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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-K
_____________________________________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______.
Commission File Number: 0-11371
BIOSONICS, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2161932
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
260 New York Drive
Fort Washington, Pennsylvania 19034
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 646-7100
----------------------------------------------------
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Based on the average of the closing bid and asking prices of $.05 as reported
on the OTC Bulletin Board on March 31, 1997, the aggregate market value of the
Registrant's Common Stock held by non-affiliates was approximately $8,312,885.
Indicate the number of shares outstanding of each of the issuers shares of
common stock, as of the latest practicable date: As of December 31st 1996,
there were outstanding 287,863,936 shares of the Registrant's Common Stock,
$.0001 par value.
Documents Incorporated by Reference: None
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Page 1 of 17 pages
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PART I
ITEM 1. BUSINESS
General Development of Business.
Biosonics, Inc. was incorporated in Pennsylvania in November 1980 as a
subsidiary of International Management and Research Corporation ("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. Further, the Company has received FDA approval for marketing
the Salitron(R) (dry mouth), Cystotron(TM) (urinary incontinence), Anotron(TM)
(fecal incontinence) and the BIDDS(TM) 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.
Narrative Description of Business.
The Company has developed various electro-therapeutic devices, six of which
have been patented, and four of which have received FDA approval for marketing.
The electro-therapeutic 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.
Biosonics plans to engage an electrical/medical engineer by mid-year, to
negotiate with external manufacturing contractors for the turnkey 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 System 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
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sale was received through a pre-market approval (PMA) 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. As indicated, 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 Federal Healthcare Financing Administration ("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.
However, 40 private plans are currently reimbursing Biosonics for patients' use
of the Salitron system and Medicaid reimbursement 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 is currently directing the marketing of the Salitron to
rheumotologists, 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 suffers from
dry mouth. This marketing effort was put on hold as too many potential
patients are Medicare age who cannot afford to purchase the Salitron without
Medicare coverage.
Cystotron and Anotron System. 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).
In 1996, Biosonics signed an agreement with Dr. Kristene Whitmore, Chief of
Urology at Graduate Hospital in Philadelphia, who will act as Chief
Investigator in a market study for the Cystotron. This study will comprise of
two phases, assuming funds are available. Phase one will primarily be directed
at the retirement community and phase two will primarily be directed to those
in the post birth delivery age group. The purpose of this study will be to
confirm safety and effectiveness of the Cystotron for advertising purposes and
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
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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 in the Cystotron section.
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, a
double blind clinical study performed under protocols acceptable to the FDA
will be conducted and submitted to the FDA for approval prior to the commercial
sale of the Nasotron. See "Governmental Regulation" below.
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 which in turn will 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.
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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 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.
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.
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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.
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 the Federal Healthcare Financing Administration ("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 of 1997, HCFA advised
Biosonics that it had examined its previous position and
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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. However, 40 private plans are currently
reimbursing Biosonics for patients' use of the Salitron system and Medicaid
reimbursement 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 electro-therapeutic devices. The Company is
aware of one other such company that has developed a product similar to
Biosonics' Cystotron. Biosonics is not aware of any device that would be in
direct competition to the Anotron. Biosonics is not aware of any developed
diagnostic tools that would be considered direct competition for the BIDDS
Glove. 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 December 31, 1996, Biosonics had seven employees, of which five are
full-time and two are part-time.
Product Liability
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 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 or that liability will not exceed the insured amount. At the
present time, its 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 may 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 Sjogren's 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
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upon the Advisory Board member serving for a minimum of two years. Except for
Elaine Harris, who is the founder of the Sjogren's Syndrome Foundation, all of
the members of the Advisory Board are employed by or retired from academic
institutions or are practicing physicians. Each of the members has other
commitments to other entities that may limit their 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 have
assisted the Company in 1996 in the form of interviews published in various
magazine articles and broadcast radio shows regarding the Salitron System.
<TABLE>
<CAPTION>
Name Institutional Affiliation or Occupation
- ----------------------------- -----------------------------------------------------
<S> <C>
Norman Talal, M.D. Retired, The University of Texas
7703 Floyd Curl Drive, San Antonio TX 78284
Norman Gaylis, M.D. Rheumatologist, Private Practice
160 N.W. 170th St., North Miami Beach FL 33169
Jonathon Ferguson, M.D. Rheumatologist, Private Practice
345 Executive Prkway, Suite L-1, Rockford IL 61107
Elaine Harris Founder, Sjogren's Syndrome Foundation
29 Galeway Drive, Long Island, NY 11021
James Quinn, D.D.S. Retired, Louisiana State University, School of Dentistry
1100 Florida Ave., New Orleans, LA 70119
</TABLE>
ITEM 2. PROPERTIES.
Biosonics leases approximately 2,500 square feet of office space in Fort
Washington, Pennsylvania pursuant to a lease that has been extended to
September 1998. Lease payments currently equal approximately $3,336 per month.
ITEM 3. LEGAL PROCEEDINGS.
Henry Brenman filed a lawsuit against the Company and it's president Jack
Paller, on March 6, 1996, in the United States District Court for the Eastern
District of Pennsylvania, Docket No. 96-CV-1755. In the lawsuit, Mr. Brenman
claimed that the Company and Mr. Paller were obligated to provide Mr. Brenman
with documentation releasing the restriction the transfer of Mr. Brenman's
shares under Rule 144 promulgated under the Securities Act of 1933. Mr.
Brenman also asserted that he had suffered a monetary loss as a result and
sought damages in excess of $50,000. The lawsuit was settled and voluntarily
terminated by Mr. Brenman in May 1996. Neither the Company nor Mr. Paller
incurred any obligations or liabilities in connection with the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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w PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
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 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. As of December 31, 1996, there were approximately
10,500 record holders of the Company's Common Stock. The Company has not,
since its inception, declared any dividends.
During the fourth quarter of 1996, Biosonics' Common Stock was issued in an
aggregate of 75,000 shares to two persons in November 1996 for $3,000 of
interest on loans received by the Company, and 200,000 shares were issued in
November 1996 to an accredited investor for $10,000 of funds received by the
Company. In December 1996, additional funds of $45,000 were received and
loaned to the Company by three persons without any stock issuances. The
Company believes that these transactions were made pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, inasmuch as
the shares were sold in privately negotiated transactions with a limited number
of investors.
ITEM 6. 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 560,958 472,726 338,102 271,048 294,088
--------- -------- -------- -------- --------
Total development stage expenses $ 712,508 $547,540 $426,713 $329,224 $404,624
Less: Revenue from cost recovery program - - - - -
--------- -------- -------- -------- --------
Net development stage expenses $ 712,508 $547,540 $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
--------- -------- -------- -------- --------
$ 75 $ 5,279 $ - $ 75 $ 2,778
--------- -------- -------- -------- --------
Net loss ($701,867) ($521,735) ($422,591) ($344,107) ($408,294)
Loss per common share ($.003) ($.002) ($.002) ($.001) ($.002)
</TABLE>
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<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------
Balance Sheet Data: 1996 1995 1994 1993 1992
- ------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital (Deficit) ($2,150,027) ($2,709,883) ($2,477,004) ($2,059,248) ($1,723,651)
Total Assets $ 96,190 $ 133,650 $ 119,445 $ 125,009 $ 160,803
Total Liabilities $2,222,779 $2,810,091 $2,574,151 $2,157,124 $1,848,811
Shareholders' Deficit ($2,126,589) ($2,676,441) ($2,454,706) ($2,032,115) ($1,688,008)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
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 Preferred Shares
into Common Stock of the Company pursuant to the formula set forth in their
respective Preferred Stock Agreements. Series D Preferred Stock was amended in
May 1996 to increase the available Preferred Stock from 5,000 shares to 10,000
shares. Series B Preferred Stock was 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 to IMRCH and 4,375,000 shares
issued to Jack Paller pursuant to the conversion of their respective shares of
Preferred Stock Series B.
In addition to the foregoing issuances and conversions during the year ended
December 31, 1996, (i) the Company issued an aggregate of 300,000 Common Stock
shares to the Salitron Advisory Board, and (ii) an aggregate of 750,000 shares
of Common Stock were issued to three outside consultants in connection with
financial planning and consulting services provided to the Company. Also IMRCH
issued 550,000 shares of the Company's Common Stock held by it to two outside
consultants for certain advertising and public relations services. Further,
the Company issued an aggregate of 280,000 shares to three doctors for medical
consulting services rendered. An aggregate of 14,200,000 shares of Common
Stock were issued to eighteen persons who had previously sought to acquire
stock in 1990 and 1992, but which at the time, the Company was restricted from
issuing because such issuances would have exceeded the total authorized shares
of Common Stock.
The Company also issued 15,368,820 shares of Common Stock 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, Inc. 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.
10
<PAGE> 11
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
$93,000 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 paid back 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. There is still an outstanding balance of
$187,000.
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 that the
Company will be successful in obtaining financing or 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, $164,968, or 30%, 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
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 on 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 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 which was not obtained; see "Item 1, Part
1-Business". 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.
The Company believes there will be no significant adverse impact from inflation
and changing prices on the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of Biosonics are set forth in Item 14 of this report
beginning on page F-1.
11
<PAGE> 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information about the sole director and
officer of Biosonics.
Jack Paller, age 69, has been Treasurer and a director of Biosonics since its
inception in 1980. In January 1987, he became Chairman and Chief Executive
Officer of Biosonics. He also served as President of Biosonics from its
inception until January 1987 and from October 1987 to December 1987 and has
served as President since May 1990. Currently, Mr. Paller also serves as
President and a director of IMRC Holdings, Inc. and serves as President,
Treasurer and a director of International Management & Research Corporation.
Directors of Biosonics hold office for the ensuing year and until their
respective successors have been duly elected and qualified.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires Biosonics'
officers and directors, and persons who own more than ten percent (10%) of
Biosonics' Common Stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Such persons are required to
furnish Biosonics with copies of all Section 16(a) forms they file.
Biosonics notes that IMRC Holdings, Inc. may have been required to file, and
has not filed, Forms 4 reporting certain of the transactions in Biosonics'
Common Stock. In addition, Mr. Paller did not file Forms 4 or 5 reflecting
gifts aggregating approximately 3,800,000 of shares of Biosonics Common Stock
during 1992, 1993 and 1996, and conversions of preferred stock to common stock
in 1996.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------
Name & Salary Bonus
Principal Position Year $ $
------------------ ---- ------ -----
<S> <C> <C> <C>
Jack Paller, President, Chairman 94 103,000(1) --
and Chief Executive Officer 95 103,000(1) --
96 103,000(1) --
</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 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.
12
<PAGE> 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table lists the number of shares of Biosonics' Common Stock
beneficially owned by all persons known to Biosonics to be beneficial owners of
more than 5% of Biosonics' Common Stock and by the sole director and officer
of Biosonics and the percentage of all outstanding shares held by such person:
<TABLE>
<CAPTION>
Name of Beneficial Owner No. of Shares Percentage
------------------------ -------------- ----------
<S> <C> <C>
Jack Paller (1) 11,467,300 4.0%
IMRC Holdings, Inc., a wholly-owned 110,138,930 38.26%
subsidiary of International Management &
Research Corporation (2)
</TABLE>
___________________
(1) Mr. Paller's address is 260 New York Drive, Fort Washington,
Pennsylvania 19034
(2) The address of IMRC Holdings, Inc. is 106 Quigley Boulevard, New Castle,
Delaware 19720.
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.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED 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' Preferred
Stock, Series B, were issued to Mr. Paller and his spouse in satisfaction 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,
Preferred Stock Series B was converted to Biosonics Common Stock, (see Item 7)
and loan payments were made to Mr. Paller which brings the total outstanding
balance to $115,000.
The Company also issued 15,368,820 shares of Common Stock to approximately 25
individuals in conversion of loans. These loans were originally 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, Inc. 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.
13
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM
8-K.
(A) Financial Statements & Exhibits
<TABLE>
<CAPTION>
1. Financial Statements Page
----
<S> <C>
Auditors' Report F-1
Balance Sheets at December 31, 1996 and 1995 F-3
Statements of Operations 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)
for the Period from November 13, 1980 (Inception) to
December 31, 1996 F-6
Statements of Cash Flows 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
Notes to Financial Statements F-16
</TABLE>
2. All schedules have been omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes therein.
3. Exhibits
<TABLE>
<S> <C>
*3.1 Articles of Incorporation as amended (Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
*3.5 By-laws of Registrant, as amended. (Exhibit to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1983 ["1983 Form 10-K"]).
*3.6 Amended and Restated Article VII of the
Registrant's Bylaws as adopted on May 7, 1987.
(Exhibit 3-b.1 to 1988 Form 10-K).
*3.7 Amendment to Registrant's By-Laws (Exhibit 3.7 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 ["1994 Form 10-K"]).
*10.1 Agreement between Registrant and IMRC with respect
to opportunities in the field of medical technology.
(Exhibit 10 to 1981 Form 10-K).
10.2 Lease dated October 1, 1996, between Biosonics and
New York Drive Associates L.L.C.
*10.6 Securities Restriction Agreement dated September
30, 1987 between Registrant and International
Management & Research Corporation, Jack and Sarah
Paller, and Henry S. Brenman. (Exhibit 10-f to 1987
Form 10-K).
*10. 16 Note in the amount of $250,000, dated June 27, 1989,
of Biosonics, Security
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
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. (Exhibit 10.16 to 1989 Form 10-K).
*21. Subsidiaries. (Exhibit 21 to 1994 Form 10-K).
27. Financial Data Schedule
</TABLE>
(B) Reports on 8-k
The Registrant did not file any reports on Form 8-K during the quarter
ended December 31, 1996.
_____________________
* Incorporated by reference.
15
<PAGE> 16
BIOSONICS, INC.
(A Development Stage Enterprise)
* * *
December 31, 1996, 1995 and 1994
<PAGE> 17
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 at December 31, 1996 and 1995 F-3 & F-4
Statements of Operations 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) for the Period from November 13,
1980 (Inception) to December 31, 1996 F-6 through F-13
Statements of Cash Flows 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-30
</TABLE>
<PAGE> 18
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. 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.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 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 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
F-1
<PAGE> 19
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.
Philadelphia, Pennsylvania
February 21, 1997
F-2
<PAGE> 20
BIOSONICS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
Current assets
<S> <C> <C>
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> 21
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 11)
Shareholders' deficiency
Preferred stock - authorized
10,000,000 shares (inclusive
of Series A, B, C and D) at
$1 par value
Series A, authorized 1000 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 11,599,722 10,345,207
Deficit accumulated during
development stage (13,755,098) (13,053,231)
------------ ------------
Shareholders' deficiency (2,126,589) (2,676,441)
------------ ------------
Total liabilities and
shareholders' deficiency $ 96,190 $ 133,650
============ ============
</TABLE>
F-4
<PAGE> 22
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
November 13
1980
(Inception)
Year Ended December 31, to
---------------------------------------------------- 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 560,958 472,726 338,102 8,002,278
------------ ------------ ------------ ------------
Total development
stage expenses 712,508 547,540 426,713 14,920,818
Less - Revenue from
cost recovery program 118,082
------------ ------------ ------------ ------------
Net development
stage expenses 712,508 547,540 426,713 14,802,736
------------ ------------ ------------ ------------
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 ($ 701,867) ($ 521,735) ($ 422,591) ($13,755,098)
============ ============ ============ ============
Loss per common
share ($ .003) ($ .002) ($ .002) ($ .056)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 23
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
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> 24
<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>
$ 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> 25
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(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> 26
<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>
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> 27
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(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> 28
<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>
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> 29
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(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> 30
<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>
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 $1,000 99,000 100,000 (3)
( 1,372,913) ( 1,372,913)
- ----- ------ ----------- ----------- ----------
1,000 1,000 9,338,337 ( 8,821,212) 538,936
</TABLE>
F-9
<PAGE> 31
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Shares Amount
----------- ------
<S> <C> <C>
Balance forward December 31, 1988 208,114,936 20,811
Common stock issued March 1989 and
May 1989 ($.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> 32
<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>
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> 33
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(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
Preferred stock-Series D issued
between June 1995 and December
1995 ($100.00 per share)
Net loss for the year ended
December 31, 1995
Balance, December 31, 1995 243,333,936 24,333
Preferred stock-Series D issued
January 1996 to July 1996
Common stock issued pursuant to
the conversion of preferred
stock, July 1996 Series A ($.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
Common stock issued August 1996
($.02 per share) 11,150,000 1,115
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
Preferred Stock
Series A, B and D Deficit Shareholders
- ------------------ Capital in Excess Accumulated During Equity
Shares Amount of Par Value Development Stage (Deficiency)
------ ------ ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
4,250 4,250 10,048,207 ( 11,764,798) ( 1,688,008)
( 344,107) ( 344,107)
----- ------ ----------- ----------- ----------
4,250 4,250 10,048,207 ( 12,108,905) ( 2,032,115)
( 422,591) ( 422,591)
----- ------ ----------- ----------- ----------
4,250 4,250 10,048,207 ( 12,531,496) ( 2,454,706)
3,000 3,000 297,000 300,000 (3)
( 521,735) ( 521,735)
----- ------ ----------- ----------- ----------
7,250 7,250 10,345,207 ( 13,053,231) ( 2,676,441)
5,050 5,050 499,950 505,000 (3)
(12,300) (12,300) 9,427 -0-
1,537 -0-
12,870 13,000 (3)
256,710 258,000 (3)
221,885 223,000 (10)
</TABLE>
F-11
<PAGE> 35
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(Continued)
Period from November 13, 1980 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
----------------------------------------
Shares Amount
----------- -------
<S> <C> <C>
Common stock issued August 1996
($.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> 36
<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>
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)
( 701,867) ( 701,867)
- ------ -------- ----------- ----------- ----------
-0- $ -0- $11,599,722 ($13,755,098) ($2,126,589)
====== ======== =========== =========== ==========
</TABLE>
F-12
<PAGE> 37
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(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 $125,000.
(7) Shares were issued as repayment of funds received for
convertible debentures, which were never issued.
(8) Shares were issued as repayment of notes payable.
(9) Shares were issued as payment of interest on loans.
(10) Shares were issued as payment for liabilities of IMRC,
assumed by Biosonics, Inc.
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 38
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
November 13,
1980
Year Ended December 31, (Inception) to
---------------------------------------------------- December 31,
1996 1995 1994 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities
Net loss ($ 701,867) ($ 521,735) ($ 422,591) ($13,755,098)
------------ ------------ ------------ ------------
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
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
------------ ------------ ------------ ------------
336,867 242,996 182,047 2,847,889
------------ ------------ ------------ ------------
Net cash used
in operating
activities (365,000) (278,739) (240,544) (10,907,209)
------------ ------------ ------------ ------------
</TABLE>
F-14
<PAGE> 39
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(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> 40
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> 41
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, 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.
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", which requires a change from the
deferred method to the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Under the deferred
method, deferred taxes were recognized using the tax rate
applicable to the year of the calculation and were not adjusted
for subsequent changes in tax rates. There was no effect on
prior year financial statements for this change in the method of
accounting for income taxes.
3. Results of operations
The Company incurred net losses of $701,867, $521,735 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.
F-17
<PAGE> 42
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
3. Results of operations (Continued)
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.
4. 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
======== ========
5. Equipment, furniture and leaseholds
1996 1995
-------- --------
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>
F-18
<PAGE> 43
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
5. Equipment, furniture and leaseholds (Continued)
Depreciation expense was $10,004 in 1996, $20,117 in 1995 and
$4,835 in 1994.
6. 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.
7. 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 11 - "Unissued Securities".
F-19
<PAGE> 44
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
8. 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 11). $187,000 $187,000
Cash received for stock, not yet issued (See Note 9 & 11). 40,000 271,000
-------- --------
$227,000 $458,000
======== ========
</TABLE>
9. 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 11).
F-20
<PAGE> 45
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
9. 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> 46
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
9. 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> 47
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
9. 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.
F-23
<PAGE> 48
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
10. 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>
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 $4,393,000 $4,220,000
Tax credits 79,000 79,000
Accrued payroll, officer 228,000 193,000
---------- ----------
4,700,000 4,492,000
Less valuation allowance 4,700,000 4,492,000
---------- ----------
Net deferred tax asset $ -0- $ -0-
========== ==========
</TABLE>
F-24
<PAGE> 49
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
10. Income taxes (Continued)
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.
11. 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.
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.
F-25
<PAGE> 50
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
11. Commitments and contingencies (Continued)
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> 51
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,
1980 (Inception)
Year Ended December 31, 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> 52
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
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
---------- ---------- ----- ----------
$ 736,718 $ -0- $ -0- $1,207,428
========== ========== ===== ==========
</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> 53
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 ($101,823) ($.000)
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) (.001)
--------- --------- --------- ------
Total $ 40,774 $ 10,566 ($701,867) ($.003)
========= ========= ========= ======
1995 - 1st Quarter $ 10,595 $ 3,618 ($156,703) ($.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 ($521,735) ($.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> 54
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
14. Quarterly results (Unaudited)(Continued)
The following is a reconciliation of 1996 quarterly results (unaudited) as
originally reported in the Company's 1996 Form 10-Q filings adjusted for
reclassifications of costs of goods sold and an overstatement of interest
expense for the quarter ended September 30, 1996:
<TABLE>
<CAPTION>
Gross profit
(loss) as Gross profit
originally (loss) as
reported Adjustment Adjusted
------------- ---------- ------------
<S> <C> <C> <C>
1996 - 1st Quarter $ 14,461 ($ 5,543) $ 8,918
2nd Quarter (1,502) 5,357 3,855
3rd Quarter (1,164) (1,164)
4th Quarter (1,229) 186 (1,043)
-------- -------- --------
$ 10,566 $-0- $ 10,566
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Net loss Net loss
as originally as
reported Adjustment Adjusted
------------- ---------- ------------
<S> <C> <C> <C>
1996 - 1st Quarter ($101,823) ($101,823)
2nd Quarter (142,381) (142,381)
3rd Quarter (354,708) $ 30,000 (324,708)
4th Quarter (132,955) (132,955)
--------- --------- ---------
($731,867) $ 30,000 ($701,867)
========= ========= =========
</TABLE>
The Company filed an amended Form 10-Q for the quarter ended
September 30, 1996 concurrent with its annual Form 10-K filing
for the year ended December 31, 1996.
F-30
<PAGE> 55
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BIOSONICS, INC.
By: /s/ JACK PALLER
----------------------------------------
Jack Paller, President, Chairman & CEO
Date: April 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ JACK PALLER
----------------------------------------
Jack Paller, President, Chairman
(Principal Executive Officer),
Treasurer (Principal Financial Officer
and Principal Accounting Officer) and
Director
Date: April 30, 1997
17
<PAGE> 1
NEW YORK DRIVE ASSOCIATES, L.L.C. ("LANDLORD")
TO
BIOSONICS, INC. ("TENANT"),
.
LEASE
Space
2761+/- RENTABLE SQUARE FEET
260 New York Drive, Fort Washington
Upper Dublin Township, Pennsylvania
Term
FROM OCTOBER 1, 1996 TO SEPTEMBER 30, 1998
<PAGE> 2
LEASE
THIS IS A LEASE AGREEMENT ("Lease"), dated __________, by and between
New York Drive, L.L.C. ("Landlord"), a Pennsylvania limited liability company,
and Biosonics Inc. ("Tenant").
Intending to be legally bound hereby, Landlord and Tenant agree:
1. LEASED SPACE; TERM.
(a) Landlord hereby leases to Tenant for use only as general
offices and administrative of 2761+/- rentable square feet ("Leased Space")
shown in the attached Exhibit A in the office building ("Building") at 260 New
York Drive, Upper Dublin Township, Pennsylvania. The Leased Space contains an
area of 2761+/- rentable square feet which includes Tenant's agreed share of
hallways and other common areas.
(b) The term of the lease is two years and zero months
from the later of
(i) the first of the month after the date of this
Lease, or
(ii) the date Landlord notifies Tenant that the
Leased Space is ready for occupancy following substantial completion of the
work to be performed by Landlord pursuant to paragraph 3 hereof.
2. BASE RENT.
(a) The annual base rent is $40,034.50, payable in
consecutive, equal monthly installments of $3,336.21, prorated for any partial
calendar month of occupancy, payable in advance without prior notice or demand,
and without any set-off or deduction whatsoever, on the first day of each month
at Landlord's principal office in Upper Dublin Township or at such other place
as Landlord may direct, except the base rent for the unexpired portion of any
month in which the term begins will be paid on such beginning date and for the
first full month of the term will be paid on the date of this Lease.
(b) Additional Rent: Tenant agrees to reimburse Landlord on a
monthly basis upon notice and demand for Tenant's pro rata share of utilities.
3. COST OF LIVING ADJUSTMENTS TO BASE RENT.
(a) On January 1 of each calendar year during the term of this
Lease, the annual base rent payable by Tenant hereunder shall be increased (but
never decreased) by an amount equal to the product of: (i) one hundred percent
(100%) of the annual base rent as adjusted pursuant to this paragraph for the
preceding calendar year, times (ii) the percentage change in the "index" (as
hereinafter defined) between December of the preceding calendar year and
December of the second preceding calendar year. Provided however that the first
adjustment to base rent pursuant to this paragraph shall be reduced by a
percentage equal to the number of months commencing with the commencement date
of this lease and ending on December 31 of the preceding calendar year divided
by twelve.
(b) As soon as the Index for the preceding calendar year
becomes available to Landlord, Landlord shall forward a statement to Tenant
setting forth: (i) the Index for December of the preceding calendar year; (ii)
the Index for December of the second preceding calendar year; (iii) the adjusted
annual base rent for the ensuing calendar year; and (iv) the amount of each
monthly installment thereof. Such statement shall also set forth the amount, if
any, of additional rent payable for such preceding calendar year pursuant to
this paragraph prior to the time that the Index statistics were available, and
Tenant shall pay such additional rent for such period within fifteen (15) days
after its receipt of such statement.
<PAGE> 3
(c) As used in this paragraph, the term "Index" shall mean the
Consumer Price Index for All Urban Consumers released by the United States
Department of Labor, Bureau of Labor Statistics, relating to Consumer Prices for
All Items in the City of Philadelphia. The statistical methods used for
computing the Index shall be such as are chosen by the United States Department
of Labor for4 that purpose irrespective of whether the methods are changed from
time to time. If the base year selected by the United State Department of Labor
shall be changed, then the resultant index shall be readjusted so as to reflect
the base initially established under this paragraph. If the Index shall no
longer be published or cannot be readjusted, then another index generally
recognized as authoritative shall be selected by Landlord and substituted for
all purposes of this paragraph. Until such alternative Index shall be as last
previously determined, and when the same shall be so established it shall be
applied retroactively to the beginning of the calendar year in question; and
within fifteen (15) days thereafter Tenant shall pay to Landlord the additional
rent determined to be payable under this paragraph.
4. "AS-IS POSSESSION".
Anything herein contained to the contrary and not
withstanding, it is understood and agreed that the Lessee shall accept the
demised premises on an "as is" basis and shall assume all responsibility for
repairs to these premises.
5. COVENANTS OF LANDLORD. LANDLORD WILL:
(a) supply for normal office use heat and air conditioning
service, elevator service, janitorial and cleaning services, electricity, and
hot and cold water, all in amounts and at times consistent with similar services
provided in Class A office buildings in Upper Dublin Township, provided that:
(i) Landlord will not be liable for failure to supply any such services for any
cause beyond its control, or for any cause which in Landlord's judgment shall
require the suspension of any such service for purposes of necessary or proper
maintenance or repair of Building facilities; (ii) if Tenant requires janitorial
and cleaning services beyond those provided by Landlord, Tenant shall arrange
such additional services through Landlord, for which Tenant shall pay Landlord
upon receipt of billing therefor; and (iii) if Tenant requires installation of
additional heating, ventilating and/or air conditioning system, Tenant shall pay
for the furnishing and installation thereof, and in addition shall pay the
metered costs plus ten percent (10%) of such metered costs to compensate
Landlord for its costs in respect of such separate system;
(b) supply and maintain window drapes selected by Landlord for
all outside windows.
6. COVENANTS OF TENANT. Tenant will (at Tenant's sole cost and
expense):
(a) pay to Landlord all amounts due as base rent and
additional rent; and pay to Landlord: (i) a "late charge" on all overdue
installments of base rent and on all overdue payments of additional rent or
other sums payable to Landlord hereunder, such "late charge" to compensate
Landlord for its costs in collecting the same and to be in an agreed upon,
liquidated amount equal to five percent (5%) of the installment or payment so
overdue; and (ii) in addition to the foregoing described "late charge",
interest, at the "overdue interest rate" of twelve percent (12%). Late charges
will be assessed after the fifteenth of the month;
(b) keep the Leased Space in good order and repair, reasonable
wear and tear excepted;
(c) surrender the Leased Space at the end of this Lease in the
same condition in which Tenant has agreed to keep it during the term hereof;
(d) be responsible for the maintenance of all plumbing and
other fixtures in the Leased Space, whether installed by Landlord or by Tenant,
except for Building lavatories which will be maintained by Landlord subject to
paragraph 8(e) hereof. Lessor shall be responsible for ordinary wear and tear of
all plumbing fixtures, kitchen appliances, and other fixtures in the balance of
the Leased Space that are owned
<PAGE> 4
by Lessor (i.e.. includes replacement of lightbulbs, lighting fixtures etc.).
Any damage caused by negligence of Lessee shall be the responsibility of Lessee.
(e) be responsible (except to the extent provided in paragraph
10 hereof) for repairs and replacements to the Leased Space and in the Building
(including Building lavatories) made necessary by reason of damage thereto
caused by Tenant or its agents, servants, invitees or employees;
(f) comply with all laws and all enactment's and regulations
of any governmental authority relating or applicable to Tenant's occupancy of
the Leased Space, and hold Landlord harmless form all consequences for failure
to do so;
(g) promptly notify Landlord of any damage to or defects in
the Leased Space, and of any injuries to persons or property which occur
therein;
(h) pay for any alterations, improvements or additions to the
Leased space and any light bulbs, tubes and other non-standard Building items,
other than those referred to in paragraph 3 hereof, made by or for Tenant, and
allow a lien to attach to the Building with respect to any of the foregoing;
(i) comply with the rules and regulations set forth in Exhibit
D hereto and with all reasonable changes in and additions to such rules and
regulations (notice of which is given by Landlord to Tenant); such rules and
regulations are and all such changes and additions will be part of this Lease;
(j) comply with all reasonable recommendations of Landlord's
or Tenant's insurance carriers relating to layout, use and maintenance of the
Leased Space.
7. NEGATIVE COVENANTS OF TENANT. Tenant will not:
(a) damage the Leased Space or any other part of the
Buildings, or use any part of the Building not designated for use by Tenant
except as such right is given by special written arrangement apart from this
Lease;
(b) bring into or permit to be kept in the Leased Space any
dangerous, explosive, radioactive or obnoxious substances;
(c) have property of substantial size or quantity delivered to
or removed from the Leased Space without first making arrangements satisfactory
to Landlord;
(d) bring into the Leased Space or use any furniture or
equipment that might be harmful thereto or harmful or annoying to others in the
Building, or place any weight in the Leased Space beyond its safe carrying
capacity (which, unless Tenant is otherwise notified by Landlord, is 200 pounds
per square foot live load); or
(e) conduct itself or permit its agents, servants, employees,
guests or visitors to conduct themselves in a manner which in Landlord's
judgment is improper or unsafe.
8. TENANT'S ACTIONS REQUIRING LANDLORD'S CONSENT.
Without the prior written consent of Landlord, Tenant will
not:
(a) make any use of the Leased Space other than that described
in paragraph 1 hereof;
(b) voluntarily or involuntarily assign, mortgage or pledge
this Lease or sublet all or any part of the Leased Space, except in strict
compliance with the provisions of paragraph 14 hereof;
<PAGE> 5
(c) alter, improve or add to the Leased Space (all
alterations, improvements, additions and fixtures will belong to Landlord and
remain in the Leased Space at the end of this Lease except that if Landlord asks
that any of the same be removed, Tenant will do so and will restore or repair
any damage to the Leased Space caused by such installation or removal, all at
Tenant's expense);
(d) remove any of Tenant's property from the Leased Space
except such as can be carried by Tenant and as would be reasonable and customary
for persons occupying similar space to remove.
9. ADDITIONAL RIGHTS OF LANDLORD. Landlord may at reasonable times
inspect the Leased Space, show it to prospective tenants during the last year of
the original or any extended term, and alter, improve, repair or add to it to
the extent that Landlord thinks necessary for the protection and maintenance of
the Leased Space or other parts of the Building.
10. LOSS, DAMAGE OR INJURY; INSURANCE.
(a) Tenant will be responsible for and hereby relieves
Landlord from and indemnifies Landlord against all liability by reason or any
injury, damage or loss to any person or property which occurs in the Leased
Space or in any other part of the Building, and which is caused wholly or in
part by the negligence of Tenant, its agents, servants, invitees or employees.
Tenant further releases Landlord from all liability for damage to or loss of any
property of Tenant or any third party which may result from the leakage of water
into the Leased Space, or from any other cause unless resulting from the gross
negligence of Landlord, its agents or employees. Tenant will maintain in force,
and at Landlord's request will produce evidence of, general public liability
insurance with a limit of no less than $1,000,000 per occurrence. Tenant shall
name Landlord as additional insured under the policy. Tenant shall name Landlord
as additional insured under the policy. Lessee shall provide Lessor with a
certificate of insurance within thirty (30) days of full execution of the Lease
Agreement.
(b) Notwithstanding any other provision herein, Landlord and
Tenant hereby release each other, to the extent of the other's insurance
coverage, from liability for loss or damage to the property of the party
granting such release, even if the loss or damage occurred through the
negligence of such other party or its agents, servants, invitees or employees,
provided that this release shall be effective only with respect to loss or
damage occurring during such time as the relevant insurance policy of the party
granting such release contains a clause to the effect that this release does not
affect such policy or the right of the insured to recover thereunder. Each party
will use its best efforts to the end that its policies of insurance will contain
such a clause, but if an additional premium is charged for such waiver, the
party benefiting therefrom, if it desires to have the waiver, will pay to the
other the amount of such additional premium promptly upon being billed therefor.
(c) Tenant will not do anything which would result in the
cancellation, suspension or increase in the rate of fire insurance or other
insurance carried by Landlord; and if any cancellation, suspension or increase
in the rate of fire insurance or other insurance is stated by any insurance
company or by the applicable Insurance Rating Bureau to be due to any activity
or equipment of Tenant in or about the Leased Space or the Building, such
statement shall be conclusive evidence that the increase in such rate is due to
such activity or equipment and, as a result thereof, Tenant shall be liable for
such increase and shall reimburse Landlord therefor upon demand, and any such
sum shall be considered additional rent payable with the monthly installment of
rent next becoming due.
11. RESTORATION OF DAMAGE. If the Leased Space is damaged by fire or
other casualty, Landlord will restore the Leased Space (but not Tenant's
property located therein) with reasonable promptness at Landlord's expense,
except that Tenant may be liable for restoration costs under paragraph 5(e)
hereof, unless the damage to the building is so extensive that Landlord
determines not to restore it, in which event Landlord will so notify Tenant
within sixty (60) days after the occurrence of such casualty and this Lease will
thereupon terminate.
<PAGE> 6
Landlord will not be liable to Tenant for any interruption in use of the Leased
Space which results from damage to any part of the building, but rent will be
proportionately suspended during any period of time when any part (or all) of
the Leased Space is untenantable.
12. CONDITION OF LEASED SPACE. Landlord leases the Leased Space in its
condition when the term of this Lease begins and without any representation with
respect to it or any duty to repair or alter it except as stated in paragraph 3,
4 and 5 hereof.
13. DEFAULT BY TENANT.
(a) Each of the following shall constitute an event of default (an
"Event of Default") hereunder:
(i) If Tenant fails to pay when due all amounts due hereunder,
including, without limitation, base rent and additional rent; or
(ii) If Tenant fails to perform any of its other obligations
hereunder within ten (10) days after written notice of any such failure has been
given by Landlord; or
(iii) If Tenant abandons or vacates the Leased Space or
removes therefrom all or substantially all of its property; or
(iv) If Tenant files a petition commencing a voluntary case
under the Federal Bankruptcy Code (Title 11 of the United States Code), as now
or hereafter in effect, or under any similar law, or files a petition in
bankruptcy or for reorganization or for an arrangement pursuant to any state
bankruptcy law or any similar state law, or, if Tenant is then a banking
organization, if Tenant files an application for voluntary liquidation or
dissolution applicable to banking organizations; or
(v) If an involuntary case against Tenant as debtor is
commenced by a petition under the Federal Bankruptcy Code (Title 11 of the
United States Code), as now or hereafter in effect, or under any similar law; or
a petition or answer proposing the adjudication of Tenant as a bankrupt or its
reorganization pursuant to any state bankruptcy law or any similar state law
shall be filed in any court and shall not be dismissed, discharged or denied
within sixty (60) days after the filing thereof, or if Tenant shall consent or
acquiesce in the filing thereof; or
(vi) If a custodian, receiver, trustee or liquidator of Tenant
or of all or substantially all of Tenant's property or of the Leased Space shall
be appointed in any proceedings brought by Tenant; or if any such custodian,
receiver, trustee or liquidator shall be appointed in any proceedings brought
against Tenant and shall not be discharged within sixty (60) days after such
appointment; or if Tenant shall consent to or acquiesce in such appointment;
(vii) If Tenant shall generally not pay Tenant's debts as such
debts become due, or shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts generally as they become
due;
Then Landlord will have the right to do, once or more often, any one or more of
the following:
(i) declare due and payable and sue to recover all unpaid rent
and additional rent, and all rent and additional rent for the unexpired term of
this Lease, and all costs and commissions provided or permitted by law;
(ii) declare this Lease terminated;
(iii) enter the Leased Space and sell any property in it;
<PAGE> 7
(iv) lease all or any part of the Leased Space to any other
person with or without first altering the same;
(v) confess judgment on behalf of Tenant for all amounts due
hereunder with interest, costs and an attorneys' commission of five percent (5%)
using this Lease or a copy as authority for such action; and
(vi) enter an action and judgment in ejectment against Tenant,
using this Lease or a copy as authority and causing a writ of possession to be
issued.
(b) Tenant hereby empowers any attorney or any court of record to
appear for it one or more times and to take on its behalf any or all of the
actions described in (v) and (vi) immediately above, including the entry of
judgment by confession, agreement or otherwise .
(c) If a default by Tenant not involving the payment of money occurs
and is of such a nature that it cannot reasonably be cured within ten (10) days
after written notice as aforesaid, Landlord will not exercise any right, power
or remedy hereunder so long as Tenant is proceeding with due diligence, in good
faith and with continuity to complete the curing of such default, provided that
in all cases the default is completely cured within sixty (60) days after such
written notice, and if not so cured within such 60-day period then Landlord
shall be fully empowered to exercise any right, power or remedy hereunder.
14. EMINENT DOMAIN. If all or part of the Building is taken or
condemned for public use (or if the Owner elects to convey title to the
condemnor by a deed in lieu of condemnation), then at the option of Landlord
this Lease will end as of the date title vests in the condemnor and rent will
abate for the Leased Space. Tenant will have no claim against Landlord or the
condemnor as a result of such condemnation or conveyance except to the extent
that an award shall specifically include an amount in respect of Tenant's moving
expenses.
15. ASSIGNMENT AND SUBLETTING.
(a) In the event Tenant desires to assign this Lease or sublet the
Leased Space or any part thereof, Tenant shall give Landlord written notice of
such desire at least sixty (60) days in advance of the date on which Tenant
desires to enter into such assignment or sublease. Landlord shall then have a
period of thirty (30) days following receipt of such notice within which to
notify Tenant in writing that Landlord elects any of the following options
(which options shall be in writing and shall be the sole and absolute discretion
of Landlord which may not be unreasonably withheld): (i) to terminate this Lease
as to the space affected by the proposed assignment or sublease as of the date
specified by Tenant, in which event Tenant will be relieved of all further
obligations hereunder after such date as to such space; or (ii) to permit Tenant
to assign or sublet such space subject, however, to subsequent written approval
of the proposed assignee or sublessee by Landlord; provided, however, that if
the rental rate agreed upon between Tenant and its sublessee is greater than the
rental rate then payable under this Lease, then eighty percent (80%) of such
excess rental (and of each installment thereof) shall be paid by Tenant to
Landlord as additional rent hereunder within five (5) days of Tenant's receipt
thereof and the remaining twenty percent (20%) of such excess rental (and of
each installment thereof) shall be retained by Tenant; or (iii) to refuse to
consent to Tenant's assignment or to Tenant's subletting such space and to
continue this Lease in full force and effect as to the entire Leased Space. If
Landlord fails to notify Tenant in writing of Landlord's election within such
thirty (30) day period, Landlord shall be deemed to have elected option (iii)
above.
(b) In respect of the foregoing: (i) no assignment or subletting by
Tenant shall relieve Tenant of any obligation under this Lease; (ii) any
attempted assignment or sublease by Tenant in violation of the terms and
conditions of this paragraph shall be void; and (iii) the provisions of this
paragraph shall apply fully to any subsequent assignment or subletting by an
assignee or sublessee.
<PAGE> 8
(c) For purposes of this paragraph any transfer or change in control of
Tenant (or any sublessee or assignee) by operation of law or otherwise shall be
deemed an assignment hereunder including, without limitation, any merger,
consolidation, dissolution or any change in the controlling equity interests of
Tenant or any subtenant or assignee (in a single transaction or a series of
related transactions).
16. EXTENSION OF TERM; WAIVER; HOLDING OVER.
(a) This Lease will end at the conclusion of the term stated in
paragraph 1 hereof unless it is continued as provided below. Landlord by notice
to Tenant at least ninety (90) days before the end of such term may state its
desire to continue this Lease for an additional period of time upon the same
terms and conditions or upon such other terms and conditions as it may specify
in such notice. If such a notice is given and Tenant fails to notify Landlord
within thirty (30) days thereafter that Tenant does not agree to such
continuation, this Lease will be continued for the additional term and upon the
terms specified by Landlord in its notice. Tenant waives, to the extent
permissible under law, all rights to receive any notice to quit the Leased Space
at termination of this Lease (whether on conclusion of the term or any renewal
thereof or on earliest termination following a default by Tenant).
(b) If Tenant retains possession of the Leased Space or any part
thereof after termination of this Lease by expiration of the lease term or
otherwise, Tenant shall pay Landlord: (i) as agreed liquidated damages (and not
as a penalty) for such wrongful retention alone, an amount, calculated on a per
diem basis for each day of such wrongful retention, equal to twice the annual
base rent and the additional rent for the time Tenant thus remains in
possession, and (ii) all other damages, costs and expenses sustained by Landlord
by reason of Tenant's wrongful retention. Without limiting any rights and
remedies of Landlord resulting by reason of the wrongful holding over by Tenant,
or creating any right in Tenant to continue in possession of the Leased Space,
all of Tenant's obligations with respect to the use, occupancy and maintenance
of the Leased Space shall continue during such period of wrongful retention.
17. RELOCATION OF TENANT. Landlord, after ninety (90) days' prior
written notice, may require Tenant to move from the Leased Space to another
location of comparable size in the building in order to permit Landlord to
consolidate the Leased Space with other space leased or proposed to be leased by
another existing or prospective tenant in the Building; provided, however, that
in the event of receipt of any such notice, Tenant, by written notice to
Landlord given within forty-five (45) days following its receipt of Landlord's
notice, may elect not to move to the other space and in lieu thereof may
terminate this Lease effective on the date of the proposed relocation set forth
in Landlord's notice. In the event of any such relocation: (a) Landlord will pay
all expenses of preparing and decoration the relocated premises so that they
will be substantially similar to the Leased Space and, in addition, will pay the
expense of moving Tenant's furniture and equipment to the relocated premises;
and (b) Landlord and Tenant will execute a modification of or supplement to this
Lease in respect of and identifying such relocated premises, such to be
otherwise on terms identical to the terms hereof.
18. NOTICES. All notices hereunder to be effective must be in writing
and delivered at or sent registered or certified mail to Landlord at its
principal office in Upper Dublin Township and to Tenant at the address stated
after its name above, or at such other address as either party may hereafter
give the other for such purpose. Notices will be deemed to have been given when
so delivered or mailed by certified mail, return receipt requested.
19. DELAYS IN EXERCISING RIGHTS. No delay or omission by Landlord or
Tenant in exercising any right upon any default by the other will impair any
such right or be construed as a waiver of any such default or an acquiescence in
it. No waiver of any default will affect any later default or impair any rights
of Landlord or Tenant with respect thereto. No single, partial or full exercise
of any right by Landlord or Tenant will preclude other or further exercise
thereof.
20. ESTOPPEL CERTIFICATES. Each party shall, at any time and from time
to time, at the request of the other party, upon not less than five (5) days'
notice, if given in person, or ten (10) days' notice, if given
<PAGE> 9
by mail, execute and deliver to the other a statement certifying that this Lease
is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), certifying the dates to which the base rent and additional rent
have been paid, and stating whether or not, to the best knowledge of the signer,
the other party is in default in performance of any of its obligations under
this Lease, and, if so, specifying each such default of which the signer may
have knowledge, it being intended that any such statement delivered pursuant
hereto may be relied upon by others with whom the party requesting such
certificate may be dealing.
21. ATTORNMENT. If the lessor of a superior lease or the holder of a
superior mortgage will succeed to Landlord's interest in the Building or the
rights of Landlord under this Lease, whether through possession or foreclosure
action delivery of a lease or a deed or otherwise, then at the election of such
party so succeeding to Landlord's rights (herein sometimes called "successor
landlord"), Tenant shall attorn to and recognize such successor landlord as
Tenant's landlord under this Lease, and shall promptly execute and deliver any
instrument that such successor landlord may reasonably request to evidence such
attornment. Tenant hereby irrevocably appoints such successor landlord Tenant's
attorney-in-fact to execute and deliver such instrument for and on behalf of
Tenant. Tenant hereby waives any right Tenant may have under any present or
future law to terminate this Lease or surrender the Leased Space by reason of
the institution of any proceeding to terminate a superior lease or action to
foreclose a superior mortgage, and this Lease shall not be affected by any such
proceeding or action unless and until the lessor of the superior lease, or
holder of the superior mortgage, elects in such proceeding or action to
terminate this Lease.
22. CONSENTS. Wherever in this Lease it is provided that either party
shall not unreasonably withhold consent or approval or shall exercise its
judgment reasonably, such consent or approval or exercise of judgment shall also
not be unreasonably delayed. In the event of a final determination by a court of
competent jurisdiction to the effect that a requested consent was unreasonably
withheld or delayed, the requested consent shall be deemed to have been granted
for all purposes of this Lease; provided, however, that the party who shall have
refused or failed to give such consent at all or in a timely manner shall not
have any liability to the other party therefor.
23. LIMITATION OF LIABILITY. Tenant shall look only to Landlord's
interest in the Building and land upon which it is situated (or the proceeds
thereof) for the satisfaction of Tenant's remedies for the collection of any
judgment by Landlord in the event of any default by Landlord under this Lease,
and no other property or other assets of Landlord shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord and
tenant hereunder or Tenant's use and occupancy of the Leased Space.
24. ACCESS; CHANGES IN BUILDING FACILITIES.
(a) For the purpose of exercising Landlord's rights as set
forth in paragraph 4, 8, and 10 hereof, Tenant will permit Landlord, or its
agents or other representatives, access to the Leased Space, without charge
therefor to Landlord and without diminution of the base rent or additional rent
payable by Tenant; provided, however, that such access shall not be exercised in
such a manner as unreasonably to interfere with Tenant's use of the Leased
Space.
(b) Tenant shall permit Landlord to install, use and maintain
pipes, ducts and conduits within the demising walls, bearing columns and
ceilings of the Leased Space, provided that the installation work is performed
at such times and by such methods as will not materially interfere with Tenant's
use of the Leased Space, or damage the appearance thereof, materially reduce the
floor area thereof or materially affect Tenant's layout. Where access doors are
required for mechanical trades in or adjacent to the Leased Space, Landlord
shall furnish and install such access doors and confine their location, whatever
practicable, to closets, coat rooms, toilet rooms, corridors and kitchen or
pantry rooms; and Landlord and Tenant shall cooperate with each other in the
location of Landlord's and Tenant's facilities requiring such access doors.
<PAGE> 10
(c) Landlord reserves the right at any time, without incurring
any liability to Tenant therefor, to make such changes in or to the Building and
the fixtures and equipment thereof, as well as in or to the street entrances,
halls, passages, elevators and stairways thereof, as it may deem necessary or
desirable; provided that there shall be no change detracting from the character
or quality of the Building as a Class A office building, and that there shall be
no unreasonable interference with the use of the Leased Space or with the use of
the Building facilities serving the Leased Space and no material reduction in
rentable area of the Leased Space or in the services furnished to the Leased
Space. Should there be a reduction of the rentable area of the Leased Space by
reason of a change permitted under this paragraph, the base rent hereunder shall
be reduced and additional rent and credits hereunder shall be appropriately
adjusted upon such reduction in rentable area.
25. SECURITY DEPOSIT. Landlord acknowledges that it has received a
security deposit of $8,430.52 prior to the execution of this Lease. Upon the
occurrence of any Event of Default by Tenant, Landlord may from time to time and
without prejudice to any other remedy, use the security deposit to the extent
necessary to make good any arrears of base rent or additional rent, or any other
damage, injury, expense or liability caused to Landlord by such Event of
Default, any remaining balance of such security deposit to be returned by
Landlord to Tenant within a reasonable period of time after the termination of
this Lease. However, the security deposit shall not be considered an advance
payment of rental or a measure of Landlord's damages in case of default by
Tenant. Tenant shall be entitled to receive and shall receive no interest on
such security deposit, and Landlord may commingle the same with other monies of
Landlord. If Landlord shall ever use the security deposit to pay the sums
described above, Tenant shall immediately deposit with Landlord an additional
security deposit equal to the amount so used.
26. PARTIES BOUND, ETC. This Lease will bind and inure to the benefit
of (a) Landlord, its successors and assigns, and (b) Tenant and such of its
successors and assigns as are approved by Landlord under paragraphs 14 hereof.
27. MISCELLANEOUS.
(a) Tenant acknowledges that neither Landlord nor any broker,
agent or employee of Landlord has made any representations or promises with
respect to the Leased Space or the Building except as herein expressly set
forth, and no rights, privileges, easements or licenses are acquired by Tenant
except as herein expressly set forth. Tenant, by taking possession of the Leased
Space, shall accept the same "as is", and such taking of possession shall be
conclusive evidence that the Leased Space and the Building are in good and
satisfactory condition at the time of such taking of possession.
(b) Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Landlord and
Tenant, or to create any other relationship between the parties hereto other
than that of landlord and tenant.
(c) Landlord recognizes Rubin Organization as the sole broker
procuring this Lease and shall pay such broker a commission thereof pursuant to
a separate agreement between such broker and Landlord. Landlord and Tenant each
represent and warrant to each other that except as set forth herein neither of
them has employed any broker, agent or finder in carrying on the negotiations
relating to this Lease. Landlord shall indemnify and hold Tenant harmless from
and against any claim or claims for brokerage or other commissions arising from
or out of any breach of the foregoing representation and warranty by the
respective indemnitors.
(d) "Landlord" means the Landlord named herein. "Tenant" means
all names which appear before that term at the beginning of this Lease,
irrespective of the pronoun used herein with respect to that term.
(e) Each provision hereof constitutes an independent covenant,
enforceable separately from each other covenant hereof.
<PAGE> 11
(f) This Lease contains the entire agreement of Landlord and
Tenant (except for any changes and additions to rules and regulations pursuant
to paragraph 5(i) hereof), and is subject to change only by a written statement
referring to this Lease and signed by Landlord and Tenant.
(g) This Lease will be governed by the laws of the
Commonwealth of Pennsylvania.
28. PUBLIC AUTHORITY.
Tenant hereby empowers Landlord to act on its behalf (and hereby names
Landlord as its Power of Attorney for such purposes) to obtain any permits,
certificates of occupancy, licenses, or other filings required by any
governmental agency in regards to the work, construction or improvements to be
performed by Tenant on the Lease Space. Tenant agrees that all contact with, and
notices from, governmental agencies will be handled by Landlord or Landlord's
agent, and Tenant will not seek to obtain such permits or licenses without
written approval by Landlord.
29. Attached hereto and made a part of this Lease are the following:
1. Exhibit A
2. Exhibit B
3. Exhibit C
LANDLORD
- ------------------------------- ----------------------------------
Witness New York Drive Associates, LLC
- ------------------------------- -----------------------------------
Witness General Partner
TENANT
- ------------------------------ -----------------------------------
Witness Biosonics Inc.
- ------------------------------ -----------------------------------
<PAGE> 12
CERTIFICATE
The undersigned, Secretary of ____________________________________, a
____________________________ corporation (the "Company"), hereby certifies to
Twining Office Associates that ______________________________ is the duly
elected and incumbent ___________________________ of the Company, authorized by
action taken by the board of directors of the Company at a meeting duly called
and held at which a quorum was present and acting throughout or by unanimous
written consent of the directors of the Company, which authorization is in full
force and effect as of the date hereof, to execute and deliver on behalf of the
Company the within Lease.
IN WITNESS WHEREOF, the undersigned has executed and sealed this
Certificate as of this ______ day of _________________, 19____.
{CORPORATE SEAL} ________________________________________
Biosonics Inc. , Secretary
<PAGE> 13
EXHIBIT A
To Lease Dated _________
Between
New York Drive Associates, LLC("Landlord")
and
Biosonics Inc. ("Tenant")
DRAWING OF LEASED SPACE
(Pursuant to Paragraph 1 of the Lease)
and
COMPLETION OF IMPROVEMENTS
(Pursuant to Paragraph 4 of the Lease)
"as-is" possession
<PAGE> 14
EXHIBIT B
To Lease Dated ______________
Between
New York Drive Associates, LLC ("Landlord")
and
Biosonics Inc. ("Tenant")
ADJUSTMENTS TO BASIC RENT
(Pursuant to Paragraph 2 of the Lease)
1. DEFINITIONS. As used in this exhibit B, the following terms shall have
the following meanings:
(a) "Actual Utility Costs" shall mean all of Landlord's utility costs
incurred in the operation and maintenance of the Building (and the underlying
land), related facilities in operation, and such facilities added in subsequent
years as may be determined by Landlord to be necessary or desirable.
Utility costs will be computed on the accrual basis and in accordance with the
terms of this Lease.
The term "Utility Costs" as used herein shall include the Cost of all utilities
for the Building, including, but not limited to, the cost of water, sewer,
power, heating, lighting, air conditioning and ventilating (excluding those
costs billed to specific tenants).
(b) "Impositions" shall mean all taxes, assessments and governmental
charges, whether federal, state, county or municipal, and whether they be by
taxing districts or authorities presently taxing the Building (and the
underlying land) or by others subsequently created or otherwise, and any other
taxes and assessments attributable to the Building (and the underlying land) or
their operation, whether or not directly paid by Landlord, excluding, however,
federal and state taxes or income, death taxes, excess profit taxes, franchise
taxes or other taxes imposed or measured on or by the income of Landlord from
the operation of the Building or imposed in connection with any change of
ownership of the Building or the underlying land; Impositions shall not include
any assessment on expansion or modification of the office complex which the
Leased Premises are a part.
(c) The "Initial Utility Cost" shall be the Actual Utility Costs for 1/1/96
to 12/31/96. The "Initial Tax Basic Cost" shall be the total Impositions billed
for the calendar year 1/1/96 to 12/31/96.
(d) "Computed Utility Costs" shall mean, with respect to each calendar year
during the term of this Lease, the Actual Utility Costs for such year computed
in accordance with the provisions of paragraph 1 (a) of this Exhibit B. The term
"Tenant's Share of Computed Utility costs" shall mean, with respect to any
calendar year, the Computed Utility Costs for such year, less the Initial
Utility Cost divided by the net rentable area of office space in the building
and (z) multiplied by the number of square feet of net rentable area contained
within the Leased Space.
(e) "Tenant's Share of Computed Tax Expenses" shall mean, with respect to
each calendar year the Impositions for such year less the Initial Tax Basic Cost
divided by the net rentable area of the office space
<PAGE> 15
in the building and (z) multiplied by the number of square feet of net rentable
area contained within the Leased Space.
2. ADJUSTMENTS FOR UTILITY COSTS. For each calendar year during the term of
this Lease, commencing 1997, prior to January 1 of each such year (or prior to
the commencement of the term of this Lease as to the year in which such
commencement occurs), Landlord shall provide Tenant, in writing, with a
comparison of the Initial Utility Cost with the projected Tenant's Share of
Computed Utility Costs with respect to such year and thereafter Tenant shall pay
an adjusted base rent for such year which shall include an appropriate amount on
account of the excess of such projected Tenant's Share of Computed utility costs
over the Initial utility Cost. Landlord shall, within a period of one hundred
fifty (150) days (or as soon thereafter as possible) after the close of each
such calendar year, provide Tenant a statement of the Utility Costs for such
year prepared by a certified public accountant of recognized standing, and a
calculation (based thereon) prepared by Landlord of Tenant's Share of Computed
Utility Costs for such year. If Tenant's share of Computed Utility Costs for
such year is greater than the projected amount theretofore paid by Tenant for
such year, Tenant shall pay to Landlord within thirty (30) days after Tenant's
receipt of the statement the amount of such excess. However, if Tenant's Share
of Computed Utility Costs for such year is less than the projected amount
theretofore paid by Tenant for such year, Landlord shall credit the amount of
such overpayment to the next rent due under this Lease. Any sums payable by
Tenant under this paragraph 2 of Exhibit C shall be deemed additional rent.
3. ADJUSTMENTS FOR TAX INCREASES. For each calendar year during the term of
this lease, commencing 1997, prior to January 1 of each such year (or prior to
the commencement of the term of this Lease as to the year in which such
commencement occurs), Landlord shall provide Tenant, in writing, with a
comparison of the Initial Tax Basic Cost with the projected Tenant's Share of
Computed Tax Expenses with respect to such year, and thereafter Tenant shall pay
an adjusted base rent for such year which shall include an appropriate amount on
account of the excess of such projected Tenant's Share of Computed Tax Expenses
over the Initial Tax Basic Cost. Landlord shall, within a period of one hundred
fifty (150) days (or as soon thereafter as possible after the close of each such
calendar year, provide Tenant with a statement of the Impositions for such year
prepared by a certified public accountant or recognized standing, and a
calculation (based thereon) prepared by Landlord of Tenant's share of Computed
Tax Expenses for such year. If Tenant's Share of Computed Tax Expenses for such
year is greater than the projected amount theretofore paid by Tenant for such
year, Tenant shall pay to Landlord within thirty (30) days after Tenant's
receipt of the statement the amount of such excess. However, if Tenant's Share
of Computed Tax Expenses for such year is less than the projected amount
theretofore paid by Tenant for such year, Landlord shall credit the amount of
such overpayment to the next rent due under this Lease. Any sums payable by
Tenant under this paragraph 3 of Exhibit B shall be deemed additional rent.
4. PRO-RATIONS. should this Lease commence or terminate at any time other
than the first day of a calendar year, Tenant's Share of Computed Utility Costs
and Tenant's Share of Computed Tax Expenses referred to in paragraph 2 and 3 of
this Exhibit C shall be calculated, for the commencement or termination year
only, by the following formula:
Days Occupied X Tenant's Share of = Adjusted Tenant's Share
- -------------
Computed Utility of Computed Utility
Costs (or Tenant's Costs (or Adjusted
Share of Computed Tenant's Share of
Tax Expenses) Computed Tax Expenses
5. AUDIT. Tenant shall have the right at all reasonable times, and at its
sole expense, to audit Landlord's books and records for any item relating to
this Lease for any year or years for which additional rental
<PAGE> 16
payments become due, or at Landlord's sole discretion Landlord will provide such
audit prepared by a certified public accountant. If such audit reveals greater
than a five percent (5%) discrepancy, Landlord shall reimburse Tenant for its
audit cost and revise its billings to reflect the error.
<PAGE> 17
EXHIBIT C
To Lease Dated _________________
Between
New York Drive Associates, LLC ("Landlord")
and
Biosonics Inc. ("Tenant")
RULES AND REGULATIONS
(Pursuant to Paragraph 5(i) of the Lease)
1. Tenant will not:
(a) Use any portion of the Building for any purpose other than that for
which it is intended, or in a manner which may cause damage to the Building or
to property of others located therein, or which may interfere with the comfort
or convenience of others using the Building.
(b) Place any sign or advertising notice in any part of the Building except
as approved by Landlord.
(c) Place or store anything in or on the Building other than in the Leased
Space.
(d) Mark, paint, drill into or otherwise damage or deface any part of the
Leased Space or other parts of the Building without Landlord's written
permission or supervision.
(e) Hang or shake anything out of any window or place anything on outside
window sills.
(f) Permit any animals in the Building or the surrounding land, or leave or
keep, except in such places as Landlord may designate for that purpose, any
bicycles vehicles or conveyances.
(g) Use any window shades not previously approved by Landlord in writing.
(h) Add to or change any locks in the Leased Space.
(i) Abuse or misuse the lavatory or toilet facilities in the Building.
(j) Cook or prepare food in the Leased Space expect in the utility kitchen
if one is called for by the plans for the Leased Space.
(l) Use the Lease Space for lodging or sleeping, or for any immoral or
illegal purpose.
(m) Occupy or permit to be occupied any portion of the Leased Space as an
office for a public stenographer or typist or as an employment bureau.
(n) Use any advertising or take any other action which in Landlord's
judgment might tend to affect adversely the reputation of the Building and its
desirability as a building for offices.
<PAGE> 18
2. The Building and adjacent land outside the Leased Space is under the
exclusive control of Landlord. Tenant will not obstruct any part of such
property or throw or place anything in it unless it is designated for that
purpose by Landlord. No one but Landlord and its employees will be allowed on
the roof of the Building or in any of the basement areas except those (if any)
which are designated for use by Tenant.
3. Except during normal working hours, Landlord may exclude persons from the
Building unless they sign a register and show a building pass signed by Landlord
and Tenant.
4. Tenant will lock outer doors before leaving the Leased Space at the end of
the day, and return all keys to the Leased space or any other part of the
Building at the end of this Lease.
5. The carrying in or out of furniture or other bulky material may be
restricted by Landlord to hours when the inconvenience caused to other tenants
will be minimized.
6. Tenant will obtain and use protective mats or carpet covers to be used
under desk chairs and all areas where coffee or other liquids are prepared for
convenience of tenant.
7. Tenant may change locks in the existing suite provided that two copies of
each new key is provided to management.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000352715
<NAME> BIOSONICS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 260
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<ALLOWANCES> 2,000
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<DEPRECIATION> 239,799
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<BONDS> 187,000
0
0
<COMMON> 28,787
<OTHER-SE> (2,126,589)
<TOTAL-LIABILITY-AND-EQUITY> 96,190
<SALES> 40,774
<TOTAL-REVENUES> 40,849
<CGS> 30,208
<TOTAL-COSTS> 582,458
<OTHER-EXPENSES> 130,050
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<INTEREST-EXPENSE> 54,796
<INCOME-PRETAX> (701,867)
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<INCOME-CONTINUING> (701,867)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (701,867)
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</TABLE>
