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Registration No. 333-1462
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO. 1 TO
FORM SB-2
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEUROCORP, LTD.
----------------
(Name of small business issuer in its charter)
Nevada 8099 87-0446395
------------------ ------------------------ -------------------
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation Code Number
or Organization)
150 White Plains Road, Tarrytown, New York 10591 (914) 631-3316
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(Address and telephone number of Principal Executive Offices)
Dr. Turan M. Itil, Chairman
-------------------------------
(Name of agent for service)
Copy to:
Peter Landau, Esq.
Opton Handler Gottlieb Feiler & Katz
52 Vanderbilt Avenue, New York NY 10017
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE
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AFTER EFFECTIVE DATE OF REGISTRATION STATEMENT.
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title Amount Proposed Proposed Amount Of
Of Each To Be Maximum Maximum Registration
Class Of Registered Aggregate Aggregate Fee
Securities Offering Offering
Registered Price Per Price
Share
- --------------------------------------------------------------------------------
Common 1,000,000 $2.5625 (1) $2,562,500 $ 884
Stock Shares
- --------------------------------------------------------------------------------
Class B Warrants 800,000 Nil Nil Nil
and Shares
Common 800,000 $1.00 (2) $ 800,000 $ 276
Stock Shares (3)
Issuable
Upon Exercise
Of Class B Warrants
- --------------------------------------------------------------------------------
Class C Warrants 800,000 Nil Nil Nil
and Shares
Common 800,000 $2.00 (2) $1,600,000 $ 552
Stock Shares (3)
Issuable Upon
Exercise of
Class C Warrants
- --------------------------------------------------------------------------------
TOTAL $1,712
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 (c) on the basis of the average of the high and low
closing sale price on February 5, 1996 in the over-the-counter market as
reported by the NASD, a date within five business days of the date of
filing of this Registration Statement.
(2) Based on the exercise price of the Warrants.
(3) Pursuant to Rule 416, there are also being registered an indeterminate
number of shares of the Registrant's Common Stock which may become issuable
pursuant to the antidilution provisions of the warrants.
The registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
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Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-B
Item No. and Heading in Form SB-2 Caption or Location in Prospectus
Registration Statement
1. Front part of Registration Front part of Registration Statement and
Statement and Outside Front Outside Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Inside Front and Outside Back Cover
Back Cover Pages of Pages of Prospectus
Prospectus
3. Summary Information Prospectus Summary; Risk Factors
and Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Outside Front Cover Page of Prospectus;
Price Plan of Distribution
6. Dilution *
7. Selling Security Holders Outside Front Cover Page of Prospectus;
Selling Stockholders
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Plan of Distribution
9. Interests of Named *
Experts and Counsel
10. Information with Respect Cover Page of Prospectus, Prospectus
to the Registrant Summary; The Company; Risk Factors;
Certain Market Information and
Dividends; Summary Financial
Information; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal Shareholders;
Certain Transactions; Description of
Securities; Legal Proceedings; Legal
Matters; Financial Statements; Change in
accountants.
11. Disclosure of Commission Part II, Item 24.
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Position on Indemnification
for Securities Acts
Liabilities
- --------------
* Omitted because answer is negative or item is otherwise not applicable.
PROSPECTUS Subject to Completion Dated May ___, 1996
NEUROCORP, LTD.
2,600,000 Shares of Common Stock
800,000 Class B Warrants
800,000 Class C Warrants
- --------------------------------------------------------------------------------
All of the shares (collectively, the "Shares") and all of the Class B and
Class C Warrants (collectively the "Warrants") of Neurocorp, Ltd. (the
"Company") offered hereby are to be sold for the accounts of the selling
stockholders and selling warrantholders set forth herein, (the "Selling
Stockholders"). The Company is registering the Shares and the Warrants pursuant
to certain registration rights, and other contractual obligations incurred by
the Company in connection with the original issuance of such Shares and
Warrants. The Company will not receive any of the proceeds from the sale of the
Shares or Warrants by the Selling Stockholders. The Company will receive the
exercise prices with respect to the exercise of any of the Warrants described
herein. The Company estimates that total expenses will be approximately $50,000
in connection with the offering (the "Offering") of the Shares and Warrants of
which approximately $25,000 will be paid for by the Company. See "Selling
Stockholders" and "Plan of Distribution".
Of the 2,600,000 Shares of the Common Stock, Par Value $.001 Per Share (the
"Common Stock"), being offered hereby, 1,600,000 shares of Common Stock are to
be issued from time to time upon the exercise of certain Warrants described
herein. The 1,000,000 remaining shares being offered hereby were issued under
Section 4(2) of the Securities Act of 1933, as amended and the 1,600,000
Warrants being offered hereby were issued to stockholders of record of the
Company as of November 1, 1994 in connection with the reverse acquisition of HZI
Research Center, Inc. See "The Company - Recent Developments" and "Selling
Stockholders".
The Selling Stockholders may sell the Shares and Warrants to or through
underwriters, and also may sell the Shares directly to other purchasers or
through agents from time to time in the over-the-counter market at prevailing
prices in such market. See "Plan of Distribution".
The Common Stock of the Company is traded on the National Association of
Securities Dealers' (NASD) Over the Counter (OTC) Bulletin Board under the
symbol "NURC". There is no present market for the Warrants and there is no
assurance that any market will develop.
On April 25, 1996, the average of the last reported bid and asked prices of
the Company's Common Stock in the over-the-counter market as reported by NASD
was $3.00. See "Certain Market Information and Dividends".
INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
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FACTORS", PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY , 1996
TABLE OF CONTENTS
PAGE
----
Available Information..................................... 3
Additional Information.................................... 3
Prospectus Summary........................................ 4
Summary Financial Information............................. 6
Risk Factors.............................................. 7
Certain Market Information and Dividends.................. 11
Use of Proceeds........................................... 12
Management's Discussion and Analysis of Financial......... 14
Condition and Results of Operations
Business.................................................. 20
Management................................................ 32
Principal Stockholders.................................... 37
Certain Transactions...................................... 39
Selling Stockholders...................................... 42
Plan of Distribution...................................... 44
Description of Securities................................. 45
Shares Eligible For Future Sale........................... 47
Legal Proceedings......................................... 48
Legal Matters............................................. 48
Experts................................................... 48
Change in Accountants..................................... 48
Index to Financial Statements............................. 49
Glossary.................................................. G-1
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
accordingly, files reports, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information
filed with the Commission are available for inspection and copying at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Kluczynski Building, 230 South Dearborn Street,Chicago, Illinois
60604, at 7 World Trade Center, New York, New York 10007, and at 5757 Wilshire
Boulevard, Los Angeles, California 90024. Copies of such material also may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Judiciary Plaza, Washington D.C. 20549 at prescribed rates.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission under
the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and in the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to such Registration Statements and to the exhibits
and schedules thereto.
The Registration Statement and any amendments thereto, including exhibits
filed as a part thereof, are available for inspection and copying as set forth
above.
The Company intends to distribute annual reports containing audited
financial statements to its shareholders.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus in connection with the offering herein contained,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy by any person
in any jurisdiction in which it is unlawful for such person to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, imply that the information
contained herein is correct as of any date subsequent to the date hereof.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements contained elsewhere
in this Prospectus. Investors should carefully consider information set forth
under the heading "Risk Factors".
Certain capitalized terms used in describing the Company's business in this
Prospectus are defined in the Glossary which appears on page G-1 at the end of
this Prospectus.
NeuroCorp., Ltd., formerly known as Tamarac Ventures, Ltd. (the "Company"),
was incorporated in the State of Nevada on March 18, 1987 and completed an
initial public offering in September, 1987. At the time of its initial public
offering, the Company had no specific business plan, but was instead a "blind
pool" wherein the Company's securities were sold to the public to provide the
Company with approximately $178,000 of capital to be used to purchase the
unknown existing businesses or to acquire the unknown existing assets to
establish a subsidiary business or businesses.
On November 23, 1994, the Company acquired all of the issued and
outstanding shares of HZI Research Center, Inc. ("HZI") for 4,600,000 shares of
the Company's common stock (after giving effect to a one for fifty share
combination, or "reverse split"), whereby the Company's name was changed to
"NeuroCorp, Ltd." and the sole officer and director of the Company resigned and
was replaced by the management of HZI. HZI is a New York corporation, founded
in 1974 by Turan M. Itil, M.D., the Chairman and a principal shareholder of the
Company.
The Company through HZI is primarily involved in generating revenue through
three inter-related businesses: (i) performing long term contract medical
research services (principally conducting clinical trials) for health agencies,
contract research organizations and pharmaceutical companies; (ii) designing and
manufacturing proprietary neuropsychiatric diagnostic testing equipment and
selling this equipment to physicians, researchers and hospitals; and (iii)
performing telephonic neurological diagnostic testing services, including
electroencephalogram ("EEG") and evoked potential ("EP") testing for physicians
and hospitals. These tests are used to diagnose brain disorders. HZI also has
five additional products at the prototype stage, including an electrode headset
and a system for monitoring drug treatment which will require U.S. Food and Drug
Administration ("FDA") approval but for which no application for FDA approval
has yet been made. The Company's CEEG Scan System and Dynamic Brain Mapping
software, a technique that analyzes conventional EEG with digital computers,
received FDA marketing approval in March 1987. An application for FDA marketing
approval of the Company's Digital EEG System, a new software program to be used
as an enhancement to the CEEG-Registered Trademark--Scan System is currently in
preparation. There can be no assurance that any of these proposed products will
be approved by the FDA for sale in the United States or that they will be
scientifically or commercially accepted. However, these systems are being sold
internationally.
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For the fiscal years ended December 31, 1995 and 1994 the Company has spent
$181,512 and $224,010 respectively, on research and development activities to
establish technological feasibility for proprietary items. The Company is not
reimbursed for any research or development expenses from its customers.
The Company's strategy is to provide medical professionals with simple, economic
and objective means (hardware/software systems and/or telephonic services) in
order to enhance diagnostic accuracy and improve the treatment potential of
brain-related neuropsychiatric disorders and to assist drug manufacturers in
accelerating, and thereby economizing, the development of neuropsychiatric
drugs.
The Company's executive offices are located at 150 White Plains Road,
Tarrytown, New York 10591 and its telephone number is (914) 631-3316.
THE OFFERING
Securities Offered
Common Stock 2,600,000 shares of Common Stock. See "Description of
Securities".
Of the 2,600,000 shares of Common Stock, par value
$.001 per Share being offered hereby, 1,600,000 shares
are to be issued from time to time upon the exercise of
certain Warrants described herein. The 1,000,000
remaining shares being offered were issued in
connection with a private placement under Section 4(2)
of the Securities Act of 1933, as amended. See
"Selling Stockholders".
Warrants The 1,600,000 Warrants being offered hereby were issued
to stockholders of record of the Company as of November
1, 1994 in connection with the reverse acquisition of
HZI. 800,000 of the Warrants are Class B Warrants and
800,000 are Class C Warrants exercisable respectively
at $1.00 per share and $2.00 per share at any time on
or before June 30, 1997. The Warrants are redeemable
by the Company at any time upon thirty (30) days
written notice at $.001 per Warrant. These Warrants
can not be sold or exercised until such time as a
Registration Statement under the Securities Act of 1933
has become effective as to such Warrants and Underlying
shares. This offering is being made pursuant to an
effective Registration Statement of which this
Prospectus is a part. See "Description of
Securities -Warrants".
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SUMMARY FINANCIAL INFORMATION
The following summary consolidated financial information concerning the
Company Neurocorp, Ltd. has been derived from the financial statements included
elsewhere in this Prospectus and should be read in conjunction with such
consolidated financial statements and the notes thereto. See "Financial
Statements".
For the year ended December 31,
1995 1994
------------- -------------
STATEMENT OF OPERATIONS DATA
Net Sales $ 1,543,363 $ 2,350,989
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Gross profit $ 905,617 $ 1,421,979
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Total expenses $ 1,021,764 $ 1,218,944
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Net (loss) income $ (116,147) $ 203,035
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Net (loss) income per share $ (.02) $ .04
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Weighted average number of shares outstanding 5,484,586 4,676,666
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At December 31,
1995 1994
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BALANCE SHEET DATA
Working capacity deficiency $ (6,765) $ (275,034)
------------- --------------
Total assets $ 3,329,412 $ 3,242,417
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Long term liabilities $ 346,734 $ 385,448
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Shareholders equity $ 1,917,669 $ 1,602,880
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THE WEIGHTED AVERAGE NUMBER OF SHARES FOR THE YEAR ENDED DECEMBER 31, 1994
ASSUMES THAT HZI COMMON SHARES OF 4,600,000 WERE OUTSTANDING FROM JANUARY 1,
1994 AND THE 680,000 COMMON SHARES OF THE PARENT CORPORATION, NEUROCORP LTD.
(FORMERLY TAMARAC), WERE ISSUED AT THE DATE OF THE REVERSE ACQUISITION.
6
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RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. In analyzing this offering, prospective purchasers should carefully
consider the following factors, among others:
1. RECENT LOSSES AND POSSIBLE FUTURE LOSSES
While the Company had net income during two of its last three fiscal
periods it has operated at a net loss for the year ended December 31, 1995. Its
net income for the fiscal year ended December 31, 1993 was $131,965 and its net
income for the fiscal year ended December 31, 1994 was $203,035. For the year
ended December 31, 1995, the Company had a net loss of $116,147. There can be
no assurance that the operations of the Company will be profitable in future
periods. See "Financial Statements", "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
2. NEED FOR WORKING CAPITAL - DEPENDENCE ON PRIVATE SALES OF SECURITIES.
The Company has incurred a deficiency in net cash flow from operating
activities for two of the three years ended December 31, 1995. The Company had
a net working capital deficiency of $275,034 as of December 31, 1994 and $6,765
as of December 31, 1995. See "Managements Discussion and Analysis of Financial
Condition - Liquidity and Capital Resources" and "Consolidated Financial
Statements".
The Company has been dependent for the financing of its working capital
requirements on private sales of its securities to individual investors and
groups of investors and loans from officers and shareholders of the Company.
The Company intends to continue its practice of funding its working capital
requirements through private sales of securities and loans to the extent that it
is unable to meet its working capital requirements by generating sufficient
funds from operations. See "Certain Transactions".
While there can be no assurance with respect to the Company's continuing
ability to sell its securities privately or that outstanding warrants or
options will be exercised, management believes that its available cash together
with expected proceeds from the various sources noted above, and expected cash
flows from operations will be sufficient to finance its working capital and
capital requirements for at least a 12 month period.
The development of new products or systems by the Company will also require
expenditures to obtain government regulatory clearances. The Company may also
expend substantial amounts of funds on research relating to the application of
products or systems that may never be developed to where they can produce a
marketable product.
In view of the foregoing, in all likelihood the Company will have to
undertake additional financings by means of public or private offerings, or
obtain funds through arrangements with corporate partners which may require the
Company to relinquish some rights to any technologies,
7
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products or systems it develops. If additional financing is required, no
assurance can be given that this financing will be available on favorable or
acceptable terms and the Company may have to reduce substantially or eliminate
expenditures for the development, production and marketing of its proposed
products and systems. (See "Business - "Products Under Development" and
"Business - Sales and Marketing").
The sale by the Company of Common Stock, securities convertible into or
exchangeable for Common Stock, or warrants and options exercisable for Common
Stock, and the exercise of the rights of holders of such convertible securities,
warrants and options may result in dilution of the present holders of Common
Stock investments. See "Financial Statements", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions".
3. POTENTIAL FLUCTUATION IN QUARTERLY RESULTS
The Company's quarterly operating results have varied significantly as a
result of a number of factors, including the timing of contracts for clinical
research studies and testing. The Company expects that its operating results
will fluctuate in the future as a result of these and other factors including
the Company's success in developing, introducing and marketing new products and
the level of competition. There can be no assurance that the Company will be
able to achieve and sustain a level of profitability on a quarter-to-quarter
basis. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
4. DIVIDENDS
The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. See
"Certain Market Information and "Dividends".
5. DEPENDENCE UPON KEY PERSONNEL
The Company is dependent upon the following management and technical
personnel, the loss of whom would adversely affect the Company's business: Dr.
Turan M. Itil, Chairman, Mr. Ronald Horowitz, President and Vice Chairman and
Dr. Pierre Le Bars, Executive Vice President. Each of Dr. Itil, Mr. Horowitz
and Dr. Le Bars have Employment Agreements with the Company. See "Management -
Employment Agreements". None of such personnel is covered by key person life
insurance. Some management personnel are relatively new to the Company, and the
Company's success in the future will depend in part on successful assimilation
of new management personnel. In addition, the Company's future success will
depend in part upon its ability to attract and retain other highly qualified
personnel. The Company competes for such personnel with other companies,
academic institutions, government entities and other organizations. There can
be no assurance that the Company will be successful in hiring or retaining
qualified personnel. The loss of key personnel or inability to hire and retain
qualified personnel could have a material adverse effect on the Company's
business and results of operations. See "Management - Directors and Executive
Officers".
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6. CONTROL BY DIRECTORS AND OFFICERS
The Company's current directors and officers and their affiliates
beneficially own approximately 32.25 % of its outstanding Common Stock. As a
result of their Common Stock ownership, the Company's current directors and
officers and their affiliates will have significant influence over all matters
requiring approval by the Company's stockholders, including the election of
directors. Through any directors that they nominate and elect, they may have
the ability to direct policy and influence the Company's day-to-day operations.
See "Principal Stockholders", "Management", and "Selling Stockholders".
7. DILUTION
As of December 31, 1995, there were outstanding (a) employee, director and
consultant's stock options to purchase 300,000 shares of Common Stock and (b)
warrants to purchase 1,600,000 shares of Common Stock.
Any exercise of options or warrants will usually take place at a time when
the Company would be able, in all likelihood, to obtain funds from the sale of
the Company's Common Stock at prices higher than the exercise prices thereof.
As a result, investors in the securities offered hereby may incur substantial
dilution of their investments as the issuance of such a significant number of
additional securities, or even the possibility thereof, may depress the price of
such securities.
8. GOVERNMENT REGULATION.
Substantial segments of the Company's proposed operations are expected to
be subject to regulation and supervision by federal, state and local
governmental authorities. Such regulations apply not only to research,
development and manufacturing activities (whether by the Company or by
licensees) but also to the marketing of proposed systems and products,
particularly those involving medical applications. Although the Company cannot
estimate the cost of compliance with various regulations, it expects such costs
to be significant. The process of obtaining these approvals can involve lengthy
and detailed laboratory and clinical testing, sampling activities, and other
costly and time consuming procedures. Obtaining regulatory approval may delay
marketing of products for lengthy periods, require significant expenditures and
furnish an advantage to large competitors. There can be no assurance that any
of the foregoing approvals will be granted to the Company or its licensees on a
timely basis, if at all. In addition some of the Company's activities may
become subject to future additional government regulation. The Company presently
has six products which require FDA pre-marketing approval in the U.S. No
application has yet been made with respect to five of such products and an
application is currently in preparation with respect to one of such products.
(See "Business - Product Development - Governmental Regulation").
9. TECHNOLOGICAL CHANGE.
The manufacture of diagnostic equipment and products and software system
development has undergone and is expected to continue to undergo, significant
and rapid technological change and there can be no assurance that other
technological advances will not render any system or product developed by the
Company uneconomical or obsolete.
9
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10. COMPETITION.
Competitors engaged in all areas of medical and drug technology and
manufacture of diagnostic equipment and products in the United States and abroad
are numerous and include, among others, major pharmaceutical, food and chemical
companies, specialized biotechnology firms, universities, and research
institutions. The Company expects that competition will increase with the
perceived potential for commercial applications of medical and drug related
technologies. The greater availability of capital for investment in medical and
drug technology, and the potentially greater funding of industrial research in
this field by foreign governments, will likely result in increased competition.
(See "Business - Competition").
11. DEPENDENCE ON OTHERS FOR MANUFACTURING AND MARKETING.
Currently, the Company has limited manufacturing and marketing capability.
If the Company does not develop its own manufacturing and marketing
capabilities, it will be dependent upon other companies for the manufacturing
and marketing of its products through licensing or other arrangements. The
Company's CEEG Scan System and Dynamic Brain Mapping software, a technique that
analyzes conventional EEG with digital computers, received FDA marketing
approval in March 1987. An application for FDA marketing approval of the
Company's Digital EEG System, a new software program to be used as an
enhancement to the CEEG-Registered Trademark--Scan System is currently in
preparation. (See "Business - Product Development - Technological Changes -
Sales and Marketing").
12. PATENT PROTECTION
The Company's policy is to protect its intellectual property rights,
products, designs and processes through the filing of patents in the United
States and, where appropriate, in Canada. The Company also registers trademarks
and trade names. The Company presently has seven patents.
The Company believes that is patents may offer a competitive advantage, but
there can be no assurance that any patents, issued or in process, will not be
circumvented or invalidated. The Company also intends to rely on trade secrets
and proprietary know-how to maintain and develop its commercial position. See
"Business - Patents and Proprietary Technology".
13. POTENTIAL FUTURE SALES PURSUANT TO RULE 144 OR REGISTRATION RIGHTS
Future sales of shares by existing stockholders under Rule 144 of the
Securities Act, or through the exercise of outstanding registration rights, or
the issuance of shares of Common Stock upon exercise of options, warrants or
otherwise could have a negative impact on the market price of the Common Stock.
The Company is unable to estimate the number of shares that may be sold under
Rule 144 or pursuant to registration rights since this will depend on the market
price for the Common Stock of the Company, the personal circumstances of the
sellers and other factors. Any sale of substantial amounts of Common Stock in
the open market may adversely
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<PAGE>
affect the market price of the Common Stock offered hereby. Approximately
1,250,000 shares of the Company's Common Stock could potentially be sold
pursuant to Rule 144. See "Shares Eligible For Future Sale".
14. REGISTRATION RIGHTS
The Company expects that purchasers of securities in future private sales
may receive registration rights at the Company's cost and expense. Such
registration rights require the Company to register such securities with the
Securities and Exchange Commission and state securities commissions for resale
by the selling security holders, and enable such security holders to sell the
securities to or through underwriters or to other purchasers in market
transactions at prevailing market prices. In the absence of such registration,
the securities acquired in private placements are restricted securities and can
be sold only under Rule 144 under the Securities Act after a holding period of
two years from the date of purchase or pursuant to another available exemption
from the registration requirements under the Securities Act.
The approximate cost of registering the securities offered hereby is
$50,000 of which $25,000 is to be paid by certain Selling Stockholders and the
balance is to be paid by the Company.
15. POSSIBLE ISSUANCE OF PREFERRED STOCK
Shares of the Company's Preferred Stock may be issued in the future without
further stockholder approval and upon such terms and conditions and having such
rights, privileges and preferences, as the Board of Directors may determine.
The rights of the holders of Common Stock will be subject to and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire or discouraging a third party from acquiring a majority
of the outstanding voting stock of the Company. The existence of the Preferred
Stock may have a depressive effect on the market value of the Company's Common
Stock. The Company has no present plans to issue any additional shares of
Preferred Stock. See "Description of Securities - Preferred Stock".
CERTAIN MARKET INFORMATION AND DIVIDENDS
MARKET INFORMATION
On July 20, 1987, the Securities and Exchange Commission declared effective
the Company's Registration Statement with respect to an initial public offering
of 4,000,000 Units, each Unit consisting of one share of the Company's Common
Stock and one redeemable warrant to purchase one additional share of Common
Stock. The redeemable warrants were exercisable during the thirty six month
period commencing with the effective date of the Registration Statement. All of
the warrants expired unexercised. In connection with the Company's acquisition
of HZI, the Company issued to each of its public stockholders of record on
November 1, 1994 one Class B and one Class C Warrant for each share of the
Company's Common Stock held by such stockholders, for an aggregate of 800,000
Class B and 800,000 Class C Warrants (after giving effect to a one for fifty
share reverse stock split). Each Class B and Class C
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Warrant entitles the holder to purchase one share of the Company's Common Stock.
The Warrants will not be tradeable or exercisable until a registration statement
has been filed by the Company with the Securities and Exchange Commission, and
has been declared effective. The number of shares underlying the Warrants, and
the exercise price of the Warrants, may be adjusted downward or upward at any
time by the Company's Board of Directors. The Warrants are redeemable by the
Company at any time upon thirty days written notice, at a price of $.001 per
Warrant.
On March 2, 1995, the Company's Common Stock was accepted for listing on
the NASDAQ Electronic Bulletin Board under the symbol NURC. Prior thereto there
had been no public trading in the Company's Common Stock.
The high and low range of bid prices for the common shares of the Company
for the quarters indicated as reported by the NASD were as follows:
High Low
----- -----
1995
First Quarter (commencing 3/2/95) 3 3/4 3
Second Quarter 3 3/4 2 1/8
Third Quarter 2 1/8 1/2
Fourth Quarter 1 7/8 1 1/2
1996
First Quarter 4 1 7/8
Second Quarter 3 3/4 3
(thru 4/30/96)
Such over the counter market quotations reflect interdealer prices without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions. The Company's Common Stock has not been actively traded.
The Company had 124 stockholders of record as of January 15, 1996.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The current
policy of the Board of Directors is to retain any earnings to provide for the
development and growth of the Company. Consequently, no cash dividends are
expected to be paid in the foreseeable future on shares of Common Stock. The
Company is currently obligated to pay dividends at the rate of $15,000 per year
in cash or shares of Common Stock on its outstanding shares of Class B. Series
1. Preferred Stock. See "Description of Securities".
USE OF PROCEEDS
Since all of the Shares offered hereby are to be sold for the account of
Selling Stockholders, the Company will not receive any cash proceeds pursuant to
this Offering.
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The Company may, however, receive cash proceeds to the extent outstanding
Warrants are exercised by a Selling Stockholder. If the Warrants are exercised
in full, as to which there can be no assurance, the net proceeds would be
approximately $2,400,000. The Company would use these proceeds, if any, for
general corporate purposes including working capital and, repayment of loans and
payment of accrued salaries in the amount of $391,000, and $33,012 respectively.
See "Selling Stockholders".
Four investors who purchased an aggregate of 1,000,000 shares of the
Company's Common Stock in a recent private placement have agreed to pay up to
$25,000 of the Offering. It is estimated that the Company's share of expenses
will be approximately $25,000.
Pending the ultimate application of the proceeds of any financing the
Company makes temporary investments in interest bearing savings accounts,
certificates of deposit, United States Government obligations or money market
certificates.
United States government obligations are not necessarily those backed by
the full faith and credit of the United States government. Company policy does
not require temporary investments to be investment grade as determined by a
nationally recognized statistical rating organization nor does it require that
such investments have any additional safety feature such as insurance.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NeuroCorp., Ltd. ("the Company") was incorporated in the State of
Nevada on March 18, 1987. On November 23, 1994, in connection with
the reverse acquisition of HZI Research Center, Inc. and Subsidiary
("HZI") the Company amended its Certificate of Incorporation to change
its name from Tamarac Ventures, Ltd. to NeuroCorp., Ltd. Further, the
Company reduced its authorized common stock from 200,000,000 shares to
100,000,000 shares and authorized 5,000,000 shares of preferred stock.
The Company, through its wholly-owned subsidiary, HZI, is primarily
involved in three inter-related businesses all of which involve the
interaction or utilization of the Company's proprietary software,
databases and medical devices for the diagnosis and treatment of
brain-related disorders. The three businesses are as follows: (i)
performing long-term contract services for medical research for major
domestic and international pharmaceutical firms (ii) designing and
producing proprietary neuropsychiatric diagnostic testing equipment,
which currently is their Brain Functioning Monitor (BFM) (iii)
providing interactive diagnostic testing services and analysis to
physicians and hospitals via the telephone, this service is known as
TeleMap.
On November 23, 1994, in connection with its acquisition of HZI, the
Company changed its fiscal year end from September 30 to December 31
so as to conform with HZI's fiscal year end of December 31.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO THE YEAR ENDED DECEMBER
31, 1994
Long-term contract revenues are recognized on the percentage of
completion method by multiplying total estimated contract revenue by
the percentage of completion. Changes in each contracts performance,
conditions and estimated profitability including those arising from
contract penalty provisions, and final contract settlements may result
in revisions to costs and income and are recognized in the period in
which the revisions are determined. In addition, losses are
recognized in full when determinable.
Revenue from computer system sales, which include BFM, are recognized
upon the delivery of the turnkey systems. Service revenues such as
TeleMap, are recognized as they are rendered.
Revenues for the years ended December 31, 1995 and 1994 amounted to
$1,543,363 and $2,350,989, respectively. Revenues decreased by
$807,626 or 34% for the year ended December 31, 1995 as compared to
the year ended December 31, 1994. Gross profit for the years ended
December 31, 1995 and 1994 amounted to $905,607 and $1,421,979,
respectively or a net decrease of $516,372. Gross profit percentage
for both years remained relatively the same.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
The net reduction of sales during the year ended December 31, 1995 as
compared to the year ended December 31 of 1994 is attributable to the
following:
1. The Company has not entered into any major new contracts since
December 31, 1993 and major contracts recorded prior to this
period have been substantially completed during the December 31,
1994 year end. However, the Company successfully negotiated
several drug related contracts approximating $316,000 during the
latter part of 1994 but due to delays which emanated on the part
of the customers, the Company, did not commence work on these
contracts until the second quarter of 1995. At the end of 1995
the Company received a $200,000 contract which will be completed
during 1996. Revenues from contracts for the year ended December
31, 1995 as compared to the year ended December 31, 1994 amounted
to $841,057 and $1,740,676, respectively, or a net decrease of
$899,619. The decrease in revenues from contracts for the year
ended December 31, 1995 is attributable to the Company completing
a major portion of multi-million dollar contracts during the year
ended December 31, 1994. Gross profit from contracts for the
year ended December 31, 1995 as compared to the year ended
December 31, 1994 amounted to $438,422 and $1,045,594,
respectively or a net decrease of $607,172.
The gross profit percentage from contracts for the year ended
December 31, 1995 is 52% as compared to December 31, 1994 which
was 60%. The decrease in the gross profit is attributable to the
utilization of low cost contractors (University based) in
completion of certain components of a major contract in 1994, and
not in 1995.
As of December 31, 1995 the Company had approximately $685,000 of
unbilled revenue on uncompleted contracts. The Company expects
to realize a minimum of $500,000 during 1996 from said contracts.
In January 1996 the Company received a new contract from a major
customer valued at $200,000 which the Company intends to complete
during the year ended December 31, 1996.
2. Net sales of BFM Systems for the years ended 1995 and 1994
amounted to $556,187 and $423,576, respectively or a net increase
of $132,611. Gross profit percentage for the years ended 1995
and 1994 amount to 72% and 63%, respectively, or a net increase
of 9%. During 1993, the Company contract research division
entered into a agreement to conduct a multinational study for a
International Health Organization. It was further agreed that
the Company would supply the other Beta site participants a
stripped down version of the BFM System to be used directly in
the study. At the end of the contract period the Beta site
participants are obligated to return said system. Commencing
during 1995 the Company has sold 5 BFM Systems to these Beta Site
participants which directly increased the sales and gross profit
of the BFM division.
3. Revenues of the TeleMap division the years ended 1995 and 1994
amounted to $146,119 and $186,737, respectively, or net decrease
of $40,618. Gross profit percentage for the years ended 1995 and
1994 amounted to 37% and 59%, respectively. During 1995 the
Company increased its usage of higher priced labor which resulted
in the decrease of gross profit margins. This was corrected
during the latter part of 1995.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
4. Commencing in the first quarter of 1996, the Company created a
new subsidiary named Memory Centers of America, Inc. The Company
intends to sell therapeutic services to people who suffer from
memory impairment. Management has estimated revenues from this
operation will be $300,000 and the related operating costs will
be $150,000 for the year ended December 31, 1996.
General and administration expenses include overhead, administration
salaries, selling and consulting costs. Further, the Company
classifies the costs of planning, designing and establishing the
technological feasibility of its computer system product as research
and development costs and charges those costs to expense when
incurred. After technological feasibility has been established, costs
of producing a marketable product and its prototype are capitalized.
Database and computer system development costs are entirely composed
of expenditures that have been capitalized by the Company. The
composition of these capitalized costs are mainly payroll and other
direct employee costs. Costs associated with above, which are not
capitalized during the period are charged to either general and
administrative or research and development expense.
General and administrative expenses for the year ended December 31,
1995 were $866,886 as compared to the year ended December 31, 1994 of
$985,074 or a decrease of $118,188 or 12%. The decrease in general
and administrative expenses for the year ended December 31, 1995 is
due to reductions in payroll and to a lesser extent a reduction of
depreciation expense for fixed assets. Further, during the year ended
December 31, 1995 the Company Chairman waived $146,347 of his base
salary of $250,000. Research and development costs ("R&D") for the
year ended December 31, 1995 were $181,512 as compared to the year
ended December 31, 1994 of $224,010 or a decrease of $42,498. The
decrease in R&D costs is due to reduction of depreciation and
equipment rental costs amounting to $64,505. Offsetting the 1995
reduction was a legal settlement of $27,800 with New York University
in connection with back rent for laboratory and office space.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO THE YEAR ENDED DECEMBER
31, 1994
At December 31, 1995 and December 31, 1994, the Company had a working
capital deficiency of $6,765 and $275,034, respectively. The $268,269
net decrease in the working capital deficiency for the year ended
December 31, 1995 as compared to the year ending December 31, 1994 is
attributable to long-term contract related accounts decreasing by
$291,325 and accounts receivables increasing by $561,553 or a net
reduction in working capital deficiency of $852,878. The reduction is
primarily the result of the Company completing contracts during the
year ended December 31, 1995 and the Company recording no new major
contracts during the year ended December 31, 1995. The increase in
accounts receivable is primarily attributable to increased sales by
the BFM division in the fourth quarter of 1995. The Company at
December 31, 1995 has reduced its cash balances by $195,986 and
increased its loans from shareholders by $214,173, as compared to the
December 31, 1994 year end.
During 1995 receivables from stockholders and affiliates were reduced
by $152,861. The resulting changes in the above accounts have a net
impact of decreasing the working capital deficiency by $289,858 for
the year ended December 31, 1995.
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<PAGE>
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
For the year ended December 31, 1995 net cash decreased by 195,986.
For the years ended December 31, 1995 and 1994, the Company used cash
for operations of $641,151 and $132,681, respectively. The net
reduction for the year ended December 31, 1995 is the result of
accounts receivables increasing by $567,021 from strong sales of BFM
Systems and a net favorable decrease of $353,530 in the long-term
contract related accounts at December 31, 1995 as compared to the
December 31, 1994. The net decrease in long-term contract accounts is
the result of the Company completing several large contracts.
Further, for the year ended December 31, 1995 as compared to the year
ended December 31, 1994 the Company used cash for accounts payable,
accrued expenses, and income taxes payable amounting to $319,654.
Cash was utilized to pay off primarily overdue accounts payable to
equipment vendors, general suppliers and professionals. The reduction
of $166,715 for income taxes payable for the year ended December 31,
1995 as compared to the year ended December 31, 1994, is the result of
the Company changing as intercompany charges to more accurately
reflect the proper charges of each subsidiary.
For the year ended December 31, 1995 and 1994 cash used by investing
activities mainly in connection with cost incurred for development of
databases and software systems, amounted to $218,127 and $392,084,
respectively, or a net decrease in use of cash of $110,957. The
Company during nine months ended September 30, 1995 received a $34,271
payment from its insurance carrier on an automobile that was destroyed
in an accident and used cash to capitalize in 1995 $179,240 of
database and software development costs over the comparative 1994
period. Management believes that future capitalization of software
development costs primarily in connection with the BFM system will be
substantially reduced in future periods.
For the year ended December 31, 1995 and 1994 cash provided by
financing activities amounted to $663,342 and $537,802, respectively.
For the year ended December 31, 1995 the Company sold 1,057,143 shares
of common stock to investors for $350,000 and borrowed from its
primary bank $50,000 against an secured bank line of credit of
$100,000. Furthermore, during 1995 the Company borrowed $290,000 from
two major shareholders which is net of repayments of approximating
$75,000. Additionally, HZI's President liquidated a loan receivable
during the third quarter of 1995. For the year ended December 31,
1994 financing activities provided cash of $161,968 principally from
two loans amounting to $275,000. During the month of March 1994 the
Company's wholly own subsidiary, HZI, obtained a $200,000 three year
installment loan from its primary bank. On March 24, 1994, in
connection with the pending acquisition of HZI, a bridge loan was made
for $75,000 by Trinity American Corporation ("TAC"), a stockholder of
the Company to HZI, pursuant to the agreement. The financing that was
to be arranged for HZI was not timely arranged, based upon the terms
of the agreement HZI was not responsible for the repayment of the
bridge loan. This transaction has been recorded as a forgiveness of
debt in the year ended December 31, 1994.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Further, the Company sold $400,000 of preferred stock to TAC during
the year ended December 31, 1994. The sale of the preferred stock was
in connection with the reverse acquisition of the Company's
subsidiary.
The Company intends to meet its future cash requirements through
earnings from operations, short term borrowings and the sale of stock.
MANAGEMENT'S PLANS
In 1996 the Company has sold 1,000,000 shares of common stock for
$400,000. These funds are being applied towards operations and the
following programs.
Since 1991, the Company has conducted a series of research programs
and was planning to develop Memory Centers with the Company's largest
customer. The data of these studies have now been analyzed and
publications were started. These new publications demonstrated the
usefulness and the power of the Company's proprietary method
(Quantitative Pharmaco-EEG = QPEEG) for this customer. This method,
which was developed by the Chairman of the Company, helps to assess
the pharmacological effects of drugs on the human central nervous
system (CNS), thus helping to establish the bioavailability of a CNS
drug and its CNS-effective dose. It predicts the clinical-therapeutic
dose of a compound and its possible therapeutic use in different
clinical diagnostic conditions. The Company showed that the herbal
product of this customer is more effective in the 240mg daily dose
than the presently used 120mg.
Thus, the Company's largest customer renewed their interest to
continue to work with the Company. The Company received a $400,000
new contract from this customer to further analyze the previous data
as well as the data of the ongoing depression research. Negotiations
suggest that large collaborative studies may be initiated in the near
future. Because of this and because of the new private investors'
interest, the Company decided to develop Memory Centers by itself.
The Company will set up a new fully-owned subsidiary, Memory Centers
of America, Inc. A pilot project has been initiated in collaboration
with Manhattan Westchester Medical Services, P.C., the Chairman's
professional corporation which already has the required equipment and
know-how.
The Company is also developing an Alzheimer's research program and a
Teleneuropsychiatry developmental program. The Company also invested
in a feasibility study to develop two Alzheimer's drugs (oxiracetam
and L-a-GFC). As a result, the Company is negotiating for a license
to develop and market these compounds.
The Company is currently developing its own Web Site page on the World
Wide Web to offer to provide data base services to interested parties
for psychotropic drug research and development.
The new and successful developments in conjuntion with the Company's
largest customer not only bring a new contract, cash and revenues, but
also opened doors for substantial revenue-bringing long-term
contracts. The Memory Centers should also have a positive impact on
the Company's cash flow.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
The funds obtained from the sale of stock in the first quarter of 1996
are now being invested in programs which are expected to generate
immediate revenues, such as the Memory Center program and a program
for advertising the telephonic services.
The Company projects 10 additional BFM system sales through its
Turkish distributor, which have already been ordered in the first
quarter of 1996, in the amount of $149,000. An additional 3-6 systems
(estimated at approximately $180,000) may be sold to centers who may
develop the Alzheimer's program sponsored by an international
healthcare organization.
The Company is trying to obtain a contract pursuant to the Company
preparing data and analysis of previous studies which will be the
basis for a worldwide Alzheimer's research program, anticipated to be
monitored by the Company. The approximate size for the Alzheimer's
program is $4 million.
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BUSINESS
HISTORY
NeuroCorp., Ltd., formerly known as Tamarac Ventures, Ltd. (the "Company"),
was incorporated in the State of Nevada on March 18, 1987 and completed an
initial public offering in September, 1987. At the time of its initial public
offering, the Company had no specific business plan, but was instead a "blind
pool" wherein the Company's securities were sold to the public to provide the
Company with net proceeds of approximately $178,000 capital to be used to
purchase the unknown existing businesses or to acquire the unknown existing
assets to establish a subsidiary business or businesses.
Management had, since the completion of its initial public offering,
endeavored to locate an appropriate acquisition or merger candidate. In this
regard, management had, on two occasions prior to its acquisition of HZI,
entered into negotiations for an acquisition by the Company of, or merger of the
Company into, a business identified by management as suitable for the Company's
objectives. In 1988, control of the Company was transferred to new management
in connection with the attempted sale by the Company's principal shareholder of
his shares of the Company's common stock to a group of individuals who
represented to the Company that they would subsequently merge the Company into
and with a number of active foreign corporations. However, shortly thereafter
the Company's founders ascertained that these individuals had converted
substantially all of the Company's liquid assets to their own use and had
otherwise committed various frauds against the Company and its shareholders.
Thereafter, the shares sold by the Company's principal shareholder were returned
to him, management sought and regained control of the Company, and the Company
commenced litigation to recover the Company's lost assets. The litigation
commenced by Summons and Complaint dated March 29, 1989 and filed in the U.S.
District Court for the Southern District of New York was dismissed by Order of
the Court dated May 1, 1990.
A second attempted transaction took place in 1989. The terms of this
transaction included the placement into escrow of all of the shares of the
Company's common stock owned by its principal shareholder (representing a
controlling portion of the Company's issued and Outstanding common stock) and an
undertaking on the part of the new "control group" to pursue the litigation
referred to herein. This transaction was never consummated due to the failure
of the new "control group" to fully pay for the escrowed shares or to pursue the
litigation. Consequently, the escrowed shares were returned to the original
shareholder, and control of the Company was returned, and remained in the hands
of the original management.
As a result of the loss of substantially all of the Company's liquid
assets, and the expenditure of the remainder of its assets in pursuit of the
litigation referred to above, the Company was not able to pursue other
acquisition or merger candidates during the pendency of the litigation, and
consequently was not able to engage in any business whatsoever. As noted above
the litigation was dismissed by an Order of the court dated May 1, 1990.
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RECENT DEVELOPMENTS
On October 25, 1994, the Company issued to Trinity American Corporation, a
Nevada Corporation ("Trinity"), 120,000 post-split shares of the Company's
Common Stock in consideration of Trinity's identifying HZI Research Center, Inc.
("HZI") as a potential acquisition candidate for the Company. Previously, on
March 24, 1994, HZI received a bridge loan from Trinity in the principal amount
of $75,000 pursuant to an agreement to arrange financing for HZI within a
specified time period. The financing was not timely arranged and it was
subsequently agreed that HZI shall have no responsibility for the repayment of
such bridge loan. On November 23, 1994, Trinity contributed $400,000 to the
Company's capital account and in December 1994, two classes of preferred stock
were issued to Trinity. See "Certain Transactions" and Note 11 of "Notes to the
Company's Consolidated Financial Statements".
On November 23, 1994, the Company acquired all of the issued and
outstanding shares of HZI Research Center Inc. ("HZI") for 4,600,000 shares of
the Company's common stock (after giving effect to a one for fifty share
combination, or "reverse split"), whereby the Company's name was changed to
"NeuroCorp, Ltd." and the sole officer and director of the Company resigned and
was replaced by the management of HZI. HZI is a New York corporation, founded
in 1974 by Turan M. Itil, M.D., its Chairman and principal shareholder.
The Company changed its fiscal year from September 30 to December 31 so as
to conform to HZI's fiscal year.
BUSINESS OF HZI
The Company through HZI is primarily involved in three inter-related businesses:
(i) performing long term contract medical research services (principally
conducting clinical trials) for health agencies, contract research organizations
and pharmaceutical companies; (ii) designing and manufacturing proprietary
neuropsychiatric diagnostic testing equipment and selling this equipment to
physicians, researchers and hospitals; and (iii) performing telephonic
neurological diagnostic testing services, including electroencephalogram ("EEG")
and evoked potential ("EP") testing for physicians and hospitals. These tests
are used to diagnose brain disorders. HZI also has five additional products at
the prototype stage, including an electrode headset and a system for monitoring
drug treatment which will require U.S. Food and Drug Administration ("FDA")
approval but for which no application for FDA approval has yet been made. The
Company's CEEG Scan System and Dynamic Brain Mapping software, a technique that
analyzes conventional EEG with digital computers, received FDA marketing
approval in March 1987. An application for FDA marketing approval of the
Company's Digital EEG System, a new software program used as an enhancement to
the CEEG-Registered Trademark--Scan System is currently in preparation. There
can be no assurance that any of these proposed products will be approved by the
FDA for sale in the United States or that they will be scientifically or
commercially accepted. However, these systems are being sold internationally.
For the fiscal years ended December 31, 1995 and 1994 the Company has spent
$181,512 and $224,010 respectively, on research and development activities for
proprietary items. The Company is not reimbursed for any research or
development expenses from its customers.
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DRUG DEVELOPMENT
HZI plans in the future to use its proprietary hardware, software including
Quantitative Pharmaco-EEG software ("QPEEG"), and databases that it currently
applies in the contract research area in order to develop, either alone or with
others, proprietary drugs. HZI believes that the combination of its expertise
and its proprietary database will enable HZI to define neuropharmacological
activity of central nervous system (CNS) drugs. HZI's physicians and research
professionals have extensive experience in the screening and testing of
psychotropic drugs, including changes in brain functions that are detected and
measured by the brain electrical activity.
During the last ten years, HZI has been involved in the development of six new
drugs for the treatment of Alzheimer's disease, such as Suloctidil, Nimodipine,
Pramiracetam, BMY-21502, Ginkgo biloba and Velnacrine. HZI's involvement has
been as a subcontractor for drug companies and it has no proprietary interest in
these drugs. HZI's role involved the use of its proprietary QPEEG methodology
and its proprietary to determine the effects of these drugs on the central
nervous system and to provide effective dose ranges. HZI also studied
choline/lecithin, deprenyl, synthetic male hormone, mesterolone, thyroid
releasing hormone (TRH), physostigmine, THA (tacrine), neostigmine, and
hydergin, all of which are claimed to be effective in memory problems and
Alzheimer's disease. As a result, HZI has compiled what it believes to be a
unique database on the effects of compounds on Alzheimer's disease and memory
impairment. HZI believes that it can now study a variety of new chemical
entities or naturally occurring substances (e.g. plant extracts, vitamins) using
its proprietary software and in connection with memory impairment.
The Company believes that it maintains a competitive advantage in this area,
which may enable it to screen new products with high central nervous system
potency for further development. The Company further believes, although there
can be no assurance, that this type of "targeted" approach can bring new drugs
to market at a relatively lower cost than would otherwise be the case.
Consequently, the Company believes it should be an attractive joint venture
partner with larger, and smaller, pharmaceutical firms, although there are
currently no such relationships contemplated and there can be no assurance that
any such opportunity may arise in the future or if such opportunity arises that
the Company would benefit financially. There is no assurance that the Company's
QPEEG method and/or databases will be accepted by the scientific community
and/or drug companies and/or drug regulators as useful vehicles to speed up and
economize psychotropic drug development.
HZI believes that its database can be used to expedite the overall drug
development process in the following ways:
1. BY FINDING NEW USES FOR COMPOUNDS ALREADY ON THE MARKET. Many drugs
used to treat a variety of illnesses that affect the brain. The CNS action of
drugs developed for peripheral illnesses (i.e. sedation of an antihypertention
drug) are often considered "side effects" and their potential therapeutic values
have been overlooked. For example, HZI, using QPEEG, has discovered
psychotropic properties of mianserin, an anti-allergic drug. Mianserin was
subsequently successfully marketed in Europe. HZI has also discovered, through
use of QPEEG, anti-depressant properties of male and female hormone products
from Schering AG which were patented and assigned to Schering AG.
22
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2. BY REFINING AND IMPROVING EXPERIMENTAL DRUGS THAT MANUFACTURERS NOW
CONSIDER MARGINAL. Pharmacological research programs often result in
drugs, some of which large manufacturers consider marginal, either in
effectiveness or because their potential use is limited or the patent life is
too short. The Company, through the use of HZI's proprietary systems, may be
able to improve on these drugs, for which the bulk of the basic research is
already complete. The Company believes the efficacy of these drugs can be
established on a relatively economic basis by using HZI's proprietary software.
3. BY SCREENING NATURAL PRODUCTS. Many natural substances have
neuropharmacological activity, such as choline and lecithin. For example, HZI
is currently negotiating to license an herbal extract. Using very large studies
the Company has demonstrated that a similar extract manufactured by a European
company has significant effects in the brains of healthy subjects. The Company
therefore, has brain effects measurements of this extract. The other herbal
extracts will be compared with this extract.
After determining that a drug under study has marketplace potential, the Company
intends to offer them to major drug companies on a licensed basis. These large
firms, it is anticipated, will bear the majority of the cost in meeting final
FDA requirements and bringing the drug to market (i.e. large clinical trials and
toxicology testing).
Mediator SRL, an Italian drug company has obtained exclusive rights for
oxiracetam an anti-dementia (deteriorated brain performance) drug, from
SmithKline Beecham Farmaceutici Italia S.p.A. The Company has entered into an
agreement with Mediator for development rights for oxiracetam in the United
States and marketing rights in other territories provided it proves feasible.
The Company intends to conduct a feasibility study to assess oxiracetam for use
in the United States and if found to be favorable the Company expects to obtain
an exclusive license to develop the product in the USA and market this product
in at least a dozen countries. Oxiracetam is presently marketed successfully in
Italy and Korea.
A major German pharmaceutical concern, has identified certain compounds which
the Company has agreed to screen. These compounds affect the central nervous
system. The Company will evaluate these compounds for further development using
the Company's proprietary method and databases.
There can be no assurance that the Company will be successful in obtaining
licenses or in developing and bringing any new pharmacological product to
market, or, if so, that any such product will generate significant income for
the Company.
CONTRACT RESEARCH SERVICES
HZI assists health organizations and pharmaceutical companies in testing
neuropsychiatric drugs. Since its inception in 1974 HZI received aggregate
revenues in excess of $10,000,000 as a result of these services, and has
performed such services for several of the world's leading drug manufacturers.
For the fiscal years ended December 31, 1995 and 1994 revenues from contract
research services accounted for 54.5% and 74% respectively of total revenues.
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The services performed by HZI generally fall into one of three study categories:
1. Single dose trials in healthy subjects and patients to determine
safety, bioavailability and dose finding of new drugs using quantitative
pharmaco-EEG (QEEG-Registered Trademark-) and other methods.
2. Multiple dose drug trials in patients (Patients are treated for weeks
or months with experimental drugs versus placebo to establish safety and
efficacy of the drug).
3. Multicenter studies with different drugs. (Multiple dose drug trials
are conducted in patients from many centers or hospitals.)
In conducting these studies, HZI may employ its proprietary QPEEG method, and/or
may utilize several statistical software packages and computer/telephone
interactive monitoring systems (only in multicenter trials). HZI has completed
studies in the areas of Alzheimer's disease, anxiety disorders and is currently
conducting a study in clinical depression.
HZI has, in the past, entered into clinical research retainer agreements with
terms of up to three years with leading pharmaceutical companies in addition to
numerous shorter term contracts with many other major pharmaceutical companies
worldwide. HZI believes that its QPEEG method and ongoing research provides a
competitive advantage over its competitors in the field of single dose QPEEG
trials as a result of HZI's continued development of new software programs and
new databases on psychotropic drugs. However, some of HZI's competitors also
claim to have databases and EEG/EP software programs for psychotropic drug
development. There can be no assurance that HZI will be able in the future to
maintain or increase the level of revenues it has received from its clinical
research activities, or that HZI's existing competitors, or as yet unidentified
competitors, will not be able to develop and compile similar, or superior,
non-infringing software applications and/or databases in the future. Further,
that portion of the database consisting of data from contract research, may not
be used by HZI in the future because of disclosure restrictions imposed by drug
companies.
NEUROPSYCHIATRIC DIAGNOSTIC EQUIPMENT
HZI offers a line of proprietary neuropsychiatric diagnostic testing equipment
to physicians, researchers and hospitals. The system known as the
CEEG-Registered Trademark--Scan System enhances by quantifying, many widely
accepted diagnostic tests (i.e. EEG) and permits them to be performed in a more
practical and economical fashion than through other available means. The system
together with HZI's Dynamic Brain Mapping software is known as the Brain
Function Monitoring (BFM) System-Registered Trademark-. To date the Company has
sold 113 of these systems consisting of hardware and software or software only,
at prices ranging from $15,000 to $130,000. For the fiscal years ended December
31, 1995 and 1994 revenues from sales of neuropsychiatric diagnostic testing
equipment accounted for 36% and 18% respectively, of the Company's total
revenues. This system, unlike those of its competitors, is characterized by
being primarily based on software with maximum off-the-shelf hardware, along
with what the Company believes to be the largest available databases on
psychotropic drugs and patients. Also, all of the tests performed by HZI's
System, such as EEG, EP and NPT, have already been assigned CPT ("Current
Procedural Terminology") codes, and therefore are eligible for third party
reimbursement (except for brain mapping). Since many of these programs are
regulated by the
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FDA, changes in policy and/or other unforeseen events can significantly and
negatively influence the Company's business and revenues. Furthermore, the
Company has many competitors in contract research. Some of these are associated
with leading academic centers of the world, and others are much larger companies
than the Company and have greater financial resources.
HZI's CEEG Scan System, which has received the necessary permission for
marketing from the FDA, is currently being utilized by many of the world's
largest psychiatric research centers, such as the laboratories of the National
Institute of Drug Abuse, the National Institute of Mental Health in China, the
National Institute of Health in France, and the National Academia of Medicine in
Russia. HZI has developed the alpha-2000 digital EEG/brain mapping system. This
system, which is already in use at 16 leading research centers throughout the
world, will be upgraded to a 32-64 channel system by modifying HZI's proprietary
hardware (Console I and II). Eight of the research centers enhanced the original
system to be used clinically as well as by purchasing or enhancing the system
with additional hardware/software. The Company has sole ownership of the
systems until the research centers pay additional funds to the Company to
purchase the product. The price of the generic alpha-2000-TM- system was
established at $55,000, with a selling price to the centers of $20,000. With
enhancements and upgrades, the price ranges from $60,000 to $108,027. To date,
the Company has recognized $265,898 of revenue from the sale of this product in
1994 and $413,521 in 1995. Additionally, some of the Company's products or
software packages (i.e the Company's alpha-2000-TM- EP and NPT) are being tested
with a Beta Site program and offered at reduced prices since they do not yet
have FDA approval to market the products.
In 1992, the American Electroencephalography Society accepted the use of digital
electroencephalograms, which was already an integral component of HZI's
CEEG-Scan System as opposed to the traditional analog EEG presentation. HZI as
previously mentioned, subsequently developed a new generation of CEEG-Scan
Systems which has been delivered to 16 Centers in 14 countries around the world
within a Beta Site program. This is a multicenter psychiatric research program
sponsored by the Mental Health Division of one of the world's largest health
organizations. The Company believes that the newly developed EEG System offers
physicians and other medical professionals one of the most advanced,
non-invasive, objective and economical brain function monitoring tests. After
completion of testing for validity and reliability, the Company filed an
application on Form 510-K with the FDA for these tests. The FDA considered that
these new software programs represent a "new device" with no "substantial"
equivalent. Thus, the Company is planning to make new applications for these
programs and databases. However, there can be no assurance that the FDA will
permit the marketing of the alpha-2000 System and/or database , or that sales
of the new and old systems will increase, and there can be no assurance that
HZI's competitors are not currently developing, or will not develop in the
future, a comparable or superior system and database.
TELE-MAP -Registered Trademark-
HZI offers interactive neurological diagnostic testing services to physicians
and hospitals. These services include diagnostic tests such as
electroencephalogram ("EEG") and evoked potential ("EP"), with or without brain
mapping, and are known collectively as "Tele-Map". HZI provides physicians, or
hospitals, as the case may be, with a specially-designed modem, or transmitter,
by which the testing physician may transmit collected data via telephone to HZI.
The data is recorded and then analyzed by HZI employees and interpreted by
consultants and experts, and reports are then provided to the testing physician.
HZI believes, although there can be no assurance, that this interactive service
will continue to be attractive to hospitals and physicians alike, as it permits
physicians to conduct EEG and EP tests in their individual offices, or
hospitals, as the case may be, without a
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substantial capital investment and without having to hire and train technicians
to perform the tests onsite. HZI's technologists communicate with the testing
physicians throughout the recording of the data to ensure the quality of the
procedure. Interpretations and reports are provided to the physician within
24-48 hours of the test. There can be no assurance that these services will
increase or will even continue at the present level. These services are
already being provided by different "telephone service groups" who are in this
business longer than HZI. Furthermore, they are regulated by the FDA and
therefore any changes in FDA regulations and/or in professional society
(American EEG) requirements can significantly and negatively affect the
Company's Tele-Map services.
PRODUCTS UNDER DEVELOPMENT
In addition to the products and services described above, HZI has a number of
other proprietary products in various stages of development. These include an
electrode headset (helmet) and a Test-Dose-Registered Trademark- and Drug
Treatment Monitoring System.
Dr. T. Itil and associates have obtained 13 patents, seven of which have been
assigned to HZI, in connection with the development of an electrode headset.
The electrode headset is an important part of the EEG recording. To analog or
digitally record an EEG, electrodes have to be placed on the patient's head.
This is very time consuming (for a 10-20 minute recording, 30-60 minutes is
required for electrode placement). This hampers more frequent use of the EEG by
the doctors. The headset reduces the time for correct application of electrodes
from 30-60 minutes to 3-5 minutes. A working prototype has been completed, but
additional capital is needed in order to produce the headset in sufficient
volume for sale and distribution. HZI believes that there is currently no
satisfactory headset available on the market. Accordingly, all of HZI's current
BFM customers, as well as HZI's competitors, are considered by HZI to be
potential customers for this product. However, there is an electrode cap
presently available on the market and is a competitor to HZI's helmet. Other
companies may also be able to develop systems to place electrodes easily and
correctly. The Company has not yet submitted an application for approval of the
headset to the FDA and does not intend to do so until such time as it has
sufficient additional capital for this product.
HZI has developed software and extensive databases to assist physicians in
determining whether a prescribed psychotropic drug enters the brain and has any
pharmacological effect on the brain, which is called the Test-Dose procedure.
The Test-Dose software and database will be offered as an adjunct to the latest
generation of CEEG-Scan System, and also as a telephonic service. HZI's
objective is to develop and market a turnkey, miniaturized hardware/software
device to be used by any physician who prescribes drugs which effect brain
function. The Test-Dose equipment enables the physician to select and monitor
the dose and effect of the particular drug treatment on brain function in an
objective fashion.
Furthermore, a new electronic system to record and analyze brain waves will be
integrated into the existing Company's headset (electrode helmet). Additional
products being designed include (a) a stimulus generator for evoked potential,
(b) completion of the already designed receiver and transmitter for the
telephonic systems, (c) finalization of the anesthesiology monitoring systems
for which the software has already been developed, and (d) further enhancement
of the Company's drug databases.
It is planned that most of these new products will be completed in conjunction
with Borusan Electronics, a subsidiary of Borusan Holding of Turkey.
Borusan, has agreed in principle, to develop the prototype of the
electrode headset for production. However, the Company has to
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provide the projected number of headset sales. This has not yet been undertaken
as the funds have not been available for market research, promotion and
marketing. In conjunction with the foregoing the Company entered into a joint
venture arrangement with Tena, Ltd. in Istanbul, Turkey, for the purpose of
further research and development of the Company's products and the marketing and
sale of its products in the Mid-East, former U.S.S.R. countries and in other
areas in which the Company has no distribution. The Company will license those
products which it has developed to the joint venture and the joint venture will
in turn grant licenses to the Company with respect to products developed by the
joint venture, in each case on a non-exclusive basis. Tena's principal owners
are nieces of Dr. Turan M. Itil. There can be no assurance that any of these
proposed products, or any other products or services currently under development
by HZI, will ever be brought to market, or, if so, will generate significant
income for HZI and the Company.
MEMORY CENTERS
The Company also intends to establish two "memory centers" in collaboration with
Manhattan Westchester Medical Services, P.C. in New York City and Tarrytown, New
York as pilot centers that will provide multidisciplinary diagnostic and
therapeutic help for people who suffer from memory impairment. These centers
are being established by experienced professionals and will be operated under
expert medical supervision and up to date diagnostic tools so as to provide the
best available treatment. The Company has committed to spend not less than
$125,000 of the proceeds of a recent private placement for this project. If
these centers prove to be successful within a six month period (as to which
there can be no assurance), the Company would seek additional financing so as to
expand the number of centers. The Company anticipates such additional funds
would come from a direct investment in the memory centers by a joint venture
partner or group of private investors or a direct investment in the Company by a
group of private investors with a portion of such proceeds being allocated to
the memory centers. There are presently no arrangements or understandings with
respect to such financing.
GOVERNMENT REGULATIONS
The Company presently has a contract with the General Services Administration
(GSA) for the Veteran's Administration, which establishes the Company as a
recognized vendor, but does not guarantee any sales. It does enable them to
purchase products and services from the Company. The Company however, intends
to solicit government contracts or contracts from international health
organizations on telephonic EEG, drug research and CEEG-Scan systems.
Governmental and international health organization contracts are usually
terminable at the convenience of such entities. The Company's most recent sale
of a product or service was a CEEG-Scan System sold to the U.S. Army for use in
Korea. The sale occurred in December 1995 at a sale price of $88,000.
Substantial segments of the Company's proposed operations are expected to be
subject to regulation and supervision by federal, state and local governmental
authorities. Such regulations apply not only to research, development and
manufacturing activities (whether by the Company or by licensees) but also to
the marketing of proposed systems and products, particularly those
involving medical applications. Although the Company cannot estimate the cost
of compliance with various regulations, it expects such costs to be significant.
With respect to the manufacturing and marketing of its present and future
systems and products, the Company or its licensees must first obtain the
approval of the Food and Drug Administration
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("FDA") if products are to be marketed in the United States. For every
research project to be conducted, the Company has to have an approval of an
independent Institutional Review Board (IRB). If the drug is being studied and
is not a marketed compound, FDA approval is required after filing an
Investigational New Drug Application ("IND"). Commonly, IND's are applied for
by drug manufacturers who subcontract to others. On many occasions, the Company
may further subcontract the research projects to other companies, not for profit
organizations and/or medical centers. The procedure of seeking and obtaining
FDA approval for medical products (i.e. hardware, software systems) and/or
pharmaceutical products involving humans involves many steps, including testing,
to determine safety and efficacy. Seeking and obtaining FDA approval of a
medical product may take a number of years and may require the expenditure of
substantial funds. FDA regulations also will govern the manufacturing process
and marketing activities, and may require that post-marketing surveillance
programs be undertaken to continuously monitor the safety of some products. At
such time as it develops its own manufacturing and marketing capabilities, the
Company will be subject to substantial record keeping and manufacturing
procedure requirements.
In general all new products are subject to a ninety (90) day pre-market
notification requirement. During that period, the FDA determines whether new
products are "substantially equivalent" to products already on the market.
Products found to be "substantially equivalent" to products already on the
market may thereafter be sold. Products that are not found to be "substantially
equivalent" to products already on the market require filing of an application
for pre-market approval, which subjects the product to FDA scrutiny and gives
the FDA one hundred and eighty (180) days to approve or reject the product for
immediate sales. Therefore, any new products developed by the Company may be
subject to pre-market approval by the FDA or investigation under regulations
administered by the FDA. As a result, the Company may experience delays in new
product introduction prior to market introduction.
The Company's present and proposed future activities will likely also be subject
to varying degrees of additional regulation under other local, state or federal
regulations. The extent of governmental regulation which might result from
future legislation or administrative action cannot now be accurately predicted.
Regulations concerning marketing of medical devices and/or human pharmaceutical
products are generally imposed by foreign governments and may have an impact
upon the Company's anticipated operations, although the scope and impact of any
such regulations cannot now be accurately predicted.
The Company's business would be adversely affected if it were unable to obtain
the approvals or to comply with continuing regulations of the FDA and other
governmental agencies. In addition, the Company cannot predict whether or to
what extent future changes in government regulations might increase the cost of
conducting its business or affect the time required to develop and introduce new
products.
Obtaining regulatory approval may delay marketing of products for lengthy
periods, require significant expenditures and furnish an advantage to larger and
better financed competitors.
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TECHNOLOGICAL CHANGES
The manufacture of diagnostic equipment and products and software system
development has undergone and is expected to continue to undergo, significant
and rapid technological change and there can be no assurance that other
technological advances will not render any system or product developed by the
Company uneconomical or obsolete.
The Company has a series of software products which require continuous update
principally because of improvements of hardware. Some of the software programs
(i.e. alpha-2000 software) require improvements to include Windows '95 programs.
Updates required take time and are costly. The Company's require continuous
updates, new data collection and new software programs. The Company developed a
"Beta Site" network which collect data for of the Company. Charges for Beta
Site data collection may, in the future, be significantly increased. While the
Company has no control over this cost, it continuously seeks economic Beta
Sites.
Hardware, which the Company subcontracts others to manufacture, is changing from
year to year. The Company has to invest a significant amount of funds to update
hardware technology. There can be no assurance that the Company's products
and/or development efforts will not be rendered obsolete by technological
advances of others or that other medical software/devices will not prove more
advantageous for the commercialization of medical software and/or devices and/or
of the Company.
Software and hardware for digital electroencephalogram (EEG) quantitative EEG
and brain mapping systems are being developed by many U.S. and European
companies, which are far bigger than the Company with much more financial
resources. European companies have significant advantages since they can
establish easier and inexpensive marketing programs for software and even
medical devices. There are no governmental controls for in many countries
where the companies can develop very fast and economic . In the U.S. several
competitors have announced that they have similar to the Company's. There can
be no assurance that some competition may develop and obtain approval from the
FDA before the Company obtains permission to market its newer software and/or .
Pharmaceutical products, which the Company may develop require large amounts of
capital and are subject to substantial competition. If the Company decides to
investigate a pharmaceutical product (i.e. an Alzheimer's drug) in addition to
governmental regulations, it will encounter competition from the major
pharmaceutical corporations. There is no assurance than any of the projected
drug developments of the Company will be successful even if the required funds
are available.
Telephonic EEG services, which the Company provides, presently has at least one
major competitor, Telemedix Corporation. They claim they have more than 1,000
subscribers. The Telephonic EEG service is not only subject to major
competitors but is also subject to regulation by the government (i.e. the FDA)
and professional organizations (the American EEG Society). Thus, there is no
assurance that the Company's presently operating telephonic services will be
successful or that they can be continued.
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PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect its intellectual property rights,
products, designs and processes through the filing of patents in the United
States and, where appropriate, in Canada. The Company also registers trademarks
and trade names. The Company presently has seven patents, two of which were
assigned to the Company by Dr. Turan M. Itil and four of which were assigned to
the Company jointly by Dr. Itil and others.
The Company believes that its patents may offer a competitive advantage,
but there can be no assurance that any patents, issued or in process, will not
be circumvented or invalidated. The Company also intends to rely on trade
secrets and proprietary know-how to maintain and develop its commercial
position. Although the Company seeks to protect its proprietary information,
there can be no assurance that others will not either develop independently the
same or similar information or obtain access to information that the Company
believes is proprietary.
COMPETITION
Competitors engaged in all areas of medical and drug technology and
manufacture of diagnostic equipment and products in the United States and abroad
are numerous and include, among others, major pharmaceutical, food and chemical
companies, specialized biotechnology firms, universities, and research
institutions. The Company expects that competition will increase with the
perceived potential for commercial applications of medical and drug related
technologies. The greater availability of capital for investment in medical and
drug technology, and the potentially greater funding of industrial research in
this field by foreign governments, will likely result in increased competition.
In all three areas of business, the Company has very significant
competitors many of which are larger and have been in existence longer than the
Company:
(1) Contract Research (CR), to assist the major drug companies with their drug
development, is presently the main sources of income of the Company. There
are, among others, at least 3 major competitors (Parexel, Besselear
Associates and Quintiles) who are much larger than the Company. They also
conduct multicountry drug trials where the Company intends to enter. The
Company has developed new software procedures which provide some
advantages. However, competitors are also developing a variety of high
technology data collection and data processing systems. There can be no
assurance that the Company can compete with the existing CR organizations.
There is also no assurance that the Company can keep the CR income at the
present level.
(2) CEEG-Scan Systems Sales. The computer analysis of electroencephalogram and
digital EEG with and without brain mapping have been developed by
approximately a dozen companies in the US and the Company believes that
approximately three times that amount have been developed outside the U.S.
While the Company is probably one of the oldest organizations who
developed, competitors are much larger organizations with far more
resources than the Company. There is no assurance that the Company's CEEG
Scan software and systems will continue to provide revenues. There is also
no assurance that the database and/or new, enhanced software packages
and/or hardware developments of the Company will get permission from the
FDA to be marketed and will be sold if such permission is obtained.
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(3) Telephonic EEG services of the Company has at least two competitors. Since
Telephonic EEG saves money for hospitals and health maintenance
organizations, it is expected that other telephonic service companies will
be developed. There is no assurance that the Company can expand or even
keep such services and revenues at the present level.
QUALITY ASSURANCE
Quality assurance of contract research and drug development has been and will be
strictly controlled by the drug companies who subcontract to the Company and by
the Institutional Review Board (IRB) which has the responsibility for the safety
of the volunteers who participate in these programs. Both drug companies and
IRB are responsible to the FDA for quality assurance.
The software products the Company is developing for EEG analysis, require
permission from the FDA before marketing. Thus, the FDA supervises the safety
and effectiveness of these programs.
Telephonic EEG recordings have been regulated by the American EEG Societies, the
FDA and third parties. The readings (description) of telephonic EEG are being
done by qualified physicians. The Company believes it has staff and consultants
with the required credentials to fulfill requirements of the governmental
agencies, IRB and professional societies.
SALES AND MARKETING
The Company sells most of its present products through its direct sales force
consisting of two people representatives in Greece and Brazil and a joint
venture partner with co-marketing and distribution rights in Istanbul, Turkey
with Tena, Ltd.
The Company markets its products and services through scientific publications,
semi-scientific journal advertisements, scientific society exhibits and shows
and through direct mail to individual physicians, drug companies, hospitals and
HMO's. The Company prepares and mails a large amount of scientific and
semi-scientific material to these organizations. The Company also provides
warranties on its software to customers who request warranty agreements. There
is no assurance that the Company will be able to maintain the present level of
sales and marketing efforts or enhance them.
PERSONNEL
The Company has 12 full time employees, including four executives (two of whom
are physicians) three persons engaged in research and four technicians. In
addition the Company has agreements with five consultants and employs three
persons on a part-time basis. The Company believes its relations with its
employees to be satisfactory.
PROPERTIES.
The Company owns a parcel of vacant land in Florida held for investment. The
Company's offices and other facilities are located at 150 White Plains Road,
Tarrytown, New York 10591, under a lease expiring in 1998. Office rent and
payments for non-cancelable equipment leases have been estimated to be $150,000
for the year ending December 31, 1995. Management believes its present
facilities are adequate for its needs and that they are adequately covered by
insurance.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth the names and positions of the executive
officers and the directors of the Company.
Name Age Position with the Company
- ------------- ---- --------------------------
Turan M. Itil 71 Chairman, CEO and Director
of the Company and HZI
I. Ronald Horowitz 74 Vice Chairman and President
of the Company
Kurt Z. Itil 37 Director of the Company and
Director and President of HZI
Pierre LeBars(1) 44 Director and Executive Vice
President of the Company and
Executive Vice President
of HZI
Aileen A. Kunitz(1) 53 Vice President, CFO and
Director of the Company
Evelyn Sommer, Esq. 70 Director of the Company
Richard Katz, Esq.(1) 53 Director of the Company and
HZI
Joseph Dioguardi(1) 55 Director of the Company
- ------------------
(1) Member of Audit Committee
Each director is elected for a period of one year at the Company's Annual
Meeting of Shareholders and serves until his successor is duly elected by the
shareholders. Officers are appointed and serve at the will of the Board of
Directors subject to the terms of any employment agreements. Except for Mr.
Dioguardi who receives $1000 for each Board meeting attended, the Company does
not currently pay any cash or other compensation to directors for serving in
that capacity.
TURAN M. ITIL, M.D. has been Chairman of the Board and Director of the Company
since November 23, 1994 and Chairman of the Board and a Director of HZI, the
Company's medical research subsidiary since he founded HZI in 1974. Dr. Itil is
a neurologist/psychiatrist with special interests in electrophysiology (brain
electrical activity studies) and psychopharmacology
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(psychotropic drug treatment and research). Dr. Itil is Honorary Chairman of the
Board of the New York Institute for Medical Research, a not-for-profit
organization.
Dr. Itil was Dozent (Associate Professor) of the University of
Erlangen-Nurenberg, Germany for two years; Associate Professor and Full
Professor of the University of Missouri for ten years; and Full Professor at New
York Medical College for sixteen years. At present, he is Clinical Professor at
New York University Medical Center.
Dr. Itil was appointed a member of the World Health Organization Expert Advisory
Panel in October 1995; he is also Past-President of the American Psychiatric
Electrophysiology Association; Vice President, International Pharmaco-EEG
Society; Secretary General, Academia, Medicinae & Psychiatriae Foundation;
Co-Editor, Journal of Integrative Psychiatry; on the Board of Examiners of the
American Medical EEG Association. He is a Life Fellow of the American
Psychiatric Association and American College of Neuro-psychopharmacology. Dr.
Itil is on the Editorial Board of more than 15 scientific journals; Board Member
of Mental Hygiene of the State of New York. Dr. Itil has written/edited seven
books and is the author of more than 522 scientific articles. Dr. Itil is the
owner of 13 patents issued and has four patent applications pending. Seven of
the patents owned by Dr. Itil have been assigned to HZI and six others have been
assigned to major drug companies.
I. RONALD HOROWITZ, ESQ.
I. Ronald Horowitz, became Vice Chairman and President of the Company in 1995.
Mr. Horowitz has been a practicing lawyer and member of the New York Bar for
over 40 years. From 1974 to 1977 he was President and Vice Chairman of the
Board of Vagabond Hotels Inc., a publicly held West Coast chain of 56 hotels
and motels. From 1969 to 1972 he was President of Paramount Studios Inc. a
motion picture company. From 1970 to 1972 he was President of Paramount
Immobiliare a joint venture between Paramount Studios and Societa Immobiliare,
Italy's largest real estate Company and from 1967 to 1969 he was Executive Vice
president and Chief Operating Officer of Gulf & Western Realty Corp.
Mr. Horowitz is a Fellow of Academia, Medicinae and Psychiatriae Foundation and
has also served as Justice of the Peace for the City of Stamford, Connecticut,
special counsel for the New Haven Railroad and was a Trustee of Grand Central
Hospital in New York City. He has also been active as a private investor.
KURT Z. ITIL, PH.D. (Honorary) has been a Director of the Company since November
23, 1994 and has been President of HZI since 1983 and a Director of HZI since
1982. In 1981, Dr. Itil graduated from Boston University (B.A. - Psychology).
He obtained an honorary Doctorate of Philosophy from Medicina Alternativa based
on his publications and his contribution to science. Dr. Itil has participated
in business and management seminars at the Massachusetts Institute of
Technology. He was Vice President of HZI from 1977-1980. Dr. Itil was Vice
President (Sales & Marketing) of the International Drug Experts Associates from
1981-1982. Since 1983, he has served as President of HZI and he is responsible
for sales, promotion and marketing of services and products, strategic planning,
administration, corporate finance and contract negotiations.
Dr. K. Itil is a Fellow of Academia, Medicinae and Psychiatriae Foundation and a
Member of the American Psychiatric Electrophysiology Association. Dr. Itil has
more than 45 scientific publications to his credit. Dr. Kurt Itil is the son of
Dr. T.Itil.
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PIERRE LE BARS, M.D., PH.D. has been a Director and Executive Vice president and
Chief of Research and Development of the Company since November 23, 1994 and has
been Executive Vice President and Chief of Research and Development of HZI since
1992. Dr. Le Bars obtained his M.D. in 1978 in France. Subsequently, he obtained
his Ph.D. in Neurophysiology from the University of Picardie and Pierre et Marie
Curie in France. He became a Research Fellow in 1988 at New York Medical
College. Since 1991, Dr. Le Bars has been employed by HZI as Vice President for
Research and Development and since 1993, as Executive Vice President. Dr. Le
Bars also has an appointment as a Research Fellow at Massachusetts Mental Health
Center of the Harvard Medical School since 1992. Dr. Le Bars is Assistant
Editor of the journal of INTEGRATIVE PSYCHIATRY. He is a member of numerous
French and U.S. professional societies and author/co-author of a series of
scientific publications. Dr. Le Bars is the son-in-law of Dr. Turan Itil.
JOSEPH DIOGUARDI. Mr. DioGuardi became a Director of the Company in March 1996.
Since leaving Congress in 1989 Mr. DioGuardi established a nonpartisan
foundation, Truth In Government, through which he continues his activities for
federal fiscal reforms. From 1985 to 1989 Mr. DioGuardi was a member of the
U.S. Congress for New York's Twentieth Congressional District. While in
Congress he was Member, Committee on Government Operations; Ranking Minority
Member, Subcommittee on Employment and Housing; Member, Committee on Banking,
Finance and Urban Affairs; Chairman, House Republican Research Committee Task
Force on Federal Budgeting and Financial management. From 1962 to 1984 he was
with Arthur Andersen & Co., Certified Public Accountants, where he was a tax
partner from 1972, responsible for Public and Non Profit Sectors. He received a
Bachelor of Science Degree with honors from the College of Business
Administration of Fordham University in 1962.
RICHARD A. KATZ, ESQ. has been a Director of the Company since November 23, 1994
and has been a Director of HZI since 1994. Mr. Katz graduated from Hunter
College in June, 1964 (B.A.) and Brooklyn Law School, June 1967 (L.L.B.). He was
admitted to the New York State Bar on December 18, 1967 and admitted to both the
Southern and Eastern Federal District Courts and has been a practicing attorney
since that time. Mr. Katz has been a partner in the firm of Opton Handler
Gottlieb Feiler & Katz which firm serves as counsel to the Company since January
1, 1995. From January 1, 1994 to December 31, 1994 he was counsel to the firm.
Prior thereto and for a period of 23 years he was a partner in the New York law
firm of Garrell Siegal & Katz. Mr. Katz is President of the New York Institute
for Medical Research.
AILEEN A. KUNITZ was a Director, Vice President and Chief Financial officer of
the Company from November 23, 1994 until September 1995 when she resigned those
positions but continued her employment with HZI and the Company. She was
reappointed as Director, Vice-President and Chief Financial Officer of the
Company in January 1996. Mrs. Kunitz joined HZI in 1974 as a Research
Coordinator. In 1976 she became Chief Research Coordinator. In 1980 she was
appointed Administrator; in 1984 she became Executive Administrator and in 1990,
Vice president of Finance. She studied mathematics at the University of Detroit
and received training in EEG technology through Wayne University in Detroit,
Michigan and was employed by the University of Missouri as a Technologist from
1968 - 1974.
EVELYN SOMMER, ESQ. has been a Director of the Company since March, 1996. Ms.
Sommer graduated from Hunter College (A.B. 1945) and from Brooklyn Law School
(LLB 1955). She concentrates in patent and intellectual property law and has
been Adjunct Professor, Intellectual Property Law, Quinnipiac College School of
Law since 1983. She joined Skadden, Arps, Slate, Meagher and Flom's
Intellectual Property Department in 1993 after 20 years as Chief
34
<PAGE>
Patent and Trademark Counsel to Champion International Corporation, a Fortune
100 company based in Stamford, Connecticut.
EMPLOYMENT ARRANGEMENTS
Dr. Turan M. Itil entered into an employment agreement with the Company,
effective September 20th, 1995, providing for a base salary of $250,000 per
year. The agreement is for an initial term of 10 years and is renewable on a
month to month basis thereafter unless either party notifies the other in
writing at least 30 days before the end of the initial term or any month
thereafter, of its intention to cancel. Other principal terms of the agreement
provide that on each anniversary date of this agreement, Dr. Itil's salary shall
be increased in good faith negotiations between Dr. Itil and Company taking into
consideration such factors as the financial condition of the Company, and
the quality and extent of Employee's services hereunder during the prior
year. In addition the
Company agrees to review the services rendered by Dr. Itil at least annually
and, at the discretion of the Board of Directors of the Company, exercised in
good faith and, depending upon the financial condition of the Company and Dr.
Itil's performance during the period, award bonuses, either directly or by way
of contributions to a deferred compensation plan in an amount to be determined
by the Board. Dr. Itil waived $146,347 of his base salary for the year ended
December 31, 1995.
The Company is required to maintain a life insurance policy on the life of Dr.
Itil, in the amount of $1,000,000 payable to his designated beneficiary(but has
not yet done so) and to provide Dr. Itil with a car and driver. Dr. Itil waived
the life insurance requirement for the year ended December 31, 1995.
Dr. Pierre Le Bars entered into an employment agreement with the Company,
effective December 7, 1994, providing for a base salary of $100,000 per year.
The agreement is for an initial term ending January 1, 2000 and is renewable on
a year to year basis thereafter unless either party notifies the other in
writing at least six months before the end of the initial term or any year
thereafter, of its intention to cancel. Other principal terms of the agreement
provide that effective January 1 of each year he shall be entitled to a 10%
salary increase. In addition, he shall be entitled to an annual bonus equal to
at least fifty percent (50%) of his base salary, provided that the Board of
Directors determines that he has met performance goals which were approved by
the Board at the beginning of each year. If a change in control of the Company
occurs, and if within five (5) years thereafter Dr. Le Bars' contract is
terminated (other than for cause, death or disability), he shall be entitled to
a lump sum payment equal to five (5) time his gross annual compensation,
including base salary at the rate in effect when notice of termination is given,
and any bonuses commissions and stock options to which he would normally be
entitled.
For the three year period after such termination, the Company shall arrange to
provide him with life and health insurance benefits substantially similar to
those which he was receiving immediately prior to the notice of termination. A
change in control shall be deemed to have occurred when a person or entity
acquires 51% or more of the combined voting power of the Company's then
outstanding securities, or as a result of, or in connection with, any tender or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing the persons who were
directors of the Company immediately before such a transaction shall cease to
constitute a majority of the Board of the Company or any successor to the
Company.
35
<PAGE>
The Company's employment agreements with Dr. Itil and Dr. Le Bars and employment
arrangements with other significant employees impose customary confidentiality
obligations.
IRH Corporation, a personal service company owned by I. Ronald Horowitz, entered
into an employment agreement with the Company effective July 1, 1995 pursuant to
which it will supply the services of Mr. Horowitz to act as a business
consultant to the Company for a five year period at an annual retainer of
$75,000 per year. Mr. Horowitz subsequently agreed to serve as Vice Chairman
and President of the Company with no additional compensation. In connection
with the entering into of this agreement Mr. Horowitz was granted a seven year
option to purchase 250,000 shares of the Company's Common Stock at $.10 per
share.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash and cash equivalent forms of
compensation paid by the Company during the last three fiscal years for services
in all capacities to those persons who were as of December 31, 1994, the Chief
Executive Officer and each of the most highly compensated officers (a total of
one person), to the extent each earned more than $100,000 in salary and bonus.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
Name & Other # Share All Other
Principal Annual Underlying Compensation
Position Year Salary Bonus Compensation(1) Options
- -------- ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Turan Itil 1995 $106,653(2) 0 0
CEO 1994 $255,000 $11,000.04
Pierre Le Bars 1995 $100,00(3)
Executive Vice
President
- -------------------
</TABLE>
(1) Does not include an annual car allowance of $9,000.
(2) For the year ended December 31, 1995 Dr. Itil waived $146,347 of his
$250,000 base salary.
(3) For the year ended December 31, 1995 Dr. Le Bars waived $6,494 of his
base salary.
STOCK OPTION PLAN.
On November 23, 1994 the Company adopted a stock option plan (the "Plan")
providing for the granting of options to purchase up to 1,500,000 shares of the
Company's common stock. Options granted pursuant to the Plan may be either
incentive options or non qualified stock options. Incentive stock options may
be granted to persons who are employees or officers of the Company.
Non-statutory stock options may be granted to employees, officers, non-employee
directors and consultants to the Company.
36
<PAGE>
The Plan provides for its administration by a committee chosen by the Board of
Directors which committee shall have full discretionary authority to determine
the number of shares to be granted and the individuals to whom, the times at
which, and the exercise price for which options will be granted. In the case of
statutory stock options the committee's authority to establish the terms and
conditions of such options including, but not limited to their exercise price,
shall be subject to restrictions imposed by Section 422 of the Internal Revenue
Code. Options for 300,000 shares have been granted under the Plan including the
250,000 options granted to Mr. Horowitz. See"Employment Arrangements".
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 30, 1996 with
respect to shares of Common Stock of the Company beneficially owned by each
director of the company, each executive officer of the Company and by all
officers and directors as a group, and by persons known to the Company to be
beneficial owners of more than 5% of the Company's Common Stock.
Name and Address Amount and Nature of Percentage
of Beneficial Owner (1)(2) Beneficial Ownership (2) of Class
- -------------------------- ------------------------- -----------
Turan M. Itil, 920,000 (4)(5) 10.04 %
Chairman, CEO and Director
I. Ronald Horowitz, 250,000 (6) 2.73 %
Vice Chairman and President
Kurt Z. Itil, 1,259,000 (4) 13.75 %
Director
Eleonore Itil, 566,666 (4) 6.19 %
Pierre Le Bars, 210,000 2.29 %
Executive Vice President
and Director
Aileen A. Kunitz, 84,400 (4)(7) .92 %
President, CFO and Director
37
<PAGE>
Name and Address Amount and Nature of Percentage
of Beneficial Owner (1)(2) Beneficial Ownership (2) of Class
- -------------------------- ------------------------ ----------
Richard Katz, 231,000 (4)(8) 2.52 %
Director
Yasmin Itil Le Bars, 798,000 (3)(4) 8.71 %
Trinity American Corporation 2,902,998 (9) 31.69 %
800 North Kings Highway
Cherry Hill, New Jersey 08034
All directors and officers 2,954,400 32.25 %
of the Company as a group
(6 individuals)
(1) Unless otherwise noted, the addresses of all persons listed above are in
care of the Company.
(2) Each of the persons named in the table disclaims beneficial ownership of
the shares of the Company's Common Stock owned by such person's spouse or
by his or her children.
(3) Mrs. Le Bars is the wife of Pierre Le Bars and the daughter of Turan Itil.
(4) Each of these persons are party to a Voting Trust Agreement expiring in
January 2012, pursuant to which the Trustee, Turan M. Itil has the
exclusive right to vote such shares or give written consents in lieu of
voting at all meetings of the Company's shareholders, and in all
proceedings where the vote or written consent of shareholders may be
required or authorized by law. Turan M. Itil is the Trustee and Kurt Z.
Itil is the Successor Trustee.
(5) Includes 4,000 shares owned by Dr. Itil and his wife Eleonore as joint
tenants.
(6) Includes 250,000 options currently exercisable at $.10 per share, expiring
June 30, 2002.*
(7) Includes 400 shares owned by Mrs. Kunitz' son.
(8) Includes 84,000 shares owned by Mr. Katz' son.
(9) Includes 651,000 Class B Warrants currently exercisable at $1.00 per share
and 651,000 Class C Warrants currently exercisable at $2.00 per share, both
of which expire June 30, 1997; 250,000 shares of Class B Series 2 Preferred
Stock currently convertible into 500,000 shares of common stock; $200,000
of loans currently convertible into 400,000 shares of common stock owned by
Dr. Itil, the Company's Chairman; and 16,666 shares of common stock owned
by each of three adult sons of Abraham Salaman, the President and sole
shareholder of Trinity American Corporation.* See "Certain Transactions".
38
<PAGE>
* A currently exercisable option, warrant or conversion privilege is one
which is exercisable within 60 days from the date hereof.
Percentages are based on 6,107,141 common shares outstanding as of December
31, 1995 and giving effect to the sale of 333,333 shares in March 1996, the
sale of 666,667 shares in April 1996 and the contribution of 200,000 shares
to the Company treasury by each of Dr. Turan M. Itil and his wife, plus
currently exercisable options, warrants and conversion privileges for
2,052,000 shares by directors, officers and Trinity American Corporation
(excluding 400,000 shares transferable by the Company's Chairman upon
exercise of conversion privileges), for an aggregate total of 9,159,141
shares.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company, from December, 1989 until November 25, 1994 utilized an office
provided on a rent free basis by Monroe Arndt, its former president at 45 North
Main Street, Marlboro, New Jersey.
On October 25, 1994, the Company issued to Trinity American Corporation
("Trinity"), 120,000 post-split shares of the Company's Common Stock in
consideration of Trinity's identifying HZI as a potential acquisition candidate
for the Company. Previously, on March 24, 1994, HZI received a bridge loan of
$75,000 from Trinity. It was subsequently agreed that HZI shall have no
responsibility for the repayment of such bridge loan. On November 23, 1994,
Trinity contributed $400,000 to the Company's capital account with no further
issuance of stock. In December 1994, the Company and Trinity reached an
agreement whereby in consideration for the $400,000 paid on November 23, 1994
two classes of preferred stock were issued to Trinity. See Note 11(g) of "Notes
to the Consolidated Financial Statements".
By a Stock Purchase Agreement dated as of October 25, 1994, Mr. Arndt agreed to
sell 556,000 of his post-split shares of the Company's Common Stock to Trinity,
for a purchase price of $40,000, which shares were transferred to Trinity
immediately upon the completion of the Company's acquisition of HZI. Trinity
has the right to transfer a portion of the shares purchased to other
nonaffiliated persons.
The Company rents the services of certain employees, office and laboratory space
to Manhattan Westchester Medical Services, P.C. "Manhattan Westchester", which
is controlled by the Company's Chairman. Amounts due from this affiliate at
December 31, 1995 and 1994 amounted to $68,855 and $125,377 respectively.
HZI subcontracts all its patient testing performed in connection with servicing
drug related contracts to New York Institute ("NYI"), a not for profit medical
research entity which is controlled by the Company. For legal reasons NYI is
deemed to be a non-profit entity but for income tax purposes, NYI is taxed as a
C-corporation. Richard Katz, a director of the Company is President and Dr.
Itil, the Company's Chairman is honorary Chairman of NYI. Expenses incurred
with NYI for the years ending December 31, 1995 and 1994 were $118,087 and
$283,936 respectively. Net payables to NYI amounted to $37,583 and $2,753, at
December 31, 1995 and 1994, respectively.
39
<PAGE>
The Company charges NYI as well as Manhattan Westchester for the use of certain
employees and office and laboratory space of the Company. Manhattan Westchester
is under the common control of the Company's Chairman. Net revenues from these
affiliates for the years ended December 31, 1995 and 1994 amounted to $186,123
and $285,132 respectively.
Notes and loans receivable on account of advances made to HZI's President and to
its Chief Financial Officer, which were due on demand, consisted of the
following at December 31, 1994 and were repaid in 1995.
December 31, 1994
Notes receivable bearing interest $18,900
of 7.5% per annum 59,170
Non interest bearing loans 12,264
Accrued Interest
-------
$90,334
Stockholders Notes and Loans:
December 31, 1995 December 31, 1994
Notes Payable bearing an interest
of 7.5% to 10.5% * $225,000 $ 14,000
Non interest bearing loans and
payables(i) 155,381 132,707
Accrued Interest * 6,598 26,099
-------- --------
$386,979 $172,806
-------- --------
-------- --------
(i) Stockholder notes and loans payable relates to advances made to HZI and NYI
by its Chairman of the Board which are due on demand.
* See "Note 13(c) of Notes to Consolidated Financial Statements".
Amounts due to HZI from its affiliates which are unsecured demand obligations
amounted to the following:
40
<PAGE>
December 31, 1995 December 31, 1994
Due from Manhattan Westchester $68,855 $125,377
Due from Academia 20,088 26,093
-------- --------
$88,953 $151,470
-------- --------
-------- --------
Manhattan Westchester is a professional corporation of which Dr. Turan M. Itil,
Chairman of the Company owns the majority of shares outstanding.
Academia is a not-for-profit organization and Dr. Itil is one of nine directors.
As of December 31, 1995 Dr. Itil was the personal guarantor of bank loans to the
Company in the amount of approximately $138,000. The Company has agreed to
indemnify Dr. Itil should he be called upon for payment pursuant to such
guarantee.
During 1994 HZI and Manhattan Westchester entered into an arrangement whereby
Manhattan Westchester will provide medical consulting services to HZI's TeleMap
division. This arrangement was discontinued in 1995 and is now being performed
by the Company's personnel. Services provided by Manhattan Westchester to HZI
for the years ended December 31, 1995 and 1994 amounted to $15,400 and $40,177,
respectively.
In July 1995 the President of Trinity loaned $100,000 to the Company. The loan
bears interest at the rate of 9% per year. The loan is convertible into 200,000
shares of the Company's Common Stock. As additional consideration for such loan
16,666 shares of the Company's Common Stock was issued to each of the President
of Trinity's three sons.
In September 1995 Trinity loaned $40,000 to the Company with interest payable at
the rate of 10% per year. The loan is convertible into 80,000 shares of the
Company's Common Stock.
In October 1995 Trinity loaned $60,000 to the Company with interest payable at
the rate of 9% per year. The loan is convertible into 120,000 shares of the
Company's Common Stock.
In November 1995 an affiliate of Trinity loaned the Company an additional
$25,000 with interest payable at the rate of 10% per year which was repaid with
interest in 1995.
All of the foregoing loans, originally for periods of 90 days to six months,
have been extended to June 30, 1996 except for the July 1995 $100,000 loan which
was extended to July 30, 1996.
In October and November 1995 Dr. Itil, loaned the Company an aggregate of
$65,000 with interest payable at 10%. $25,000 was repaid in January, 1996.
Interest was waived.
In December 1995 the Company sold an aggregate of 1,000,000 shares of Common
Stock to four investors for $250,000. Each investor purchased the respective
number of shares set forth under
41
<PAGE>
"Selling Stockholders". As a condition of this private placement Dr. Itil and
his wife each contributed 200,000 shares of the Company's Common Stock owned by
them to the treasury of the Company for cancellation. The 1,000,000 shares sold
to the four investors may be sold pursuant to this Prospectus. See "Selling
Stockholders".
In February 1996, Trinity loaned the Company $125,000. In April 1996, upon
receipt of the funds received from the sale of common stock Trinity was repaid
$50,000 towards these loans.
SELLING STOCKHOLDERS
An aggregate of up to 2,600,000 shares of Common Stock and 1,600,000 Warrants
may be offered by the Selling Stockholders consisting of (i) 1,000,000 shares
issued in a Private Placement; (ii) 1,600,000 shares issuable upon the exercise
of outstanding Warrants and (iii) 800,000 Class B Warrants and 800,000 Class C
Warrants, both currently outstanding. The following table sets forth certain
information with respect to persons or entities for whom the Company is
registering for resale to the public, shares of the Company's Common Stock and
Class B and Class C Warrants issued in November 1994. The table reflects such
persons ownership as of April 30, 1996. The exercise price of the Class B
Warrants is $1.00 per share and the exercise price of the Class B Warrants is
$2.00 per share. The Warrants expire on June 30, 1997. The Company would
receive $1.00 and $2.00 per share, respectively if and when the Class B and
Class C Warrants are exercised but the Company will not receive any additional
funds from the sale of any Class B or Class C Warrants or the sale of any shares
issuable upon the exercise of such Warrants. See "Use of Proceeds".
<TABLE>
<CAPTION>
Amounts Maximum Number % of
Nature of Percent Number to to be Class
Name of Selling Beneficial of Class Be Sold Owned If After
Stockholder Ownership Maximum Sale
(2) Is Sold
- ------------------------ ---------- --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Consolidated Capital
Assets, Ltd. (3) 300,000 (1) 3.53 300,000 -0- -0-
J.L.B. Equities (3) 250,000 (1) 2.94 % 250,000 -0- -0-
Robsal Inc. (3) 225,000 (1) 2.64 % 225,000 -0- -0-
Elvena, Inc. (3) 225,000 (1) 2.64 % 225,000 -0- -0-
Bear Stearns 6,000 (4) * 6,000 -0- -0-
6,000 (5) * 6,000 -0- -0-
Herzog Heine Geduld Inc. 4,000 (4) * 4,000 -0- -0-
4,000 (5) * 4,000 -0- -0-
Prudential Securities Inc. 1,200 (4) * 1,200 -0- -0-
1,200 (5) * 1,200 -0- -0-
J. Streicher & Co. 19,600 (4) 2.45 % 19,600 -0- -0-
19,600 (5) 2.45 % 19,600 -0- -0-
42
<PAGE>
Amounts and Maximum Number % of
Nature of Percent Number to to be Class
Name of Selling Beneficial of Class Be Sold Owned If After
Stockholder Ownership Maximum Sale
(2) Is Sold
- ------------------------ ------------ --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Karen Adeleman 800 (4) * 800 -0- -0-
800 (5) * 800 -0- -0-
Robert S. Adelman 1,200 (4) * 1,200 -0- -0-
1,200 (5) * 1,200 -0- -0-
Monroe Arndt 14,068 (4) 1.75 % 14,068 -0- -0-
14,068 (5) 1.75 % 14,068 -0- -0-
Morris Ashhkenazy 2,000 (4) * 2,000 -0- -0-
2,000 (5) * 2,000 -0- -0-
Joel Batchker 14,066 (4) 1.75 % 14,066 -0- -0-
14,066 (5) 1.75 % 14,066 -0- -0-
Kenneth Berwitz 1,600 (4) * 1,600 -0- -0-
1,600 (5) * 1,600 -0- -0-
Richard Breyley 8,000 (4) 1 % 8,000 -0- -0-
8,000 (5) 1 % 8,000 -0- -0-
Duncan H. Cameron II 1,200 (4) * 1,200 -0- -0-
1,200 (5) * 1,200 -0- -0
Elaine Charney 1,200 (4) * 1,200 -0- -0-
1,200 (5) * 1,200 -0- -0-
Sharon Fingerhut 1,200 (4) * 1,200 -0- -0-
1,200 (5) * 1,200 -0- -0-
Ira Pinkler 2,000 (4) * 2,000 -0- -0-
2,000 (5) * 2,000 -0- -0-
Jersey Transfer & Trust Co. 14,066 (4) 1.75 % 14,066 -0- -0-
14,066 (5) 1.75 % 14,066 -0- -0-
Stanley Gross 2,000 (4) * 2,000 -0- -0-
2,000 (5) * 2,000 -0- -0-
Kahila Kedeshia Parkofski 6,800 (4) * 6,800 -0- -0-
6,800 (5) * 6,800 -0- -0-
Salene Myeroff 2,400 (4) * 2,400 -0- -0-
2,400 (5) * 2,400 -0- -0-
Rod Nenner 1,800 (4) * 1,800 -0- -0-
1,800 (5) * 1,800 -0- -0-
Jack Ornstein 1,200 (4) * 1,200 -0- -0-
1,200 (5) * 1,200 -0- -0-
Frank E. Perkiel 4,000 (4) * 4,000 -0- -0-
4,000 (5) * 4,000 -0- -0-
Morris Pinkowitz 800 (4) * 800 -0- -0-
800 (5) * 800 -0- -0-
Carolyn Protz 400 (4) * 400 -0- -0-
400 (5) * 400 -0- -0-
Michael Rakusin 2,200 (4) * 2,200 -0- -0-
2,200 (5) * 2,200 -0- -0-
43
<PAGE>
Amounts and Maximum Number % of
Nature of Percent Number to to be Class
Name of Selling Beneficial of Class Be Sold Owned If After
Stockholder Ownership Maximum Sale
(2) Is Sold
- ------------------------ ------------ --------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Arthur Rogow 2,000 (4) * 2,000 -0- -0-
2,000 (5) * 2,000 -0- -0-
Howard Rosen 800 (4) * 800 -0- -0-
800 (5) * 800 -0- -0-
Hilda Rosenfeld 6,000 (4) * 6,000 -0- -0-
6,000 (5) * 6,000 -0- -0-
Jessie Sklarin 1,600 (4) * 1,600 -0- -0-
1,600 (5) * 1,600 -0- -0-
Robin Sklarin 400 (4) * 400 -0- -0-
400 (5) * 400 -0- -0-
Donna Sobel 2,000 (4) * 2,000 -0- -0-
2,000 (5) * 2,000 -0- -0-
Benjamin Sprecher, Esq. 19,200 (4) 2.4% 19,200 -0- -0-
19,200 (5) 2.4% 19,200 -0- -0-
Robert Thierer 3,200 (4) * 3,200 -0- -0-
3,200 (5) * 3,200 -0- -0-
Trinity American Corporation 651,000 (4) 81.4 % 651,000 -0- -0-
651,000 (5) 81.4 % 651,000 -0- -0-
- --------------------
</TABLE>
* Represents less than one percent.
(1) Represents number of shares of the Company's Common Stock owned by such
persons.
(2) All Warrants are currently exercisable and "Percent of Class" treats as
outstanding the shares issuable upon the exercise of the Warrants.
(3) See "Certain Transactions".
(4) Represents number of Class B Warrants owned and number of shares to be
issued upon exercise of Warrants.
(5) Represents number of Class C Warrants owned and number of shares to be
issued upon exercise of Warrants.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell the shares and Warrants (the
"Securities") being offered hereby: (i) through dealers or in ordinary broker
transactions, in the over-the-counter market or otherwise, (ii) "at the market"
to or through marketmakers or into an existing market for the Securities or
(iii) in other ways not involving marketmakers or established trading markets,
including direct sales to purchasers or effected through agents, or (iv) in
combinations of any such methods of sale. The shares will be sold at market
prices prevailing at the time of sale or negotiated prices.
44
<PAGE>
If a dealer is utilized in the sale of the Securities in respect of
which the Prospectus is delivered, the Selling Stockholders will sell such
Securities to the dealer, as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale.
Sales of Securities "at the market" and not at a fixed price, which
are made into an existing market for the Securities, will be made by the Selling
Stockholders to or through a marketmaker, acting as principal or as agent.
Other sales may be made, directly or through an agent, to purchasers outside
existing trading markets.
A selling broker may act as agent or may acquire the Securities or
interests therein as principal or pledgee and may, from time to time, effect
distributions of such Securities or interests.
The Securities offered hereby are eligible for sale only in certain
states, and in some of those states may be offered or sold only to
"institutional investors" as defined under applicable state securities law.
No sales or distributions other than as described herein may be
effected until after this prospectus shall have been appropriately amended or
supplemented.
DESCRIPTION OF SECURITIES
The Company's Certificate of Incorporation and By-Laws authorizes
100,000,000 shares of Common Stock, par value $.001 per share of which 7,107,141
shares were issued and outstanding as at April 30, 1996 (after giving effect to
the sale of an aggregate of an additional 1,000,000 shares in March and April
1996 and the contribution by each of Dr. and Mrs. Itil of 200,000 shares each to
the Company's treasury) and 5,000,000 shares of Preferred Stock of which 400,000
shares were issued and outstanding as of April 30, 1996.
COMMON STOCK
The holders of shares of Common Stock of the Company are entitled to
one vote per share for each share held by them and do not have cumulative voting
rights. Holders of record of shares of Common Stock are entitled to receive
dividends when and if declared by the board of directors out of legally
available funds. Upon any liquidation, dissolution or winding up of the
Company, holders of shares of Common Stock are entitled to share pro rata
in any distribution to the shareholders. There are no pre-emptive or
conversion rights and no provisions for redemption, purchase for cancellation,
surrender or sinking or purchase funds. All of the outstanding shares of Common
Stock of the Company are fully paid and non-assessable and duly authorized.
TRANSFER AGENT
The transfer agent for the Common Stock is Jersey Stock Transfer and Trust
Company, Vernon, New Jersey.
45
<PAGE>
PREFERRED STOCK
Of the 400,000 shares of issued and outstanding Preferred Stock,
150,000 shares are designated Class B Series 1 and 250,000 shares are designated
Class B, Series 2.
The 150,000 shares of Class B, Series 1, no par value, have a
liquidation preference of $1 per share and are not convertible into any other
class of stock. Cumulative dividends accrue on such stock commencing January 1,
1996 at a rate of 10% of the liquidation value and are payable semi-annually in
cash or Common Stock of the Company based on the average closing bid price of
the Common Stock for 30 consecutive days prior to the date the dividend becomes
payable. Further, the Company may redeem such shares at any time for $3 per
share.
The 250,000 shares of Class B Series 2, no par value, are convertible
into shares of Common Stock. Between January 1, through June 30, 1996 one (1)
share of Class B, Series 2 can be converted into two (2) shares of Common Stock.
After June 30, 1996 the conversion rate is reduced to five (5) shares of Class
B, Series 2 Preferred Stock into (1) one share of Common Stock. The Company
can, at its option, force a conversion of such stock, if the closing bid price
for the Company's Common Stock is at least 2 5/8 for thirty (30) consecutive
trading days. The Company acts as its own transfer agent with respect to Class
B Series 1 and Class B, Series 2 Preferred Stock.
The remaining 4,600,000 shares of authorized but unissued shares of
Preferred Stock are available for issuance for financing or other corporate
purposes in the future. The Preferred Stock may be issued in series from time
to time with such designation, rights, preferences and limitations as the Board
of Directors of the Company may determine. The rights, preferences and
limitations of separate series of Preferred Stock may differ with respect to
such matters as may be determined by the Board of Directors, including, without
limitation, the rate of dividends, method and nature of payment of dividends,
terms of redemption, amounts payable on liquidation, sinking fund provisions (if
any), conversion rights (if any), and voting rights. The potential exists,
therefore, that preferred stock might be issued which would grant dividend
preferences and liquidation preferences to persons who become preferred
shareholders. See "Risk Factors" and"Certain Transactions".
WARRANTS
In connection with the acquisition of HZI the Company's Board of Directors
authorized the issuance of 800,000 Class B and 800,000 Class C Warrants to all
public stockholders of the Company of record as of November 1, 1994. The
Warrants were distributed on the basis of 1 Warrant for 1 share of Common Stock
owned, each of which is exercisable for one share of Common Stock of the
Company. The Class B Warrants were originally exercisable at $2.25 per share
and the Class C Warrants were originally exercisable at $2.75 per share until
June 30, 1996. In January 1996 the Company reduced the exercise price of the
Class B Warrant to $1.00 per share and the exercise price of the Class C Warrant
to $2.00 per share and extended the exercise date until June 30, 1997. The
shares of Common Stock
46
<PAGE>
underlying the Warrants must be registered with the Securities and Exchange
Commission prior to the Warrants becoming exercisable. The number of shares
underlying the Warrants, and the exercise price of the Warrants, may be adjusted
upward or downward at any time in the sole discretion of the Company's Board of
Directors. The Warrants are redeemable by the Company at any time upon thirty
(30) days written notice, at a price of $.001 per Warrant.
REPORTS TO SECURITY HOLDERS.
The Company intends to furnish annual reports to its security holders
containing audited financial statements but does not intend to furnish interim
quarterly reports to its security holders. Upon request, the Company will
furnish copies of its Quarterly Reports filed on Form 10-Q-SB filed with the
Securities and Exchange Commission.
ELIMINATION OF MONETARY LIABILITY FOR OFFICERS AND DIRECTORS.
The Company's Amended Certificate of Incorporation also incorporates
certain provisions permitted under the General Corporation law of Nevada
relating to the liability of Directors. The provisions eliminate a Director's
liability for monetary damages for a breach of fiduciary duty including gross
negligence, except in circumstances involving certain wrongful acts, such as
breach of a Director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. These provisions do not
eliminate a Director's duty of care nor do they prevent recourse against
Directors through equitable remedies such as injunctive relief. Moreover, the
provisions do not apply to claims against a Director for violations of certain
laws including federal securities laws.
INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company' Amended Certificate of Incorporation also contains provisions
to indemnify the Directors, officers, employees or other agents to the fullest
extent permitted by the General Corporation law of Nevada. These provisions may
have the practical effect in certain cases of eliminating the ability of
shareholders to collect monetary damages from Directors. The Company believes
that these provisions will assist the Company in attracting or retaining
qualified individuals to serve as Directors. Insofar as indemnification for
liabilities under the Securities Act may be permitted pursuant to the above-
described provisions or otherwise to directors, officers and controlling persons
of the Company, the Company has been advised that, in the opinion of the SEC,
such indemnification is against public policy expressed in the Securities Act
and is therefore unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 2,600,000 shares covered by this Prospectus, an
aggregate of 300,000 shares issuable upon the exercise of certain employees,
directors and consultant's stock options at prices ranging from $0.10 to $0.50
per share and an aggregate of approximately 950,000 shares of common stock
issued in private placements, or issuable upon conversion of loans and Preferred
Stock are "restricted securities", as that term is defined under rule 144
promulgated under the Securities Act. In general, under rule 144 as currently
in effect, subject to the satisfaction of certain other conditions of
Rule 144, a person, including an affiliate of the Company (or persons whose
share are aggregated), who
47
<PAGE>
has owned restricted securities of the Company beneficially for at least two
years is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of outstanding shares
of the same class or, if the Common stock is quoted on NASDAQ, the average
weekly trading volume during the four calendar weeks preceding the sale. A
person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned restricted
shares of Common Stock for at least three years is entitled to sell such shares
under rule 144 without regard to any of the limitations described above. As
noted above 1,000,000 shares are included in this Prospectus on behalf of
certain stockholders having certain registration rights pursuant to which their
securities may be publicly sold without regard to the limitations set forth in
Rule 144. See "Selling Stockholders".
LEGAL PROCEEDINGS
There are no pending legal proceedings other than ordinary routine
litigation incidental to the Company's business.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by James
Vernon, Esq. Incline Village, Nevada. Certain legal matters with respect to the
offering will be passed upon for the Company by Opton Handler Gottlieb Feiler
and Katz, LLP, 52 Vanderbilt Avenue, New York, NY 10017, Counsel for the
Company. Richard Katz, a partner in such firm is a director and stockholder of
the Company. See "Management" and "Principal Stockholders".
EXPERTS
The consolidated financial statements for the years ended as of December
31, 1995 and 1994 included in the Registration Statement, of which this
Prospectus is a part, have been so included in reliance on the report of Scarano
& Lipton, P.C., independent accountants, given on the authority of said firm as
experts in auditing and accounting.
CHANGE IN ACCOUNTANTS
On November 23, 1994 the Company terminated the services of Bernard
Wolpert, CPA ("Wolpert") who previously served as the Company's independent
certified public accountant and reported on its financial statements for the
years ended September 30, 1992 and 1993. Management deemed it to be in the
Company's best interest to change accountants, in part as a result of Wolpert's
failing health.
None of Wolpert's last two reports on the Company's annual financial
statements (for the years ended September 30, 1992 and 1993) contained an
adverse opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty audit scope, or accounting principles. The decision to change
independent accountants was approved by the Company's Board of Directors.
During the Company's three most recent audited years and the subsequent
interim period through November 24, 1994, there was no disagreement with Wolpert
on any matter of accounting principles or practices, financial statement
disclosure,or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of Wolpert, would have caused it to make a reference to the
subject matter of the disagreement in connection with its report and during such
periods none of the events described in Item 304(a)(1)(v)(A)-(D) of Regulation
S-K under the Securities Act occurred. On November 23, 1994, the Company
retained the firm of Scarano & Lipton P.C., 585 Stewart Avenue, Garden City,
New York as its new independent accountants.
48
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
number
------
Independent auditors' report F-1
Consolidated balance sheets at December 31, 1995 and 1994 F-2
Consolidated statements of operations for the years ended
December 31, 1995 and 1994 F-3
Consolidated statements of stockholders' equity for the year ended
December 31, 1995 and 1994 F-4
Consolidated statements of cash flows for the year ended
December 31, 1995 and 1994 F-5 - F-6
Notes to consolidated financial statements F-7 - F-26
49
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NeuroCorp, Ltd. and Subsidiaries
(Formerly Tamarac Ventures, Ltd.)
We have audited the accompanying consolidated balance sheets of NeuroCorp, Ltd.
and Subsidiaries (the "Company") as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1995 and 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of NeuroCorp, Ltd. and Subsidiaries as of December 31, 1995,
and the results of their operations and their cash flows for the years ended
December 31, 1995 and 1994 in conformity with generally accepted accounting
principles.
Scarano & Lipton, P.C.
Garden City, New York
April 5, 1996
F-1
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
------------------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash $ 140,519 $ 336,505
Accounts receivable, net of allowance for
doubtful accounts of $39,920 and $32,675,respectively 716,650 155,097
Inventory 29,985 18,393
Due from affiliates 88,943 151,470
Stockholder note and loans receivable - 90,334
Prepaid expenses and taxes 53,314 77,082
Costs in excess of billings on uncompleted
contracts 28,833 150,174
------------ -----------
Total current assets 1,058,244 979,055
------------ -----------
Equipment and fixtures, net 81,066 94,501
------------ -----------
Other assets:
Database development costs, net 1,312,346 1,383,853
Computer system product development costs, net 744,536 653,224
Other 133,220 131,784
------------ ------------
Total other assets 2,190,102 2,168,861
------------ ------------
Total assets $ 3,329,412 $ 3,242,417
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Demand note - line of credit $ 50,000 $ -
Accounts payable including cash overdrafts of
$503, for 1994 only 152,465 207,894
Accrued expenses 175,712 96,124
Stockholder notes and loans payable 386,979 172,806
Income taxes payable 8,293 91,866
Current portion of long-term debt 90,227 71,400
Billings in excess of contract revenues
on uncompleted contracts 201,333 613,999
----------- ------------
Total current liabilities 1,065,009 1,254,089
Long-term liabilities:
Long-term debt 37,734 88,448
Deferred income taxes 309,000 297,000
----------- ------------
Total liabilities 1,411,743 1,639,537
----------- ------------
Commitments and contingencies (Note 12) - -
Stockholders' equity:
Preferred stock authorized 5,000,000 shares issued, as follows: - -
Cumulative Preferred stock, class B, series 1, no par value, issued and
outstanding 150,000 shares, full liquidation value of $150,000 150,000 150,000
Convertible Preferred stock, class B, series 2, no par value, issued and
outstanding 250,000 shares, full liquidation value $250,000 250,000 250,000
Common stock, $.001 par value, 100,000,000 shares authorized
6,107,141 and 5,400,000 issued and outstanding, respectively 45,307 44,600
Less: discount on common stock (28,500) (28,500)
Additional paid-in capital 592,352 262,123
Contributed capital 100,000 -
Retained earnings 808,510 924,657
------------ ------------
Total stockholders' equity 1,917,669 1,602,880
------------ ------------
Total liabilities and stockholders' equity $ 3,329,412 $ 3,242,417
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
-------------- -------------
Net revenues $ 1,543,363 $ 2,350,989
Cost of revenues, including amortization
expense of $179,308 and $166,710,
respectively 637,746 929,010
-------------- -------------
Gross profit 905,617 1,421,979
Expenses:
General and administrative 866,886 985,074
Research and development 181,512 224,010
-------------- -------------
(Loss) income from operations (142,781) 212,895
Other income (expense):
Gain on disposal of vehicle 31,280 -
Interest income 11,760 18,246
Interest expense (45,986) (23,727)
-------------- -------------
(Loss) income before provision for income
taxes and extraordinary item (145,727) 207,414
(Benefit from) provision for income taxes (29,580) 56,413
-------------- -------------
(Loss) income before extraordinary item (116,147) 151,001
Extraordinary item
Forgiveness of debt, net of taxes of $30,000 - 52,034
Net (loss) income $ (116,147) $ 203,035
-------------- -------------
-------------- -------------
Earnings per common equivalent share:
Primary:
(Loss) income before provision for
taxes and extraordinary item $ (.03) $ .19
(Benefit from) provision for income
taxes (.01) .07
-------------- -------------
(Loss) income before extraordinary
item (.02) .12
Extraordinary item - .07
-------------- -------------
Net (loss) income $ .02) $ .19
-------------- -------------
-------------- -------------
Weighted average number of shares
outstanding:
Primary 5,484,586 1,083,332
-------------- -------------
-------------- -------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Preferred Stock Class B Additional Contri-
Series 1 Series 2 Common Stock Paid-in buted Retained Stockholders'
Shares Amount Shares Amount Shares Amount Capital Capital Earnings Equity
------ ------- ------ ------- ------- ------ ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1993 - $ - - $ - 680,000 $ 5,500 $ 345,650 $ - $ 721,622 $ 1,072,772
Issuance of common stock
in connection with
finders fees - - - - 120,000 6,000 2,400 - - 8,400
Issuance of common stock
in connection with
acquisition of subsidiary - - - - 4,600,000 4,600 (4,600) - - -
Deferred acquisition
costs charged to
additional paid-in
capital upon completion
of acquisition of
subsidiary - - - - - - (102,536) - - (102,536)
Sale of preferred stock 150,000 150,000 250,000 250,000 - - - - - 400,000
Capital contribution
related to acquisition
of subsidiary - - - - - - 21,209 - - 21,209
Net income - - - - - - - - 203,035 203,035
------- ------- ------- ------- --------- ------- --------- ------- --------
Balances at
December 31, 1994 150,000 150,000 250,000 250,000 5,400,000 16,100 262,123 - 924,657 1,602,880
Sale of common stock - - - - 57,143 57 99,943 - - 100,000
Issuance of common
stock in connection
with loan - - - - 49,998 50 14,011 - - 14,061
Cancellation of common
stock contributed by
shareholder - - - - (400,000) (400) (99,600) 100,000 - -
Sale of common stock - - - - 1,000,000 1,000 249,000 - - 250,000
Issuance of stock option
in consideration for
compensation and
consulting fees - - - - - - 66,875 - - 66,875
Net (loss) - - - - - - - - (116,147) (116,147)
------- ------- ------- ------- --------- ------- --------- -------- --------- ----------
Balances at
December 31, 1995 150,000 $150,000 250,000 $250,000 6,107,141 $16,807 $ 592,352 $100,000 $808,510 $1,917,669
------- ------- ------- -------- --------- ------- --------- -------- --------- ----------
------- ------- ------- -------- --------- ------- --------- -------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
------------ ------------
Cash flows from operating activities:
Net (loss) income $ (116,147) $ 203,035
Adjustments to reconcile net (loss) income
to net cash (used for) provided by operating
activities:
Depreciation and amortization 230,546 293,240
Stock options issued in lieu of expenses 80,936 -
Deferred income taxes 12,000 25,145
Interest expense payment 9,278 -
Forgiveness of debt - (75,000)
Gain on disposal of vehicle (31,280) -
Reclassification of equipment to inventory 9,175 -
Changes in operating assets and liabilities:
Accounts receivable (561,553) 5,468
Inventory (11,592) (6,988)
Due from affiliates 62,527 (46,682)
Prepaid taxes and expenses 23,768 (55,362)
Costs in excess of billings on uncompleted contracts 121,341 468,172
Accounts payable (55,429) 159,735
Accrued expenses 79,588 17,363
Income taxes payable (83,573) 83,142
Customer deposits 1,930 (90,922)
Billings in excess of contract revenues on
uncompleted contracts (412,666) (1,113,027)
------------ ------------
Net cash flows (used for) operating activities (641,151) (132,681)
------------ ------------
Cash flows from investing activities:
Purchase of equipment and fixtures (47,955) (9,611)
Database development costs capitalized (60,478) (145,228)
Computer system product development costs
capitalized (138,635) (233,025)
Patent costs incurred (5,380) (4,220)
Proceeds from vehicle insurance claim 34,271 -
------------ ------------
Net cash flows used for investing activities (218,177) (392,084)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 80,778 275,000
Principal payments on long-term debt (71,943) (88,616)
Loan receivable 90,334 -
Stockholder loans, net of advances 214,173 (4,446)
Proceeds from demand note - line of credit - -
Proceeds from sale of preferred stock,
class B, Series 1 - 150,000
Proceeds from sale of preferred stock,
class B, Series 2 - 250,000
Proceeds from sale of common stock 350,000 -
Deferred acquisition costs incurred - (44,136)
------------ ------------
Net cash flows provided by financing activities 663,342 537,802
------------ ------------
Net (decrease) increase in cash (195,986) 13,037
Cash at beginning of year 336,505 323,468
------------ ------------
Cash at end of year $ 140,519 $ 336,505
------------ ------------
------------ ------------
F-5
<PAGE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 16,322 $ 22,489
--------- ---------
--------- ---------
Income taxes $ 3,508 $ 65,979
--------- ---------
--------- ---------
Schedule of non-cash investing and financing activities:
Issuance of 120,000 shares of common
stock as compensation for finders fees $ - $ 8,400
--------- ---------
--------- ---------
Issuance of 4,600,000 shares of common stock
in connection with acquisition of
subsidiary $ - $ 4,600
--------- ---------
--------- ---------
Deferred acquisition costs charged to
additional paid-in capital $ - $ 102,536
--------- ---------
--------- ---------
Capital contributed related to acquisition of
subsidiary $ - $ 21,209
--------- ---------
--------- ---------
Forgiveness of $75,000 bridge loan $ - $ 75,000
--------- ---------
--------- ---------
Issuance of 49,988 shares of common stock in
consideration for loan $ 14,061 $ -
--------- ---------
--------- ---------
Issuance of stock options for 250,000 shares
of common stock as compensation $ 50,000 $ -
--------- ---------
--------- ---------
Issuance of stock options for 50,000 shares of
common stock in lieu of consulting fees $ 16,875 $ -
--------- ---------
--------- ---------
Contribution of 400,000 shares of common stock
by shareholder $ 100,000 $ -
--------- ---------
--------- ---------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tarnarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 - ORGANIZATION
NeuroCorp, Ltd. (the "Company") was incorporated in the State of
Nevada on March 18, 1987. On November 23, 1994 the Company entered
into an agreement and a plan of reorganization with HZI Research
Center, Inc. ("HZI") to exchange 100% of HZI's outstanding conunon
stock for 4,600,000 post-split $.001 par value common shares of the
Company. Simultaneously, the Company effectuated a 1 for 50 reverse
stock split thereby reducing its outstanding common shares from
40,000,000 to 800,000. The financial statements have been restated to
give effect retroactively to the reverse stock split. This
transaction has been accounted for as a reverse acquisition of HZI,
whereby its assets and liabilities have been recorded at their
historical costs. Prior to this transaction the Company had no
significant assets, liabilities or operations. Accordingly, the
financial statements at December 31, 1995 and 1994 represent the
assets and liabilities of HZI and it's affiliates and the results of
their operations and cash flows for the two years then ended. All
costs incurred 'in connection with the reverse acquisition have been
charged to additional paid-in capital at the completion of the
transaction. On the closing date, the Company's Board of Directors
were replaced by directors designated by HZI and the Company changed
its name from Tamarac Ventures, Ltd. to NeuroCorp, Ltd.
The Company, through its wholly-owned subsidiary, HZI, is primarily
involved in three inter-related businesses al-I of which involve the
interaction or utilization of the Company's proprietary software,
databases and medical devices for the diagnosis and treatment of
brairL-related disorders. The three businesses are as follows: (i)
performing long-term contract services for medical research for major
domestic and international pharmaceutical firms (ii) designing and
producing proprietary neuropsychiatric diagnostic testing equipment,
which currently is their Brain Functioning Monitor (BFM) system (iii)
providing interactive diagnostic testing services and analysis to
physicians and hospitals via the telephone, this service is known as
TeleMap.
The Company conducts its operations in Tarrytown, New York. The
Company's revenues consist of a concentration of significant long-term
contracts, thus leading to a limited number of customers comprising a
significant percentage of revenues. See Note 12b for additional
infomiation.
NOTE 2 - SUMMARY OF SIC)NIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries HZI and Telemap, Inc., as
well as an affiliated entity, New York Institute for Medical Research,
Inc. ("NYV), which is under the control of a group of individuals who
represent a, majority of the Company's shareholders. All significant
intercompany transactions have, been eliminated in consolidation.
F-8
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
b) INVENTORY
Inventory, which consists solely of finished goods, is stated at
the lower of cost (first-in, first-out method) or market.
c) EQUIPMENT AND FIXTURES
Equipment and fixtures are recorded at cost. Depreciation is
provided using the doubledeclining balance method over the
estimated useful lives (5-7 years) of the related assets.
d) DATABASE DEVELOPMENT COSTS
Database development costs consists of capitalized costs
associated with updating and converting raw data into a readable
format for the Company's already marketed database. These costs
are being amortized on a straight-line method over the estimated
useful life of the database which is seventeen (17) years.
e) COMPUTER SYSTEM PRODUCT DEVELOPMENT COSTS
Computer system product development costs consist of costs
incurred from the time the product is determined to be
technologically feasible to the time the product is available for
general release to customers. These costs are being amortized on
a straight-line basis over seventeen (17) years which is the
estimated useful life. All costs prior to the establishment of
technological feasibility such as the costs of planning,
designing and testing the computer system product are charged to
research and development expense.
f) PATENTS
Patents which consist of legal costs and mandatory filing fees
specifically identified with the Company's patents, are being
amortized on a straight line basis over seventeen (17) years.
G) DEFERRED ACQUISITION COSTS
Deferred acquisition costs consisted of legal and accounting fees
directly associated with the acquisition of the Company's
subsidiary. Such costs were charged to additional paidin capital
upon completion of the acquisition of the subsidiary.
F-9
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
h) INCOME TAXES
Effective for the year ended December 31, 1992 the Company
accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires the use of the "liability method" of
accounting for income taxes. Accordingly, deferred tax
liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in
which the differences are expected to reverse. Current income
taxes are based on the respective periods taxable income for
Federal, State and City income tax reporting purposes.
i) REVENUE RECOGNITION
Long-term contract revenues are, recognized on the percentage of
completion method by multiplying total estimated contract revenue
by the percentage of completion. Changes in each contracts
performance, conditions and estimated profitability including
those arising from contract penalty provisions, and final
contract settlements may result in revisions to costs and income
and are recognized in the period in which the revisions are
determined. In addition, losses are recognized in full when
determinable. The asset, "Costs in excess of billings on
uncompleted contracts", represents revenues recognized in excess
of amounts billed. The liability, "Billings in excess of
contract revenues on uncompleted contracts", represents billings
in excess of revenues recognized.
Revenue from computer system sales, which include BFM, are
recognized upon the delivery of the turnkey systems. Service
revenues such as TeleMap, are recognized as they are rendered.
j) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed based on the
weighted average number of shares of common stock ouManding
during each period. Common stock equivalents are excluded from
the computation of net loss per share of conunon stock since the
results are anti-dilutive.
k) CHANGE OF FISCAL YEAR END
The parent company NeuroCorp, Ltd. cb=ged its fiscal year end
from September 30, to December 31, effective November 23, 1994,
the date the Company acquired HZI. The resulting effect of this
change is not deemed material to previously issued financial
statements since the@ Company had no operatioms prior to such
date.
F-10
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tarnarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
1) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations when
incurred, except for capitalized computer system product
development costs.
m) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and asswnptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
n) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", which requires impairment losses to be
recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the
accounting for longlived assets that are expected to be disposed
of. The Company wW adopt Statement 121 in the first quarter of
1996 and does not believe the cffect of adoption will be
material.
o) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected earlier adoption of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation", which requires the recognition of
compensation expense for stock-based awards based upon the fair
value of the award at the grant date (the modified grant date
method).
p) FAIR VALUE DISCLOSURE AS OF DECEMBER 31, 1995
The carrying value of cash, accounts receivable, accounts payable
and accrued expenses and short-term debt are a reasonable
estimate of their fair value. The carrying value of the long-
term debt including the current portion approximate fair value
based upon the interest factors for the debt being based upon the
prime rate which reflects market value.
q) RECLASSIFICATIONS
Certain recWsifications have been made to the December 31, 1994
financial statements to conform with the December 31, 1995
finamial statement presentation.
F-11
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 3 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
December 31, December 31,
1995 1994
------------ ------------
Costs incurred on uncompleted
contracts $ 4,028,216 $ 3,693,528
Estimated earnings 3,305,124 2,517,394
----------- -----------
7,333,340 6,210,922
Less: Billings to date 7,505,840 6,674,747
----------- -----------
$ (172,500) $ (463,825)
----------- -----------
----------- -----------
Included in accompanying balance sheets under the following captions:
Costs in excess of billings on
uncompleted contracts $ 28,833 $ 150,174
Billings in excess of contract revenues
on uncompleted contracts (201,333) (613,999)
----------- -----------
$ 172,500) $ (463,825)
----------- -----------
----------- -----------
NOTE 4 - EQUIPMENT AND FIXTURES, NET
Equipment and fixtures, net consists of the following:
December 31, December 31,
1995 1994
----------- -----------
Furniture and fixtures $ 9,009 $ 9,009
Equipment 533,958 544,173
Vehicles 50,118 75,669
----------- -----------
593,085 628,851
Less: accumulated depreciation 512,019 534,350
----------- -----------
$ 81,066 $ 94,501
------------ -----------
------------ -----------
Depreciation expense amounted to $49,224 and $126,530 for the years
ended December 31, 1995 and 1994, respectively. All equipment and fixtures
are pledged pursuant to a note payable. (See Note 9).
F-12
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 5 - DATABASE DEVELOPMENT COSTS, NET
December 31, December 31,
1995 1994
----------- ------------
Balance, beginning of year $ 1,383,853 $ 1,367,385
Capitalized costs during the year 60,479 145,228
Amortization charged to cost of revenues (131,986) (128,760)
----------- ------------
Balance, end of year $ 1,312,346 $ 1,383,853
----------- ------------
The recoverability of the carrying value of the database is evaluated
by management on a recurring basis. No adjustment to the carrying
value was determined for the years ended December 31, 1995 and 1994.
NOTE 6 - COMPUTER SYSTEM PRODUCT DEVELOPMENT COSTS, NET
December 31, December 31,
1995 1994
----------- -----------
Balance, beginning of year $ 653,224 $ 456,374
Capitalized costs during the year 138,635 233,025
Amortization charged to cost of revenues (47,323) (36,175)
----------- -----------
Balance, end of year $ 744,536 $ 653,224
----------- -----------
----------- -----------
In management's opinion the net realizable value of the unamortized
computer system product development costs exceeds the carrying value, net,
therefore, no adjustment to carrying value is required. Net realizable
value is measured by estimating future sales of these products and reducing
them by the estimated costs of completing and disposing of the products,
including the costs of performing maintenance and support required under
the sales.
NOTE 7 - DEMAND NOTE - LINE OF CREDIT
The $50,000 balance outstanding at December 31, 1995 represents
borrowings by HZI under a $100,000 secured line of credit agreement with a
bank. The agreement entered into on April 26, 1995 requires HZI to pay
interest monthly at one percent (1%) above the prime rate and said
principal balance is due on demand. The demand note is secured by
equipment, receivables and general intangibles.
F-13
<PAGE>
NOTE 8 - ACCRUED EXPENSES
Accrued expenses consists of the following:
December 31, December 31,
1995 1994
----------- -----------
Accrued payroll and related taxes $ 19,482 $ 37,293
Professional fees 149,783 53,522
Other 6,447 5,309
----------- -----------
$ 175,712 96,124
----------- -----------
----------- -----------
NOTE 9 - LONG-TERM DEBT
Long-term debt consists of the following:
December 31, December 31,
1995 1994
----------- -----------
Note payable due in thirty-six (36) monthly
installments of $6,175 including interest
at prime plus 1% per annum due April 1997.
The note is collateralized by equipment,
receivables and general intangible assets
and has been personally guaranteed by
certain officers. $ 97,715 $ 153,855
Note payable due in forty-eight (48) monthly
installments of $768 including interest
at 9.5% per annum due November 1999.
The note is collateralized by a company
vehicle. 30,246 -
Note payable due in sixty (60) monthly
installments of $834 plus interest at prime
plus 1.75% due April 1995. - 5,993
----------- ----------
127,961 159,848
Less: current portion 90,227 71,400
----------- ----------
Long-term portion $ 37,734 $ 88,448
----------- ----------
----------- ----------
Long-term debt matures as follows:
Year ended
December 31,
1995
------------
1996 $ 90,227
1997 21,587
1998 8,073
1999 8,074
-----------
$ 127,961
-----------
-----------
F-14
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 10 - PROVISION FOR INCOME TAXES
Provision for (benefit from) income taxes are comprised of the
following at:
December 31, December 31,
1995 1994
---------- -----------
Current:
Federal $ (30,703) $ 43,500
State (10,877) 17,768
---------- ----------
$ (41,580) $ 61,268
---------- ----------
---------- ----------
Deferred:
Federal $ 12,000 $ 25,145
State - -
---------- ----------
12,000 25,145
---------- ----------
Total provision for (benefit from)
income taxes $ (29,580) $ 86,413
---------- ----------
---------- ----------
Provision for (benefit from) income taxes included in the statement of
operations is as follows:
December 31, December 31,
1995 1994
Continuing operations $ (29,580) $ 56,413
Extraordinary item - 30,000
---------- ----------
Total income (benefit from)
tax provision $ (29,580) $ 86,413
---------- ----------
---------- ----------
A reconciliation of the income tax expense on income per the U.S.
Federal statutory rate to the reported income tax expense is as
follows:
December 31, December 31,
1995 1994
----------- -----------
U.S. Federal statutory rate applied to
pretax income $ - $ 101,306
State and local income taxes,
net of federal income tax benefit - 10,250
Benefit of graduated tax rates to
statutory tax rate - (25,143)
---------- ----------
Income tax expense $ - $ 86,413
---------- ----------
---------- ----------
The Company has adopted SFAS No. 109, "Accounting for Income Taxes",
effective for the year ended December 31, 1992. Management has
evaluated the effect of implementation and has determined that there
is no material impact on the Company's financial position except for
the effect of HZI's capitalized database development and computer
system product development costs.
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related to differences between the financial and tax
basis of assets and liabilities for financial and income tax
reporting purposes. Deferred tax assets and liabilities represent the
future tax return consequences of these temporary differences, which
will either be taxable or deductible in the year when the assets or
liabilities are recovered or settled.
F-15
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 10 - PROVISION FOR INCOME TAXES (Cont'd)
The Company has a policy of capitalizing database development costs
and computer system product development costs attributable to the
current year for financial statement purposes and expensing such
amounts currently for tax reporting purposes.
The Company expects to continue this policy for an indeterminable time
period. Accordingly, measurement of the deferred tax liability
attributable to the book-tax basis differentials related to the
database and computer system product development costs is computed at
a rate of 15% pursuant to SFAS No. 109.
The tax effect of significant items comprising the Company's deferred
tax assets are as follows:
December 31, December 31,
1995 1994
----------- -----------
Net operating loss carryforwards $ 81,300 $ 64,650
Valuation allowance (81,300) (64,650)
----------- ----------
Long-term portion of deferred
tax assets $ - $ -
The tax effect of significant items comprising the Company's deferred
tax liability are as follows:
December 31, December 31,
1995 1994
---------- -----------
Database development costs $ 196,852 $ 201,761
Computer system product
development costs 112,148 95,239
---------- ----------
Long-term portion of deferred
tax liability $ 309,000 $ 297,000
---------- ----------
---------- ----------
The companies do not file a consolidated tax return. As such, each
Company computes its tax based on its own taxable income or loss.
Further, NYI has a tax year ending on June 30. For tax purposes NYI
is considered a for-profit corporation.
At December 31, 1995, the Company and NYI had net operating loss
carryforwards (NOL's) of approximately $247,000 and $295,000,
respectively. The Companies have recorded a full valuation allowance
against the deferred tax asset at December 31, 1995 and 1994 pursuant
to SFAS 109, since management could not determine that it was "more
likely than not" that the deferred asset would be realized in the
future.
A portion of the Company's NOL's are subject to the provisions of the
Tax Reform Act of 1986 which limits use of net operating loss
carryforwards when changes of ownership of more than 50% occur during
a three year testing period. On November 23, 1994, the Company's
ownership changed by more than 50% as a result of the transaction as
described in Note 11.
F-16
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 10 - PROVISION FOR INCOME TAXES (Cont'd)
HZI has a tax credit carryforward attributable to an increase in
research and development expenditures approximating $72,000. Any
portion of the research tax credit that remains unused at the end of
the carryforward period is allowed as a deduction in the year
following the expiration of the carryforward period.
With respect to the total carryforwards of NOL's and tax credits said
amounts expire between the years 2003 and 2010.
NOTE 11 - STOCKHOLDERS' EQUITY
a) AMENDMENT TO CERTIFICATE OF INCORPORATION
In connection with the reverse acquisition of HZI (See Note 11g), on
November 23, 1994, the Company amended its Certificate of
Incorporation to change its name from Tamarac Ventures, Ltd. to
NeuroCorp, Ltd. Further, the Company reduced its authorized common
stock from 200,000,000 shares to 100,000,000 shares and authorized
5,000,000 shares of preferred stock of which 400,000 of the 5,000,000
shares of the preferred stock has been deemed to be Class B, Series 1
and Series 2. Accordingly, the financial statements give retroactive
effect to these items.
b) DISCOUNT ON COMMON STOCK
On April 30, 1987, 30,000,000 shares of common stock, par value $.001,
were issued at $.00005 per share for total consideration of $1,500, or
a discount of $28,500. According to Nevada counsel, the laws of the
State of Nevada provide for a discount on original issue capital stock
whether or not that stock carries a par value so long as the action is
ratified by the Board of Directors and is otherwise in compliance with
applicable laws. These shares are deemed to be fully paid and non-
assessable, even though issued below par.
c) INITIAL PUBLIC OFFERING
On September 28, 1987, the Company completed its public offering of
4,000,000 units at $.05 per unit resulting in net proceeds of
$178,509. Each unit consisted of one (1) share of common stock, $.001
par, and one (1) common stock purchase warrant. The warrants expired
unexercised thirty-six months after the effective date of the
offering.
d) OPTIONS TO OFFICERS
In 1985 and 1991, four (4) employees of HZI were granted an option to
buy a total of twenty (20) shares or then ten (10)% of the stock of
HZI at a price of $10 per share. Such options were available to the
respective individuals as long as they remained employees of HZI.
In November 1992, all four (4) employees exercised their option to buy
HZI's common stock. These new shareholders simultaneously transferred
their shares to the voting trust, per Note 11e below.
F-17
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
e) VOTING TRUST AGREEMENT
In January 1992, the shareholders of HZI entered into an agreement
whereby all shares of HZI were transferred into a voting trust. The
trust was created for the purpose of granting the trustee the
exclusive right to vote upon the shares contained in the trust. The
trust has a life of twenty (20) years and for the first ten (10) years
the Company's current chairman is the trustee. Thereafter, HZI's
president who is the son of the Company's chairman becomes the
trustee. The trustee has the exclusive right to vote all such shares
subject to any limitations in the HZI Certificate of Incorporation.
Commencing with the reverse acquisition as discussed in Note 11g, the
original members of the voting trust transferred their newly issued
shares in the Company to the voting trust.
f) ISSUANCE OF WARRANTS
As part of the acquisition, the Board of Directors of the Company have
authorized the issuance of Class B and Class C Warrants to all
stockholders of the Company who were stockholders of record as of
November 1, 1994. The Warrants were distributed on a 1 Warrant for 1
share of common stock basis (post reverse stock split) and comprised
in the aggregate 800,000 Class B and 800,000 Class C Warrants, each of
which is exercisable into one share of Common Stock of the Company.
The Class B Warrants are exercisable at $2.25 per share and the Class
C Warrants are exercisable at $2.75 per share, and expire on June 30,
1996. The shares of Common Stock underlying the Warrants must be
registered with the Securities and Exchange Commission (SEC) prior to
the Warrants becoming exercisable. The Company may, at its sole
discretion, undertake to file a registration statement with the
Securities and Exchange Commission wherein the Company will register
the Warrants and the shares of Common Stock underlying the Warrants.
However, until such time as said registration statement is filed and
becomes effective, the Warrants will not be exercisable. The number
of shares underlying the Warrants, and the exercise price of the
Warrants, may be adjusted downward or upward at any time by the
Company's Board of Directors. Further, the Warrants are redeemable by
the Company at any time upon thirty days written notice, at a price of
$.001 per Warrant.
In January 1996, the Company's Board of Directors reduced the exercise
price of the Class B and Class C warrants from $2.25 to $1.00 per
share and from $2.75 to $2.00 per share, respectively and the
expiration dates were extended to June 30, 1997. As described in Note
14b, in February 1996 the Company filed with SEC to register these
warrants.
F-18
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (CONT'D)
g) REVERSE ACQUISITION OF SUBSIDIARY
On November 23, 1994, the Company entered into an agreement and a plan
of reorganization with HZI to exchange 100% of HZI's outstanding
common stock for 4,600,000 post-split $.001 par value common shares of
the Company. Such transaction superceded the Letter of Intent entered
into between the parties on March 18, 1994. Simultaneously, the
Company effectuated a 1 for 50 reverse stock split thereby reducing
its outstanding common shares from 40,000,000 to 800,000. The
financial statements have been restated to give effect retroactively
to the reverse stock split.
All costs incurred in connection with the acquisition have been
charged to additional paid-in capital at the completion of the
transaction. On the closing date, the Company's Board of Directors
were replaced by directors designated by HZI.
Pursuant to the March 18, 1994 Letter of Intent, between the Company
and HZI, the Company agreed, with the assistance of others, to arrange
for certain financing for HZI within a specified time period. On
March 24, 1994, a bridge loan was made for $75,000 by Trinity American
Corporation ("TAC") a stockholder of the Company, to HZI, pursuant to
the agreement. The financing that was to be arranged for HZI was not
timely arranged, based upon the terms of the agreement HZI was not
responsible for the repayment of the bridge loan. This transaction
has been recorded as a forgiveness of debt in the year ended December
31, 1994.
On November 23, 1994 TAC contributed $400,000 to the Company's capital
account with no further issuance of common stock. In December 1994,
the Company and TAC reached an agreement whereby in consideration for
the $400,000 paid on November 23, 1994 two classes of preferred stock
were issued to TAC. The first class of 150,000 shares of cumulative
non-convertible preferred stock class B, series 1, no par value has a
liquidation preference of $1 per share. Dividends accrue on such
stock commencing January 1, 1996 at a rate of 10% of the liquidation
value and are payable semi-annually in cash or stock. Dividends are
payable based on the average closing bid price of the stock 30
consecutive days prior to the date the dividend becomes payable.
Further, the Company may redeem such shares at any time for $3 per
share.
The second class of 250,000 shares of convertible no par value
preferred stock, class B series 2, can be converted into common stock.
The conversion feature provides that between January 1, through June
30, 1996 that one (1) share of preferred stock can be converted into
two (2) shares of common stock. After June 30, 1996 the conversion
feature is reduced to five (5) shares of preferred stock to one (1)
share of common stock. Further, the Company can at its option force a
conversion of such stock if the closing bid price for the Company's
common stock is at least 2 5/8 for thirty (30) consecutive trading
days.
F-19
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
h) STOCK OPTION PLAN TRANSACTIONS
On November 23, 1994, the Company adopted an incentive stock option
plan that will provide for the granting of options to purchase up to
1,500,000 shares of the Company's common stock that are intended to
qualify either as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or a non-statutory stock
option plan. Options to purchase shares may be granted under the
statutory stock option plan to persons who are employees or officers
of the Company. If the Company adopts a non-statutory stock option
plan, options shall be granted to, employees, officers, non-employee
directors, and consultants to the Company.
The stock option plan provides for its administration by a committee
chosen by the Board of Directors. The committee shall have full
discretionary authority to determine the number of shares to be
granted, the grantees receiving the options, the exercise period, and
the exercise price for which options will be granted. In the case of
statutory stock option plans, the committee's authority to establish
the terms and conditions of such options, including, but not limited
to their exercise price, shall be subject to restrictions imposed by
Section 422 of the Internal Revenue Code.
On September 19, 1995, the Company granted to its President and Vice
Chairman a non-qualified stock option to purchase 250,000 shares of
common stock at an exercised price of $.10 per share. This option
expires seven (7) years from the date of grant and the underlying
common shares related to the stock option are restricted. At the date
of grant the Company recorded compensation expense of $50,000 based
upon the fair value of the stock option at that date.
In December 1995, the Company granted a consultant a non-qualified
stock option to purchase 50,000 shares of common stock at $.01 per
share. The underlying common shares related to the stock option are
restricted. At the date of grant the Company recorded a consulting
fee of $16,875 based upon the fair value of the stock option on that
date.
i) SALE OF SHARES BY FORMER PRINCIPAL SHAREHOLDER
Pursuant to a Stock Purchase Agreement dated October 25, 1994, the
then principal shareholder and President of the Company agreed to sell
556,000 of his post-split shares of the Company's common stock to TAC,
for a purchase price of $40,000. Such shares were transferred to TAC
immediately upon the completion of the Company's acquisition of HZI.
Further, TAC has the right to transfer a portion of the shares
purchased to other nonaffiliated persons through a sale of all or a
part of the shares to offshore investors pursuant to Regulation S of
the Securities Act of 1933, as amended.
TAC has the right, on one occasion, to demand that the Company file a
registration statement, at TAC's expense, as to all of the shares of
the Company's common stock held by TAC. (See Note 14b).
F-20
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
j) SALE OF COMMON STOCK
On April 14, 1995, the Company sold 57,143 shares of post-split $.001
par value common stock for $100,000 to a foreign investor utilizing
Regulation S guidelines. Said shares have not been registered under
the Securities Act of 1933 (the "Act"), hence the shares cannot be
sold, transferred, assigned or hypothecated unless they are either
registered under the Act or sold pursuant to an applicable exemption
from registration.
k) ISSUANCE OF COMMON STOCK AS CONSIDERATION FOR LOAN
On July 19, September 14, and October 12, 1995, the Company and the
Chairman of the Board entered into a letter agreement with TAC to
borrow $100,000, $40,000, and $60,000 respectively. The $100,000 and
$60,000 loans have an interest rate of 9% per annum, respectively, and
were due in six months from the date of issuance including accrued
interest, respectively. The $40,000 loan has a rate of 10% and is due
90 days from the date of issuance including accrued interest. The due
date for the $100,000 note has been extended to July 1996. The due
date for the $40,000 and $60,000 loans have been extended to June
1996. As additional consideration for the $100,000 loan, the Company
agreed to issue 49,998 shares of restricted common stock to TAC. The
Company has recorded the additional consideration as interest expense,
with a cost of $14,061, which is based upon the fair value of the
stock issued on the date of the agreement. Further, the letter
agreements give TAC the option to convert said loans into 400,000
shares of non-dilutive common stock, whereby the Company's Chairman
has agreed to satisfy this conversion feature by transferring shares
from his personal common stock holdings.
l) SALE OF COMMON STOCK AND CAPITAL CONTRIBUTION
In December 1995, the Company sold 1,000,000 post-split shares of
.001 par value common stock to four unrelated investors for
$250,000. As a condition of the sale the Company's Chairman
agreed to contribute 400,000 shares of the Company's common stock
owned by him to the Company and to then have them cancelled by
the Company. The Company has accounted for this as a $100,000
contribution of capital based upon the fair value of the stock at
the date of contribution. The Company agreed to file a
registration statement in February 1996 as one of the conditions
of the sale, the registration statement is more fully described
in Note 14b.
F-21
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 12 - COMMITMENTS AND CONTINGENCIES
a) OPERATING LEASES
The Company leases its office facilities under a noncancellable
operating lease expiring in 1998. The lease contains a provision for
additional rent which is equal to the Company's pro rated share of
future real estate taxes. In addition, the Company has a
noncancellable operating lease for office equipment expiring in 1997.
A schedule of future minimum rental payments at December 31, 1995 is
as follows:
Year ended December 31,
-----------------------
1996 $ 110,490
1997 92,557
1998 77,868
----------
$ 280,915
----------
----------
Rent expense under all operating leases for the years ended December
31, 1995 and 1994 totalled $202,755 and $188,666, respectively.
b) CONCENTRATION OF CREDIT RISK
For the years ended December 31, 1995 and 1994, approximately 42% and
65%, respectively, of net sales were derived from one unrelated
customer, respectively, who is in the pharmaceutical industry. As of
December 31, 1995, approximately 54% of accounts receivable is due
from two unrelated customers.
c) EMPLOYMENT AGREEMENTS
1) On September 20, 1995, the Company's Chairman of the Board
entered into an employment agreement providing for a base salary
of $250,000 per year. The agreement is for an initial term of 10
years and is renewable on a month to month basis thereafter. The
agreement provides that on each anniversary date the Chairman's
salary shall be increased in good faith subject to negotiations
between the Chairman and the Company. The Company has agreed to
review the services rendered by the Chairman at least annually
and, at the discretion of the Board of Directors award a cash
bonus or make a contribution to a deferred compensation plan.
Further, the agreement provides for a term life insurance policy
amounting to $1,000,000 payable to the Chairman's designated
beneficiary and also provides for a vehicle and driver funded by
the Company.
For the year ended December 31, 1995 the Company's Chairman
waived $146,347 of his base annual salary. Additionally, the
Company's Chairman waived his right to receive the term life
insurance as provided for in the employment agreement.
F-22
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Cont'd)
c) EMPLOYMENT AGREEMENTS (Cont'd)
2) On December 7, 1994, the Company entered into an employment
agreement with its Executive Vice President providing for a base
salary of $100,000 per year. The agreement expires on January 1,
2000 and is renewable on a year to year basis thereafter. The
agreement provides that on January 1 of each year the Executive
Vice President shall be entitled to a 10% salary increase and an
annual bonus equal to at least fifty percent (50%) of his base
salary subject to the Board of Directors approval. If the
employee is terminated within the contract period due to the
change in control of the Company as defined in the Securities
Exchange Act of 1934, under Sections 13(d) and 14(d), said
Executive Vice President shall be entitled to a lump sum payment
equal to five (5) time his gross annual compensation, in effect
at date of termination. Additionally, for the three year period
after the date of termination, the Company is obligated to
provide the employee with life and health insurance benefits
substantially similar to those which the Executive Vice President
was receiving prior to the date of termination.
d) CONSULTING AGREEMENT
On July 1, 1995, the Company entered into a five (5) year
consulting agreement with a Corporation controlled by the Company's
President and Vice Chairman. Said agreement provides for a fee of
$75,000 per annum.
NOTE 13 - RELATED PARTY TRANSACTIONS
a) REVENUES FROM AFFILIATES
The Company charges NYI as well as Manhattan Westchester Medical
Services, P.C. ("Manhattan West") for the use of certain employees and
office and laboratory space of the Company. Manhattan West is also
under the common control of the Company's Chairman. Net revenues from
these affiliates for the years ended December 31, 1995 and 1994
amounted to $186,123 and $285,132, respectively.
The above transactions between HZI and NYI have been eliminated in the
consolidated financial statements.
F-23
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1995 AND 1994
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
b) SERVICES PROVIDED BY AFFILIATES
HZI subcontracts to NYI, a not-for-profit entity under the control of
the Company's Shareholder's, a material amounts of its patient testing
performed in connection with it's long term contracts. Expenses
incurred with NYI for the years ending December 31, 1995 and 1994 were
$118,087 and $283,936, respectively. The net payable due NYI at
December 31, 1995 and 1994 amounted to $37,583 and $2,753,
respectively. The above transactions between HZI and NYI have been
eliminated in the consolidated financial statements.
During 1994 HZI and Manhattan West entered into an arrangement whereby
Manhattan West will provide medical consulting services to HZI's
TeleMap business. This arrangement was discontinued during 1995 and
is now being performed by the Company's personnel. Services provided
by Manhattan West to HZI for the years ended December 31, 1995 and
1994 amounted to $15,400 and $40,177, respectively.
c) STOCKHOLDER NOTES AND LOANS
December 31, December 31,
1995 1994
---------- -----------
Notes payable bearing an interest of
7.5% to 10% (See ii below) $ 225,000 $ 14,000
Non-interest bearing loans and payables
(See i below) 155,381 132,707
Accrued interest (See ii below) 6,598 26,099
--------- ----------
$ 386,979 $ 172,806
---------- ----------
---------- ----------
i) Stockholder notes and loans payable relates to advances made to HZI
and NYI by its Chairman of the Board which are due on demand.
F-24
<PAGE>
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
c) STOCKHOLDER NOTES AND LOANS (Cont'd)
ii) On July 19, September 14, and October 12, 1995, the Company and the
Chairman of the Board entered into a letter agreement with TAC to
borrow $100,000, $40,000, and $60,000 respectively. The $100,000 and
$60,000 loans have an interest rate of 9% per annum, respectively, and
were due in six months from the date of issuance including accrued
interest, respectively. The $40,000 loan has a rate of 10% and is due
90 days from the date of issuance including accrued interest. The due
date for the $100,000 note has been extended to July 1996. The due
date for the $40,000 and $60,000 loans have been extended to June
1996. As additional consideration for the $100,000 loan, the Company
agreed to issue 49,998 shares of restricted common stock to TAC. The
Company has recorded the additional consideration as interest expense,
with a cost of $14,061, which is based upon the fair value of the
stock issued on the date of the agreement. Further, the letter
agreements give TAC the option to convert said loans into 400,000
shares of non-dilutive common stock, whereby the Company's Chairman
has agreed to satisfy this conversion feature by transferring shares
from his personal common stock holdings.
On November 16, 1995, the Company entered into a letter agreement with
SRS Partners, a partnership that is affiliated with TAC to borrow
$25,000. The loan bears interest at a rate of 9% and is due within
six months or out of the proceeds of the first funding of the Reg. "S"
transaction.
d) DUE FROM AFFILIATES
Due from affiliates represent amounts due to HZI which are unsecured
demand obligations amounting to the following:
December 31, December 31,
1995 1994
------------ ------------
Due from Manhattan West $ 68,855 $ 125,377
Academia 20,088 26,093
------------ ------------
$ 88,943 $ 151,470
------------ ------------
------------ ------------
Academia Medicine Psychiatric Foundation, Inc. ("Academia") is a
not-for-profit entity under the control of one of the Company's
majority stockholders.
F-25
<PAGE>
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
e) SHAREHOLDER TRANSACTIONS
1. On October 25, 1994, the Company issued 120,000 shares (post
reverse stock split) of common stock to TAC as a finders fee in
connection with the Company's acquisition of HZI. The Company
has assigned a value of $8,400 to such shares. As discussed in
Note 11g, TAC made a $75,000 non-interest bearing bridge loan to
HZI which has been forgiven.
2. On November 23, 1994, the Company's former majority shareholder
satisfied certain Company liabilities amounting to $7,034 which
were forgiven simultaneously.
3. On November 23, 1994, TAC satisfied certain acquisition
obligations amounting to $21,209 which were accounted for as a
contribution of capital.
4. On November 23, 1994, TAC contributed $400,000 to the Company's
capital account with no further issuance of stock. In December
1994, the Company and TAC reached an agreement whereby in
consideration for the $400,000 received on November 23, 1994 two
classes of preferred stock were issued to TAC as discussed in
Note 11g.
5. On September 19, 1995 the Company granted to its Vice Chairman a
non-qualified stock option to purchase 250,000 shares of common
stock at an exercised price of $.10 per share. This option
expires five (5) years from the date of grant and the underlying
common shares related to the option are restricted. At the date
of grant the Company recorded compensation expense of $50,000
based upon the fair value of the stock option at that date.
f) CONSULTING AGREEMENT
On July 1, 1995, the Company entered into a seven (7) year consulting
agreement with a Corporation controlled by the Company's President and
Vice Chairman. Said agreement provides for a fee of $75,000 per
annum.
Further, the letter agreements give TAC the option to convert said
loans into 400,000 shares of non-dilutive common stock, whereby the
Company's Chairman has agreed to satisfy this conversion feature by
transferring shares from his personal common stock holdings.
F-26
<PAGE>
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
g) CAPITAL CONTRIBUTION
In December 1995, the Company sold 1,000,000 post-split shares of .001
par value common stock to four unrelated investors for $250,000. As a
condition of the sale the Company's Chairman agreed to contribute
400,000 shares of the Company's common stock owned by him to the
Company and to then have them cancelled by the Company. The Company
has accounted for this as a $100,000 contribution of capital based
upon the fair value of the stock at the date of contribution. The
Company agreed to file a registration statement in February, 1996 as
one of the conditions of the sale, the registration statement is more
fully described in Note 14b.
h) DUE FROM AFFILIATES
The Company charges NYI and Manhattan West for the use of certain
employees and laboratory space. NYI and Manhattan West are under the
common control of the Company's Chairman. At December 31, 1995 and
1994, amounts receivable from Manhattan West for these services
amounted to $68,855 and $125,377, respectively.
NOTE 14 - SUBSEQUENT EVENT
a) During January 1996, the Company's Chairman of the Board was repaid
$25,000 of loans to the Company. In April 1996, upon receipt of the
funds from the sale of common stock the Chairman was repaid an
additional $20,000 of loans to the Company.
b) During February 1996, the Company is registering common shares and
warrants pursuant to certain registration rights, and other
contractual obligations incurred by the Company in connection with the
issuance of such common shares and warrants pursuant to the HZI
acquisition agreement signed in November 1994 and the sale of common
shares in December 1995 (See Note 11l). The Company will not receive
any of the proceeds from the sale of the common shares or warrants
since all respective shares are being offered by the selling
stockholders.
c) During February 1996, TAC loaned the Company $125,000. In April 1996,
upon receipt of the funds from the sale of common stock TAC was repaid
$50,000 towards these loans.
d) On March 12, 1996 the Company sold 333,333 shares of common stock to
an investor for $133,333.
e) On April 2, 1996, the Company sold 666,667 shares of common stock to
two investors for $266,667.
F-27
<PAGE>
UNTIL .................. 1996, (40 DAYS AFTER THE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS I THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides in part as
follows:
The corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Nevada, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Certificate of Incorporation, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnifications are against public policy as
expressed in the Act and is therefore, unenforceable.
In the event of a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person in connection with the securities being
registered), the Registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II - 1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses are estimated:
SEC Registration Fees $2,595 *
Accounting fees 5,000
Legal Fees 25,000
Printing, Engraving & Mailing 6,000
Transfer agent & Registrar's fees 2,500
Blue Sky fees and expenses 2,500
Miscellaneous expenses 6,405
-------
TOTAL $50,000
-------
-------
* Actual
II - 2
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold or issued by the
Company without registration under the Securities Act of 1933, as amended (the
"Act"):
On October 25, 1994, the Company issued to Trinity American Corporation
("Trinity"), 120,000 shares of the Company's Common Stock in consideration of
Trinity's identifying HZI Research Center, Inc. ("HZI") as a potential
acquisition candidate for the Company.*
On November 23, 1994 the Company issued 4,600,000 shares of its Common Stock to
the nine shareholders of HZI in exchange for all of HZI's issued and outstanding
shares of capital stock. Such persons were Dr. Turan M. Itil, Eleanor Itil,
Kurt Itil, Pierre Le Bars, Yasmin Itil LeBars, Richard Katz, Howard Katz, Aileen
Kunitz and Emin Eralp. *
As part of the acquisition of HZI, the Board of Directors of the Company
authorized the issuance of Class B and Class C Warrants to all stockholders of
the Company who were stockholders of record as of November 1, 1994. The
Warrants were distributed on a 1 Warrant for 1 share of common stock basis (post
reverse stock split) and comprised in the aggregate 800,000 Class B and 800,000
Class C Warrants each of which is exercisable into one share of Common Stock of
the Company. The Class B Warrants are exercisable at $1.00 per share and the
Class C Warrants are exercisable at $2.00 per share, and expire on June 30,
1997. The shares of Common Stock underlying the Warrants must be registered
under the Act prior to the Warrants becoming exercisable. The above securities
were issued in reliance on the general provisions under Section (2) 3 that stock
(ergo Warrant) dividends are exempt without express provision as they do not
constitute a sale, and are not being given for value. Further, as noted above,
the Warrants could not be exercised without registration under the Act, absent
an available exemption. These Warrants and the underlying shares of Common
Stock are included in this Registration Statement. See "Selling Stockholders"
for names of those persons who are Warrant holders.
In December 1994 the Company issued 400,000 shares of Preferred Stock to Trinity
in consideration of $400,000 contributed by Trinity on November 23, 1994 to the
capital of the Company. Of the 400,000 shares of Preferred Stock, 150,000
shares are designated Class B, Series 2. Between January 1, through June 30,
1996 (one (1) share of Class B, Series 2 can be converted into two (2) shares of
Common Stock. After June 30, 1996 the conversion rate is reduced to five (5)
shares of Class B, Series 2 Preferred Stock into one (1) share of Common Stock.*
On April 14, 1995 the Company sold 57,143 shares of Common Stock for $100,000 to
Asim Kocabiyik, a foreign investor, pursuant to the exemption provided by
Regulation S under the Securities Act.
In July 1995 Trinity loaned $100,000 to the Company. As additional
consideration for such loan 16,666 shares of the Company's Common Stock was
issued to each of the three sons of the President and sole stockholder of
Trinity.*
II - 3
<PAGE>
In December 1995 the Company sold an aggregate of 1,000,000 shares of Common
Stock for an aggregate consideration of $250,000 to four investors as follows:
Consolidated Capital Assets, Ltd., J.L.B. Equities, Robsol, Inc. and Elvena,
Inc. As a condition of this private placement Dr. Itil and his wife each
contributed 200,000 shares of the Company's Common Stock owned by them to the
Treasury of the Company.*
In March 1996 the Company sold 333,333 shares of Common Stock to Anker Bank,
Zurich, Switzerland for $133,333 and in April the Company sold 333,333 shares of
Common Stock to Avi Herson for $133,333 and 333,334 shares of Common Stock to
Georges Hauchecorne for $133,334. All of these sales were made to foreign
investors pursuant to the exemption provided by Regulation S under the Act.
- ------------------
* The above securities were issued in reliance on the exemption from
registration under Section 4(2) as not involving any public offering.
Claims of such exemptions are based upon the following: (i) all of the
purchasers in such transactions were sophisticated investors with the
requisite knowledge and experience in financial and business matters to
evaluate the merits and risk of an investment in the Company, were able to
bear the economic risk of an investment in the Company, had access to or
were furnished with the kinds of information that registration under the
Act would have provided and acquired securities for their own accounts in
transactions not involving any general solicitations or advertising, and
not with a view to the distribution thereof, and (ii) a restrictive legend
was placed on each certificate evidencing the securities; (iii) each
purchaser acknowledged in writing that he knew the securities were not
registered under the Act or any State securities laws, and are Restricted
Securities as that term is defined in Rule 144 under the Act, that the
securities may not be offered for sale, sold or otherwise transferred
within the United States except pursuant to an Effective Registration
Statement under the Act and any applicable State securities laws, or
pursuant to any exemption from registration under the Act, the availability
of which is to be established to the satisfaction of the Company.
II - 4
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
27 (a) EXHIBITS
(2) (a) Agreement and Plan of Reorganization between Company and
HZI
(3) (a) Certificate of Incorporation as amended*
(b) Certificate of Amendment to Certificate of Incorporation**
(c) By-Laws*
(4) (a) Form of Common Stock Certificate.
(b) Form of Class B Common Stock Purchase Warrant
(c) Form of Class B Common Stock Purchase Warrant
(5) (a) Opinion of Counsel (to be supplied by amendment)
(10) (a) Stock Option Plan.
(b) Form of Employee's Stock Option Agreement (to be supplied by
amendment)
(c) Employment Agreement between the Company and Dr. Turan M. Itil
(c)(i) Employment Agreement between the Company and IRH Corporation
(c)(ii) Employment Agreement between the Company and Dr. Pierre LeBars
(d) Lease Agreement for premises situated at 150 White Plains
Road, Tarrytown, New York
(to be supplied by amendment)
(e) Voting Trust Agreement
(f) Agreement between the Company and Mediator S.R.L.
(16) (a) Letter re: changes in certifying accountant
(24) (a) Consent of Scarano & Lipton P.C. (included in Part II of
Registration Statement)
(b) Consent of Counsel (contained in their opinion Exhibit 5(a)
included in Part II of Registration Statement).
(27) (b) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because of the absence of conditions under
which they are required or because the required information is
given in the financial statements or notes thereto.
- -------------
Unless otherwise noted all of the foregoing exhibits are filed
herewith.
* Incorporated by reference to Registration Statement on Form S-18
No. 33-2205-D declared effective on July 27, 1987.
** Incorporated by reference to the Company's Annual Report on Form
10-K for the period ending September 30, 1994.
II - 5
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which
individually or together represent a fundamental change in
the information in the registration statement; and
notwithstanding the forgoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in the volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any additional or changed material with respect
to the plan of distribution.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities being offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) That it has been advised with respect to the Commissions policy on
indemnification for liabilities arising under the Act (See
"Indemnification of Officers and Directors" in the Prospectus) and
that in the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II - 6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the Village of Tarrytown, State of New York on May 13, 1996.
(REGISTRANT) NEUROCORP, LTD.
BY (SIGNATURE AND TITLE) S/TURAN M. ITIL
-------------------
Turan M. Itil,
Chairman, Chief Executive Officer
and Director
Date: May 13, 1996
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
S/TURAN M. ITIL S/I. RONALD HOROWITZ
- ----------------------- --------------------
Turan M. Itil I. Ronald Horowitz
Chairman, Chief Executive Vice Chairman & President
Officer and Director
Date: May 13, 1996 Date: May, 13 1996
S/KURT Z. ITIL S/RICHARD KATZ
- ----------------------- --------------------
Kurt Z. Itil, Director Richard Katz, Director
Date: May 13, 1996 Date: May 13, 1996
S/PIERRE LE BAR
- ----------------------- --------------------
Evelyn, Sommer, Director Pierre Le Bar,
Executive Vice President
and Director
Date: .......... ...., 1996 Date: May 13, 1996
S/JOSEPH DIO GUARDI S/AILEEN A. KUNITZ
- ----------------------- --------------------
Joseph Dio Guardi, Director Aileen A. Kunitz, Vice President
Director, Principal Financial Officer
Principal Accounting Officer
Date: May 13, 1996 Date: May 13, 1996
<PAGE>
May 17, 1996
NeuroCorp, Ltd.
150 White Plains Road
Tarrytown, NY 10591
We hereby consent to the use of our name "as experts," in the "Summary Financial
Information" section and the use of our opinion dated April 15, 1996 for
NeuroCorp, Ltd. to be included in the Amendment No. 1 to Form SB-2 Registration
Statement being filed for NeuroCorp, Ltd.
Very truly yours,
Scarano & Lipton, P.C.
