UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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)
<TABLE>
<S> <C>
Pennsylvania 23-2161932
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
</TABLE>
185 Commerce Drive, Suite 103
Ft. Washington, Pennsylvania 19034
(Address of principal executive offices) (Zip Code)
(215) 646-7100
(Registrant's telephone number including area code)
260 New York Drive
(Former name, former address and former fiscal year, if
changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
NONE.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 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. X Yes 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 From 10-KSB or any amendment to
this From 10-KSB. [ ]
The company is unable to give an aggregate market value of the
Registrant's Common Stock due to the inactivity of the stock.
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 1998, there were outstanding 326,994,536
shares of the Registrant's Common Stock, $.0001 par value.
Documents Incorporated by Reference: None
PART I
ITEM 1. BUSINESS AND PROPERTIES
GENERAL
Biosonics, Inc. has been focusing on the Salitron (dry mouth)
product for marketing and obtaining the approval for Medicare
Insurance reimbursement. The Salitron has been marketed to
patients who have a disease called Sjogren Syndrome, which
effects people of all age. This disease is not commonly known,
in spite of the recent efforts of various organizations such as
the Sjogren Syndrome Foundation who, with Congressional support,
was able to have April declared as Sjogren Syndrome month. With
further awareness of this debilitating progressive disease the
Company hopes to generate sales with or without Medicare support.
Please refer to "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Plan of Operation
for 1998" for further information.
During 1998, Biosonics worked on marketing research and
manufacturing development of the Cystotron (incontinence) product
for stress incontinent individuals. There are more than 13
million people who suffer from incontinence with approximately
62% of this market who have stress incontinence. The
efforts in 1998 towards manufacturing gave the Company the
background required to review the product and make changes
necessary for updating the manufacturing process and our
product. The Company expects that the product will be ready for
manufacturing in 1999 if the Company is able to obtain the
required funds. Please refer to "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation -
Plan of Operation for 1998" for further information.
Manufacturing development is very important to all of the
devices. To actively market off-shore as well as
domestically, manufacturing costs and simplicity must be taken
into consideration. Since our products will require further
studies, time and expense to market in the United States,
Biosonics plans to research more closely the off-shore
distribution.
The Company relocated its offices in January 1999 to a larger
facility that has created a larger lab and engineering facility.
The office is located at 185 Commerce Drive, Suite 103,
Fort Washington, Pennsylvania and the contact phone and fax
numbers remain the same (215-646-7100 and 215-646-3364
respectively).
YEAR 2000
The Company's products are not effected by the Y2K bug since they
are not computerized, however the Company has developed a plan to
assure that all suppliers and manufacturers utilized by the
Company will be Y2K ready.
HISTORY
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-invasive, electrotherapeutic and diagnostic devices
offer relief from and improvement to such distressing
disorders without drug related side effects or the ultimate need
for surgery. The Company has received six patents on its
devices. Furthermore, the Company has received FDA approval or
clearance for marketing the Salitron(registered trademark) (dry
mouth), Cystotron(trademark) (urinary incontinence),
Anotron(trademark) (fecal incontinence) and the BIDDS(trademark)
Glove (diagnostic tool).
PRODUCTS
The Company has developed various electrotherapeutic devices, six
of which have been patented, and four of which have received FDA
approval for marketing, with a PMA or 510(k) clearance. The
electrotherapeutic technology developed by the Company is based
on the stimulation of nerves using the body's natural resources,
to create a positive response in malfunctioning body organs and
systems. All of the Company's developed devices are portable,
battery-operated, non-surgical and non-invasive, and the Company
has not received any reports on adverse side effect in any
active user.
The Company has not manufactured any of its products during the
past ten years and has made sales during 1996, 1997 and 1998 from
existing inventory, consisting of Salitron System units and
accessories. The Company believes it can sell and ship Salitron
system units from this inventory after testing the equipment, and
it believes that such sales could generate approximately $375,000
in revenue, although there can be no assurance that the Company
will be able to effect such sales.
The manufacturing of the Company's 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 Sjogren Syndrome (an autoimmune disease), other
diseases, medication, radiation, surgery or aging. U.S. Patent
No. 4,519,400, covering the method for stimulating salivation
utilized by a prior concept for the Salitron System, was issued
to Biosonics on May 28, 1985. Biosonics believes, although
there is no assurance, that the current versions of the Salitron
are protected by such patent. U.S. Patent No. 4,637,405,
covering the apparatus utilizing that prior concept, was issued
to Biosonics on January 20, 1987. Biosonics also was issued
parallel patents by seven foreign countries, although such
foreign patents have lapsed due to a lack of funds. FDA
clearance for commercial sale was received through a pre-market
approval (PMA) application process in May 1988 for use in
treating patients with dry mouth secondary to Sjogren
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 funds necessary to implement a marketing
program for any of its devices. Biosonics' initial marketing
efforts were for the Salitron and involved efforts to obtain
Medicare reimbursement for the Salitron. On May 23, 1994, a
proposed notice was published in the Federal Register by HCFA
that it intended to disapprove Biosonics' application for
Medicare reimbursement for the Salitron System, although no final
notice has yet been published. In 1996, Biosonics met with HCFA
officials to urge a reevaluation of its intent to disapprove the
Company's request for reimbursement approval. In February 1997,
HCFA advised Biosonics that it had examined its previous position
and concluded that absent additional information, Medicare
reimbursement for the Salitron was not warranted under current
law. As a result, the Company has engaged a Washington, DC law
firm to explore with HCFA the extent of additional information
that HCFA will require in order to approve Medicare reimbursement
for the Salitron System. HCFA has requested that the Company
provide additional data to establish the clinical utility of
electrostimulation to evaluate the long-term effectiveness of
electrostimulation and to identify the types of patients who
would benefit from the procedure. In late October 1997, the
Company submitted additional data to HCFA. On March 10, 1998
during a Senate Appropriations Subcommittee on Labor, Health and
Human Services, and Education, a HCFA representative stated her
intention to withdraw the May 23, 1994 Federal Register notice.
This May 23rd notice was withdrawn from the Federal Register on
June 1, 1998 and further stated that a review of the product and
its effect on the disease, would be done. National coverage for
reimbursement of the Salitron remains under review by HCFA.
Further, Biosonics cannot predict the effect, if any, on the
reimbursement from the private plans and Medicaid in
the event that HCFA does not publish any notice of coverage of
the Salitron System for Medicare purposes. Sales of the
Company's devices may be adversely affected by the difficulty of
purchasers' obtaining sufficient reimbursement from third party
payers. There can be no assurance that the availability of third
party reimbursements will continue and that changes in levels of
such reimbursement will not adversely affect the profitability of
the Company's products.
Biosonics has been directing sales, on a limited basis, 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 suffer 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. In light of the recent
developments with HCFA withdrawal of the previous "non-coverage"
statement from the Federal Register,the Company is
generating a marketing plan to increase sale of its' existing
Salitron systems, and proceeding with a bid for manufacturing of
additional systems.
CYSTOTRON AND ANOTRON SYSTEMS. These devices counteract urinary
(Cystotron) and fecal (Anotron) incontinence. The Cystotron and
Anotron have been cleared for sale by the FDA under two
separate 510(k)submissions (See "Governmental Regulation,"
below). Biosonics has received a patent covering the Cystotron
and Anotron and the method of treatment of incontinence utilized
by these devices (U.S. Patent No. 5, 117,840).
Subject to the availability of funds, Biosonics is developing a
marketing plan for the Cystotron device that will include a
six-month market study. Please refer to "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operation - Plan of Operation for 1998" for further information.
BIDDS GLOVE. This diagnostic tool is a modified surgical grade
latex glove on which is imprinted specialized electronic
circuitry. The BIDDS Glove is intended to be utilized in
connection with certain of Biosonics' therapeutic devices as a
means of delivering or receiving electrical energy to or from the
patient. The market for the BIDDS Glove is, therefore, largely
co-extensive with the markets for the Company's other products.
Biosonics was issued a United States patent (U.S. Patent No.
4,510,939) covering a prototype version of the BIDDS Glove on
April 16, 1985 and was issued a United States patent (U.S. Patent
No. 4765343) 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 to
respond positively to the Company's therapeutic devices, such as
the Cystotron, Anotron and MEGS. The Company also intends to use
the BIDDS Glove in the studies outlined above regarding the
Cystotron and Anotron Systems.
MEGS(trademark). The MEGS (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. Biosonics plans to
transfer this technology to its subsidiary company EubeTek, Inc.
which was formed in January 1999. Refer to "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operation - Plan of Operation for 1998" for further
information.
NASOTRON(trademark). The Nasotron 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.
Biosonics is must commence dosage studies for the Nasotron on
patients to determine the optimal intensity and duration of the
electronic impulse. Furthermore, double blind clinical studies
performed under protocols acceptable to the FDA, must be
completed and submitted to the FDA for approval prior to the
commercial sale of the Nasotron. These efforts are not currently
being undertaken.
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 , which is a device designed to stimulate vaginal
secretions in women with vaginal secretory deficiencies and to
aid normal sexual function. The Immunotron is a device
designed to influence the cerebral nervous system to activate the
body's immune system. Other devices in development stages are
intended to reduce cancerous cells in certain tumors in
conjunction with chemotherapy and a device intended to accelerate
wound healing by stimulating cell migration.
Biosonics believes that it will be required to raise substantial
additional capital through the issuance of equity and/or debt
securities in order to finance continuing research and
development, regulatory approval, marketing, manufacturing and
other activities related to the successful marketing and sale of
the devices described above. There is no assurance that such
additional financing will be available on terms acceptable to it
in the future. No substantial development of any additional
devices has occurred to date and there is no assurance that any
such development will be commenced or, if commenced, will
be successfully completed.
PATENTS AND TRADEMARKS
The Company has a number of patents and trademarks with respect
to its devices, although there is no assurance that such rights
will be adequate to protect the Company's proprietary technology.
The following is a description of the Company's patent rights in
their relative order of importance:
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Patent No. Descript ion
Expiration
Date
4,519,400 Method for stimulating salivation used
2002
in connection with Salitron System
4,637,405 Application for stimulating Salivation used
2004
in connection with the Salitron System
5,117,840 Sphincter Training System used in
2009
connection with the Anotron and
Cystotron Incontinence System
4,765,343 Application for transferring electric
2005
energy to/from living tissue used in
connection with the BIDDS Glove diagnostic
tool
4,542,753 Application and method for stimulating
2002
penile erectile tissue used in
connection with the Company's MEGS device
4,663,102 Method for making a body member for use in
2004
genital stimulation used in connection with
the Company's MEGS device
4,590,942 Application and Method for inhibiting nasal
2003
secretions
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The Company's registered trademarks are "Anotron," "Biosonics,"
and "Salitron," which expire in 2007, 2008 and 2009,
respectively.
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 U.S. Food and
Drug Administration (the "FDA") and comparable state and foreign
regulatory agencies. The Food, Drug and Cosmetic Act (the "FDC
Act") requires premarket clearance or premarket approval by the
FDA prior to commercialization of medical devices. Pursuant to
the FDC Act, the FDA regulates the manufacture, distribution and
production of medical devices in the United States.
Before a new device can be introduced into the market, the
manufacturer generally must obtain FDA clearance through either a
510(k) premarket notification or a premarket approval application
("PMA"). A 510(k) clearance is only available for devices which
are "substantially equivalent" to devices that have been
previously approved by the FDA. The principal purpose of the
510(k) procedure is to avoid costly and time-consuming clinical
tests of devices that have already been proven safe and effective
by others. Applicants under the 510(k) procedure must prove that
the device for which approval is sought is substantially
equivalent to a device on the market prior to the Medical Device
Amendments of 1976, or a device approved thereafter pursuant to
the 510(k) procedure.
A PMA must be filed if the proposed device does not satisfy the
foregoing conditions relating to the 510(k) procedure. The PMA
procedure is more complex, time-consuming and costly than the
510(k) procedure. In general, the PMA procedure requires
extensive clinical testing to determine the safety, efficacy and
potential hazards of the medical device. In order to obtain
permission to conduct human clinical studies under the PMA
procedure, the manufacturer is required to obtain an
Investigational Device Exemption ("IDE") from the FDA. If the IDE
application is approved, human clinical trials may begin at a
specific number of investigational sites with a minimum specific
number of patients, as approved by the FDA. The clinical trials
must be conducted under the auspices of an independent
Institutional Review Board ("IRB") established pursuant to FDA
regulations. Upon the completion of all required testing under
the IDE, substantial proof of safety and efficacy must
be submitted to the FDA before the final PMA will be granted. The
PMA process can be expensive, uncertain and lengthy, frequently
requiring from one to several years from the date the PMA is
accepted by the FDA. If granted, the PMA approval may include
significant limitations on the indicated uses for
which a product may be marketed and may require inspection of the
manufacturing facility to ensure compliance with the FDA's
requirements.
Biosonics' clinical testing of its Salitron System was conducted
pursuant to IDEs obtained through IRBs. In May 1988, Biosonics
received FDA approval for the sale of the Salitron System.
Biosonics received approval from the FDA in November 1986 to sell
the Anotron and Cystotron Incontinence Control System under
separate 510(k) notification submissions.
Biosonics has not obtained 510(k) clearance or PMA for any of its
other devices. Delays or the failure to receive such clearance or
approval of such devices could have an adverse impact on
Biosonics. Devices which have been developed by Biosonics, but
which have not been approved for commercial distribution in the
United States, may be exported if the FDA approves a request from
Biosonics for permission for export. The FDA requires that
Biosonics obtain approval from the foreign country to
which the device will be exported and comply with the laws of the
foreign country. Nonetheless, the FDA could still deny
permission to export if it determines that export is contrary to
public health and safety. Biosonics has not submitted such a
request to the FDA for the export of its products, and no
decision has yet been made whether it will do so in the near
future.
Biosonics is also required to register with the FDA as a device
manufacturer. In addition, the Company is required to comply
with the FDA's Good Manufacturing Practices regulations. The FDA
has authority to conduct detailed inspections of manufacturing
plants, to establish "good manufacturing practices" which must be
followed in the manufacture of medical devices, to require
periodic reporting of product defects to the FDA, to take
regulatory actions against devices that are adulterated and/or
misbranded, and to pursue actions in federal court against
companies or individuals that violate the FDC Act. The
medical device reporting regulations require the Company to
provide information to the FDA whenever there is evidence to
reasonably suggest that one of its devices may have caused to
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 payers,
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 payer,
was experimental or was used for an unapproved indication.
Although approximately 40 private insurance carriers have
reimbursed Biosonics for the use of the Salitron system and
Medicaid reimbursement approval has been obtained in four states,
there is uncertainty as to whether third party payers will
approve or continue to reimburse Biosonics for the devices and
whether reimbursement, if approved or continued, will be
sufficient for purchasers of the Company's products. There were
no private insurance claims submitted in 1998.
On May 23, 1994, a proposed notice was published in the Federal
Register by HCFA that it intended to disapprove Biosonics'
application for Medicare reimbursement for the Salitron
System, although no final notice has yet been published. In
1996, Biosonics met with HCFA officials to urge a reevaluation of
its intent to disapprove the Company's request for reimbursement
approval. In February 1997, HCFA advised Biosonics that it had
examined its previous position and concluded that absent
additional information, Medicare reimbursement for the Salitron
was not warranted under current law. As a result,
the Company has engaged a Washington, DC law firm to explore with
HCFA the extent of additional information that HCFA will require
in order to approve Medicare reimbursement for the Salitron
System. HCFA has requested that the Company provide additional
data to establish the clinical utility of electrostimulation to
evaluate the long-term effectiveness of electrostimulation and to
identify the types of patients who would benefit from the
procedure. In late October 1997, the Company submitted
additional data to HCFA. On March 10, 1998 during a Senate
Appropriations Subcommittee on Labor, Health and Human Services,
and Education, a HCFA representative stated her intention to
withdraw the May 23, 1994 Federal Register notice. This May 23rd
notice was withdrawn from the Federal Register on June 1, 1998
and further stated that a review of the product and its effect
on the disease, would be done. National coverage for
reimbursement of the Salitron remains under review by HCFA.
Further, Biosonics cannot predict the effect, if any, on the
reimbursement from the private plans and Medicaid in
the event that HCFA does not publish any notice of coverage of
the Salitron System for Medicare purposes. Sales of the
Company's devices may be adversely affected by the
difficulty of purchasers' obtaining sufficient reimbursement from
third party payers. There can be no assurance that the
availability of third party reimbursements will continue and that
changes in levels of such reimbursement will not adversely affect
the profitability of the Company's products.
COMPETITION.
The medical devices market is highly competitive. Furthermore,
the medical devices market is characterized by rapid product
development and technological changes. The Company believes that
the Salitron System, used to relieve symptoms associated with
Xerostomia, or dry mouth, a condition of Sjogren Syndrome, is the
only product that stimulates salivary glands by
electrostimulation and produces saliva through a natural response
of the glands over longer periods of time. Recently, a drug
called Salagen was marketed for the treatment of dry mouth
resulting from Sjogren's Syndrome. The Company believes that the
Salitron, which has no reported side effects, is a safer and
less costly therapy. The Company's Salitron System also competes
with palliative products such as drugs, hard candy and
chewing gum, which may provide temporary relief of, but not long
term improvement for, dry mouth symptoms.
The Company is aware of at least three companies that have
developed products similar to the Company's products used to
treat incontinence, including one company that has developed a
product similar to the Cystotron Incontinence Control System.
The Company believes that its Cystotron Incontinence Control
System, once it becomes marketable, will compete
effectively with other products due to its portability and its
personal use-at-home features. Also, the Company believes that
its diagnostic tools and procedures used in conjunction with the
Cystotron are more accurate which will enable the product to
compete more effectively in the market. Biosonics is not aware
of any device that would be in direct competition to the BIDDS
Glove.
It is possible that the Company's products could be rendered
obsolete or uneconomical by technological advances by one or more
of the Company's current or future competitors. There are other
companies engaged in research and development in the medical
field, many of which are well established with greater
financial and marketing resources than the Company. Some of
these companies offer products that address the same or similar
medical problems as those addressed by certain of the Company's
products. For example, the Company's Cystotron Incontinence
Control System competes with products that are intended to
maintain incontinence, such as diapers, menstrual pads, drugs and
insertion plugs, and other electrostimulation products such as
retraining devices, muscle exercisers and biofeedback devices.
The Company believes its unique patented pulsing wave form is
more effective in its recovering of the incontinent condition.
One or more companies in the medical device industry might
develop products in the future similar to those being developed
by the Company and be in the position to market them more
successfully than the Company.
EMPLOYEES
As of December 31, 1998, Biosonics had eight employees, of which
seven are full-time, consisting of the Chief Executive Officer,
an operations manager, a products specialist, electrical
technician, document controller, medical customer support and a
secretary and one who is part-time bookkeeper.
PRODUCT LIABILITY AND INSURANCE
Since Biosonics' devices are intended for use in the treatment of
human diseases and conditions, Biosonics faces an inherent risk
of exposure to product liability claims in the event that the use
of its devices results in unanticipated personal injury. Although
Biosonics carries products liability insurance,
there can be no assurance that it will be able to maintain such
insurance with the limits of liability necessary and at premiums
that are acceptable to it, that such coverage will be available
on commercially reasonable terms, if at all, or that liability
will not exceed the insured amount. At the present time, the
Company's products liability coverage is $1,000,000 per
occurrence with a $5,000 deductible. If a substantial claim for
damages were to arise at a time when Biosonics did not have
adequate insurance or its coverage was insufficient to cover the
claim, payment of such a claim would have a material adverse
impact on the financial condition of Biosonics and on its ability
to continue its business activities. In addition, the legal fees
and related costs of defending or settling a products liability
action and the negative publicity likely to arise therefrom would
likely have a material adverse impact on Biosonics, even
if it ultimately prevailed in any such action.
SALITRON MEDICAL ADVISORY BOARD
Biosonics Salitron Medical Advisory Board (the "Advisory Board")
consists of individuals with expertise in the field related to
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. Dr. Talal received 240,000 shares in 1997
in lieu of the $25,000. The other members of the Advisory Board
received 50,000 shares of Common Stock. The issuance of the
shares was conditioned upon the Advisory Board members serving
for a minimum of two years. All of the above mentioned
shares were issued in the latter part of 1996. 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. The Advisory Board did
not formally meet in 1998.
The names of the persons serving on the Advisory Board and their
respective institutional affiliation or former affiliation or
occupation are as follows:
<TABLE>
<S> <C>
Name Institutional Affiliation or Occupation
Norman Talal, M.D. Retired, The University of Texas
Norman Gaylis, M.D. Rheumotologists, Private Practice
Jonathon Ferguson, Rheumotologists, Private Practice
M.D.
Elaine Harris Founder, Sjogren's Syndrome Foundation
James Quinn, D.D.S. Retired, Louisiana State University,
School of Dentistry
</TABLE>
ITEM 2. PROPERTIES OF THE COMPANY
Biosonics leases approximately 4,508 square feet of office space
in Fort Washington, Pennsylvania pursuant to a new five year
lease that started February 1, 1999. Lease payments are
currently $6,011 per month.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
<TABLE>
<S> <C> <C>
High Bid Low Bid
1998
First Quarter 0.075 0.040
Second Quarter 0.090 0.035
Third Quarter 0.053 0.024
Fourth Quarter 0.036 0.020
1997
First Quarter 0.075 0.045
Second Quarter 0.130 0.045
Third Quarter 0.115 0.065
Fourth Quarter 0.080 0.048
</TABLE>
The quotations set forth above reflect inter-dealer prices
without mark-up, mark-down or commissions, and may not
necessarily represent actual transactions. As of December 31,
1998, there were approximately 10,500 record holders of the
Company's Common Stock. The Company has not, since its
inception, declared any dividends.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<S><C> <C> <C> <C> <C> <C>
Year Ended December 31
Statement of Loss
Data: 1998 1997 1996 1995 1994
Sales $11,065 $26,763 $40,774 $62,506 $21,939
Cost of Sales 124,481 22,639 30,208 41,980 17,817
Gross profit (loss)($113,416) $4,124 $10,566 $20,526 $4,122
Development stage
expenses:
Research and develop
costs $166 $614 $21,500 $20,117 $5,160
Professional fees 118,757 244,931 130,050 54,697 49,507
Other develop stage
expenses 475,031 631,476 636,488 560,476 338,102
Net develop stage
expenses 593,954 877,021 788,038 635,290 426,713
Other income:
Investment income $11,192 $6,443 - $5,279 -
Miscellaneous income - - 75 - -
Gain on sale of
equipment - - - - -
Total other income $11,192 $6,443 $75 $5,279 -
Net loss ($696,178)($866,454)($777,397)($609,485)($422,591)
Loss per common
share 0.00 0.00 0.00 0.00 0.00
As of December 31,
Balance Sheet Data: 1998 1997 1996 1995 1994
Working Capital
(Deficit)
($2,497,476)($2,323,266)($2,150,027)($2,709,883)($2,477,004)
Total Assets $169,266 $155,123 $174,187
$133,650 $119,445
Total Liabilities $2,640,759 $2,456,138 $2,300,776
$2,810,091 $2,574,151
Shareholders' Deficit
($2,471,493)($2,301,015)($2,126,589)($2,676,441)($2,454,706)
</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 including loans and advances for
security purchases through offerings. The Company's financial
problems have been long standing. The Company had promoted its
Salitron system during the late 1980's and early 1990's,
including promotion of the product through independent "dry mouth
centers," with the goal of generating enough revenues to assist
it with developing marketing programs for the Company's other
products. The inability to obtain National Medicare approval,
has increased the difficulty to receive reimbursement from
private insurance carriers and Medicare regions, although
some payments from private insurance carriers and Medicare have
been received. The difficulties in obtaining Medicare
reimbursement existed both prior and subsequent to HCFA's notice
on May 23, 1994 of its intention to disapprove the Company's
application for Medicare reimbursement for the Salitron System.
See "Item 1. Business and Properties -- Government Regulation."
Of the Company's $8,750 in Salitron System sales revenues in
1998, $3,750 were sent to Medicare for reimbursement, and $5,000
was billed directly to the patients. No monies were received from
Medicare, Medicaid or private insurance carriers during the year.
All prior year sales that were awaiting process were paid. It is
Biosonics' policy that all patients make regular monthly
payments, even if we submit to their respective insurance
company. However, because most of the patients who could use the
Salitron System for relief of dry mouth condition are within the
Medicare age group, the Company has lost the interest of patients
and their physicians in the Salitron System, who have been
unwilling to wait during the long process of reimbursement, which
in some cases can be as long as one year, and can not afford the
monthly payment plan. Reimbursements from Medicare are processed
on a case-by-case basis in which the Company usually is required
to go through a lengthy appeals process. The Company's
operations, therefore, have been dependent upon sales of its
securities, loans and advances.
RECENT CAPITAL TRANSACTIONS
The Company, as of December 31, 1998, owes an aggregate of
$216,000 in interest bearing loans, $91,000 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 reimbursed to investors in
1990, the proceeds raised were never returned to the investors.
In 1990, Biosonics offered the investors the right to
convert their debentures into Common Stock, and investors who
purchased an aggregate of $16,000 of the debentures converted
their debentures into 1,180,000 shares of Common Stock. As of
December 31, 1998 the outstanding principal balance of such debt
was $187,000 and the accrued interest thereon was $196,609.
During the year ended December 31, 1998, Biosonics issued Common
Stock shares as follows: (i) 13,190,000 shares at $.025 per share
to 17 accredited investors and 2,750,000 shares at $.05 per share
to 12 accredited investors for participation in a private
placement, (ii) 200,000 shares at $.025 per share and 100,000 at
$.05 per share for payment of interest on one loan established
in 1998, (iii) 2,730,000 shares at $.05 per share for payments
two individuals for the purchase-back of their Dry Mouth Center
inventory, (iv) 20,00 shares at $.025 per shares and 30,000
shares at $.05 per share were issued for consulting services;
(vi) 110,000 shares at $.02 per share were issued to four
investors, in exercise of stock options. Further, a contract for
consulting services was renegotiated resulting in 100,000 shares
being returned to the Company. Those shares were retired against
the outstanding shares for 1998. All shares issued and
explained above are restricted and may not be sold except in
accordance with the registration requirements under the Act or an
exemption from such requirements such as Rule 144.
In 1998, the Company had net positive cash flow from financing
activities of $433,950. This consisted of $304,950 from issuance
of common stock and $172,000 from issuance on notes payable. The
repayment of notes payable totaling $43,000 offset these
receipts. The Company expended $9,890 for computer equipment
and $100 for a deposit on new office equipment. The company had
negative cash flows from operations of $424,120.
In 1997, the Company had net positive cash flow from financing
activities of $555,530. This consisted of $586,530 from the
issuance of common stock. The repayment of notes payable
totaling $31,000 offset these receipts. The Company expended
$6,021 for computer equipment and $15,000 to an individual for a
note receivable. The Company had a negative cash flow from
operations of $534,509.
In 1996, the Company had net positive cash flow from financing
activities of $356,000. This consisted of $515,000 from the
issuance of preferred and common stock, $40,000 received as
subscriptions for stock to be issued in a private placement,
$45,000 raised from the issuance of notes payable which were
subsequently repaid. The repayment of IMRC notes payable
totaling $235,000 offset these receipts. The Company had
negative cash flow from operating activities of $365,000.
PLAN OF OPERATION FOR 1999
Biosonics has created a subsidiary called EubeTek, Inc.
("EubeTek") that will concentrate on the development and FDA
submittal for the MEGS (impotence) device. Biosonics has
agreed to transfer the technology of the MEGS device to the new
company for 5.5 million shares of EubeTek common stock
which represents 55% of the authorized shares. This company will
hire a President to oversee its operations. Recently EubeTek
offered a private placement to accredited investors at $6 per
share. These funds will be used for general operating expenses,
developing the product and employing the management team.
With Biosonics' continued efforts towards acquiring Medicare
reimbursement approval, and the lack of said approval, the
Salitron will be marketed in the local domestic market, with a
minimal advertising budget. The Company does have current
inventory for the Salitron, and believes that this existing
inventory is not obsolete and that the Company can sell and ship
such units after testing the equipment. The Company believes
that the amount of revenue that could be generated from
such sales is approximately $375,000, however, there is no
assurance that such sales will occur. The Company plans to
also introduce this product into the Canadian and other off-shore
markets. In particular, Biosonics has received interest in the
Salitron from individuals in Canada, and therefore is planning to
look into a distribution agreement for this region.
Biosonics will require additional funds to proceed with the plans
to manufacture and market the Cystotron device in the United
States. Our research has shown that our marketing efforts should
target the retirement community, as well as the age group from 40
to 60 year old females. The Company has completed a tentative
marking plan for the Cystotron based on this research. This plan
includes matters relating to the manufacturing and sales of the
devices as well as the production of a six-month marketing
study for the product. The purpose of the study is to provide
further data for physicians to assist them in deciding whether to
prescribe the Cystotron System for their patients.
The Company's anticipated funding needs for the Cystotron result
from the following breakdown:
<TABLE>
<S> <C>
Allocation Item Funds Required
Manufacturing costs for 1,000 units $350,000
with accessories,
complete turnkey manufacturing
Cystotron Advisory Board fees $60,000
Marketing study with 500 women $1,000,000
Marketing and Advertising costs for $375,000
the Cystotron
Seminar for Physicians, post study $250,000
Total for the Cystotron Study $2,035,000
</TABLE>
The above amounts are estimated based on certain assumptions.
Manufacturing costs are based on estimated costs from
manufacturing to produce the Cystotron System and accessories.
The Cystotron Advisory Board fee is based upon an estimate
provided by the proposed head of the board. The $1 million for
the marketing study includes fees to the physicians for their
study of patients as well as nursing staff, biostatisticians and
laboratory costs to be incurred to produce the results of the
study. Marketing and advertising costs for the Cystotron are
estimated amounts derived in connection with publications
advertising and TV/cable/radio advertising, for introducing the
product to the public. The seminar/symposium for the physicians
at the end of the study will be the Company's method of verifying
the product's efficacy to the medical community, inasmuch as the
Company's products must be prescribed by a physician prior to
sale. These estimated costs are for printing expenses, location
and media required for the symposium.
Upon receipt of funds, Biosonics will generate a bid for the
manufacturing of the Cystotron product as well as prototypes for
manufacturing design changes. The "manufacturing bid process"
consists of the Company's generating a "request for proposal"
document, which sets forth the manufacturing, quality assurance
and other particulars regarding the Cystotron and the completion
of turnkey manufacturing, i.e., full assembly, packaging and
labeling of the product. The Company will also supply drawings
for the bidder to review. Each prospective manufacturer of the
Cystotron must bid on the project by a specified date. The
Company will review the bids based upon the price, service and
qualifications of the respective manufacturers and award the
project to the manufacturer selected by the Company as a result
of this process. The manufacturer will then have the
responsibility to produce the product within the outlined
time frame, in accordance with the specifications provided by the
Company in compliance with applicable regulations. The
prototypes that will be developed will be included in the
study. Biosonics plans to forward this information to the FDA
for amendment to the 510k so that manufacturing can begin on a
newly designed product for manufacturing cost effectiveness.
When Biosonics has a product that is manufacturing cost
effective, the Company will begin actively seeking off-shore
distribution. In Europe, this will require a CE Mark which must
be applied for. Depending on the Company's funds, plans are to
attend various shows and conferences relating to off-shore
distribution.
Depending on the Company's ability to raise additional funds to
commence and implement its marketing plan for the Cystotron
product and the establishment of the market study and a sales
team for the product, of which there can be no assurance, the
Company anticipates that domestic sales of the Cystotron product
will commence in the latter part of 1999 or early 2000.
RESULTS OF OPERATIONS
Biosonics' net development stage expenses decreased $283,067 or
32% in 1998 as compared to 1997 ($593,954 and $877,021
respectively) primarily due to professional fees with respect to
securities-related issues in 1997.
Product sales decreased to $11,065 in 1998 as compared to $26,763
in 1997 as a result of the discontinuance of the marketing
program of the Salitron System due to lack of funds.
The increase of investment income to $11,192 in 1998 as compared
to $6,443 in 1997 was due to Biosonics' issuance of additional
Notes Receivables.
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.
Jack Paller, President and chief executive officer of the
Company, has loaned money to fund certain of the Company's
operations from time to time. The principal amount
of a secured note payable to Mr. Paller is currently $91,000
bearing interest at the prime rate plus 1.5% per annum. This
note is secured by the Company's assets, including, but not
limited to, the Company's patents. Also, other vendors of the
Company have recorded judgements or liens against the Company in
the aggregate amount of $194,142. The Company believes there
will be no significant adverse impact from inflation and changing
prices on the Company's operations.
FORWARD LOOKING STATEMENTS
All statements contained in this report that are not historical
facts, including but not limited to the Company's plans for
product development and marketing, are based on current
expectations. These statements are forward-looking (as defined
in the U.S. Private Securities Litigation Reform Act of 1995
and the Act) in nature and involve a number of risks and
uncertainties. Such statements can be identified by the use of
forward-looking terminology such as "may", "will", "should",
"expect", "anticipate", "believe", "estimate" or "continue", or
the negative thereof or other variations thereon or comparable
terminology. Actual results may vary materially, as discussed
herein. The factors that could cause actual results to
vary materially include: The availability of capital to finance
the Company's operations on terms satisfactory to the Company;
the availability of clearances or approvals of the Company's
products by federal, state and foreign governmental authorities;
the market acceptance of the Company's products; the availability
of reimbursement by third part payors, including Medicare
reimbursement; product liability claims; the availability of
protection of the Company's patents and future litigation
relating to protection of its patent, trade secrete and know-how;
the Company's dependence on Jack Paller; general business and
economic conditions and competition from products that address
the same or similar medical problems as those addressed by the
Company's products; and other risks that may be described from
time to time in the reports that the Company will be required to
file with the Commission. The Company cautions potential
investors not to place undue reliance on any such forward-looking
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of Biosonics are set forth in this
report beginning on page F-1.
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 70, is currently the sole officer and director
of the company. Mr. Paller has been Treasurer and a director of
the Company since its inception in 1980. In January 1987, he
became Chairman and Chief Executive Officer of Biosonics. He
also served as President of the Company from its inception until
January 1987, from October 1987 to December 1987 and since May
1990 to the present. Currently, Mr. Paller also serves as
President and a director of IMRCH and serves as President,
Treasurer and director of IMRC, the sole shareholder of IMRCH.
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 SECURITIES EXCHANGE ACT OF
1934.
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.
ITEM 11. EXECUTIVE COMPENSATION.
<TABLE>
<S> <C> <C> <C> <C>
Summary Compensation Table
Annual Compensation
Name & Principal Position Year Salary $ Bonus $
Jack Paller 1998 103,000.00 (1) -
Chairman, President, 1997 103,000.00 (1) -
Treasurer and Secretary 1996 103,000.00 (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, 1998, and
Mr. Paller did not receive or defer any other benefits or
compensation for serving as an executive officer of Biosonics
during those years. Such salary deferrals are included in the
Company's current debt as accrued payroll, and Mr. Paller and the
Company have orally agreed that Mr. Paller's deferred salary will
not be paid until the Company has sufficient available resources
and the payment of any such deferred salary will not disrupt or
jeopardize the Company's cash flow. In his capacity as an
executive officer of IMRC, Mr. Paller deferred his salary from
IMRC for the years ended December 31, 1989 through 1998,
including $42,000 of deferred salary per year for the years ended
December 31, 1996, 1997 and 1998.
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>
<S> <C> <C>
Name of Beneficial Owner No. of Shares Percentage
Jack Paller 11,467,300 3.5%
185 Commerce Drive,
Ste 103 Fort Washington, PA 19034
IMRC Holdings, Inc. (1) 108,538,930 33%
106 Quigley Boulevard
New Castle, DE 19720
</TABLE>
(1) IMRC Holdings, Inc. is a wholly owned subsidiary of IMRC.
As of December 31, 1998 Jack Paller owned 40.2% of the
outstanding shares of IMRC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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.
During 1989, Mr. Paller and his late spouse loaned $250,000 to
Biosonics at an interest rate of 1.5% over the prime rate charged
by First Union National Bank (formerly know as CoreStates Bank),
not to exceed an annual rate of 18%. The loan is payable on
demand and is secured by all of Biosonics' assets. During
1989, 1,250 shares of Biosonics' Series B Preferred Stock were
issued to Mr. Paller and his spouse in satisfaction of the
principal amount of $125,000 of their loan. During 1991,
Mr. Paller loaned Biosonics an additional $10,000. The highest
principal amount outstanding under these loans during 1998 was
$91,000. Mr. Paller has also loaned $11,000 to IMRC, with the
outstanding principal amount of $1,000 during 1998.
In recent years, IMRC has acted as the receiving and disbursement
agent for all cash receipts and disbursements for the Company.
The resulting receivable or payable, as the case may be, is
reflected in the Company's balance sheets and cash flow
statements as advance to or from affiliates. The Company
expects to continue this arrangement until such time that it
deems beneficial to the Company to end this arrangement.
In January 1999 Biosonics formed a subsidiary called EubeTek,
Inc. in which it will own 55-75% of the outstanding common stock.
Please refer to "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Plan of Operation
for 1998" for further information.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K.
<TABLE>
<S> <C> <C>
A FINANCIAL STATEMENTS & EXHIBITS
1 Financial Statements Page
Auditors' Report F-1
Balance Sheets at December 31, 1997 and 1998 F-3
Statements of Operations for Each of the Three
Years in the Period Ended
December 31, 1998 and the period from November F-5
13, 1980 (Inception) to
December 31, 1998
Statements of Changes in Shareholders' Equity
(deficiency) for the Period from F-6
November 13, 1980 (Inception) to December 31, 1998
Statements of Cash Flows for each of the Three
Years in the Period ended
December 31, 1998 and the period from November F-16
13, 1980 (Inception) to
December 31, 1998
Notes to Financial Statements F-18
2 All Schedules have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes therein
3 Exhibits
*3.1Articles of Incorporation as amended (Registrant's
Quarterly Report on
Form 10-Q for the
quarter ended September 30, 1996).
*3.5By-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"]).
*3.6Amended and Restated Article VII of the Registrant's
Bylaws as adopted on May 7, 1987.
(Exhibit to 1988 Form 10-K).
*3.7Amendment 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 From 10-K"])
*10.1Agreement between Registrant and IMRC with respect to
opportunities in the field of medical technology.
(Exhibit to 1981 From 10-K).
*10.6Securities Restriction Agreement dated September 30, 1987
between Registrant and International Management & Research
Corporation, Jack and Sarah Paller, and Henry S. Brenman.
(Exhibit to 1987 From 10-K).
*10.7Lease dated September 9, 1998 between Biosonics, Inc. and
185 Commerce Drive Associates, L.P. (Exhibit to 1998 Form
10-Q for the quarter ended September 30, 1998).
*10.16Note in the amount of $250,000 dated June 27, 1989, of
Biosonics, Security Agreement, dated June 27, 1989, between
Biosonics and Jack and Sarah Paller and Assignment of
Patent as Collateral Security, dated June 27, 1989, of
Biosonics. (Exhibit 10.16 to Form 10-K).
21Subsidiaries
27Financial Data Schedule
B REPORTS ON 8-K
The registrant did not file any reports on Form 8-K during
the Quarter ended December 31, 1998
</TABLE>
_________________
* Incorporated by reference
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 & Chief Executive
Officer
Date: April 15, 1998.
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 15, 1998.
<PAGE>
BIOSONICS, INC.
(A Development Stage Enterprise)
* * *
December 31, 1998, 1997 and 1996
BIOSONICS, INC.
(A Development Stage Enterprise)
CONTENTS
December 31, 1998, 1997 and 1996
<TABLE>
<S> <C>
Page Number
Auditors' Report F-1 & F-2
Financial Statements:
Balance Sheets at December 31, 1998 and 1997 F-3 & F-4
Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1998
and the Period from November 13, 1980 (Inception) to
December 31, 1998 F-5
Statements of Changes in Shareholders' Equity
(Deficiency) for the Period from November 13, 1980
(Inception) to December 31, 1998 F-6
through F-15
Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1998
and the Period from November 13, 1980 (Inception) to
December 31, 1998 F-16 &
F-17
Notes to Financial Statements F-18
through F-32
</TABLE>
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, 1998 and 1997,
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,
1998 and for the period from November 13, 1980 (Inception) to
December 31,
1998. These financial statements are the responsibility of the
Company's
management. Our responsibility is to express an opinion on these
financial
statements based on our audits. The amounts shown in the
statements of
operations and cash flows under the caption "Period from November
13, 1980
(Inception) to December 31, 1998" include the period from
November 13, 1980
(Inception) to December 31, 1985 which we did not audit. Those
financial
statements were audited by other auditors whose reports have been
furnished to
us, and our opinion, insofar as it relates to the amounts for the
period
November 13, 1980 (Inception) to December 31, 1985, is based
solely on the
reports of the other auditors.
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 and the
reports of the
other auditors provide a reasonable basis for our opinion.
F-1
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, 1998 and 1997, and the results of its operations
and its cash
flows for each of the three years in the period ended December
31, 1998 and
for the period from November 13, 1980 (Inception) to December 31,
1998 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 to the financial
statements that
might result from the outcome of this uncertainty.
/s/Morris J. Cohen & Co., P.C.
MORRIS J. COHEN & CO., P.C.
Philadelphia, Pennsylvania
February 23, 1999
F-2
BIOSONICS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
<TABLE>
<S> <C> <C>
$1,998 $1,997
Current assets
Cash $100 $260
Accounts receivable (net of
allowance for doubtful accounts
of $3,000 in 1998 and $2,000 $8,635 $5,889
in 1997)
Inventories $54,255 $42,117
Notes receivable $15,000 $15,000
Advances to affiliate $65,293 $66,606
Prepaid expenses and other current assets $3,000
Total current assets $143,283 $132,872
Equipment furniture and leaseholds,
net of accumulated deprecation
and amortization $17,452 $13,820
Deposits $8,531 $8,431
Total assets $169,266 $155,123
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
<TABLE>
<S> <C> <C>
1998 1997
Current liabilities
Notes payable
Officer $ 91,000 $
99,000
Other 218,000
148,000
Accrued payroll, officer 875,500
772,500
Accrued interest
Officer and affiliate 75,501
66,357
Other 225,343
198,738
Accounts payable and other accrued 905,965
922,093
expenses
Advances from affiliates 62,450
62,450
Payments received for unissued debentures 187,000
187,000
Total current liabilities 2,640,759
2,456,138
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, no shares issued
and outstanding
Common stock - $.0001 par value;
authorized 750,000,000 shares; issued and
outstanding 326,994,536 shares in 1998,
307,964,536 shares in 1997 32,700
30,797
Capital in excess of par value 13,169,317
12,548,020
Notes receivable from sale of stock (192,500)
(95,000)
Deficit accumulated during
development stage (15,481,010)
(14,784,832)
Shareholders' deficiency ( 2,471,493) (
2,301,015)
Total liabilities and shareholders'
deficiency $ 169,266 $
155,123
</TABLE>
F-4
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
Period from
November 13,1980
(Inception) to
Year Ended December 31,
December 31,
1998 1997 1996
1998
Sales $11,065 $26,763 $40,774
$875,205
Cost of Sales 124,481 22,639 30,208
692,105
Gross profit (loss) (113,416) 4,124 10,566
183,100
Development stage expenses
Research and development 166 614 21,500
4,166,833
Professional fees 118,757 244,931 130,050
3,116,175
Interest expense 64,489 46,489 55,608
344,365
Other development stage
expenses, inclusive of provision
(credit) for bad debts of $(18,762)
in 1998, $51,161 in 1997 and
$5,216 in 1996 410,542 584,987 584,886
8,927,700
Total development
stage expenses 593,954 877,021 788,038
16,555,073
Less - Revenue from cost
of recovery program
118,082
Net development stage expenses 593,954 877,021 788,038
16,436,991
Other Income
Investment and other income 11,192 6,443 75
745,261
Management fees
20,000
Gain on sale of equipment
7,620
Total other income 11,192 6,443 75
772,881
Net loss
($696,178)($866,454)($777,397)($15,481,010)
Loss per common share $0.00 $0.00 $0.00
($0.05)
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31, 1998
<TABLE>
<S> <C> <C> <C>
Common Stock
Notes
Shares Amount
Receivable
Capital subscriptions received
Net loss for the period from
November 13, 1980 (Inception) to
December 31, 1980
Balance December 31, 1980
Common stock issued January 1981
($.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 200,000 20
($.025 per share)
Common stock issued October 1981
($.05 per share) 20,000,000 2,000
Offering expenses
Warrants to purchase shares
of common stock at $.06 per
share issued October 1981
($.0001 per share)
Net loss for the year ended
December31, 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 1,000,000 100
1982 ($.06 per share)
Adjustment of offering expenses
Net loss for the year ended
December 31, 1982
Balance, December 31, 1982 175,917,500 17,592
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
$65,000
$65,000
(50)
(50)
65,000 (50)
64,950
12,501 (1)
1
2,500 (3)
44,560
45,000 (3)
4,980
5,000 (2)
4,980
5,000 (2)
998,000
1,000,000 (3)
(277,766)
(277,766)
100
100
(150,446)
(150,446)
839,855 (150,446)
706,839
7,998
8,000 (2)
19,490
19,500 (2)
59,900
60,000 (3)
1,500
1,500
(428,634)
(428,634)
928,743 (579,130)
367,205
</TABLE>
F-6
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C> <C>
Common Stock
Notes
Shares Amount
Receivable
Balance forward at December 175,917,500 17,592
31, 1982
Common stock issued January 1983
($.20 per share) 22,500 2
Common stock issued March 1983 30,000 3
($.020 per share)
Common stock issued pursuant to
exercise of stock options April 1983 100,000 10
($.235 to $.305 per share)
Common stock issued June 1983 20,000 2
($.50 per share)
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
Balance, December 31, 1983 183,390,000 18,339
($.0001 per share)
Common stock issued pursuant to
exercise of Series A warrants March
1984 to December 1984 ($.50 per share) 5,948 1
Common stock issued pursuant to
exercise of Series B warrants March 390
1984 to October 1984 ($1.00 per share)
Common stock issued May 1984 to
December 1984 ($.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>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
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
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C>
<C>
Common Stock
Notes
Shares Amount
Receivable
Balance forward at December 183,825,838 18,383
31, 1984
Common stock issued January 26,500 3
1985 to October 1985 ($.28 per share)
Common stock issued March 1985 5,000
($.34 per share)
Common stock issued March 1985 20,000 2
($.25 per share)
Common stock issued pursuant to
exercise of Series A ($.50 per share) 550
and Series B ($1.00 per share) warrants
Common stock issued August 1985 2,000
($.375 per share)
Common stock issued November 1985
($.156 per share) 7,500 1
Net loss for the year ended
December 31, 1985
Balance, December 31, 1985 183,887,388 18,389
Common stock issued January 1986 85,000 8
to October 1986 ($.19 per share)
Common stock issued February 1986
($.28 per share) 11,650 1
Common stock issued March 1986 100,000 10
($.22 per share)
Common stock issued March 10,665,000 1,067
1986 ($.18 per share)
Offering expense
Common stock issued April 1986 to 202,000 20
September 1986 ($.16 per share)
Common stock issued November 1986 70,000 7
and December 1986 ($.31 per share)
Common stock issued pursuant to
exercise of Series A ($.50 per share) 6,882 1
and Series B ($1.00 per share) warrants
Common stock issued pursuant 134,855 13
to exercise of Series A and
Series B ($.20 per share) warrants
Net loss for the year ended
December 31, 1986
Balance, December 31, 1986 195,162,775 19,516
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
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)
26,858
26,971(3)
(1,790,003)
(1,790,003)
6,593,523 (5,792,340)
820,699
</TABLE>
F-8
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C>
<C>
Common Stock
Notes
Shares Amount
Receivable
Balance forward at December 195,162,775 19,516
31, 1986
Common stock issued January 1987 263,430 26
($.33 per share)
Common stock issued May and 145,500 14
June 1987 ($.25 per share)
Common stock issued July 1987 7,000 1
($.14 per share)
Common stock issued August 1987
($0.24 per share) 67,180 7
Common stock issued October 1987
($.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 7,613,551 761
to exercise of Series A and Series B
warrants ($.20 per share)
($.05 per share)
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 10,000 1
($.20 per share)
Common stock issued March 1988 4,227,000 423
($.25 per share)
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 ($100.00 per share)
Net loss for the year ended
December 31, 1988
Balance, December 31, 1988 208,114,936 20,811
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
6,593,523 (5,792,340)
820,699
87,657
87,683(4)
36,723
36,737(4)
999
1,000(3)
16,163
16,170(4)
4,686
4,688(4)
47,976
48,000(3)
21,865
21,875(4)
1,521,949
1,522,710(3)
(1,655,959)
(1,655,959)
8,331,541 (7,448,229)
903,603
31,238
31,250(2)
546
547(2)
1,999
2,000(3)
24,990
25,000(2)
844,977
845,400(3)
3,904
3,906(2)
142
143(2)
1,000 1,000 99,000
100,000(3)
(1,372,913)
(1,372,913)
1,000 1,000 9,338,337 (8,821,212)
538,936
</TABLE>
F-9
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C>
<C>
Common Stock
Notes
Shares Amount
Receivable
Balance forward December 31, 1988 208,114,936 20,811
Common stock issued March 500,000 50
1989 and May 1989 ($.08 per share)
Common stock issued May 1989 3,000
($.09 per share)
Preferred stock Series B
issued June 1989 and
September 1989 ($100.00 per share)
Net loss for the year ended
December 31, 1989
Balance, December 31, 1989 208,617,936 20,861
($.025 per share)
Common stock issued January 1990
($.01 per share) 25,000 3
Common stock issued July 1990 20,311,000 2,031
($.01 per share)
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 1,500,000 150
($.01 per share)
Common stock issued April 1991 600,000 60
($.01 per share)
Common stock issued April 1991 32,000 3
($.0625 per share)
Common stock issued June 1991 500,000 50
($.01 per share)
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>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
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
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C>
<C>
Common Stock
Notes
Shares Amount
Receivable
Balance forward at December 243,333,936 24,333
31, 1992
Net loss for the year ended
December 31, 1993
Balance, December 31, 1993 243,333,936 24,333
Net loss for the year ended
December 31, 1994
Balance, December 31, 1994 243,333,936 24,333
Stock options granted
February 1995
Preferred stock Series D issued
between June 1995 and December 1995
($100.00 per share)
Net loss for the year ended
December 31, 1995
Balance, December 31, 1995 243,333,936 24,333
B warrants March 1984 to
October 1984 ($1.00 per share)
Stock options granted January
and February 1996
Preferred stock Series D issued
January 1996 to July 1996
Common stock issued pursuant 28,725,000 2,873
to the conversion of preferred
stock, July 1996 Series A
($.08 per share),Series B
($.0286 per share) and Series D
($.05 per share)
Common stock contributed to the
Company by IMRCH August 1996 (15,368,820) (1,537)
Common stock issued July 1996 1,300,000 130
($.01 per share)
common stock issued July 1996 12,900,000 1,290
($.02 per share)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
4,250 4,250 10,048,207 (11,764,798)
(1,688,008)
(344,107)
(344,107)
4,250 4,250 10,048,207 (12,108,908)
(2,032,115)
(422,591)
(422,591)
4,250 4,250 10,048,207 (12,531,496)
(2,454,706)
87,750
87,750
3,000 3,000 297,000
300,000(3)
(609,485)
(609,485)
7,250 7,250 10,432,957 (13,140,981)
(2,676,441)
75,530
75,530
5,050 5,050 499,950
505,000(3)
(12,300) (12,300) 9,427
-0-
1,537
-0-(11)
12,870
13,000(3)
256,710
258,000(3)
</TABLE>
F-11
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C>
<C>
Common Stock
Notes
Shares Amount
Receivable
Common stock issued August 1996
($.02 per share) 11,150,000 1,115
Common stock issued August 1996
($.0238 per share) 420,000 42
Common stock issued August 1996
($.0258 per share) 350,000 35
Common stock issued July 1996 300,000 30
($.03 per share)
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 280,000 28
($.05 per share)
Common stock issued August 1996
($.05 per share) 1,075,220 108
Common stock issued November 1996
($.05 per share) 200,000 20
Common stock issued September 1996
($.065 per share) 100,000 10
Common stock issued July 1996 400,000 40
($.08 per share)
Common stock issued September 1996
($.085 per share) 250,000 25
Net loss for the year ended December 31, 1996
Balance, December 31, 1996 287,863,936 28,787
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
221,885
223,000 (10)
9,958
10,000(10)
8,997
9,032(10)
8,970
9,000(2)
14,957
15,000(10)
59,005
59,175(10)
9,975
10,000(10)
2,993
3,000(9)
13,972
14,000(2)
53,654
53,762(10)
9,980
10,000(3)
6,490
6,500(2)
31,960
32,000(2)
21,224
21,250(2)
(777,397)
(777,397)
-0- -0- 11,763,002 (13,918,378)
(2,126,589)
</TABLE>
F-12
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C>
<C>
Common Stock
Notes
Shares Amount
Receivable
Common stock issued January 1997
($.02 per share) 80,000 8
Common stock issued January 1997
($.01 per share) 5,000,000 500
($50,000)
Common stock issued February, March
and May 1997 ($.05 per share) 590,000 59
Common stock issued March 1997 200,000 20
($.05 per share)
Stock option granted March, 1997
Common stock issued March 1997 1,000,000 100
($20,000)
($.02 per share)
Common stock issued May 1997 500,000 50
($25,000)
($.05 per share)
Common stock issued May 1997 10,930,000 1,093
($.05 per share)
Common stock issued May 1997 200,000 20
($.05 per share)
Common stock issued December 1997
($.05 per share) 1,600,000 160
Net loss for the year ended December 31, 1997
Balance, December 31, 1997 307,964,536 30,797
($95,000)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
1,592
1,600 (10)
49,500
-0-(12)
29,441
29,500(2)
9,980
10,000(9)
14,398
14,398
19,900
-0-(12)
24,950
-0-(12)
545,437
546,530(3)
9,980
10,000(8)
79,840
80,000(3)
(866,454)
(866,454)
-0- -0- 12,548,020 (14,784,832)
(2,301,015)
</TABLE>
F-13
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY)
Period from November 13, 1980 (Inception) to December 31,
1998
<TABLE>
<S> <C> <C>
<C>
Common Stock
Notes
Shares Amount
Receivable
Common stock issued January 1,650,000 165
and March 1998 ($.05 per share)
Stock options granted April
and June 1998
Common stock issued in 1996 for
services, returned to Company and
retired April 1998 (100,000) (10)
Common stock issued April, 1,100,000 110
May and June 1009 ($.05 per share)
Common stock issued April 1998 2,730,000 273
($.05 per share)
Common stock issued June 1998 100,000 10
($.05 per share)
Common stock issued July 1998 30,000 3
($.05 per share)
Common stock issued July, 6,610,000 661
August, September and October 1998
($.025 per share)
Common stock issued July, 2,680,000 268
August and September 1998
($.025 per share)
Common stock issued August,
September and October 1998
($.025 per share)($.50 per share) 3,900,000 390
($97,500)
Common stock issued October and
November 1998 ($.025 per share) 200,000 20
Common stock issued October and
November 1998 ($.02 per share) 110,000 11
Common stock issued October 1998
($.025 per share) 20,000 2
Net loss for the year ended
December 31, 1998
Balance, December 31, 1998 326,994,536 32,700
($192,500)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Deficit
Shareholders'
Preferred Stock Accumulated
Equity
Series A, B and D Capital in During
(Deficiency)
Shares Amount Excess Development
Of Par Value Stage
82,335
82,500(3)
13,250
13,250
(7,990)
(8,000)
54,890
55,000(3)
136,227
136,500(14)
4,990
5,000(9)
1,497
1,500(2)
164,589
165,250(3)
66,732
67,000(8)
97,110
-0-(13)
4,980
5,000(9)
2,189
2,200(12)
498
500(4)
(696,178)
(696,178)
-0- -0- 13,169,317 (15,481,010)
(2,471,493)
</TABLE>
F-14
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (DEFICIENCY) (Continued)
Period from November 13, 1980 (Inception) to December 31,
1998
(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.
(11) Shares of Biosonics, Inc. contributed by IMRC as a capital
contribution.
(12) Shares issued upon exercise of stock options.
(13) Shares issued in exchange for notes receivable.
(14) Shares issued for buy-back of inventory.
The accompanying notes are an integral part of these financial
statements.
F-15
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
<C>
Period from
November
13,1980
(Inception
to December
Year Ended December 31,
31,
1998 1997 1996
1998
Cash flows from operating activities
Net loss
$(696,178)$(866,454)$(777,397)$(15,481,010)
Adjustments to reconcile
net loss to net cash used in
operating activities
Depreciation 6,258 7,208 10,004
392,153
Increase (decrease) in (19,000) 50,000 (4,000)
33,000
reserve for doubtful accounts
Increase (decrease) in reserve
for inventory obsolescence (13,000)
27,000
Losses on lease abandonment
19,550
Gain on sale of equipment
(7,620)
Common stock issued 4,000 41,100 85,750
589,059
for interest and services
Common stock options 13,250 14,398 75,530
190,928
issued for interest and services
Common stock issued 136,500
136,500
for inventory
Common stock issued
12,501
for product rights
Changes in operating
assets and liabilities
Accounts receivable (3,746) 2,307 16,817
(11,635)
Inventories (12,138) 22,154 18,813
(81,255)
Prepaid expenses 3,000 (2,975) 8,828
and other current assets
Accrued payroll, officer 103,000 103,000 103,000
875,500
Accrued interest
Officer and affiliate 9,144 10,452 26,502
149,704
Other 26,605 25,607 25,293
225,343
Accounts payable (16,125) 97,303 (24,342)
973,967
and accrued expenses
Advances from (to)
affiliates 21,313 (38,609) 83,202
90,477
272,058 331,945 412,397
3,615,172
Net cash used in (424,120) (534,509) (365,000)
(11,865,838)
operating activities
</TABLE>
F-16
BIOSONICS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<S> <C> <C> <C>
<C>
Period from
November
13,1980
(Inception
to December
Year Ended December 31,
31,
1998 1997 1996
1998
Cash flows from investing activities
Capital expenditures (9,890) (6,021)
(379,216)
Proceeds from sale of equipment
10,825
Issuance of note receivable (15,000)
(45,000)
Increase in deposits (100)
(8,531)
Decrease in note receivable
30,000
Patent expenditures
(45,690)
Net cash used in (9,990) (21,021)
(437,612)
investing activities
Cash flows from financing activities
Payments received for unissued
debentures and securities 40,000
498,000
Principal payments of (43,000) (31,000)
(235,000) (381,000)
note payable
Proceeds from issuance 172,000 45,000
1,006,444
of notes payable
Increase in capitalized
(7,453)
organization costs
Proceeds from issuance 505,000
1,105,000
of preferred stock
Proceeds from issuance 304,950 586,530 10,000
10,082,559
of common stock
Net cash provided by financing
activities 433,950 555,530 365,000
12,303,550
Net increase (decrease) (160)
100
in cash
Cash, Beginning 260 260 260
Cash, ending 100 260 260
100
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-17
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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 36% and 38% of the Company's
common
stock at December 31, 1998 and 1997, 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 1998, 1997 and 1996, IMRC acted as the receiving and
disbursing
agent for all cash receipts and disbursements for the Company.
The
resulting receivable or payable is reflected in the
accompanying balance
sheets as advances to or from affiliates.
Inventories
Inventories consist primarily of finished products and 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-18
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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 316,313,550 in 1998, 301,423,494 in 1997
and
261,976,354 in 1996. Common stock equivalents, including
convertible
preferred stock and common stock options outstanding, are not
included in
the calculation of loss per share amounts for each period
because they
would be anti-dilutive.
Deferred income taxes
Deferred income taxes are provided for the temporary
differences between
the financial reporting basis and the tax bases of the
Company's assets
and liabilities.
Stock based compensation
In 1996, the Company adopted Statement of Financial Accounting
Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which
encourages, but does not require companies to record
compensation cost
for stock-based employee compensation plans at fair value. The
Company
has chosen to continue to account for stock-based compensation
using the
intrinsic value method prescribed in Accounting Principles
Board Opinion
No. 25, "Accounting for Stock Issued To Employees," and the
related
interpretations. Accordingly, compensation cost is measured
as the
excess of the quoted market price of the Company's stock on
the grant
date over the price which the employee must pay to acquire the
stock.
Also in accordance with SFAS No. 123, the Company records an
expense for
stock options issued in exchange for services provided by
non-employees
based on the fair value of services received or the fair value
of the
options, whichever is more readily determinable.
Reclassification
The 1997 and 1996 financial statements have been reclassified
to conform
to the 1998 presentation.
3. Results of operations
The Company incurred net losses of $696,178, $866,454 and
$777,397 for
the years ended December 31, 1998, 1997 and 1996,
respectively, and at
December 31, 1998, the Company had a shareholders' deficiency
of
$2,471,493.
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.
F-19
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
3. Results of operations (Continued)
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 to the financial statements that
might result
from the outcome of this uncertainty.
4. Inventories
Inventories at December 31, 1998 and 1997 consist of finished
goods.
In 1998, the Company purchased 195 Salitrons from dry mouth
centers for
$700 each, or a total of $136,500. Such payment was made
through the
issuance of 2,730,000 share of the Company's common stock.
Since the
replacement cost of these units was significantly lower than
the
repurchase price, their cost was marked down by approximately
$121,000.
This adjustment is reflected in cost of sales in 1998.
Equipment, furniture and leaseholds
<TABLE>
<S> <C> <C>
1998 1997
Machinery and equipment $ 17,500 $ 48,745
Office equipment 39,052 37,282
Furniture and fixtures 125,148 142,028
181,700 228,055
Less accumulated depreciation
and amortization 164,248 214,235
$ 17,452 $ 13,820
</TABLE>
Depreciation expense was $6,258 in 1998, $7,208 in 1997 and
$10,004 in
1996.
6. Advances to/from affiliates
At December 31, 1998, the Company had advances to IMRC of
$65,293 (net of
allowance for doubtful account of $30,000) and advances from
IMRCH of
$62,450.
At December 31, 1997, the Company had advances to IMRC of
$66,606 (net of
allowance for doubtful accounts of $50,000) and advances from
IMRCH of
$62,450.
In 1998, IMRCH transferred 800,000 shares of its Biosonics,
Inc. common
stock to consultants who provided services valued at $40,000
to
Biosonics, Inc. This transfer resulted in a reduction of the
advances to
IMRC of $40,000, which is included in professional fee
expense in the
accompanying statements of operations.
F-20
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
7. Notes payable
Notes payable at December 31 are summarized as follows:
<TABLE>
<S> <C> <C>
1998 1997
Officer
Notes payable on demand to an officer of
the Company, secured by Company assets,
bearing interest at prime plus 1.5% per annum
(effective rate of 9.25% at December 31, 1998) $91,000
$99,000
Other
Unsecured notes payable on demand, bearing
interest at 12% per annum on $10,000
and 11.5% per annum on $25,000 35,000
35,000
Unsecured note payable on demand, bearing
interest at 7% per annum 20,000
20,000
Unsecured note payable on demand, bearing
interest at 8% per annum 10,000
Unsecured notes payable on demand, bearing
interest at 10% per annum 60,000
Unsecured, non-interest bearing notes
payable on demand, $68,000 of which is
secured by the Company's assets 93,000
93,000
$218,000
$148,000
</TABLE>
See also Note 11 - "Unissued Securities".
8. Payments received for unissued debentures
In October 1989, the Company offered to its shareholders the
right to
subscribe to 11.5% convertible debentures. At December 31,
1998 and 1997,
$187,000 received under this offering had not been returned
to such
investors. Interest is accrued at 11.5% on these funds (See
Note 11).
F-21
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
9. Shareholders' equity
IMRCH and the Company's current officers and directors held in
the aggregate,
approximately 37% of the Company's outstanding common stock at
December 31,
1998 and 40% at December 31, 1997. Certain of these shares held
by officers
and directors 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).
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, 1998 and 1997, there were no options
outstanding
under the employee incentive stock option plan.
F-22
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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 3,500 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.
Between June and December, 1995, the Company authorized 5,000 and
issued 3,000
shares of its preferred stock-Series D for $300,000 ($100 per
share). Between
January and July 1996, the Company authorized an additional 5,000
shares and
issued an additional 5,050 shares of its preferred stock-Series D
for $505,000
($100 per share). Each share of preferred stock-Series D is
convertible, upon
the option of the holder, into 2,000 shares of common stock.
Each share of
the preferred stock-Series D is entitled to a liquidation
preference of $100.
These shares are redeemable for cash at the option of the Company
at $120 per
share any time on or after May 1, 1997. In addition, the holders
of the
preferred stock-Series D shall have the right to vote on all
matters as to
which holders of common stock have a right to vote, and such
voting rights
shall be exercised on an as-converted basis.
In July 1996, all holders of preferred stock - Series A, B and D
converted
their shares of preferred stock into common stock of the Company,
pursuant to
the formulas in the respective preferred stock agreements. The
total number
of shares of common stock issued as a result of these conversions
was
28,725,000, including 7,000,000 to IMRC and 4,375,000 to the
Company's
president.
In April and June 1998, the Company granted common stock options
for 3,130,000
shares, exercisable at $.02 per share. These options were issued
to non-
employees in exchange for interest expense of $8,250 and services
valued at
$5,000.
F-23
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
9. Shareholders' equity (Continued)
In March 1997, the Company granted common stock options for
500,000 shares,
exercisable at $.05 per share, to its general counsel, a
non-employee. In
January and February 1996, the Company granted common stock
options to non-
employees for 6,000,000 shares, exercisable at $.02 per share. In
February
1995, the Company granted to non-employees common stock options
for 10,000,000
shares, exercisable at $.01 per share. These options were issued
in exchange
for various services performed on the Company's behalf. The fair
value of
these options was estimated on the grant dates using the
Black-Scholes option-
pricing model with the following assumptions used for 1997 and
1996:
<TABLE>
<S> <C> <C>
1997 1996
Dividend yield 0% 0%
Expected volatility 105% 125% -
132%
Risk-free interest rate 6% 6%
Expected life 3 years 2
years
Discount for lack of marketability 35% 35%
Estimated fair value $14,398
$75,530
</TABLE>
Transfer of the shares, issued upon the exercise of the options,
will be
restricted subject to registration requirements of the Securities
Act of 1933
or an exemption from such requirements such as Rule 144 of the
SEC. The
estimated fair value of these options is included in other
development stage
expenses in the accompanying financial statements.
In May 1996, the Company issued a stock option to an employee for
250,000
shares, exercisable at $.05 per share. This option expired in
1998. The
Company has adopted the disclosure-only provisions of Statement
of Financial
Accounting Standards No. 123 "Accounting for Stock-Based
Compensation."
Accordingly, no compensation cost was recognized for this option.
Had
compensation costs been recognized for this option, the Company's
1996 net
loss would have been increased by $10,644 and there would have
been no effect
on the Company's loss per common share. This estimated fair value
was also
based on the Black-Scholes option-pricing model with the
following
assumptions: dividend yield of 0%; expected volatility of 128%;
risk-free
interest rate of 6%; expected life of 2 years and discount for
lack of
marketability of 35%.
F-24
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
9. Shareholders' equity (Continued)
Stock options granted by the Company during 1998, 1997, and 1996
vested upon
issuance and expire in six months to four years from the date of
grant.
A summary of stock option activity is as follows:
<TABLE>
<S> <C> <C>
1998 1997
Stock options, beginning
of year 10,250,000 16,250,000
Options issued 3,130,000 500,000
Options exercised (110,000) (6,500,000)
Options terminated or
expired (250,000) 0
Stock options, end of year 13,020,000 10,250,000
</TABLE>
10. Income taxes
The Company has available at December 31, 1998, unused
operating loss
carryforwards and tax credits, which may provide future tax
benefits
expiring as follows:
<TABLE>
<S> <C> <C>
Year of expiration Carryforwards Credits
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 405,000
2011 586,000
2012 687,000
2013 592,000
$12,892,000 $9,000
</TABLE>
F-25
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
10. Income taxes (Continued)
The tax effects of temporary differences that give rise to
deferred tax
assets at December 31, 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Federal State Federal State
1998 1998 1997 1997
Net operating loss
carryforwards $4,383,000 $227,000 $4,474,000
$115,000
Tax credits 3,000 3,000
Accrued payroll,
officer 298,000 87,000 263,000
77,000
Stock options
outstanding 42,000 12,000 46,000
14,000
Other temporary
differences 4,000 14,000 5,000
11,000
4,737,000 330,000 4,800,000
211,000
Less valuation
allowance 4,737,000 330,000 4,800,000
211,000
Net deferred
tax asset $ -0- $ -0- $ -0- $
- - -0-
</TABLE>
SFAS No. 109 requires that the Company record a valuation
allowance when
it is "more likely than not that some portion or all of the
deferred tax
assets will not be realized." It further states that "forming
a
conclusion that a valuation allowance is not needed is
difficult when
there is negative evidence such as cumulative losses in
recent years." As
the ultimate utilization of net operating loss carryforwards
and tax
credits depends on the Company's ability to generate
sufficient taxable
income in the future, the losses in recent years and the
Company's desire
to be conservative make it appropriate to record a valuation
allowance.
F-26
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
11. Commitments and contingencies
Lease
The Company leases its executive offices under a
noncancellable operating
lease which expires in January 2004. The minimum future
rental payments
required under this lease are as follows:
<TABLE>
<S> <C>
Year Ending December 31
1999 $ 66,121
2000 73,452
2001 74,914
2002 76,422
2003 77,945
Thereafter 6,506
$375,360
</TABLE>
Rent expense was $40,035, $40,035 and $39,333 for the years
ended December
31, 1998, 1997 and 1996, respectively.
Liens
Included in notes and accounts payable are liabilities for
which certain
vendors and officers have secured liens against all of the
Company's
assets totalling $194,142 in 1998 and 1997.
Consulting arrangement
The Company formed a Salitron Medical Advisory Board whose
chairman is
entitled to receive compensation in the amount of $25,000 at
December 31,
1995. In addition, upon serving a minimum of two years, board
members are
entitled to certain shares of the Company's common stock. In
1996,
300,000 shares valued at $9,000 were issued under this
arrangement.
Legal matters
Convertible debenture offering
In 1989 Biosonics, Inc. raised $207,000 through a public
offering of its
11.5% convertible debentures. The Company terminated the
offering prior
to completion, as the Company was unable to raise the minimum
specified
in the offering document. Debentures were not issued and
amounts were not
returned to the investors with the exception of $4,000.
Subsequently,
$16,000 of said amount was converted into 1,180,000 shares of
common
stock. $100,000 of these liabilities are secured by
essentially all of
the Company's assets. The Company has accrued interest on
these funds
totalling $196,609 and $175,014 at December 31, 1998 and
1997,
respectively. The Company plans to repay the investors, with
interest,
when there is sufficient cash flow to permit such repayments.
F-27
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
11. Commitments and contingencies (Continued)
Legal matters (Continued)
Unissued securities
In 1996, Biosonics, Inc. received $40,000 from two
individuals for
800,000 shares of common stock which were issued upon the
initial closing
of the Company's private placement in April 1997. In 1990 and
1992
Biosonics raised $271,000 for common and convertible
preferred shares.
The shares were unissued since the Company's number of
authorized shares
would have been exceeded. In 1996, with the approval of
shareholders, the
authorized number of shares was increased and these shares
were issued.
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.
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.
Payroll taxes
At December 31, 1998, the Company was in arrears in the
payment of
federal payroll taxes and had not made related tax filings.
F-28
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
12. Supplemental disclosure of cash flow information
<TABLE>
<S> <C> <C> <C>
<C>
Period from
November 13,
1980 (Inception)
Year Ended December 31, to
December 31,
1998 1997 1996
1998
Cash paid for Interest $10,490 $-0- $-0-
$43,521
</TABLE>
Supplemental schedule of noncash financing activities
The Company issued the following amounts of common stock for
noncash
consideration:
<TABLE>
<S> <C> <C> <C>
<C>
Period from
November 13,
1980 (Inception)
Year Ended December 31, to
December 31,
1998 1997 1996
1998
Common stock not
previously issued $ 40,000 $271,000
$ 311,000
Employee
compensation,
consulting services $ 2,000 29,500 82,750
568,459
Notes receivable 97,500 95,000
192,500
Services provided
in exchange for
stock options 13,250 14,398 75,530
190,928
Loan origination fee
4,000
Acquisition of
product rights
12,501
Repurchase of inventory 136,500
136,500
Repayment of
accrued expenses
to IMRC 1,600 197,524
199,124
Interest expense 10,000 10,000 3,000
23,000
Repayment of
notes payable
IMRC 182,444
182,444
Other 67,000 10,000
77,000
$326,250 $200,498 $812,248
$1,897,456
F-29
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
Supplemental disclosure of cash flow information (Continued)
Supplemental schedule of noncash financing activities
(Continued)
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, 1998, 1997,
and 1996
was $64,489, $46,059 and $55,608, respectively.
Included in interest expense is $9,144, $10,453 and $11,917
for loans
from the Company's president for the years ended December 31,
1998, 1997
and 1996, respectively.
Also included in interest expense is $14,595 for a loan from
IMRC for the
year ended December 31, 1996.
14. Other development stage expenses
Other development stage expenses consist primarily of
salaries, rent and
utilities, interest and marketing costs.
15. Subsequent events
In January 1999, the Company formed a wholly-owned
subsidiary, EubeTek,
Inc. It is the Company's intention to transfer certain
technologies to
this subsidiary for the development of certain of its
products.
In January 1999, the Company entered into a capital lease for
office
equipment valued at $16,000 which requires monthly payments
of
approximately $500.
16. Quarterly results, (Unaudited)
</TABLE>
<TABLE>
<S> <C> <C> <C>
<C>
Gross
Profit
Net Loss
Sales (Loss) Net Loss
Per Share
1998- 1st Quarter $ 3,070 $ 530 $(146,641)
$(.00)
2nd Quarter 3,905 (117,844) (77,942)
(.00)
3rd Quarter 730 563 (115,725)
(.00)
4th Quarter 3,360 3,335 (355,870)
(.00)
Total $11,065 $(113,416) $(696,178)
$(.00)
F-30
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
16 Quarterly results, (Unaudited) (Continued)
</TABLE>
<TABLE>
<S> <C> <C> <C>
<C>
Gross
Profit
Net Loss
Sales (Loss) Net Loss
Per Share
1997- 1st Quarter $ 5,625 $ 2,221 $(197,095)
$(.00)
2nd Quarter 7,925 3,032 (215,569)
(.00)
3rd Quarter 5,129 967 (180,981)
(.00)
4th Quarter 8,084 (2,096) (2272,809
(.00)
Total $26,763 $ 4,124 $(866,454)
$(.00)
1996- 1st Quarter $17,516 $ 8,918 $(177,353)
$(.00)
2nd Quarter 11,609 3,855 (142,381)
(.00)
3rd Quarter 5,786 (1,164) (324,708)
(.00)
4th Quarter 5,863 (1,043) (132,955)
(.00)
Total $40,774 $ 10,566 $(777,397)
$(.00)
The following is a reconciliation of the quarterly results
(unaudited) for the
quarter ended June 30, 1998 as originally reported in the
Company's Form 10-Q
filing, adjusted for overstatement of consulting fees and
overstatement of
inventories.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Originally As
Reported Adjustment Adjusted
1998-2nd Quarter
Gross profit (loss) $ 3,426 $(121,270) $(117,844)
Net loss $(4,672) $( 73,270) $ (77,942)
</TABLE>
F-31
BIOSONICS, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
16. Quarterly results, (Unaudited) (Continued)
The following is a reconciliation of 1996 quarterly results
(unaudited) as
originally reported in the Company's Form 10-Q filings
adjusted for
reclassifications of costs of goods sold, previously
unrecorded
non-employee stock options in the quarter ended March 31,
1996, and an
overstatement of interest expense for the quarter ended
September 30,
1996:
<TABLE>
<S> <C> <C> <C> <C>
Gross Profit
(Loss) As Gross
Profit
Originally (Loss) As
Reported Adjustment Adjusted
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
Net Loss As Net Loss
Originally (Restated)
Reported Adjustment As
Adjusted
1996- 1st Quarter $(101,823) $(75,530) $
(177,353)
2nd Quarter (142,381
(142,381)
3rd Quarter (354,708 30,000
(324,708)
4th Quarter (132,955)
(132,955)
$(731,867) $(45,530) $
(777,397)
</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-32
EXHIBIT 21 To Form 10-KSB for the Year Ended
December 31,1998
Subsidiaries:
EubeTek, Inc. Incorporated in the State of Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000352715
<NAME> BIOSONICS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 8,635
<ALLOWANCES> 3,000
<INVENTORY> 54,255
<CURRENT-ASSETS> 143,283
<PP&E> 181,700
<DEPRECIATION> 164,248
<TOTAL-ASSETS> 169,266
<CURRENT-LIABILITIES> 2,640,759
<BONDS> 187,000
0
0
<COMMON> 32,700
<OTHER-SE> (2,471,493)
<TOTAL-LIABILITY-AND-EQUITY> 169,266
<SALES> 11,065
<TOTAL-REVENUES> 22,257
<CGS> 124,481
<TOTAL-COSTS> 593,954
<OTHER-EXPENSES> 410,542
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,489
<INCOME-PRETAX> (696,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (696,178)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
