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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] 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: 1-10285
BIOMAGNETIC TECHNOLOGIES, INC. (DBA 4-D NEUROIMAGING)
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2647755
- -------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
9727 PACIFIC HEIGHTS BOULEVARD, SAN DIEGO, CALIFORNIA 92121-3719
- ------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(858) 453-6300
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Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and formal fiscal
year, if changed since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of February 1, 2000 Registrant had only one class of common
stock of which there were 83,507,225 share outstanding.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMAGNETIC TECHNOLOGIES, INC. (DBA 4-D NEUROIMAGING)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,778 $ 441
Short-term investments 1,063 2,695
Restricted cash 364 54
Accounts receivable, less allowance for
doubtful accounts of $410 in 1999 and $10 in 1998 909 365
Inventories 6,483 3,983
Prepaid expenses and other current assets 1,078 141
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Total current assets 11,675 7,679
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Net property and equipment 990 870
Goodwill 11,237 -
Restricted cash 478 165
Other assets 264 156
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TOTAL ASSETS $ 24,644 $ 8,870
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,303 $ 1,314
Accrued liabilities 1,096 470
Accrued salaries and employee benefits 493 429
Customer deposits 3,444 1,714
Deferred revenues 274 318
Current portion of royalty obligation 312 -
Current portion of capital lease obligations 23 23
Investment in Magnesensors 121 137
Notes payable 11,532 -
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Total current liabilities 19,598 4,405
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Royalty obligation, net of current portion 2,188 -
Capital lease obligations, net of current portion 44 51
Other liabilities 149 -
Deferred revenues 279 308
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Total liabilities 22,258 4,764
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock -- no par value, 200,000,000 shares
authorized; 83,367,112 shares issued and outstanding 99,392 99,392
Additional paid-in capital 3,000 3,000
Accumulated deficit (100,006) (98,286)
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Total shareholders' equity 2,386 4,106
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 24,644 $ 8,870
============== ==============
</TABLE>
See notes to consolidated condensed financial statements.
2
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BIOMAGNETIC TECHNOLOGIES, INC. (DBA 4-D NEUROIMAGING)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
REVENUES
Products $ 185 $ 24
Product services 93 92
Contract research - 3
------------ --------------
278 119
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COST OF REVENUES
Products 407 269
Product services 40 51
Contract research - 3
------------ --------------
447 323
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GROSS MARGIN (169) (204)
OPERATING EXPENSES
Research and development 545 509
Marketing, general and administrative 1,073 1,172
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1,618 1,681
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OPERATING LOSS (1,787) (1,885)
Interest income 16 121
Other income (expense), net 35 14
Income from investment in Magnesensors 16 -
------------ --------------
NET LOSS $ (1,720) $ (1,750)
============ ==============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.02)
============ ==============
Weighted average number of
shares outstanding 83,367 83,367
============ ==============
</TABLE>
See notes to consolidated condensed financial statements
3
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BIOMAGNETIC TECHNOLOGIES, INC. (DBA 4-D NEUROIMAGING
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,720) $ (1,750)
Adjustments to reconcile net loss to net
cash used in operating activities, net of impact from
acquisition of Neuromag
Depreciation and amortization 96 52
Income from investment in Magnesensors (16) -
Changes in operating assets and liabilities:
Restricted cash (623) 70
Accounts receivable 215 58
Inventories (549) (682)
Prepaid expenses and other (72) (52)
Other assets 5 -
Accounts payable (281) (33)
Accrued liabilities (23) (125)
Accrued salaries and employee benefits 64 12
Customer deposits 1,197 396
Deferred revenue (73) (89)
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Net cash used in operating activities (1,780) (2,143)
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INVESTING ACTIVITIES
Net change in short-term investments 1,683 244
Interest receivable - (126)
Payments for property and equipment (52) (83)
Acquisition of Neuromag, net of cash acquired (9,507) -
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Net cash (used in) provided by investing activities (7,876) 35
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FINANCING ACTIVITIES
Proceeds from notes payable 11,000 -
Payments on capital lease obligations (7) -
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Net cash provided by financing activities 10,993 -
-------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,337 (2,108)
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Cash and Cash Equivalents at Beginning of Period 441 2,282
-------------- -------------
Cash and Cash Equivalents at End of Period $ 1,778 $ 174
============== =============
</TABLE>
See notes consolidated condensed financial statements.
4
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BIOMAGNETIC TECHNOLOGIES, INC. (DBA 4-D NEUROIMAGING)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
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<S> <C> <C>
Note payable to shareholder exchanged
for common stock $ - $ 1,700
Accrued interest on note payable to shareholder
exchanged for common stock $ - $ 38
Accounts payable to shareholder
exchanged for common stock $ - $ 219
Royalty obligation incurred in acquisition of Neuromag Oy $ 2,500 $ -
</TABLE>
See notes to consolidated condensed financial statements.
5
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BIOMAGNETIC TECHNOLOGIES, INC. (DBA 4-D NEUROIMAGING)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements of Biomagnetic
Technologies, Inc. and its subsidiaries, Neuromag Oy, a wholly owned Finnish
entity, and Biomagnetic Technologies, GmbH, an inactive wholly owned German
entity, (together, the "Company", "we", "our", or "BTi") have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company suggests that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended September 30,
1999.
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only of
normal recurring entries, necessary to present fairly its financial position at
December 31, 1999 and the results of its operations and its cash flows for the
periods presented.
Neuromag Oy was acquired on December 22, 1999 in a transaction accounted for
as a purchase, and its unaudited balance sheet information as of December 31,
1999 is included in the accompanying consolidated condensed balance sheet.
Results of operations of Neuromag Oy between December 22, 1999 and December
31, 1999 were not material to the consolidated condensed statements of
operations.
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 these estimates.
Certain prior period balances have been reclassified to conform to the current
period presentation.
2. ACQUISITION OF NEUROMAG OY AND CAPITAL NEEDS FOR DEBT OBLIGATION
On December 22, 1999, BTi acquired all of the issued and outstanding capital
stock ("Shares") of Neuromag Oy in a transaction accounted for as a purchase,
pursuant to the terms of a Share Purchase Agreement, by and between Marconi
Medical Systems, Inc. ("Marconi") and BTi (the "Share Purchase Agreement").
Similar to BTi, Neuromag Oy is engaged in the research, development and
manufacturing of MSI systems. Neuromag Oy is located in Helsinki, Finland.
Under the terms of the Share Purchase Agreement, BTi paid a total of $10
million in cash to Marconi for the purchase of the Shares and agreed to pay
between a minimum of $2.5 million and a maximum of $5 million in royalties to
Marconi under an ancillary royalty agreement over 8 years, and additional
consideration of up to approximately $1.8 million dependent upon the
occurrence of certain future events.
The accompanying unaudited consolidated condensed balance sheet at December
31, 1999 contains an allocation of the purchase price of Neuromag Oy, based
on preliminary estimates of the fair value of assets and liabilities
acquired. The fair value of such assets and liabilities acquired may be
adjusted in the near term as more information becomes available. This could
affect the value of goodwill reflected in these financial statements.
Goodwill will be amortized over a period not to exceed twenty years, except
for goodwill associated with minimum royalty obligations, which will be
amortized as incurred over a maximum period of eight years.
To acquire the shares of Neuromag Oy, the Company has obtained a loan from
AIG Private Bank Ltd. totaling $11 million that is secured by the entire
share capital of Neuromag Oy and is guaranteed by an entity unaffiliated with
the Company. The loan matures June 30, 2000. Martin Egli, a Board member of
BTi, also serves on the Board of Directors of AIG Private Bank Ltd. As part
of its ongoing financing strategies, the Company intends to raise additional
capital or restructure the payment terms and maturity of the loan facility
for the purposes of repaying the loan and to continue to fund operations.
6
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There can be no assurance that the Company will be able to raise such capital
or restructure the payment terms and maturity of the loan facility on terms
acceptable to the Company, if at all.
3. BUSINESS RISKS AND UNCERTAINTIES
Biomagnetic Technologies, Inc., founded in 1970 as a California corporation, is
engaged primarily in the business of developing, manufacturing and selling
innovative functional imaging systems to medical institutions located in the
United States, Europe and the Far East. The magnetic source imaging ("MSI")
systems developed by the Company measure magnetic fields created by the human
body for the noninvasive diagnosis of a broad range of disorders.
On December 22, 1999, BTi acquired all of the issued and outstanding capital
stock of Neuromag Oy. Similar to BIi, Neuromag is engaged in the research,
development and manufacturing of MSI systems. Neuromag Oy has been one of
BIi's primary competitors for the limited number of MSI systems being
purchased worldwide. With the acquisition of Neuromag Oy, BTi has positioned
itself to be the market share leader in terms of MSI sales. In addition to
market share, BTi has gained access to key intellectual and operational
know-how including research being performed at Helsinki University of
Technology, hardware and software expertise, differentiated products and
manufacturing techniques, and access to a distributor arrangement in the Far
East. For the near term, the Company intends to operate BTi and Neuromag as
separate entities as it further investigates and, as appropriate, initiates
actions to integrate operations on a consolidated basis.
To date, the Company has been engaged principally in research and development
activities, and has made only low volume sales to a variety of medical research
institutions and hospitals. The Company is currently dependent on its Magnes(R)
2500 WH and Vectorview systems for clinical market sales, for which there are
currently limited clinical applications. Additional clinical applications
development and testing needs to be conducted with MSI systems at major clinical
research centers before a substantial commercial clinical market may emerge. The
Company is currently finalizing development of its Magnes 3600 WH system, which
is targeted primarily to research markets. The Company must continue to depend
upon sales to the research marketplace to meet its revenue goals for the very
near-term. There can be no assurance that a substantial commercial market will
develop for diagnostic or monitoring uses of the Company's MSI systems or for
the MSI industry to become viable and profitable. A continued lack of clinical
applications and commercial market for the Company's MSI systems will have a
material adverse impact on the Company's financial position, results of
operations and cash flows.
The Company's commercial success is also highly dependent on the availability of
reimbursement for procedures using MSI systems. To date, reimbursements from
third party payors have been on a case-by-case basis. As of December 31, 1999,
there have been limited reimbursements from third party payors in the United
States. Although the number of third party payors making reimbursements has
increased to over 200 in the U.S., there is no assurance that third party
reimbursements will become widely available. Reimbursements are not currently
provided for MSI procedures by the U.S. government, nor is there any assurance
that the U.S. government will authorize or budget for such procedures in the
future. If widespread availability of reimbursement from government and private
insurers is not achieved, the Company's financial position, results of
operations and cash flows would be materially adversely affected. The Company
also cannot predict what legislation relating to its business or the health care
industry may be enacted in the future, including legislation relating to third
party reimbursement, or what effect such legislation may have on its financial
position, results of operations and cash flows.
The industry in which the Company operates is characterized by rapid
technological change. New products using other technologies or improvements to
existing products and technologies may reduce the size of the potential markets
for the Company's products, and may render them obsolete or non-competitive.
Competitors may develop new or different products using technology or imaging
modalities that may provide or be perceived as providing greater value than the
Company's products. Any such development could have a material adverse effect on
the Company's financial position, results of operations and cash flows.
Additionally, there has been recently, and continues to be, ongoing significant
price competition from the Company's competitors for the currently limited
number of whole head systems being purchased worldwide. This aggressive
competition may affect future profitability of the Company, the extent of which
is not presently determinable.
For the quarter ended December 31, 1999, the Company incurred a net loss of
$1,720,000 and had negative cash flows from operations of $1,780,000. At
December 31, 1999, the Company had an
7
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accumulated deficit of $100,006,000 and a working capital deficit of $7,923,000.
The Company anticipates that in fiscal 2000, operating and working capital
requirements and debt maturity requirements will substantially exceed cash
projected to be generated by product sales.
Based on its current operating plans, revenue expectations, expected capital
expenditures, expected working capital requirements and existing capital
resources, the Company anticipates that it will be able to fund operations
through the third quarter of fiscal 2000. The realization of the Company's
operating plans is dependent upon its ability to successfully close a number
of MSI system sales in the current highly competitive market for the limited
number of systems being purchased worldwide. There can be no assurance that
sufficient sales of the Company's Magnes and Vectorview systems will be
achieved in order to realize the current operating plans. Even if the Company
meets its operating plans, the Company must continue to fund its operating
needs and service its debt (see below), and is currently considering a number
of financing alternatives, such as corporate partnerships, intercompany funds
transfers and the sale of equity or debt securities. There can be no
assurance that such financing will be available on terms acceptable to the
Company, if at all.
The Company's expectation of funding operations through June 2000 does not take
into account cash required for maturity of an $11,000,000 note payable in June
2000 from the acquisition of Neuromag. Without raising additional capital or
restructuring the payment terms and maturity of the note payable, the Company
will not be able to meet its payment obligation at maturity in June 2000. The
note payable is collateralized by the entire share capital of Neuromag. There
can be no assurance that the Company will be able to raise additional capital or
restructure the terms of the note payable on terms acceptable to the Company, if
at all.
Additional risks and uncertainties include, but are not limited to, satisfying
customer performance and service requirements for our systems, identification of
additional clinical applications for MSI, unreliable diagnostic information,
increased government regulations and requirements, foreign exchange risks, Year
2000 issues and a highly volatile stock price. The reader is encouraged to refer
to the MD&A of this 10-Q and the Company's other Securities and Exchange
Commission filings, including its most recent Form 10-K as of September 30,
1999, to ascertain the extent and magnitude of these and other risks and
uncertainties the Company may encounter.
4. BASIC AND DILUTED NET LOSS PER SHARE
Shares used in computing basic and diluted net loss per share include the
weighted average number of common shares outstanding. Common stock equivalents
are antidilutive and are excluded from the computation of basic and diluted net
loss per share.
5. INVENTORIES
<TABLE>
<CAPTION>
The composition of inventories is as follows:
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
Raw materials $ 570 $ 170
Work-in process 3,299 3,562
Finished goods 2,614 251
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$ 6,483 $ 3,983
========== ==========
</TABLE>
The Company regularly evaluates the composition of its inventories and has
established reserves for estimated obsolete and excess inventories. The values
presented are net of these reserve estimates.
8
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6. CUSTOMER BACKLOG AND DELIVERY RISK
As of December 31, 1999, the aggregate amount of revenue backlog from firm
orders for the Company's Magnes and Vectorview products and services was
approximately $9,800,000 of which the Company expects to fill approximately
$6,000,000 before September 30, 2000. The revenue backlog includes orders for
two Magnes 3600 WH systems, a Magnes 2500 WH, a Magnes 1300 C cardiac system
that has been shipped, but not yet accepted by the customer, three Vectorview
systems and deferred service revenues. Future cash proceeds related to such
backlog total approximately $5,200,000, subject to currency fluctuations. As
sales of the Company's systems typically involve transactions of $1 million
or more, backlog is expected to fluctuate significantly from year to year
depending upon timing of orders received, installations completed and
customer acceptances received during the reporting period.
7. SEGMENT INFORMATION
The Company operates in one segment that includes developing, manufacturing and
selling magnetic source imaging products. The overall market for the Company's
operations can be further divided into three overlapping sub-segments: the
basic research market, the applications research market, and the commercial
clinical market. To date, substantially all of the Company's revenues have been
derived from, and substantially all of the Company's assets have been devoted
to, the basic and applications research markets.
8. RESTRICTED CASH AND SHORT-TERM INVESTMENTS
Restricted cash consists of cash balances required to be held under contractual
obligation to provide future services pertaining to sales of MSI systems
totaling approximately $163,000, amounts held in trust for executive
termination costs totaling approximately $54,000 and a portion of the Company's
royalty obligation totaling approximately $625,000.
9. COMPREHENSIVE INCOME
The Company has no components of comprehensive income.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued AICPA
Statement of Position (SOP) 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." This statement provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and identifies characteristics of internal-use software and provides
assistance in determining when computer software is for internal use. Adoption
of SOP 98-1 during the first quarter of fiscal 2000 did not have a material
impact on the Company's financial position or results of operations.
In April 1998, AcSEC issued AICPA SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This statement provides guidance on financial reporting of start
up costs and organization costs and requires that such costs of start-up
activities be expensed as incurred. Adoption of SOP 98-5 during the first
quarter of fiscal 2000 did not have a material impact on the Company's financial
position or results of operations.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following information should be read in conjunction with the condensed
consolidated financial statements and the accompanying notes included in Item 1
of this quarterly report, and the audited financial statements, accompanying
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in our annual report on Form 10-K for the fiscal
year ended September 30, 1999. See "Risks and Uncertainties" for a discussion of
some of the factors known to us that could cause reported financial information
not to be necessarily indicative of future results. We are not obligated to
publicly release the results of any revisions to forward-looking statements to
reflect events and circumstances arising after the date this report is filed.
OVERVIEW
Since 1984, the primary business of the Company has been the development of MSI
systems that measure magnetic fields generated by the human body and assist in
the noninvasive diagnosis of a potentially broad range of medical disorders. The
measurement of the body's magnetic fields by MSI provides information about the
normal and abnormal functioning of the brain, heart and other organs. The
Company is focusing on the use of its technology for potential commercial market
applications such as the diagnosis and planning for surgical treatment of
epilepsy, and the functional mapping of areas of the brain at risk during
surgery for tumors and other lesions. The Company is continuing to investigate
the potential applications of its technology for problems of the heart, spine,
and gastrointestinal system, as well as for disorders of the brain such as
closed-head trauma, schizophrenia and other neuro-psychiatric disorders. To
date, the Company, its competitors and independent researchers have identified
only a limited number of MSI diagnostic applications.
On December 22, 1999, BTi acquired all of the issued and outstanding capital
stock of Neuromag Oy. Similar to BIi, Neuromag is engaged in the research,
development and manufacturing of MSI systems. Neuromag Oy has been one of
BIi's primary competitors for the limited number of MSI systems being
purchased worldwide. With the acquisition of Neuromag Oy, BTi has positioned
itself to be the market share leader in terms of MSI sales. In addition to
market share, BTi has gained access to key intellectual and operational
know-how including research being performed at Helsinki University of
Technology, hardware and software expertise, differentiated products and
manufacturing techniques, and access to a distributor arrangement in the Far
East. For the near term, the Company intends to operate BTi and Neuromag as
separate entities as it further investigates and, as appropriate, initiates
actions to integrate operations on a consolidated basis.
As of December 31, 1999, twenty-four (24) Magnes systems and sixteen (16)
systems from Neuromag Oy have been installed in medical and research
institutions worldwide, and more than 5,000 MSI examinations have been
performed on patients and control subjects at the Company's application
development sites. Related findings by BTi and its collaborators have been
published in more than 200 scientific and medical papers. Since the first
reimbursement for MSI procedures was received in September 1993, more than
200 insurance companies have approved reimbursement on a case-by-case basis
for certain MSI procedures performed with the Company's Magnes MSI systems.
In fiscal 1995, BTi announced development of the Magnes 2500 WH, an expansion of
the existing Magnes I and Magnes II systems product line. The Magnes 2500 WH
allows for examination of the entire brain at once and is designed for
evaluating ambulatory or critically ill patients in seated or fully reclined
positions. As of December 31, 1999, the Company had shipped twelve Magnes 2500
WH systems and received eleven final acceptances from customers. In fiscal 1997
BTi commenced the development of the Magnes 3600 WH, initially for a Japanese
customer. Final development is expected to be complete in fiscal 2000.
The current price of BTi's MSI systems ranges from approximately $1.0 to $2.5
million, depending upon system configuration. A major portion of the
Company's sales has been, and is expected to be, in foreign markets. The
Company has previously priced certain of its European sales in the currency
of the country in which the product was sold and the prices of such products
in dollars varied as the value of the dollar fluctuated against the quoted
foreign currency price. There can be no assurances that currency fluctuations
will not reduce the dollar return to the Company on such sales, if made in
the future. Although at December 31, 1999 the Company did not have any open
forward exchange contracts, the Company may in the future enter into forward
exchange contracts to partially hedge such foreign currency exposure, if
appropriate.
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Since concentrating in 1984 on the development of its MSI systems, the Company's
corporate strategy and commitment of resources have focused on long-term product
applications and continued product development rather than near-term operating
performance. The Company substantially completed the development of its Magnes
2500 WH system in fiscal 1996 and decreased expenditures in fiscal 1997 and 1998
as part of the Company's restructuring and focus on developing a market for sale
of the Company's Magnes 2500 WH system. In fiscal 1999, research and development
expenditures increased due to development efforts for software and hardware
enhancements to the Magnes 2500 WH, the construction of product engineering
testing equipment, support of the epilepsy clinical testing program at two
research clinics in the United States, and ongoing development of the Magnes
3600 WH system.
The Company believes that the relatively small number of proven medical
applications for the Magnes systems, the lack of routine reimbursement for MSI
procedures, and the uncertainty of product acceptance in the U.S. market have
limited system sales. Additionally, it is not possible to reliably predict the
timing and extent of future product sales due to the uncertainties of the
acceptance of medical applications, reimbursement and product acceptance. The
Company does not anticipate multiple sales to the same end-user at current sales
volumes, and the sale of one Magnes system may have a significant impact on the
Company's financial position and results of operations during any reporting
period. As a result, quarterly and annual operating performance will continue to
fluctuate significantly.
RESULTS OF OPERATIONS
Total revenues for the first quarter of fiscal 2000 were $278,000, including
$93,000 of service revenues, compared to $119,000 of total revenues, including
$92,000 of service revenues, for the first quarter of fiscal 1999. The increase
in total revenues was due to sales of software upgrades to existing customers.
Cost of product revenues for the first quarter of fiscal 2000 were $407,000,
compared to costs of $269,000 for the same period of fiscal 1999. The
increase in cost of product revenues was related to the cost of the computer
equipment and software upgrades and underapplied overhead.
Research and development expenses amounted to $545,000 and $509,000 for the
three months ended December 31, 1999 and 1998, respectively, an increase of 7%.
The increase is due to development efforts for software and hardware
enhancements to the Magnes 2500 WH and the ongoing development of the Magnes
3600 WH system.
Marketing, general and administrative expenses amounted to $1,073,000 in the
first quarter of fiscal 2000, compared to $1,172,000 during the comparable
period in fiscal 1999. The 8% decrease was due primarily to reduced consulting
expenses.
Interest income totaled $16,000 during the three months ended December 31,
1999 as compared to $121,000 during the comparable period in fiscal 1999. The
decrease is the result of less excess cash available for investment as cash
reserves were drawn down to fund operations.
LIQUIDITY AND CAPITAL RESOURCES
On December 22, 1999, BTi, acquired all of the issued and outstanding capital
stock of Neuromag Oy pursuant to the terms of a Share Purchase Agreement, by and
between Marconi Medical Systems, Inc. and BTi. Under the terms of the Share
Purchase Agreement, BTi paid a total of $10 million in cash to Marconi for the
purchase of the shares and agreed to pay between a minimum of $2.5 million and a
maximum of $5 million in royalties to Marconi under a royalty agreement over
eight years, and additional consideration of up to approximately $1.8 million
dependent upon the occurrence of certain future events.
To acquire the shares of Neuromag Oy, the Company has obtained a loan from AIG
Private Bank Ltd. totaling $11 million that is secured by the entire share
capital of Neuromag Oy and is guaranteed by an
11
<PAGE>
entity unaffiliated with the Company. The loan matures June 30, 2000. Martin
Egli, a Board member of BTi, also serves on the Board of Directors of AIG
Private Bank Ltd.
The Company anticipates that in fiscal 2000 operating and working capital
requirements will substantially exceed cash projected to be generated by product
sales. Historically, the Company has raised capital resources from private
placements of its common stock and debt offerings to continue to fund
operations.
Based on its current operating plans, revenue expectations, capital
expenditures, expected working capital requirements and existing capital
resources, the Company anticipates that it will be able to fund operations
through the third quarter of fiscal 2000. The realization of the Company's
operating plans is dependent upon its ability to successfully close a number
of Magnes and Vectorview system sales in the current highly competitive
market for the limited number of systems being purchased worldwide. Even if
the Company meets its operating plan, the Company must continue to fund its
operating needs and service its debt (see below), and is currently
considering a number of financing alternatives, such as corporate
partnerships, intercompany funds transfers and the sale of equity or debt
securities. There can be no assurance that such financing will be available
on terms acceptable to the Company, if at all.
The Company's expectation of funding operations through June 2000 does not take
into account funds required for maturity of the $11,000,000 AIG Bank loan
facility in June 2000 from the acquisition of Neuromag Oy. Without raising
additional capital or restructuring the payment terms and maturity of the loan
facility, the Company will not be able to meet its payment obligation at
maturity in June 2000. The loan facility is collateralized by the entire share
capital of Neuromag. There can be no assurance that the Company will be able to
raise additional capital or restructure the terms of the loan facility on terms
acceptable to the Company, if at all.
At December 31, 1999, the Company had a net working capital deficit of
$7,923,000. At September 30, 1999, the Company's working capital was
$3,274,000. The net decrease in working capital at December 31, 1999 was due
to the short-term nature of the $11,000,000 loan facility resulting from the
acquisition of Neuromag Oy and to the funding of current operations with
existing cash and short-term investments.
As of December 31, 1999, the aggregate amount of revenue backlog from firm
orders for the Company's Magnes and Vectorview products and services was
approximately $9,800,000 of which the Company expects to fill approximately
$6,000,000 before September 30, 2000. Future cash proceeds related to such
backlog total approximately $5,200,000, subject to currency fluctuations. As
sales of the Company's systems typically involve transactions of $1 million
or more, backlog is expected to fluctuate significantly from year to year,
depending upon timing of orders received, installations completed and
customer acceptances received during the reporting period.
Capital equipment expenditures totaling $52,000 for the first quarter of fiscal
2000 were comparable with $83,000 for the same period in fiscal 1999.
YEAR 2000 ASSESSMENT
Many currently installed computer systems and software products were coded to
accept only 2 digit entries in the date code field. Beginning in the year
2000, these date code fields needed to accept 4 digit entries to distinguish
21st century dates from the 20th century dates. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. As a result, computer systems and/or software used by many companies
may need to be upgraded to comply with Year 2000 requirements.
12
<PAGE>
The Company used both internal and external resources as applicable, to
identify, correct or reprogram, and test its internal systems for Year 2000
compliance. The total cost of compliance and its effect on the Company's
future results of operations was determined as part of the detailed
conversion process. The Company determined that it was necessary to acquire
new Year 2000 compliant hardware and software systems for its accounting,
purchasing, production control and inventory management systems. Also, our
security system and portions of our telephone system have been upgraded. As
of December 31, 1999, the Company spent approximately $350,000 in addressing
Year 2000 compliance issues, including internal and external hardware,
software and labor costs for systems implementation and testing.
BTi's current testing has indicated that earlier models of our products (Magnes
I and Magnes II systems) purchased from the Company uses older computer hardware
and software that requires modification or replacement. The Company has
developed a new version 1.7 of its software that has been combined with a new
computer and operating system make it Year 2000 compliant; BTi has made this
solution available to its affected customers. The Company's current Magnes 2500
WH product has been tested and customer systems in the field did not require
modification.
The Company has also requested and received information and assurances from its
major vendors, service providers and customers about their state of Year 2000
compliance and readiness.
As of the date of this report, no significant issues from either Magnes or
Vectorview products have resulted from Year 2000 compliance. However, certain
of the Company's customers have not yet updated earlier versions of Magnes
software, which contains a number of minor fixes. Year 2000 issues could
cause potential customers to reevaluate their current needs and consider
deferring purchase of our Magnes or Vectorview systems or decide to purchase
from a competitor. BTi could also have potential warranty or other claims
with existing Magnes systems placed with customers if such systems are not
made Year 2000 compliant. Any of the foregoing could result in a material
adverse effect on the Company's business, prospects, financial position and
results of operations.
RISKS AND UNCERTAINTIES
This quarterly report on Form 10-Q may contain forward-looking statements
based on our current expectations, assumptions, estimates and projections
about us and our industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of factors, such
as those more fully described in this "Risks and Uncertainties" section and
elsewhere in this report, our annual report on Form 10-K and in other
documents the Company files from time to time with the Securities and
Exchange Commission. We are not obligated to update or revise these
forward-looking statements to reflect new events or circumstances.
To date, we have been engaged principally in research and development
activities, and have made only low volume sales to medical research
institutions. We are currently dependent on our Magnes 2500 WH and Vectorview
systems for clinical market sales, for which there are currently limited
clinical applications. Additional clinical applications testing needs to be
conducted with the MSI system at major clinical research centers before a
substantial commercial clinical market emerges. We are finalizing development
of our Magnes 3600 WH system, which is targeted primarily for basic research
markets, and must continue to depend upon sales to this market to meet our
revenue goals for the very near-term. There can be no assurance that a
substantial commercial market will develop for diagnostic or
13
<PAGE>
monitoring uses of our MSI systems or for the MSI industry to become viable and
profitable. A continued lack of clinical applications and commercial market for
our MSI systems will have a material adverse impact on our financial position,
results of operations and cash flows.
WE ARE UNCERTAIN WITH RESPECT TO ADDITIONAL FUNDING AND MAY NOT BE ABLE TO MEET
FUTURE CAPITAL NEEDS. AS A RESULT, THERE IS SUBSTANTIAL DOUBT ABOUT THE
COMPANY'S ABILITY TO OPERATE AS A GOING CONCERN.
If we achieve the projections in our current business plan, we believe that
we will be able to fund our operations through the third quarter of fiscal
2000. Even if we meet our operating plan projections, we will need to obtain
additional financing in fiscal 2000 to continue to fund operations and to pay
our debt which is due in June 2000. We may not find such financing on terms
acceptable to us, if at all.
IF WE CONTINUE TO INCUR OPERATING LOSSES, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS.
Our financial position reflects that we have been principally focused on
research and development with only low volume sales to medical research
institutions. For example, our net losses in the last three years have been as
follows:
- $7,464,000 of losses in fiscal 1999,
- $4,968,000 of losses in fiscal 1998, and
- $5,242,000 of losses in fiscal 1997.
In the last three years, our negative cash flows from operations have been as
follows:
- $8,602,000 in fiscal 1999,
- $5,520,000 in fiscal 1998, and
- $2,032,000 in fiscal 1997.
We believe that cash projected to be generated from operations alone will not be
sufficient to meet our operating and working capital requirements and debt
maturity requirements in fiscal 2000.
IF WE ARE UNABLE TO SATISFY CUSTOMER PERFORMANCE AND SERVICE REQUIREMENTS, WE
MAY BE UNABLE TO COMPETE EFFECTIVELY.
Our success may be limited by our ability to satisfy customer performance
requirements for our systems; as well as by our ability to complete, in a timely
fashion, product developments and enhancements to satisfy customer requirements.
In addition, if we or our distributors are not able to respond in a timely
manner to service requirements, our competitiveness may be adversely impacted.
IF ADDITIONAL CLINICAL APPLICATIONS FOR MSI SYSTEMS ARE NOT IDENTIFIED BY US
OR OTHERS, OUR PRODUCTS MAY NOT BE VIABLE.
Currently, there are only a few established diagnostic uses for MSI systems that
the medical industry is aware of. Although we have started our own clinical
research and testing to identify new, large application areas, we cannot assure
you that a commercial market will develop for multiple uses of our products.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR MSI PROCEDURES BY
THIRD PARTY PAYORS, SALES WILL SUFFER.
Our commercial success is also highly dependent on reimbursement for procedures
using the MSI system. Currently, Medicare, insurance companies and other
healthcare providers approve payment for MSI procedures on a case-by-case basis.
As of December 31, 1999, these third party payors have only approved limited
reimbursements in the United States. Although third party payors have
increasingly approved reimbursements, we cannot assure you that third party
reimbursements will
14
<PAGE>
become widely available. The United States government does
not currently reimburse for MSI procedures. If reimbursement does not become
more widely available, our financial position and results of operations will be
materially adversely affected. Further, if the Federal government or any state
legislature enacts legislation relating to our business or the health care
industry, including legislation relating to third party reimbursement, our
financial position and results of operations could be negatively affected. In
addition, there is currently no reimbursement for MSI procedures outside of the
United States.
IF OUR PRODUCTS PRODUCE UNRELIABLE DIAGNOSTIC INFORMATION, IT MAY RESULT IN A
LIABILITY, WHICH WOULD ADVERSELY IMPACT OUR FINANCIAL CONDITION.
Although our products are noninvasive and diagnostic in nature, treatment
courses based on the information generated by our instruments may be unreliable
or result in adverse effects. This possibility exposes us to the risk of product
liability claims. While we carry product liability insurance, there is no
assurance that such insurance will be adequate, will be available in the future
at a level and cost that is appropriate, or available at all, or that a product
liability claim would not adversely affect our business, prospects, financial
condition or results of operation.
IF DISCOVERIES OR DEVELOPMENTS OF NEW TECHNOLOGIES OCCUR, OUR PRODUCTS AND
TECHNOLOGY MAY BECOME OBSOLETE.
Our industry is characterized by rapid technological change, which may also
impact our commercial success. Competitors may develop products using other
technologies or may improve existing products. This competition may reduce the
size of the potential market for our products or make them obsolete or
non-competitive. Competitors may also develop new or different products using
technology or imaging modalities that provide, or are perceived as providing,
greater value than the Company's products. Our financial position and results of
operations will be materially adversely affected if such competitive
developments occur.
IF WE FAIL TO COMPETE SUCCESSFULLY, OUR REVENUES AND OPERATING RESULTS WILL BE
ADVERSELY AFFECTED.
Our industry is also characterized by ongoing significant price competition. Our
competitors compete with us aggressively for the currently limited number of
whole head systems being purchased worldwide. The future profitability of our
systems may be negatively impacted by this aggressive competition.
IF NEW GOVERNMENT LEGISLATION IS ENACTED OR UNFAVORABLE MEDICAL INDUSTRY TRENDS
ARISE, WE MAY BE UNABLE TO SELL OUR PRODUCTS AND OUR REVENUES WILL SUFFER.
We cannot predict what adverse effect, if any, future legislation or FDA
regulations may have on the MSI market and our financial results. Medical
industry cost containment trends may impose restrictions on sizeable third-party
reimbursements for diagnostic procedures, limiting the market opportunity.
Further, if Federal government agencies or any state legislature enacts
legislation or guidelines relating to our business or the health care industry
that create additional business hurdles, including legislation relating to third
party reimbursement, our financial position and results of operations could be
negatively affected.
IF FOREIGN CURRENCY EXCHANGE RATES FLUCTUATE, OUR RETURN ON SALES IN U.S.
DOLLARS MAY SUFFER.
A significant portion of our sales to date from both BTi and Neuromag have
been in foreign markets. We expect that revenues from international sales
will continue to represent a significant portion of our annual revenues.
Because we sell in foreign markets, we are exposed to potential risks of
increases and decreases in foreign currency exchange rates. Although at
December 31, 1999 we did not have any open forward exchange contracts, on
occasion, we enter into forward exchange contracts to partially hedge (or
protect) against such foreign currency exchange risks. Nonetheless, these
fluctuations may reduce the return in U.S. dollars that we
15
<PAGE>
actually receive on our sales. These risks may become material as our foreign
sales and operations increase or dramatic currency fluctuations occur from
outside events.
THE COMPANY'S SUCCESS IS DEPENDENT UPON ITS ABILITY TO ATTRACT AND RETAIN
QUALIFIED SCIENTIFIC AND MANAGEMENT PERSONNEL.
The loss of services of any one of our executive management or key scientific
personnel would delay our ability to execute our business plans and reduce our
ability to successfully develop and commercialize products, maintain good
customer relationships and compete in the marketplace. We also face increasing
difficulties in recruiting qualified personnel in the software and hardware
design areas because of intense competition for such personnel in today's job
market. There can be no assurance that the Company will be able to hire, train
or retain such qualified personnel.
In addition, the loss of the services of our Chief Executive Officer, D.
Scott Buchanan, or Antti Ahonen, Managing Director of Neuromag Oy, would have
a materially adverse effect on our prospects. Currently none of the executive
officers of the Company have an employment agreement or contract with the
Company; all are "at-will" and under no specified term arrangements.
OUR STOCK PRICE IS HIGHLY VOLATILE AND SUBJECT TO SWINGS BASED ON SALES AND
OTHER MARKET CONDITIONS.
The market prices for securities of companies with newly emerging markets have
historically been highly volatile, and their stock price from time to time has
experienced significant price and volume fluctuations that are unrelated to the
operating performance of such companies. Moreover, BTi's relatively low trading
volume increases the likelihood and severity of volume fluctuations which likely
will result in a corresponding increase in the volatility of BTi's Common Stock
price. Factors such as announcements of complex technological innovations or new
sales, governmental regulations, developments in patent or other proprietary
rights, developments in the Company's relationships with collaborative partners
general market conditions and the timing of decisions by existing BTi
stockholders to sell large positions of our Common Stock may have a significant
effect on the market price of the Company's Common Stock. Fluctuations in
financial performance from period to period also may have a significant impact
on the market price of the Common Stock.
IF WE EXPERIENCE ANY PROBLEMS WITH YEAR 2000 COMPLIANCE, OUR OPERATIONS AND
SALES OF OUR PRODUCTS MAY BE INTERRUPTED.
As of the date of this report, no significant issues from either Magnes or
Vectorview products have resulted from Year 2000 compliance. However, certain of
the Company's customers have not yet updated earlier versions of Magnes
software, which contains a number of minor fixes. Year 2000 issues could cause
potential customers to reevaluate their current needs and consider deferring
purchase of our Magnes systems or decide to purchase from a competitor. BTi
could also have potential warranty or other claims with existing Magnes systems
placed with customers if such systems are not made Year 2000 compliant. Any of
the foregoing could result in a material adverse effect on the Company's
business, prospects, financial position and results of operations.
For additional information regarding the status of our Year 2000 issues, please
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000 Assessment".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBIT NO. DESCRIPTION
3.1 (1) Certificate of Amendment to Fourth Restated
Articles of Incorporation.
3.2 (1) Fourth Restated Articles of Incorporation,
as amended.
3.3 (1) Restated Bylaws.
10.1 (2) Loan Agreement dated December 21, 1999
between the Company and AIG Private Bank
Ltd.
27 Financial Data Schedule.
(1) These exhibits were previously file as part of, and are
hereby incorporated by reference to, the same numbered
exhibits to the Company's Quarterly Report on Form 10-Q
filed with the SEC on May 17, 1999.
(2) Certain confidential portions of this exhibit were omitted
by marking such portions with asterisks (the "Mark"). This
exhibit has been filed separately with the Secretary of the
Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment.
b) Reports on The Company filed a Report on Form 8-K on
Form 8-K January 6, 2000 relating to its acquisition
of all of the issued and outstanding
capital stock of Neuromag Oy.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOMAGNETIC TECHNOLOGIES, INC.
February 10, 2000 /S/ D. Scott Buchanan
----------------------- ---------------------
Date D. Scott Buchanan
President and Chief
Executive Officer
February 10, 2000 /S/ Aron P. Stern
------------------------ ---------------------
Date Aron P. Stern
Vice President of Finance,
Chief Financial Officer
Corporate Secretary, Principal
Financial and Accounting Officer
18
<PAGE>
Exhibit 10.1
[Letterhead]
Biomagnetic Technologies, Inc.
Attn: Mr. Aron Stern, CEO
9727 Pacific Heights Blvd.
San Diego, CA 92121 3719
Zurich, December 21, 1999
(kred/ESGA/verach/Biomagnetic)
LOAN AGREEMENT NR ***
Dear Sirs,
With reference to our various discussions, we are pleased to make available
to you a loan facility on the following terms and conditions (hereinafter
referred to as the "Agreement"):
BORROWER
Biomagnetic Technologies, Inc., 9727 Pacific Heights Blvd., San Diego, CA
92121 3719
(hereinafter referred to as the "Borrower")
LENDER
AIG Private Bank Ltd., ***
(hereinafter referred to as the "Lender")
LOAN AMOUNT
USD 11'000'000.00 (United States Dollars eleven million)
PURPOSE
For the purchase of all outstanding shares of Neuromag Oy, Helsinki from
Picker International Inc., Cleveland.
*** Portions of this page have been omitted pursuant to a request for
confidential treatment filed separately with the Commission.
<PAGE>
Loan Agreement, dated December 21, 1999 Page 2
- --------------------------------------------------------------------------------
UTILISATION
In the form of fixed terms ("Advance(s)") in US Dollars with interest periods
of 1 to 6 months, no Advance to exceed the term of this Agreement, and in
minimum amounts of USD 2 million. The aggregate amount of all fixed term
advances outstanding shall not exceed the total amount of the loan facility.
PAYOUT
As per separate written drawdown instructions, which must be received by the
Lender at least 3 (three) Business days prior to payout, subject to the
satisfaction of all conditions precedent.
TERM / DURATION
This credit facility will be available until June 30, 2000 (the "Final
Maturity Date").
REPAYMENT
The Borrower shall repay in full all outstanding advances made to it on the
Final Maturity Date, or before at his discretion, on any roll-over date.
INTEREST RATE
The Borrower agrees to pay interest on all principal amounts outstanding in
accordance with the following provisions:
The interest rate for fixed term advances shall be the rate per annum which
is the sum of the margin of 3.5% (three and a half per cent) per annum and
the rate at which deposits in US Dollars for the relevant tenor and amount
are offered by the Lender to prime banks in the London interbank market two
business days prior to the beginning of an interest period.
Interest will be calculated on the basis of the exact number of days elapsed,
divided by a 360-day year (365/360) and will be payable at the end of each
interest period.
If any sum due and payable by the Borrower is not paid when due, the interest
on any such amounts will be calculated on the basis of the refinancing costs
of the Lender, together with the margin of *** (*** per cent) per annum, for
the period beginning with the due date until receipt by the Lender of the
payment.
*** Portions of this page have been omitted pursuant to a request for
confidential treatment filed separately with the Commission.
<PAGE>
Loan Agreement, dated December 21, 1999 Page 3
- --------------------------------------------------------------------------------
If any payment date shall fall on a day on which banks in Zurich or New York
are not open for business, such payment date shall be extended to the next
succeeding business day unless such business day falls in the next calendar
month in which event such due date shall be the immediately preceeding
business day.
SECURITY
1. Pledge and assignment with the enclosed form "General Deed of Pledge and
Declaration of Assignment" of all outstanding shares in Neuromag Oy,
Helsinki, to be deposited with the Lender.
2. Pledge and assignment by Scaloway Co. Ltd. (hereinafter referred to as
"Guarantor") in a form acceptable to the Lender of a time deposit in the
amount of USD ***--(United States Dollars ***).
ESTABLISHMENT FEE
The Borrower shall pay to the Lender an Establishment Fee of USD 20'000. --
flat of the Loan Amount, due upon signing of this Agreement. At the Lender's
discretion, this fee may be either paid immediately or deducted upon
disbursement.
COSTS, FEES AND EXPENSES
The Borrower shall pay to the Lender on demand an amount equal to all costs,
charges and expenses (including, but not limited to, legal expenses and stamp
registration or other duties) incurred by the Lender in connection with
preparation and execution of this Agreement and the security and other
documentation contemplated hereby and all costs, charges and expenses
(including legal expenses on a full indemnity basis) of the Lender in
connection with the enforcement of or preservation of any of its rights under
this Agreement or otherwise in connection with the facility.
PREPAYMENT
The Borrower may at any time, upon prior written notice of 3 days to the
Lender, prepay a portion of or the entire amount outstanding, as of the end
of any interest period. Amounts prepaid may not be reborrowed.
*** Portions of this page have been omitted pursuant to a request for
confidential treatment filed separately with the Commission.
<PAGE>
Loan Agreement, dated December 21, 1999 Page 4
- --------------------------------------------------------------------------------
PAYMENTS AND TAXES
All payments to be made by the Borrower to the Lender under this Agreement
shall be made in United States Dollars, freely disposable outside of
bilateral or multilateral payment agreements which may exist at the time of
payment, free and clear of and without deduction of any taxes, levies,
imposts, duties, charges, fees, deductions or withholdings of any nature, now
or hereafter imposed by or on behalf of any taxing authority or any other
entity.
ASSIGNABILITY
The Lender has the right to assign this Agreement to any party without the
consent of the Borrower but it requires the consent of the Guarantor.
COVENANTS
The Borrower covenants that, until full and final payment of all indebtedness
and liabilities incurred hereunder, unless the Lender waives compliance in
writing, the Borrower will furnish the Lender with such information
concerning the affairs of the Borrower as the Lender may reasonably request.
EVENTS OF DEFAULT
The principal and accrued interest on any outstanding balances as well as
any and all accrued fees and charges whatsoever under this Agreement, shall
become immediately due and payable, without need of further legal formality,
at the option of and upon the first demand by the Lender, if:
a) the Borrower shall default in the payment of principal or interest on any
advance or of any other amount payable thereunder when the same shall become
due and payable and such failure continues for a period of 5 (five) business
days without remedy;
b) the Borrower shall default in the performance of any term, covenant or
condition contained in this agreement after written notice and failure to
cure such default within thirty (30) days from the receipt of such notice
or an event of default in the performance of any other agreement between
the Borrower and the Lender;
c) any representation or warranty made by the Borrower under this agreement
or any certificate or documents furnished pursuant thereto, shall prove to
have been untrue when made or at any subsequent time to be incorrect in any
material respect;
d) any other event occurs or circumstances arise which, in the opinion of
the Lender is likely, materially and adversely, to affect the ability of
the Borrower or any future mortgagor to perform all or any of his or its
obligations under or otherwise to comply with the terms of this Agreement.
The Borrower shall hold the Lender harmless of and indemnify the Lender
against any losses or expenses which the Lender may sustain or incur as a
consequence of any Event of Default by the Borrower as stipulated herein.
<PAGE>
Loan Agreement, dated December 21, 1999 Page 5
- --------------------------------------------------------------------------------
If there is an Event of Default, the Lender reserves the right to increase the
interest rate and/or the commission rate, not to exceed *** percent per annum.
CONDITIONS PRECEDENT
This agreement its made under the condition and the Lender's obligation to
make this loan available is subject to the conditions precedent that the
Lender shall have received and approved the following:
a) A signed copy of this agreement, each page initialed, bearing the
authorized signature of the Borrower.
b) Proper and completed assignment of all the collateral as per cif. 2 of the
Security paragraph.
LAW GOVERNING THE LEGAL RELATIONSHIP BETWEEN THE LENDER AND THE BORROWER AND
PLACE OF JURISDICTION
All legal aspects of the relationship between the Borrower and the Lender
shall be governed by Swiss law. The place of performance, the exclusive place
of jurisdiction for lawsuits and all other kinds of legal proceedings and
place of foreclosure shall be the domicile of the Lender.
The Lender reserves the right to bring legal proceedings against the Borrower
before any competent court at the domicile of the Borrower or any other court
having jurisdiction over the Borrower.
No failure to exercise and no delay in exercising on the part of the Lender
any of its rights hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise or any rights preclude any other or further
exercise thereof.
The general pledge and assignment and our "General Banking Conditions" which
you already received, form an integral part of this loan agreement.
We hope that the above terms and conditions meet your requirements, and
kindly request that you duly sign and return to us the enclosed duplicates of
this agreement together with all other required documents.
*** Portions of this page have been omitted pursuant to a request for
confidential treatment filed separately with the Commission.
<PAGE>
Loan Agreement, dated December 21, 1999 Page 6
- --------------------------------------------------------------------------------
We look forward to hearing from you and remain
Yours truly,
AIG Private Bank Ltd.
/s/ Esther Gauch /s/ Werner Vontobel
- ---------------- -------------------
Esther Gauch Werner Vontobel
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,778
<SECURITIES> 1,063
<RECEIVABLES> 1,319
<ALLOWANCES> (410)
<INVENTORY> 6,483
<CURRENT-ASSETS> 11,675
<PP&E> 8,837
<DEPRECIATION> (7,847)
<TOTAL-ASSETS> 24,644
<CURRENT-LIABILITIES> 19,598
<BONDS> 0
0
0
<COMMON> 99,392
<OTHER-SE> 3,000
<TOTAL-LIABILITY-AND-EQUITY> 24,644
<SALES> 185
<TOTAL-REVENUES> 278
<CGS> 407
<TOTAL-COSTS> 447
<OTHER-EXPENSES> 1,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,720)
<EPS-BASIC> (0.02)
<EPS-DILUTED> 0
</TABLE>
