3rd Quarter 23,190 5,168 (114,027) (.000)
4th Quarter 16,790 7,907 (92,373) (.000)
------- -------- --------- -----
Total $62,506 $ 20,526 ($609,485) ($.002)
======= ======== ========= =====
1994 - 1st Quarter $ 4,636 $ 4,592 ($ 66,160) ($.000)
2nd Quarter 6,680 (581) (72,732) (.000)
3rd Quarter 5,248 (1,979) (85,605) (.001)
4th Quarter 5,375 2,090 (198,094) (.001)
------- -------- --------- -----
Total $21,939 $ 4,122 ($422,591) ($.002)
======= ======== ========= =====
</TABLE>
F-29
<PAGE> 69
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Unaudited
JUNE 30 DECEMBER 31,
1997 1996
<S> <C> <C>
Current assets
Cash (including interest bearing deposits
of $10 in 1997 and 1996) $ 260 $ 260
Accounts receivable (net of allowance for doubtful
accounts of $2,000 in 1997 and 1996) 8,829 8,196
Inventory 63,725 64,271
Prepaid expenses and other current assets 6,377 25
------------ ------------
Total current assets 79,191 72,752
Equipment, furniture and leaseholds, net
of accumulated depreciation 12,005 15,007
Deposits 8,431 8,431
------------ ------------
Total assets $ 99,627 $ 96,190
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Notes payable $ 243,000 $ 288,000
Accounts payable and accrued expenses 1,616,853 1,707,779
Bonds unissued 187,000 187,000
Proceeds for common stock unissued 0 40,000
------------ ------------
Total current liabilities 2,046,853 2,222,779
------------ ------------
Shareholders' deficit
Common stock - authorized 750,000,000 shares at .0001 par value; issued
and outstanding 306,364,536 and 287,863,936 shares at
June 30, 1997 and December 31, 1996 respectively 30,636 28,787
Capital in excess of par value 12,468,180 11,763,002
Notes receivable from sale of stock (115,000)
Deficit accumulated during development stage (14,331,042) (13,918,378)
------------ ------------
Total shareholders' deficit (1,947,226) (2,126,589)
------------ ------------
Total liabilities and shareholders' deficit $ 99,627 $ 96,190
============ ============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-30
<PAGE> 70
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED THREE MONTHS ENDED 11/13/80 (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
-------- -------- -----------
1997 1996 1997 1996 1997 1996
--------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Development stage expenses
Research and development costs $ 0 $ 0 $ 0 $ 0 $ 4,166,053 $ 4,144,553
Professional fees 132,588 37,000 77,448 18,044 2,885,075 2,659,437
Other development stage expenses 287,545 220,238 142,377 122,835 8,453,103 7,661,558
----------- ---------- ---------- ---------- ------------- ------------
Total development stage expenses 420,133 257,238 219,825 140,879 15,504,231 14,465,548
Less: Revenues from cost recovery
program - - - - 118,082 118,082
----------- ---------- ---------- ---------- ------------- ------------
Net development stage expenses 420,133 257,238 219,825 140,879 15,386,149 14,347,466
----------- ---------- ---------- ---------- ------------- ------------
Sales 13,550 29,125 7,925 11,609 850,927 825,728
Cost of sales 8,297 16,166 4,893 13,111 553,282 530,943
----------- ---------- ---------- ---------- ------------- ------------
Gross profit 5,253 12,959 3,032 ( 1,502) 297,645 294,785
----------- ---------- ---------- ---------- ------------- ------------
Other income
Investment and other income 2,216 75 1,224 - 749,842 747,626
Gain on sale of fixed assets - - - - 7,620 7,620
----------- ---------- ---------- ---------- ------------- ------------
Total other income 2,216 75 1,224 - 757,463 755,246
----------- ---------- ---------- ---------- ------------- ------------
Net loss $( 412,664) $( 244,204) $( 215,569) $( 142,381) $( 14,331,042) $( 13,297,435)
=========== ========== ========== ========== ============= ============
Loss per common share $(.001) $(.001) $(.000) $(.000) $(.047) $(.054)
=========== ========== ========== ========== ============= ============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-31
<PAGE> 71
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SIX MONTHS ENDED 11/13/80 (INCEPTION)
JUNE 30, TO JUNE 30,
1997 1996 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
BEGINNING BALANCE ($13,918,378) ($13,053,231) $ - $ -
NET LOSS ( 412,664) ( 244,204) (14,331,042) (13,297,435)
------------ ------------ ----------- ------------
ENDING BALANCE ($14,331,042) ($13,297,435) ($14,331,042) ($13,297,435)
============ ============ ============ ============
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-32
<PAGE> 72
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED 11/13/80 (INCEPTION)
JUNE 30, TO JUNE 30,
-------- -----------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows used in operating activities
Net loss $(412,664) $(244,204) $(14,331.042) $(13,297,435)
--------- --------- ------------ ------------
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 3,002 2,670 381,689 371,353
Increase in allowance for doubtful accounts - - 2,000 2,000
Increase in reserve for inventory obsolescence - - 27,000 40,000
Loss on lease abandonment - - 19,550 19,550
Gain on sale of fixed assets - - (7,620) (7,620)
Common stock issued for services 29,500 - 573,459 458,209
Common stock options issued for services 14,398 - 177,678 -
Common stock issued for interest 10,000 - 10,000 -
Common stock issued for product rights - - 12,501 12,501
Change in
Accounts receivable (633) 4,802 (10,829) (18,211)
Inventory 546 4,195 (90,725) (105,889)
Prepaid expenses and other current assets (6,352) (3,347) (6,377) (12,198)
Accounts payable and accrued expenses (90,926) 95,884 1,882,378 1,855,531
--------- --------- ------------ ------------
Total adjustments (40,465) 104,204 2,970,704 2,615,226
--------- --------- ------------ ------------
Net cash used in operating activities $(453,129) $(140,000) $(11,360,338) $(10,682,209)
--------- --------- ------------ ------------
Cash flows from investing activities
Sale of fixed assets $ - $ - $ 10,825 $ 10,825
Capital expenditures - - (363,305) (363,305)
Issuance of note receivable - - (30,000) (30,000)
(Increase) decrease in deposits - - (8,431) (8,431)
Decrease in note receivable - - 30,000 30,000
Decrease in capitalized patents - - (45,690) (45,690)
--------- --------- ------------ ------------
Net cash provided (used) in investing activities $ - $ - $ (406,601) $ (406,601)
========= ========= ============= ============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-33
<PAGE> 73
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED 11/13/80 (INCEPTION)
JUNE 30, TO MARCH 31,
-------- -------------
1997 1996 1997 1996
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from financing activities
Proceeds for bonds unissued $ - $ - $ 190,000 $ 190,000
Repayments for bonds unissued - - (3,000) (3,000)
Proceeds for common stock unissued 239,530 - 550,530 271,000
Principal payments of note payable (45,000) (225,000) (352,000) (297,000)
Proceeds from issuance of note payable - - 834,444 789,444
Decrease in capitalized organization costs - - (7,453) (7,453)
Proceeds from issuance of preferred stock - 365,000 1,105,000 965,000
Proceeds from issuance of common stock 258,599 - 9,449,678 9,181,079
--------- --------- ------------ ------------
Net cash provided by financing activities $(453,129) $ 140,000 $ 11,767,199 $ 11,089,070
--------- --------- ------------ ------------
Net increase (decrease) in cash and cash equivalents - - 260 260
Cash and cash equivalents, beginning 260 260 - -
--------- --------- ------------ ------------
Cash and cash equivalents, ending $ 260 $ 260 $ 260 $ 260
========= ========= ============ ============
Schedule of noncash financing transactions:
Issuance of common stock from Loan Receivable: $ 115,000 $ - $ 115,000 $ -
========= ========= ============ ============
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-34
<PAGE> 74
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY - PAID-IN CAPITAL
NOVEMBER 13, 1980 (INCEPTION) TO JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DATE STOCK PRICE
ISSUED NUMBER OF SHARES PER SHARE AMOUNT RECEIVED NOTES
---------- ---------------- --------- --------------- -----
<S> <C> <C> <C> <C>
1/13/81 150,000,000 $.0001 $ 15,001 (A)
1/31/81 4,400,000 .025 110,000 (B)
1981 400,000 .025 10,000 (C)
1981 20,000,000 .05 1,000,000 (B)
1982 20,000 .40 8,000 (C)
1982 97,500 .20 19,500 (C)
1982 1,000,000 .06 60,100 (D)
1983 52,500 .20 10,500 (C)
1983 75,000 .305 22,875 (E)
1983 25,000 .235 5,875 (E)
1983 20,000 .50 10,000 (C)
12/29/83 7,300,000 .50 3,650,000 (F)
1984 390 1.00 390 (G)
1984 5,948 .50 2,975 (G)
1984 1,000 .375 375 (C)
1984 72,500 .25 18,125 (C)
1984 2,000 .375 750 (H)
1984 4,000 .25 1,000 (C)
1984 350,000 .20 70,000 (C)
1985 26,500 .281 7,453 (C)
1985 20,000 .25 5,000 (H)
1985 500 .50 250 (G)
1985 5,000 .344 1,719 (C)
1985 50 1.00 50 (G)
1985 2,000 .375 750 (H)
1985 7,500 .156 1,172 (C)
1986 6,882 .50 3,472 (G)
1986 85,000 .1875 15,938 (H)
1986 11,650 .281 3,276 (H)
1986 100,000 .219 21,875 (H)
1986 10,665,000 .181 1,929,737 (I)
1986 202,000 .156 31,562 (H)
1986 70,000 .313 21,875 (H)
1986 134,855 .20 26,939 (H)
1987 7,613,551 .20 1,522,710 (G)
1987 476,110 .295 140,478 (H)
1987 7,000 .159 1,113 (B)
1987 15,000 .312 4,687 (C)
1987 240,000 .20 48,000 (B)
1987 100,000 .218 21,875 (C)
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-35
<PAGE> 75
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY - PAID-IN CAPITAL (CONTINUED)
NOVEMBER 13, 1980 (INCEPTION) TO JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DATE STOCK PRICE
ISSUED NUMBER OF SHARES PER SHARE AMOUNT RECEIVED NOTES
---------- ---------------- --------- --------------- -----
<S> <C> <C> <C> <C>
1988 125,000 .25 31,250 (C)
1988 2,500 .218 547 (H)
1988 10,000 .20 2,000 (G)
1988 100,000 .25 25,000 (B)
1988 4,227,000 .20 845,400 (B)
1988 25,000 .156 3,906 (C)
1988 11,000 .013 143 (H)
1989 400,000 .080 32,000 (B)
1989 3,000 .0938 282 (H)
1989 100,000 .080 8,000 (B)
1990 25,000 .010 250 (H)
1990 20,311,000 .010 203,110 (B)
1990 10,500,000 .010 105,000 (B)
1991 1,100,000 .010 11,000 (B)
1991 100,000 .010 1,000 (H)
1991 48,000 .0625 3,000 (J)
1991 32,000 .0625 2,000 (J)
1991 1,100,000 .010 11,000 (J)
1991 1,100,000 .010 11,000 (B)
1991 400,000 .010 4,000 (C)
1995 - 87,750 (Q)
1996 1,250,000 .08 100,000 (K)
1996 11,375,000 .0286 325,000 (K)
1996 16,100,000 .05 805,000 (K)
1996 1,300,000 .01 13,000 (L)
1996 12,900,000 .02 258,000 (L)
1996 300,000 .03 9,000 (M)
1996 280,000 .05 14,000 (M)
1996 400,000 .08 32,000 (M)
1996 100,000 .065 6,500 (M)
1996 250,000 .085 21,250 (M)
1996 (15,368,820) - 0 - (N)
1996 420,000 .0238 10,000 (L)
1996 11,150,000 .02 223,000 (L)
1996 428,600 .035 15,000 (L)
1996 250,000 .04 10,000 (L)
1996 1,075,220 .05 53,761 (L)
1996 350,000 .0258 9,032 (J)
1996 1,695,000 .0345 59,175 (J)
1996 75,000 .04 3,000 (O)
1996 200,000 .05 10,000 (B)
1996 - 75,530 (Q)
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-36
<PAGE> 76
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY - PAID-IN CAPITAL (CONTINUED)
NOVEMBER 13, 1980 (INCEPTION) TO JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DATE STOCK PRICE
ISSUED NUMBER OF SHARES PER SHARE AMOUNT RECEIVED NOTES
---------- ---------------- --------- --------------- -----
<S> <C> <C> <C> <C>
1997 550,000 .05 27,500 (M)
1997 200,000 .05 10,000 (O)
1997 5,000,000 .01 50,000 (P)
1997 1,000,000 .02 20,000 (P)
1997 - 14,398 (Q)
1997 11,130,600 .05 556,529 (R)
1997 500,000 .05 25,000 (P)
1997 40,000 .05 2,000 (M)
1997 80,000 .02 1,600 (L)
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL SHARES - COMMON STOCK 306,364,536
- --------------------------- ===========
TOTAL PAID-IN CAPITAL $ 12,972,311
- ---------------------
LESS: Notes Receivable for Stock Purchase 115,000
- ----
LESS: Offering Expenses 473,495
- ---- -------------
NET PAID-IN CAPITAL - COMMON STOCK $ 12,383,816
- ----------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying note is an integral part of these financial statements.
F-37
<PAGE> 77
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDERS' EQUITY - PAID-IN CAPITAL (CONTINUED)
NOVEMBER 13, 1980 (INCEPTION) TO JUNE 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTES
(A) $1 additional was paid on stock certificate #3.
(B) Cash purchases.
(C) Represents stock issued in consideration for services rendered. The value
assigned was based on the fair market value of the stock on the date the
transaction was authorized.
(D) 1,000,000 common stock warrants were issued to the underwriter, Monarch
Funding Corporation, at par value ($.0001). On November 15, 1982, these
warrants were exercised at $.06 per share.
(E) Represents stock issued in consideration for services rendered and $7,500
cash. The value assigned was based on the fair market value of the stock on
the date the transaction was authorized.
(F) Stock issued as part of unit offering. Each unit consisted of 2 shares
common stock, 2 Series "A" warrants and 1 Series "B" warrant. No separate
value was assigned to the warrants.
(G) Issued pursuant to the exercise of warrants described in (F).
(H) Issued pursuant to the employee incentive stock bonus plan.
(I) Issued as part of an offering completed March 26, 1986 for cash and
redemption of warrants described in (F).
(J) Liabilities converted to common stock.
(K) Preferred Stock transferred to Common Stock as per agreement.
(L) Issued stock for monies received during time when common stock was not able
to be issued.
(M) Issued stock as payment for services rendered.
(N) Shares contributed by IMRCH.
(O) Issued stock as payment for interest on loans received.
(P) Issued pursuant to exercising stock purchase option.
(Q) Stock Options granted.
(R) Issued pursuant to a Private Placement Agreement
- --------------------------------------------------------------------------------
The accompanying note is an integral part of these financial statements.
F-38
<PAGE> 78
BIOSONICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTE TO FINANCIAL STATEMENTS
JUNE 30, 1997
- --------------------------------------------------------------------------------
Note 1 - The unaudited financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all
of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's Form 10-K annual report for the year ended December 31, 1996.
In the opinion of management, these financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary
to summarize fairly the Company's financial position and results of
operations. The results of operations for the nine-month period ended
June 30, 1997 may not be indicative of the results that may be expected
for the year ending December 31, 1997.
- --------------------------------------------------------------------------------
F-39
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the provisions for indemnification of directors and
officers in the Pennsylvania Business Corporation Law, the Company's Bylaws
provide for indemnification of directors and officers for all expenses,
liability and loss (including attorneys' fees, judgments, fines, taxes,
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such persons in legal proceedings unless the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. Such right to indemnification
includes the right to have expenses incurred by an indemnitee is defending any
proceeding paid by the Company in advance of final disposition thereof, provided
that the indemnitee must provide an understanding to repay all amounts advanced
without interest if it is ultimately determined that such person is not entitled
to indemnification under the Bylaws or otherwise. The Bylaws of the Company also
avail directors of the Pennsylvania law limiting directors' liability for money
damages except in those cases where they have breached their fiduciary duty and
such breach constitutes self-dealing, willful misconduct or recklessness.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the above-described provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Registration fee.......................................................$ 1,393
Blue sky fees..........................................................$ 4,000*
Legal fees and expenses................................................$22,200*
Accountants' fees and expenses.........................................$ 6,000*
Miscellaneous..........................................................$ 407*
======
Total.........................................................$34,000*
======
</TABLE>
*Estimated.
The Company will bear all of the foregoing expenses.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In July 1996, the Company amended its Articles of Corporation pursuant
to which the Company increased the authorized number of shares of Common Stock
from 250,000,000 shares to 750,000,000 shares. On July 30, 1996, all stock that
had been previously purchased but unissued due to the unavailability of shares
of authorized Common Stock of the Company were issued. The total number of
shares issued was 14,200,000 shares. In addition, all holders of Preferred
Stock, including Series A, Series B and Series D, converted their shares of
Preferred Stock into Common Stock of the Company pursuant to the formula set
forth in their respective preferred stock agreements. The Series D Preferred
Stock terms were amended in May 1996 to increase the available Preferred Stock
from 5,000 shares to 10,000 shares. The Series B Preferred Stock terms were
amended in April 1996 to allow the holders of Series B to convert their stock.
The total number of shares of Common Stock issued as a result of the conversion
of all the Preferred Stock
II-1
<PAGE> 80
was 28,725,000 shares, including 7,000,000 shares issued to IMRCH and 4,375,000
shares issued to Jack Paller pursuant to the conversion of their respective
shares of Series B Preferred Stock.
In addition to the foregoing issuances and conversions, in July 1996
(i) the Company issued an aggregate of 300,000 shares of Common Stock to the
Salitron Advisory Board and (ii) an aggregate of 280,000 shares of Common Stock
were issued to three doctors for medical consulting services rendered. Also, an
aggregate of 750,000 shares of Common Stock were issued in August and September
1996 to three outside consultants in connection with financial planning and
consulting services provided to the Company. In August 1996, IMRCH transferred
550,000 shares of the Company's Common Stock held by it to two outside
consultants for certain advertising and public relations services.
The Company also issued an aggregate 15,368,820 shares of Common Stock
in August 1996 to approximately 25 individuals in conversion of loans. These
loans were originally made to IMRC, which then loaned the money to the Company
to use for working capital. None of the individuals making the loans were
officers, directors or affiliates of the Company. The terms of the loans allowed
the loans to be converted into Common Stock of Biosonics held by IMRCH. In
consideration of the Company's assuming the obligations under the loans,
including the obligation to issue stock upon conversion of the loans, IMRCH
transferred to the Company 15,368,820 shares of Biosonics Common Stock owned by
IMRCH and canceled the indebtedness owed from the Company to IMRC.
In February 1995, the Company granted to two non-employees options to
purchase an aggregate of 10,000,000 shares of Common Stock at an exercise price
of $.01 per share. In January and February 1996, the Company granted options to
purchase an aggregate of 6,000,000 shares of Common Stock to two non-employees
at a purchase price of $.02 per share. These options were issued for services
performed on the Company's behalf. In May 1996, the Company granted an option to
an employee to purchase 250,000 shares to an employee at an exercise price of
$.05 per share. In March 1997, the Company granted options to purchase 500,000
shares of Common Stock to an individual at an exercise price of $.05 per share
for services performed on the Company's behalf. Transfer of the shares issuable
upon exercise of the options is subject to the registration requirements of the
Act or an exemption from such requirements such as Rule 144 under the Act.
During the quarter ended March 31, 1997, Biosonics issued Common Stock
shares as follows: (i) 310,000 shares at $.05 per share for payment of financial
consulting services, (ii) 12,000 shares at $.05 per share for payments to Dr.
Talal as final payment for his services on the Salitron Advisory Board, (iii)
10,000 shares at $.05 per share for interest payment on one loan established in
1991; and (iv) 5,000,000 shares at $.01 per share plus 1,000,000 shares at $.02
per share were issued to two investors, respectively, in exercise of stock
options, for which the Company received promissory notes in the aggregate
principal amount of the purchase price of $70,000 and for which such shares are
being held as collateral. In June 1997, the Company completed a private offering
of 11,130,600 shares of Common Stock at $.05 per share
II-2
<PAGE> 81
to a limited number of accredited investors for which the Company received an
aggregate of $556,530, of which $536,530 was received in cash and $20,000 of
which was received in the form of promissory notes. These promissory notes were
paid by the accredited investors during the first half of July 1997. Also in
June 1997, one person exercised an option to purchase 500,000 shares of Common
Stock at a purchase price of $.05 per share, for which the Company received a
promissory note in the aggregate principal amount of $25,000 and for which such
shares are being held as collateral, and one person was issued 40,200 shares of
Common Stock at $.05 per share in payment for services.
The Company believes that all shares issued during 1996 and the
quarters ended March 31, 1997 and June 30, 1997 were issued in accordance with
the exemption from registration under section 4(2) of the Act by virtue of the
fact that such shares were sold to a limited number of purchasers and are
restricted and may not be sold except in accordance with the registration
requirements under the Act or an exemption from such requirements such as Rule
144.
Except for 500,000 shares, all of the shares issued by the Company from
September 1996 through June 1997 are being registered for such persons as
Selling Shareholders under this Prospectus.
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<PAGE> 82
Item 27. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
*3.1 Articles of Incorporation as amended. (Incorporated by reference
to Exhibit 3.1 of Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.)
*3.2 By-laws of Registrant, as amended. (Incorporated by reference to
Exhibit 3.2 of Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.)
5.1 Opinion of Mark S. Haltzman & Associates.
*10.1 Agreement between Registrant and IMRC with respect to
opportunities in the field of medical technology. (Incorporated
by reference to Exhibit 10 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1981).
*10.2 Lease dated October 1, 1996, between Biosonics and New York
Drive Associates L.L.C. (Incorporated by reference to Exhibit
10.2 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.)
*10.6 Securities Restriction Agreement dated September 30, 1987
between Registrant and International Management & Research
Corporation, Jack and Sarah Paller, and Henry S. Brenman.
(Incorporated by reference to Exhibit 10-f of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1987).
*10.16 Note in the amount of $250,000, dated June 27, 1989, of
Biosonics, Security Agreement, dated June 27, 1989, between
Biosonics and Jack and Sarah Paller and Assignment of Patent as
Collateral Security, dated June 27, 1989, of Biosonics.
(Incorporated by reference to Exhibit 10.16 of Registrant's
Annual Report on Form 10-K for the year ended December 31,
1989).
*21 Subsidiaries. (Incorporated by reference to Exhibit 21 of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
23.1 Consent of Mark S. Haltzman & Associates (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Morris J. Cohen & Co., P.C.
</TABLE>
* Incorporated by reference as indicated.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
II-4
<PAGE> 83
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(c) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby further undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 84
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Fort Washington, Pennsylvania on August 22, 1997.
BIOSONICS, INC.
By:/s/ Jack Paller
-----------------------------------------
Jack Paller, President, Chairman and CEO
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the date stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Jack Paller President, Chairman (principal executive August 22, 1997
- --------------- officer, principal financial
Jack Paller officer and principal accounting
officer) and Director
</TABLE>
II-6
<PAGE> 85
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
*3.1 Articles of Incorporation as amended. (Incorporated by reference
to Exhibit 3.1 of Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.)
*3.2 By-laws of Registrant, as amended. (Incorporated by reference to
Exhibit 3.2 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.)
5.1 Opinion of Mark S. Haltzman & Associates.
*10.1 Agreement between Registrant and IMRC with respect to
opportunities in the field of medical technology. (Incorporated by
reference to Exhibit 10 of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1981).
*10.2 Lease dated October 1, 1996, between Biosonics and New York Drive
Associates L.L.C. (Incorporated by reference to Exhibit 10.2 of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.)
*10.6 Securities Restriction Agreement dated September 30, 1987 between
Registrant and International Management & Research Corporation,
Jack and Sarah Paller, and Henry S. Brenman. (Incorporated by
reference to Exhibit 10-f of Registrant's Annual Report on Form
10-K for the year ended December 31, 1987).
*10.16 Note in the amount of $250,000, dated June 27, 1989, of Biosonics,
Security Agreement, dated June 27, 1989, between Biosonics and
Jack and Sarah Paller and Assignment of Patent as Collateral
Security, dated June 27, 1989, of Biosonics. (Incorporated by
reference to Exhibit 10.16 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1989).
*21 Subsidiaries. (Incorporated by reference to Exhibit 21 of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
23.1 Consent of Mark S. Haltzman & Associates (included in its opinion
filed as Exhibit 5.1).
23.2 Consent of Morris J. Cohen & Co., P.C.
</TABLE>
- ------------------------------------
* Incorporated by reference as indicated.
<PAGE> 1
Exhibit 5.1
August 15, 1997
Mr. Jack Paller
Sole Director and Chief Executive Officer
Biosonics, Inc.
260 New York Drive, Suite A
Ft. Washington, PA 19034-2504
Re: BIOSONICS, INC.
FORM SB-2 REGISTRATION STATEMENT
Gentlemen:
As outside counsel for Biosonics (the "Company"), a Pennsylvania
corporation, we have reviewed the Company's Registration Statement on Form SB-2
(the "Registration Statement") relating to the offer and sale by certain selling
shareholders of the Company of up to 51,074,420 shares (the "Shares") of the
Company's Common Stock, par value $.0001 per share.
We have examined copies of the Company's Articles of Incorporation and
Bylaws, each as amended to date, the corporate minutes and other proceedings and
records relating to the authorization, sale and issuance of the Shares, and such
other documents and matters of law as we have deemed necessary or appropriate in
order to render this opinion.
Based upon the foregoing, it is our opinion that each of the Shares
has been duly authorized, legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion in the Registration
Statement.
Very Truly Yours,
/s/ Mark S. Haltzman & Associates
Mark S. Haltzman & Associates
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Biosonics, Inc.
We hereby consent to the inclusion in this Prospectus and Registration Statement
on Form SB-2 of our report dated February 21, 1997 (except for Notes 3 and 10 as
to which the date is July 18,1997), on the financial statements included in the
Biosonics, Inc. Form 10K for the year ended December 31, 1996. We also consent
to the reference to our Firm under the caption, "Experts".
/s/ MORRIS J. COHEN & CO., P.C.
--------------------------------------
MORRIS J. COHEN & CO., P.C.
Philadelphia, Pennsylvania
August 20, 1997
