<PAGE>
Registration No. 333-1462
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 3 TO
FORM SB-2
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEUROCORP, LTD.
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(Name of small business issuer in its charter)
Nevada 8099 87-0446395
- ------------------------------ -------------------------- -------------------
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number Identification No.)
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 after effective date of Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
<PAGE>
CALCULATION OF REGISTRATION
- --------------------------------------------------------------------------------
Title of Amount Proposed Proposed Amount of
Each Class To Be Maximum Maximum Registration
Of Registered Aggregate Aggregate Fee
Securities Offering Offering
Registered Price Per Price
Share
- --------------------------------------------------------------------------------
Common 2,091,666 $2.5625 (1) $5,359,894 $1,849
Stock Shares
- --------------------------------------------------------------------------------
Class B Warrants 800,000 Nil Nil Nil
and
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
Common 800,000 $2.00 (2) $1,600,000 $ 552
Stock Shares (3)
Issuable Upon
Exercise of
Class C Warrants
- --------------------------------------------------------------------------------
TOTAL 3,691,666 $2,677 (4)
- --------------------------------------------------------------------------------
(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, dates within five business days of the date of
filing of the 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.
(4) $2,595 previously paid.
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 of until the registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
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; Plan
Price 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.
Position on Indemnification
for Securities Acts
Liabilities
- --------------
* Omitted because answer is negative or item is otherwise not applicable.
<PAGE>
PROSPECTUS Subject to Completion Dated January ____, 1997
NEUROCORP, LTD.
3,691,666 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 $168,500
in connection with the offering (the "Offering") of the Shares and Warrants.
Certain of the selling stockholders are obligated to pay all costs and expenses
incurred in connection with the registration of the Shares and Warrants. See
"Selling Stockholders" and "Plan of Distribution".
Of the 3,691,666 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, 2,066,666 of the remaining shares being offered hereby were issued under
exemptions from registration under the Securities Act of 1933, as amended,
25,000 shares are being offered by a charitable foundation 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 January 29, 1997, 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 $10.44. See "Certain Market Information and Dividends".
INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS",
PAGE 8.
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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 January __, 1997
<PAGE>
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..................................... 13
Use of Proceeds.............................................................. 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 15
Business..................................................................... 26
Management................................................................... 40
Principal Stockholders....................................................... 47
Certain Transactions......................................................... 49
Selling Stockholders......................................................... 54
Plan of Distribution......................................................... 57
Description of Securities.................................................... 57
Shares Eligible For Future Sale.............................................. 60
Legal Proceedings............................................................ 60
Legal Matters................................................................ 60
Experts...................................................................... 60
Change in Accountants........................................................ 61
Index to Financial Statements................................................
Glossary.....................................................................
2
<PAGE>
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.
3
<PAGE>
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, and is now a wholly-owned subsidiary of the Company.
The Company through HZI is primarily involved in generating revenue
through three inter-related businesses: (i) performing contract medical research
services (principally conducting clinical trials which includes proprietary
quantitative pharmacoelectroencephalogram ("EEG") studies) for health agencies,
contract research organizations and pharmaceutical companies; (ii) designing and
subcontracting the manufacturing of proprietary neuropsychiatric diagnostic
testing software and equipment and selling these systems to physicians,
researchers and hospitals; and (iii) performing telephonic neurological
diagnostic testing services, including EEG, evoked potential ("EP") and
Neuro-psychological (NPT) testing for physicians and hospitals. These tests are
used to diagnose brain disorders.
The Company presently has six products which are subject to a ninety day
pre-market notification requirement of the U.S. Food and Drug Administration
("FDA") under section 510(k) of the Federal Food, Drug and Cosmetic Act ("FDC
Act").
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. Only one of the Company's six products, the CEEG Scan System, a technique
that analyzes conventional EEG with digital computers, has received FDA
marketing approval. This product was approved in March 1987.
4
<PAGE>
No applications are pending with the FDA, with respect to the other five
products, but the Company intends to submit a 510(k) application for three of
its five products during 1997 or early 1998: the EEG/EP Amplifier; the Digital
EEG System software and the HZI Electrode Headset. The Company intends to submit
a 510(k) application for the two additional products: enhanced Evoked Potential
Software and pharmacologically activated EEG (Test Dose and Drug Monitoring)
software in 1998 or early 1999. A seventh product, the [alpha]-2000, has been
found by the FDA to be unequivalent to devices prior to May 1976, and requires
Pre-Market Approval by the FDA. Company has not yet decided whether or not it
will resubmit this application.
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.
In early 1996, the Company established a wholly-owned subsidiary, Memory
Centers(TM) of America, Inc. Subsequently, two pilot Memory Centers(TM) in New
York City and Tarrytown, New York were established. The goal of this subsidiary
is to open a network of facilities to offer early diagnosis, prevention and
treatment for people who suffer from memory impairment.
For the fiscal years ended December 31, 1994, December 31, 1995 and for
the nine months ended September 30, 1996, the Company has spent $224,010,
$181,512 and $71,235, 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. See
"Risk Factors - Government Regulation."
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 3,691,666 shares of Common Stock. See
"Description of Securities".
Of the 3,691,666 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.
2,066,666 of the remaining shares being offered
were issued in connection with a private placement
under Section 4(2) of the Securities Act of 1933,
as amended and 25,000 shares are being offered by
a charitable foundation. 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
5
<PAGE>
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".
SUMMARY FINANCIAL INFORMATION
The following summary consolidated financial information concerning the
Company 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."
<TABLE>
<CAPTION>
(Unaudited)
Year Ended Nine Months Ended
December 31, September 30
Statement of Operations: 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Sales 1,453,766 2,185,380 2,350,989 1,543,363 1,130,085 985,715
Gross profit 906,504 1,359,966 1,421,979 905,617 736,907 497,082
Total expenses 1,110,629 1,228,001 1,218,944 1,168,111 804,891 1,136,284
Net income (loss) (204,125) 131,965 203,035 (262,494) (67,984) (639,202)
Net income (loss) per share (.30) .19 .04 (.05) (.01) (.09)
Weighted average shares 680,000 680,000 4,676,666 5,484,585 5,434,920 6,924,548
Balance Sheet Data:
Working capital (deficiency) (275,034) (6,765) (427,365) 66,661
Total Assets 3,242,417 3,329,412 3,128,072 3,599,211
Long term liabilities 385,448 346,734 375,672 327,053
Stockholders' equity 1,602,880 1,917,669 1,634,896 1,775,504
</TABLE>
6
<PAGE>
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 and
for the nine months ended September 30, 1996. 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, and
for the nine months ended September 30, 1996 the Company had a net loss of
$262,494 and $639,202, respectively. 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 -
Going Concern Uncertainty
The Company has incurred a deficiency in net cash flow from operating
activities for two of the three years ended December 31, 1995 and for the nine
months ended September 30, 1996. The Company had a net working capital
deficiency of $275,034 as of December 31, 1994 and $6,765 as of December 31,
1995. As of September 30, 1996, the Company had net working capital of $66,661.
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
income from operations. In December 1996 the Company raised $2,000,000 in a
private placement of its securities. See Business - "Recent Developments" and
"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 six 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 money on research relating to the application
of products or systems that may never be developed to where they can produce a
marketable product.
The Company's intended development of Memory Centers(TM) requires
substantial amounts of capital without any assurance that they will be
successful.
7
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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 that may require the
Company to relinquish some rights to any technologies, 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. If adequate
funds are not available, the Company may have to reduce substantially or
eliminate expenditures for the development, production and marketing of its
proposed products, systems and programs. (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 investments of present
holders of Common Stock. 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, and changes in health care regulations. 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 programs, 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 and President, Dr. Pierre Le Bars, Executive Vice
President, Kurt Itil, President of HZI Research Center, Inc., and Jonathan
Raven, Executive Vice President of the Company and President and CEO of the
Company's subsidiary, Memory Centers of America, Inc.(TM) Each of Dr. Itil, Dr.
Le Bars and Mr. Raven 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
8
<PAGE>
Company's business and results of operations. The Company is presently
negotiating to hire additional executive officer. See Business - "Recent
Developments" and "Management - Directors and Executive Officers".
6. Control By Directors And Officers
The Company's current directors and officers and their affiliates
beneficially own approximately 40.76 % 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 September 30, 1996, there were outstanding (a) employee stock
options to purchase 250,000 shares of Common Stock and (b) warrants to purchase
1,600,000 shares of Common Stock. In December 1996 the Company issued additional
Warrants to purchase 1,100,000 shares of Common Stock., and in January 1997 the
Company granted additional employee stock options to purchase 500,000 shares of
Common Stock. See "Business - "Recent Developments" and "Management".
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,
subcontractors, or by licensees) but also to the marketing of proposed systems
and products, particularly those involving medical applications. As a regulatory
agency, the FDA requires the Company to comply with a number of regulatory
requirements and failure to comply can result in the delay of premarket product
reviews, fines, civil penalties, recall, seizures, injunctions and criminal
prosecution. The FDA's regulatory requirements and related enforcement
activities may have a material adverse effect on the Company's business,
financial condition and operations.
Only one of the Company's seven products, CEEG Scan System software, has
received FDA marketing approval. This product was approved in March 1987.
No other applications are pending with the FDA, but the Company intends to
submit a 510(k) application for three of its six products during 1997 and early
1998: the EEG/EP Amplifiers; the Digital EEG System software; and the HZI
Electrode Headset. The Company plans to submit 510(k) applications for two
additional products, enhanced Evoked Potential software an-activated EEG (Test
Dose and Drug Monitoring System), in 1998 or early 1999.
9
<PAGE>
The original 510(k) application submitted in August 1995 for the
alpha-2000 EEG Dynamic Brain Mapping software (the seventh product of the
Company, the "a-2000" System") which contained a series of detailed new uses of
the software for the clinical practices was deemed "not substantially
equivalent" by the FDA and, therefore, not cleared for marketing under section
510(k) of the Federal Food, Drug and Cosmetic Act.
In their response of November 24, 1995, the FDA determined that "the
device is not substantially equivalent" to devices marketed in interstate
commerce prior to May 28, 1976. The decision was based on the fact that the
Company's device "has new indications for assessing bioavailability and
bioequivalence of psychotropic drugs." Additionally, they noted that
computer-analyzed EEG data bases "have new indications for evaluating
psychiatric and neurological conditions." The FDA said that the FDC Act requires
"a Class III device to have an approved premarket approval application (PMA)
before it can be marketed, unless the device is reclassified." The FDA
recommended that the a-2000 System should be classified as a Class III device
requiring a PMA application and recommended that clinical investigation of this
device be conducted in accordance with the Investigational Device Exemption
(IDE) regulations. The FDA's rejection of the a-2000 system as a Class II device
and its recommendation that the a-2000 system should be classified as a Class
III device has significant implications in the marketing of the product.
Obtaining FDA permission to market Class III devices is far more difficult and
usually takes much longer than that of Class II devices. The PMA application
required for the a-2000 clinical testing System software will be subject to
rigorous pre-clinical testing for safety and efficacy. PMA reviews typically
take significantly longer to review than submissions made under Section 510(k).
There can be no assurance that the Company will successfully complete the
required clinical trials. Even after clinical trials, there is no assurance that
the FDA will approve the marketing of the a-2000 system.
No assurance can be provided that the Company will obtain FDA approval on
a timely basis for a future premarket submission under Section 510(k) or that
the FDA will not require the submission of a premarket approval application.
Furthermore, if the Company manufactures its own products, the Company's
manufacturing facilities and operations must comply with Good Manufacturing
Practices ("GMP") regulations prior to obtaining an approved PMA. The failure to
receive an approved PMA, the delays associated with seeking approval as well as
the costs associated with the foregoing and compliance with the FDA's
regulations and related enforcement activities may have a material adverse
effect on the Company's business, financial condition and operations. In
addition some of the Company's activities may become subject to future
additional government regulation. (See "Business - Product Development -
Governmental Regulation").
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 licenses on a timely basis, if at all.
The establishment of Memory Centers(TM) by the Company's recently-formed
subsidiary, Memory Centers of America, Inc.(TM) requires compliance with a
variety of federal and state laws
10
<PAGE>
and professional regulations. There is no assurance that the Company will be
able to establish Memory Centers(TM) in certain states or that they will operate
successfully and profitably.
9. Technological Change.
The manufacture of diagnostic equipment and products, and development of
software systems and the delivery of healthcare has undergone and is expected to
continue to undergo, significant and rapid change and there can be no assurance
that technological or other advances will not render any system, product or
program developed by the Company uneconomical or obsolete.
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.
Competition already exists for the Memory Centers(TM). Alzheimer centers,
dementia clinics, neurology groups and other medical centers can all conduct
memory assessments, prevention and treatment of memory disturbed patients. (See
"Business Competition").
11. Dependence on Others for Manufacturing and Marketing.
Currently, the Company has no manufacturing and limited marketing
capability. If the Company does not develop its own manufacturing and marketing
capabilities, it will continue to be dependent upon other companies for the
manufacturing and marketing of its products through licensing or other
arrangements. If the Company does its own manufacturing, its manufacturing
facilities and operations must comply with Good Manufacturing Practice ("GMP")
regulations of the FDA prior to obtaining pre-marketing approval ("PMA"). There
can be no assurance that the Company will have its own manufacturing capability
or will receive GMP approval. The Company's CEEG Scan System, a technique that
analyzes conventional EEG with digital computers, is the only one of the
Company's seven products that has received FDA marketing approval. No
applications are pending with the FDA, with respect to the remaining six
products, but the Company intends to submit a 510(k) application for three of
the six products during 1997 or early 1998: the EEG/EP Amplifiers; the digital
EEG System software and the HZI Electrode Headset. 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.
11
<PAGE>
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 affect the market price of the Common Stock
offered hereby. 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
$168,500. Certain of the selling stockholders are obligated to pay all costs and
expenses incurred in connection with the registration of the Shares and
Warrants.
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".
12
<PAGE>
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 the reverse
stock split described above). Each Class B and Class C 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 13 3
Third Quarter 20 13 1/2
Fourth Quarter 17 3/4 6
1997
First Quarter (through January )
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.
13
<PAGE>
The Company had 151 stockholders of record and 231 beneficial holders as
of December 31, 1996, for a total of 382 stockholders.
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 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.
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 salaries outstanding as of December 31, 1996 in the amount of
$770,000 and $52,082, respectively. See "Selling Stockholders".
Certain of the selling stockholders are obligated to pay all costs and
expenses incurred in connection with the registration of the Shares and
Warrants.
Pending the ultimate application of the proceeds of any financing the
Company makes temporary investments, including but not limited to, 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.
14
<PAGE>
- - 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) the
contract division performs contract medical research services (principally
conducting clinical trials which includes Phase I proprietary quantitative
electroencephalogram ["EEG"] studies) for health agencies, contract
research organizations and pharmaceutical companies (ii) designing and
subcontracting the manufacturing of proprietary neuropsychiatric
diagnostic testing software and equipment, which currently is their Brain
Function Monitoring System(R) (BFM) (iii) providing interactive diagnostic
testing services and analysis to physicians and hospitals via the
telephone, this service is known as TeleMap(R).
In January 1996, the Company created a new wholly-owned subsidiary Memory
Centers of America, Inc.(TM) ("MC Inc."). MC Inc. will provide therapeutic
services to people who suffer from memory impairment. MC Inc. began full
operation's of the pilot program at the end of the second quarter of 1996,
and is currently not a significant business segment of the Company.
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.
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995
Revenues for the nine months ended September 30, 1996 and 1995 amounted to
$985,715 and $1,130,085, respectively. The gross profits for the nine
months ended September 30, 1996 and 1995 amounted to $497,082 and
$736,907, respectively or a net decrease of $295,377. The gross profit
percentages for the nine months ended September 30, 1996 and 1995 amounted
to 50% and 65%, respectively, or a net decrease of 15%.
The net reduction of gross profit during the nine months ended September
30, 1996 as compared to the nine months ended September 30, 1995 is
attributable to the following:
15
<PAGE>
- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS (Cont'd)
Nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995
1. Revenues from contracts for the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995 amounted to
$611,698 and $622,018, respectively, or a net decrease of $10,320.
The decrease in revenues from contracts for the nine months ended
September 30, 1996 is attributable to the Company commencing work on
new contracts entered into during 1995 and of which work started in
the latter part of 1996. Gross profit from contracts for the nine
months ended September 30, 1996 as compared to the nine months ended
September 30, 1995 amounted to $292,419 and $309,729, respectively
or a net decrease of $17,310. The gross profit percentage from
contracts for the nine months ended September 30, 1996 is 48% as
compared to September 30, 1995 which was 50%. The decrease in the
gross profit is attributable to a lower gross profit on contracts in
progress during nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995. During the first quarter
of 1995 the contract research division was working on a major high
gross profit contract, which impacted positively on the nine months
ended September 30, 1995.
2. Net sales of BFM software and equipment for the nine months ended
1996 and 1995 amounted to $232,685 and $388,489, respectively, or a
net decrease of $155,804. The gross profit percentage on these sales
for the nine months ended September 30, 1996 and 1995 amounted to
61% and 82%, respectively or net decrease of 21%. The second quarter
of 1995 started the initial sales of the Company's new generation of
BFM Systems. The majority of these 1995 sales were to Beta sites who
are utilizing the new systems in worldwide studies being supervised
by the contract research division. The Beta site equipment had a
cost basis which had been reduced by depreciation in connection with
contract revenues of the previous years. This resulted in higher
than normal gross profits for the sales of BFM software and
equipment in 1995 due to the cost basis being less than the standard
cost basis.
3. Revenues of the TeleMap division for the nine months ended September
30, 1996 and 1995 amounted to $91,379 and $119,578, respectively, or
net decrease of $28,199. The gross profit percentages for the nine
months ended September 30, 1996 and 1995 amounted to 47% and 78%,
respectively. The decrease in sales for the nine months ended
September 30, 1996 as compared to the nine months ended September
30, 1995 is attributable to the Company discontinuing business with
customers who were previously delinquent in their payments. The
gross profit decrease for the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995, is
partially the result of the Company absorbing its fixed overhead
costs allocated to cost of revenues on less sales and an increase
in labor costs
16
<PAGE>
- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
RESULTS OF OPERATIONS (Cont'd)
Nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995 (Cont'd)
resulting from the Company's assigning additional personnel in further
improvement of its quality controls.
4. Pilot Memory Centers revenues for the nine months ended September 30, 1996
amounted to $49,952. These revenues were derived from patients
participating in the Company's pilot program.
General and administrative expenses for the nine months ended September
30, 1996 were $811,403 as compared to the nine months ended September 30,
1995 of $673,097 or an increase of $138,306 or 21%. The increase in
general and administrative expenses for the nine months ended September
30, 1996 is due to the Company incurring in excess of approximately
$150,000 of initial costs for its new subsidiary, Memory Centers of
America, Inc.(TM) ("MC Inc."). Further during the nine months ended
September 30, 1996 as compared to the nine months ended September 30,
1995, the Company reduced its administration billings to Manhattan
Westchester Medical Services, P.C., a medical practice that is controlled
by the Company's Chairman. ("Manhattan Westchester") by $44,408 resulting
in the Company absorbing more payroll costs during the September 30, 1996
period. The reduction in administration billings to Manhattan Westchester
is the result of Manhattan Westchester decline in operations, therefore,
service provided by HZI personnel were not required. The Company elected
to maintain some personnel that were formally billed to Manhattan
Westchester to be utilized in other parts of the company's operations.
Offsetting the above cost increases in general and administrative costs,
the Company has reduced its payroll, professional and consulting fees, and
has curtailed overseas travel principally in connection with the Company's
involvement in a worldwide contract, and marketing of its BFM System, for
the nine months ended September 30, 1996 as compared to the nine months
ended September 30, 1995.
Research and development costs ("R&D") for the nine months ended September
30, 1996 were $71,235 as compared to the nine months ended September 30,
1995 of $136,134 or a decrease of $64,899. The decrease in R&D costs is
due to reductions in fixed cost for the R&D department. At the end of
1995, Management relocated its research facility to its main operating
division HZI. The Company relocated its research facility in order to
enhance communications between operational and research personnel and to
lower fixed costs, such as rent, depreciation and other associated fixed
costs. Management believes this will have a positive impact in the
future. The Company plans on maintaing the same level of Research and
Development, however, with a lower fixed costs associated therewith.
Commencing July 19, 1995 and through September 30, 1996, the Company
borrowed approximately $700,000 net of repayments from their shareholders
and their affiliates. These loans were used principally to finance losses
from operations. As a result of these additional borrowings, interest
expense for the nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995 increased by $67,681.
At September 30, 1996 the Company revised its estimate of the useful life
of the software development costs from 17 years to 7 years. This change
was made to better reflect the estimated period during which such assets
will remain in service. The resulting effect was a one time, non-cash
charge to operations amounting to $182,235.
The Company's loss at September 30, 1996, amounting to $639,202, is not
representative of what is expected in the future. The following factors
should be taken into account in computing the Company's net loss at such
date:
Net loss at as of September 30, 1996. $ (639,202)
Add back: Cumulative effect in change in estimate 182,235
Add back: Research and development
costs (discretionary costs) 71,235
Add back: Interest expense 79,938
Add back: Development stage cost for Memory Centers
of America 150,000
----------
Adjusted loss without future increase in sales $ (155,794)
----------
----------
Year ended December 31, 1995 as compared to the year ended December 31,
1994
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
17
<PAGE>
- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
RESULTS OF OPERATIONS (Cont'd)
Year ended December 31, 1995 as compared to the year ended December 31,
1994 (Cont'd)
decrease of $516,372. Gross profit percentage for both years remained
relatively the same.
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 (multi-million dollar)
new long-term 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. 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 a backlog of contracts to perform
of approximately $685,000. The Company expects to realize a minimum of
$500,000 of revenues during 1996 from said contracts.
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 an
agreement to conduct a multinational study for a International
Health Organization. It was further agreed that the
18
<PAGE>
- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
RESULTS OF OPERATIONS (Cont'd)
Year ended December 31, 1995 as compared to the year ended December 31,
1994 (cont'd)
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.
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
expenses.
General and administrative expenses for the year ended December 31,
1995 were $1,013,233 as compared to the year ended December 31, 1994
of $985,074 or a increase of $28,159 or 3%. The increase in general
and administrative expenses for the year ended December 31, 1995 is
due to an increase in payroll costs. For the year ended December 31,
1995, the Chairman waived $146,347 of his base annual salary. Said
salary amount has been recorded as an administrative expense and as
a capital contribution.
19
<PAGE>
- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
RESULTS OF OPERATIONS (Cont'd)
Year ended December 31, 1995 as compared to the year ended December 31,
1994 (cont'd)
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
Nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995
At September 30, 1996 and December 31, 1995, the Company had working
capital of $66,661 and a working capital deficiency of $6,765,
respectively. The $73,426 net increase in working capital for the nine
months ended September 30, 1996 is attributable to accounts receivable and
deferred financing cost increasing by $557,857. Offsetting this increase
in working capital for the nine months ended September 30, 1996 as
compared to the year ending December 31, 1995 are increases in
stockholders loans of $478,480. The increase in accounts receivable is the
result of the contract research division earned revenues exceeding amounts
billed. Deferred financing cost of $86,848 is the result of the Company
borrowing from a shareholder, a $200,000 interest free loan and as
additional consideration, issuing 66,666 shares of restricted common
stock, which was valued at 50% of the fair market value on the date of the
loan. During February and July 1996 the Company borrowed from Trinity
American Corporation ("TAC") $175,000 to supplement its working capital
position. During early April 1996 the Company repaid TAC $50,000. Further,
the Company borrowed from stockholders during July 1996 an additional
$200,000.
For the nine months ended September 30, 1996 net cash decreased by
$22,029. For the nine months ended September 30, 1996 and 1995, the
Company used cash for operations of $664,121 and $239,948, respectively,
resulting in increased cash used in operations of $424,173. The net
increase for the nine months ended September 30, 1996 is the result of
accounts receivables increasing by $290,851 from slow collections of the
contract research division foreign receivables. Loss from operations
increased by $388,983 net of the cumulative effect of the change in
estimate of the useful lives of the software development costs amounting
to $182,235, previously discussed, at September 30, 1996 as compared to
the nine months ended September 30, 1995. The net decrease in long-term
contract accounts (costs in excess of billings on uncompleted contracts
and billings in excess of Contract Revenues on uncompleted contracts)
of $339,619 is the result of the Company reducing its backlog of large
20
<PAGE>
- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
Nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995 (cont'd)
contracts during the March 31, 1995 quarter. As of September 30, 1995
the Company had a backlog to perform approximately $730,000 of
contracts. The contract research division during the current year has
performed significant work for a major foreign customer, resulting in a
large increase in their accounts receivable. In accordance with the
contract, a significant portion of the receivable will be paid by this
customer upon completion of the statistical report. The Company intends
to complete this report prior to year end which will result in
collections of the September 1996 receivables of approximately $300,000.
The Company has not replaced these significant high gross profit
contracts which has resulted in the Company showing a net loss of $639,202
inclusive of a cummulative effect of change in estimate amounting to
$182,235 for the nine months ended September 30, 1996 as compared to net
loss of $67,984 for the nine months ended September 30, 1995.
For the nine months ended September 30, 1996 and 1995 cash used by
investing activities mainly in connection with cost incurred for the
development of databases and computer system products, amounted to
$104,474 and $323,816, respectively, or a net decrease in the use of cash
of $219,342. The Company during the three months ended March 31, 1995
received a $34,271 payment from its insurance carrier on an automobile
that was destroyed in an accident. During 1996 the Company reduced its
payments by $270,433 for database and computer system product development
costs as compared to 1995. As noted in the December 31, 1995 Management
Discussions and Analysis, future capitalization of computer system product
development costs primarily in connection with the BFM system will be
substantially reduced during the 1996 period, as compared to 1995 due to
the Company completing at the end of 1995 the final programming of its BFM
Systems.
For the nine months ended September 30, 1996 and 1995 cash provided by
financing activities amounted to $746,566 and $235,607, respectively. For
the nine months ended September 30, 1996 the Company received $400,000 in
connection with the sale of 1,000,000 shares of common stock to investors
and borrowed from shareholders approximately $478,000 net of repayments.
Furthermore, during the nine months ended September 30, 1996 the Company
repaid a line of credit which amounted to $50,000. As discussed in Note
11(m) of the September 30, 1996 financial statements, the Company expended
$25,046 to register shares of common stock and warrants pursuant to
previous contractual obligations with certain stockholders. At September
30, 1996, the Company accrued $11,250 of dividends for Series 1 preferred
stock as required under the agreement.
The Company intends to continue to meet its future cash requirements
through earnings from operations, short term borrowings and the sale of
stock.
21
<PAGE>
- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
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 borrowings from shareholders inclusive of interest
and net of repayments 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.
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 $660,652 and $128,051, 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 $343,785. Cash was utilized to pay off primarily overdue
accounts payable to equipment vendors, general suppliers and professionals
and interest due shareholders. 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 it's 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 the development of
databases and computer system products, amounted to $218,127 and $392,084,
respectively, or a net decrease in use of cash of $110,957. The
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- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
Year ended December 31, 1995 as compared to year ended December 31, 1994
(cont'd)
Company during the year ended December 31,, 1995 received a $34,271
payment from its insurance carrier on an automobile that was destroyed in
an accident and the Company used a $179,240 less in cash for the database
and computer system product development costs capitalized for 1995 versus
the 1994 period. Management believes that future capitalization of
computer system product 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 $682,843 and $533,172, 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 approximately $312,000 from two major
shareholders which is net of repayments of approximating $79,000.
Additionally, HZI's President repaid a loan receivable of approximately
$90,000 during the third quarter of 1995. In March 1994 the Company's
wholly owned subsidiary, HZI, obtained a $200,000 of cash for a 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.
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
Since 1974, the Company has conducted a series of research programs on
memory-enhancing drugs. Since 1991 Company was planning to develop Memory
Centers with the Company's customer whose "anti-dementia" product was
tested by the Company in recent years. The data of these studies have now
been analyzed and publications are in process. The data from these studies
demonstrated the usefulness and the power of the
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- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
MANAGEMENT'S PLANS (Cont'd)
Company's proprietary method (Quantitative Pharmaco-EEG = QPEEG) for
dementia drugs. 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 and
reported in a scientific periodical that a double dose of the herbal
product of this customer has more CNS effects, thus, shall be more
therapeutically effective than that of the marketed dose. This has
resulted in the Company's largest customer renewing interest in this study
and continuing to work with the Company. The Company received a new
contract valued at $780,000 from this customer to further analyze the
previous data as well as the data of the ongoing depression research. The
Company believes that the new and successful developments in conjunction
with the Company's largest customer will not only bring new contracts
providing additional cash and revenues, but will also open new doors for
substantial revenue-bringing long-term contracts. This customer has also
promised to offer 1-2 CNS-effective drugs for further development and
license for marketing. The Memory Centers(TM) should also have a positive
impact on the Company's cash flow in the future. The Company, during the
fourth quarter of 1996, also obtained a new contract ($140,000) from a
U.S. pharmaceutical company to conduct a QPEEG study to establish a
side-effect-free dose. 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(TM) by itself. The Company has started a new wholly-owned
subsidiary, Memory Centers of America, Inc.(TM) (MC, Inc.). A pilot
project was initiated during the first quarter of 1996 in collaboration
with Manhattan-Westchester Medical Services, P.C., a corporation which is
controlled by the Company's Chairman and also has the required equipment,
space, staff, and professional expertise. MC, Inc. commenced full
operations of the pilot program during the latter part of the second
quarter of 1996. The revenue of those operations are not yet a significant
part of the Company's operations at September 30, 1996; however, the pilot
centers have demonstrated the need for such services. Payments from third
parties for such services have confirmed the acceptance of the Company's
Memory Center services. The majority of the Tele-Neuro-Psychiatry(TM)
System required for each of the Memory Centers, which includes: (i)
clinical tele-neuro-psychiatry software programs; (ii) neuropsychological
and cognitive rehabilitation testing and reporting software packages;
(iii) digital EEG and Evoked Potential transmission software and hardware
systems. The development of prototype systems has been completed during
1996. These software and hardware systems are an integral part of the
Memory Centers(TM) and because of these proprietary systems, Memory
Centers are expected to generate significant revenues.
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- - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
MANAGEMENT'S PLANS (Cont'd)
The Company has developed protocols for an Alzheimer's research program
and a Teleneuropsychiatry developmental program to be conducted worldwide
under the sponsorship of an international health agency. The Company has
been negotiating with several major pharmaceutical manufacturers to
support this program. The budget for this program will be $4 to 8 million,
and the Company expects to monitor this program. The Company also invested
in a feasibility study to develop an Alzheimer's drug (oxiracetam). As a
result, the Company is negotiating for a license to develop and market
oxiracetam.
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 U.S. Alzheimer's research program. If the contract is obtained, it
is projected that $500,000 of revenue will be realized during the first
half of 1997.
The Company obtained a $140,000 QPEEG contract from a U.S. pharmaceutical
company. If this project can provide a dose range which has clinically
expected effects, without side effects, Company anticipates further
contracts from this organization.
The Company has developed its own Web Site page on the World Wide Web and
intends to offer and provide data base services to interested parties for
psychotropic drug research and development.
The funds obtained from the sale of stock in the first nine months of 1996
were invested in development of programs which are expected to generate
immediate revenues, such as the Memory Center project and a program for
advertising the telephonic services.
The Company projects another five (5) BFM system software sales through
its Turkish distributor valued at $75,000 within the next six months. 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 during 1997.
The Company intends to meet its future cash requirements through
earnings from operations based on its current backlog amounting
to $730,000 at September 30, 1996, potential future contracts, currently
under negotiations and the $2,000,000 received during December 1996 as
a result of selling 550,020 units in a private placement. Each unit
consisted of one share of Common Stock, and two warrants, each entitling
the holder to purchase one additional share of Common Stock.
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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. 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.
In December 1996 the Company sold an aggregate of 550,020 Units for an
aggregate of $2,000,000 ($3.63 per Unit) to three investors in a private
placement. Each Unit consists of one share of Common Stock and two Warrants,
each of which entitles the holder to purchase one additional share of Common
Stock. The 1,100,000 Warrants included in the Units are exercisable at $4.00 per
share until December 31, 1997 and at $6.00 per share thereafter and until
December 31, 1998, the expiration date of the Warrants. The purchasers of the
Units have not been granted registration rights and none of the Shares of Common
Stock or Warrants comprising the Units or Shares of Common Stock issuable upon
exercise of the Warrants have statement of which this Prospectus is a part.
The Company hired Mr. Jonathan Raven, effective January 6, 1997, as
President, CEO and Director of the Company's wholly-owned subsidiary, Memory
Centers of America, Inc.(TM) In addition, Mr. Raven is an Executive Vice
President and a Director of the Company. Mr. Raven entered into a three (3) year
employment contract. See "Business - Memory Centers(TM)" and "Management."
Business of HZI
The Company through HZI is primarily involved in three inter-related businesses:
(i) performing contract medical research services (principally conducting
clinical trials, which includes "special" proprietary pharmaco-EEG studies) for
health agencies, contract research organizations and pharmaceutical companies;
(ii) designing and subcontracting manufacturing proprietary neuropsychiatric
diagnostic testing software and equipment and selling these systems to
physicians, researchers and hospitals; and (iii) performing telephonic
neurological diagnostic testing services, including electroencephalogram
("EEG"), evoked potential ("EP") and neuropsychological testing for physicians
and hospitals. These tests are used to diagnose brain disorders. The Company's
CEEG Scan System, a technique that
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<PAGE>
analyzes conventional EEG with digital computers, has received FDA marketing
approval. This product was approved in March 1987. No applications are pending
with the FDA, but the Company intends to submit a 510(k) application for three
of its six products during 1997 or early 1998, the EEG/EP Amplifier; the Digital
EEG System software and the HZI Electrode Headset. The Company intends to submit
a 510(k) application for the two additional products, enhanced Evoked Potential
Software and pharmacologically activated EEG (Test Dose) software in the latter
part of 1998 or early 1999. The Company has not yet decided whether or not it
will resubmit the application for the seventh product, (the [alpha]- 2000
System). 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. For the fiscal years ended December 31,
1994, 1995 and the nine months ended September 30, 1996, the Company has spent
$224,010, $181,512 and $71,235 respectively, on research and development
activities for proprietary items, some of which particularly methodologies and
software programs are used in its contract research activities. The Company is
not reimbursed for any research or development expenses from its customers.
Drug Development
HZI plans in the future to use its proprietary hardware, software,
Quantitative Pharmaco-EEG software ("QPEEG"), and databases in order to
develop, either alone or with others, proprietary drugs. HZI believes that
the combination of its expertise and its proprietary databases 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, as well as the
measurement of brain functions as detected 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 oxiracetam, 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 involve the use of its
proprietary QPEEG methodology and its proprietary data bases 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 databases 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
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<PAGE>
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 data bases 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 antihypertension
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.
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 antidementia (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.
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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, a wholly-owned subsidiary of the Company, 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, 1994 and
1995 and the nine months ended September 30, 1996 revenues from contract
research services accounted for 74%, 55%, and 62%, respectively, of total
revenues.
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 (CEEG(R)) 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 data bases 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 databases consisting of data from
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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-Scan(R)
or BFM System(R) (Brain Function Monitoring via brain bioelectrical activity
monitoring) enhances, by quantifying, 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 CEEG-Scan System also includes
proprietary Dynamic Brain Mapping(TM) software. As of September 30, 1996
accumulated sales since the product's inception amounted to 115 sales 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, 1994 and 1995
and the nine months ended September 30, 1996 revenues from sales of
neuropsychiatric diagnostic testing equipment accounted for 39%, 36% and 24%,
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 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 (other
than the United States), and others are much larger companies than the Company
and have greater financial resources.
The CEEG Scan System, which has received the necessary permission for marketing
from the FDA in March 1987, 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 a-2000 digital EEG/brain mapping system (the
"a-2000 System"). This system, which is already in use (as Beta Sites) at 16
leading research centers throughout the world (other than the United States),
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 a-2000TM system was established at $55,000,
with a selling price to the centers of $20,000 (for research as a Beta Site).
With enhancements and upgrades, the price ranges from $60,000 to $108,027. For
the years ended December 31, 1994, 1995 and for the nine months ended September
30, 1996, the Company has recognized $265,898, $413,521 and $233,685,
respectively, of sales principally from the product. As noted below, Company did
not, however, obtain permission from the FDA to market the a-2000 system.
Additionally,
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some of the Company's products or software packages (i.e the Company's
[alpha]-2000TM EP and NPT) are being tested with a Beta Site program (in
accordance with the Investigative Device Exemption Registration) and offered at
reduced prices since they do not yet have FDA approval to market the products.
In 1991, 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
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. The original 510(k) application
submitted in August 1995 for the alpha-2000 System software contained a series
of detailed new uses of the software for the clinical practices and was deemed
"not substantially equivalent" by the FDA and, therefore, not cleared for
marketing under section 510(k). In their response of November 24, 1995, the FDA
determined that "the device is not substantially equivalent to devices marketed
in interstate commerce prior to May 28, 1976. The decision was based on the fact
that the Company's device "has new indications for assessing bioavailability and
bioequivalence of psychotropic drugs." Additionally, they noted that
computer-analyzed EEG data bases "have new indications for evaluating
psychiatric and neurological conditions." The FDA advised that the FDC Act
requires "a Class III device to have an approved premarket approval application
(PMA) before it can be marketed, unless the device is reclassified. The FDA
recommended that the a-2000 System should be classified as a Class III device
requiring a PMA application and recommended that clinical investigation of this
device be conducted in accordance with the Investigational Device Exemption
(IDE) regulations. Thus, the Company is planning to make new applications for
these programs and data bases in the latter part of 1998 or early 1999, after
completion of testing for validity and reliability. However, there can be no
assurance that the FDA will permit the marketing of the [alpha]-2000 System
and/or data bases, 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 data
base. (See "Risk Factors - Government Regulation").
Tele-Map(R)
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 conventional or 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 substantial capital
investment and without having to hire and train technicians to
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perform the tests on site. 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
Products Requiring 510(k) Application In addition to the product and
services described above, HZI has five other proprietary products in various
stages of development. After development and validity testing, the products
require FDA approval. These products include:
O An EEG/EP amplifier
The electroencephalogram is brain electrical activity in low voltage
(microvolts). In order for an expert to read these activities, EEG has to
be amplified before analog or digital outputs. For this purpose,
amplifiers are required. Although amplifiers are not highly sophisticated
electronic devices, they require certain specifications; thus, they are
not easy to build. HZI was successful in building both pre- and
post-amplifiers through a subcontractor, Spectral Data Systems. Company
intends to submit a 510(k) during 1997 for the amplifiers.
O HZI Electrode Headset (helmet)
Dr. T. Itil and associates have obtained 13 patents, seven of which have
been assigned to HZI, 5 of which are 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 intends to submit a 510(k) application for
approval of the headset to the FDA during 1997 or early 1998.
O Digital EEG System Software
In 1991, the American EEG Society published guidelines to record EEG by
digital means. Thus, most analog EEG machines are expected to be replaced
by digital EEG systems. HZI's CEEG Scan System is based on digital EEG.
While the CEEG Scan System has many features superior to standard digital
EEG systems, it needs additional
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functions for standard clinical use. HZI's scientists are completing these
and will be ready to apply for a 510K in 1997 or, at the latest, in 1998.
O Enhanced Evoked Potential software
HZI has been developing EP software for many years. Using the newest
software programs, an enhanced EP software package was developed for both
clinical and research use. It is projected that the validity and
reliability studies will be completed and a 510K application will be
submitted to the FDA in 1998 or early 1999.
O Pharmacologically-activated EEG (Test Dose(R)and Drug Monitoring System)
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 databases will be offered as an
adjunct to the latest generation of CEEG-Scan System, and also as
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. The
Company intends to submit a 510(k) application for approval of the Test
Dose software in the latter part of 1998 or the early part of 1999.
Product Requiring a Pre-Market Approval ("PMA")
The [alpha]-2000 system may require longer reliability and validity
testing in order to file a PMA application. HZI has developed the
[alpha]-2000 system as an upgrade of the CEEG-Scan System. This system,
which is already in use at 16 leading research centers throughout the
world within a Beta Site Program, will be further upgraded to a 32-64
channel system by modifying HZI's proprietary hardware (Console I and II).
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.
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 for research use. The price of the [alpha]-2000TM
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. For the years ended December 31, 1994, 1995 and for the nine
months ended September 30, 1996, the Company has recognized $265,898,
$413,521 and $232,685, respectively, principally from this product. If the
Company can fulfill the FDA requirements, a series of validity testing and
research, as to which there can be no assurance, the Company may file a
pre-market approval application for the [alpha]-2000TM System and data
bases during 1999. See "Risk Factors - Government Regulation."
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It is planned that most of these new products will be completed in
conjunction with Tena, Ltd. within a joint venture agreement, and 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 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. 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(TM)
The Company, through its wholly-owned subsidiary, Memory Centers of America,
Inc.(TM) ("MC Inc.") has established two "Memory Centers(TM)" in collaboration
with Manhattan Westchester Medical Services, P.C. in New York City, New York and
Tarrytown, New York as pilot centers to provide multidisciplinary diagnostic and
therapeutic help for people who suffer from memory impairment. The Company
intends to expand the pilot Memory Centers(TM) from 2 to 5 in the metropolitan
New York area to include Brooklyn, Queens, New York and Rockland county, and
four additional pilot centers (Michigan, Florida, California and Illinois).
Company intends to set up 100 centers within the next 3 years if the pilot
program is successful. These centers are to be operated under expert medical
supervision with up to date diagnostic tools so as to provided the best
available treatment.
The Company recently completed a $2,000,000 private placement of its securities
and has hired an experienced executive to become President and CEO of Memory
Centers(TM) (see "Management"). Approximately 75% of the proceeds of this
private placement are intended to be used to expand the number of Memory
Centers(TM), advertising, working capital and new management.. See "Business -
Recent Developments" and "Management." The balance of the funds are intended to
be used to enhance management of the Company and to promote the products and
services of HZI.
Government Regulations
The Company 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 World
Health Organization ("WHO") for use in Minsk, Russia. The sale occurred in June
1996 at a sale price of $66,667.
Substantial segments of the Company's proposed operations are expected to be
subject to
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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 ("FDA"), particularly if the
products are to be marketed in the United States. The Company conducts contract
research. 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 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, including Memory
Centers(TM), telephonic EEG/EP or telemedicine neuro-psychiatric/psychological
services, 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 exporting and 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.
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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. (See - "Risk Factors - Government Regulation.")
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. CEEG Scan, Evoked Potential, [alpha]-2000 software) require improvements
to include Windows '95 programs. Updates required take time and are costly. The
Company's databases are being updated as new drugs are marketed. The Company
developed a "Beta Site" network which collect data for databases 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, i.e. amplifiers, headset, telemedicine.. 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 databases 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 databases or medical
software programs in many countries where the companies can develop very fast
and economic databases. In the U.S. several competitors have announced that they
have databases similar to the Company's. There can be no assurance that some
competition may develop databases and obtain approval from the FDA before the
Company obtains permission to market its newer software and/or databases.
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,
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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.
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, in Canada, and where appropriate. 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 five 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 four 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, Besselaer
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
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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 databases, 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 databases 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.
(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.
(4) Memory Centers(TM) have numerous competitors, such as hospitals,
neurologists, medical groups who have dementia centers, and Alzheimer
clinics. Although the main goal of Memory Centers(TM) is to evaluate and
treat patients with a lesser degree of illness than Alzheimer's, a variety
of medical establishments represent major competition.
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
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two 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 15 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 $111,000
for the year ending December 31, 1996. Management believes its present
facilities may not be adequate for its expanding needs but that new space is
readily available.
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 72 Chairman, CEO, President and
Director of the Company and
Chairman and Director of HZI
I. Ronald Horowitz 74 Vice Chairman and Director of
the Company
Kurt Z. Itil 38 Director of the Company and
Director, President and CEO of
HZI
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Pierre LeBars(1) 44 Director and Executive Vice
President of the Company and
Executive Vice President
of HZI
Jonathan E. Raven 46 Director and Executive Vice
President of the Company and
President and CEO of Memory
Centers(TM)
Aileen A. Kunitz(1) 54 Vice President, CFO and
Director of the Company and
Director of HZI
Evelyn Sommer, Esq. 70 Director of the Company
Richard Katz, Esq.(1) 53 Director of the Company and HZI
Joseph DioGuardi, CPA(1) 56 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 Mrs.
Sommer who will receive $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. In November
1996, upon the resignation of Ronald Horowitz as President, Dr. Itil resumed the
Presidency of the Company. Dr. Itil is a neurologist/psychiatrist with special
interests in electrophysiology (brain electrical activity studies) and
psychopharmacology (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.
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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 Director 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. Turan Itil.
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.
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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.
JONATHAN E. RAVEN. Mr. Raven became a Director and Executive Vice President of
the Company and President and CEO of MC Inc. on January 6, 1997. From 1981 to
1996, Mr. Raven was employed by NuVision, Inc. of Flint, Michigan, starting as
General Counsel in 1981 and becoming President and Chief Operating Officer in
1990. NuVision, at the time of its acquisition by American Vision Centers, Inc.
in June 1996, was a multi-state optometric and optical provider to mall-based
and group vision care delivery systems including manufacturing and distribution
of custom eyewear with annual revenues of $90 million. Mr. Raven received a
Bachelor of Arts, cum laude from Western Michigan University in Kalamazoo,
Michigan in 1972 and Juris Doctor from the University of Michigan Law School in
Ann Arbor, Michigan in 1975. Mr. Raven has been a licensed attorney since 1975.
From 1975 to 1981, he was engaged in the private practice of law with the
Lansing, Michigan law firm of Foster, Swift, Collins & Smith, P.C., of which he
became a partner in 1981.
JOSEPH DIOGUARDI, CPA. Mr. DioGuardi became a Director of the Company in March
1996. Since leaving Congress in 1989 Mr. DioGuardi established Truth In
Government, a non-partisan foundation, 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., the international accounting, auditing and consulting firm,
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. Mr. DioGuardi is
presently acting as "Special Assistant" to the Chairman with compensation of
$10,000 per month.
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 law 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 to January 1994 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.
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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. 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 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. Dr. Itil has waived negotiations for salary
increase for 1996.
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
44
<PAGE>
(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 compensa 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.
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, which amount was reduced, by mutual agreement, to $30,000
effective June 1, 1996. Mr. Horowitz subsequently agreed to serve as Vice
Chairman and President of the Company with no additional compensation. On
September 19, 1995 Mr. Horowitz was granted a seven year option to purchase
250,000 shares of the Company's Common Stock at $.10 per share. In November
1996, Mr. Horowitz resigned from the position of President of the Company.
Jonathan E. Raven entered into an employment agreement with the Company,
effective January 6, 1997, providing for $150,000 in salary in the first year of
the contract, $225,000 in the second and third years, subject to an increase in
year three by an amount consistent with the CPI as compared to the prior 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 12 months before the end of the initial term of any year
thereafter, of its intention to cancel. Mr. Raven was granted Incentive Stock
Options to purchase up to 500,000 shares of the Company's Common Stock at the
lower of $7.00 per share or fair market value, 200,000 of which vest as of
January 6, 1997 and 150,000 vest on each of the first and second anniversary of
such date. The Company has agreed that, at Mr. Raven's discretion, the national
administrative office of MC Inc. may be located within the general metropolitan
area of Lansing, Michigan. The agreement further provides that if the Company or
MC Inc. transfer to any other person substantially all of its business and
assets by merger, consolidation, sale of assets or otherwise, they must transfer
its obligations under the agreement to such other Person and such other Person
must accept such transfer and assume the obligations under the agreement.
Kurt Z. Itil and Aileen A. Kunitz each entered into an employment agreement with
the Company effective January 1, 1997 providing for annual base salaries of
$105,000 and $85,000 respectively. Each shall be entitled to receive an
incentive compensation bonus, based on performance, during the term of the
agreement pursuant to an annual executive
45
<PAGE>
incentive plan to be developed by the Company. The Executive Committee of the
Board of Directors has a right to reduce the base salary by up to 10% for
failure to meet annual goals to be set with respect to revenues and expenses.
The agreements are for initial terms ending January 1, 2000 and are renewable on
a year to year basis thereafter unless either party notifies the other in
writing at least 3 months before the end of the initial term, or any year
thereafter, of its intention to cancel. The agreements further provide that if
the Company transfers to any other Person substantially all of its business and
assets by m of assets or otherwise, they must transfer its obligations under the
agreements to such other Person and such other Person must accept such transfer
and assume the obligations under the agreements.
The Company's employment agreements with Dr. Itil, Dr. Le Bars, IRH Corporation,
Jonathan Raven, Kurt Itil, Aileen Kunitz, and employment arrangements with other
significant employees impose customary confidentiality obligations.
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.
LONG TERM COMPENSATION
<TABLE>
<CAPTION>
Name & Other # Share
Principal Annual Underlying All Other
Position Year Salary Bonus Compensation(1) Options Compensation
- --------- ---- ------ ----- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Turan Itil 1995 $106,653(2) 0 0
CEO 1994 $255,000 $11,000
Pierre Le Bars 1995 $100,000(3) None 0 0
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.
46
<PAGE>
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.
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 250,000 and 500,000 shares have been granted under the Plan
respectively to Mr. Horowitz and Mr. Raven. See"Employment Arrangements".
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 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, 941,700 (3)(4)(8) 8.1 %
Chairman, CEO and Director
I. Ronald Horowitz, 250,000 (6)(8) 2.15%
Vice Chairman and President
Kurt Z. Itil, 1,259,300 (4)(8) 10.84%
Director
Eleonore Itil 566,000 (4) (5)(8) 4.87%
Pierre Le Bars, 210,000(4)(8) 1.81%
Executive Vice President and Director
Aileen A. Kunitz, 86,400 (4)(7)(8) *
President, CFO and Director
Richard Katz, 214,500 (4)(8)(9) 1.85%
Director
47
<PAGE>
Evelyn Sommer, 1,000 *
Director
Joseph DioGuardi, 1,000 *
Director
Yasmin Itil Le Bars 798,000 (3)(4)(8) 6.87%
Jonathan E. Raven 400,000 (10) 3.44%
Trinity American Corporation 2,506,098 (11) 21.57%
800 North Kings Highway
Cherry Hill, New Jersey 08034
Lancer Partners, LP 2,550,000 (12) 21.95%
Lancer Offshore, Inc.
Michael Lauer, General Partner
200 Park Avenue
New York, NY
All directors and officers of the 3,363,900 28.96%
Company as a group (9 individuals)
* Less than 1%
(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) Includes 40,000 shares of Common Stock currently issuable upon conversion
of a promissory note. See "Certain Transactions".
(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) Mrs. Le Bars is the wife of Pierre Le Bars and the daughter of Turan Itil.
Mrs. Itil is the wife of Turan Itil and the mother of Mrs. Le Bars.
(6) Includes 250,000 options currently exercisable at $.10 per share, expiring
June 30, 2002.*
(7) Includes 1,400 shares owned by Mrs. Kunitz' son.
48
<PAGE>
(8) In connection with a recent private placement of the Company's securities
in the aggregate amount of $2 million each of these persons entered into
"lock-up" agreements prohibiting the sale of their shares for a one (1)
year period commencing November 22, 1996.
(9) Includes 67,500 shares owned by Mr. Katz' son.
(10) Includes 200,000 options currently exercisable at the lower of $7.00 per
share or fair market value on January 6, 1997, expiring January 5, 2007,
and 200,000 Class C Warrants currently exercisable at $2.00 per share
acquired from Trinity American Corporation. See "Certain Transactions".
(11) Includes 451,000 Class B Warrants currently exercisable at $1.00 per share
and 251,000 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 50,000 shares of common stock;
$200,000 of loans currently convertible into 400,000 shares of common
stock; 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".
(12) Includes 1,100,000 currently exercisable warrants, each of which entitles
the holder to purchase one additional share of Common Stock at $4.00 per
share until December 31, 1997 and at $6.00 per share thereafter and until
December 31, 1998, the expiration date of the warrants, and 200,000 Class
B Warrants currently exercisable at $1.00 per share and 200,000 Class C
Warrants currently exercisable at $2.00 per share. See "Certain
Transactions".
* A currently exercisable option, warrant or conversion privilege is one
which is exercisable within 60 days from the date hereof.
Percentages are based on 7,723,807 common shares outstanding as of
December 31, 1996, plus currently exercisable options, warrants and
conversion privileges for 2,292,000 shares by directors, officers and
Trinity American Corporation, including 550,000 units sold in December
1996, each unit consisting of one share of Common Stock and two warrants,
each of which entitles the holder to purchase one additional share of
Common Stock, for an aggregate total of 11,615,807 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.
49
<PAGE>
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 of "Notes to
the Consolidated Financial Statements". Abraham Salaman is the President and
sole shareholder of Trinity American Corporation.
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 provides 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. Accounts Receivable from this
affiliate at December 31, 1994, 1995 and September 30, 1996 amounted to
$125,377, $68,855 and $78,356, respectively.
HZI subcontracts material amounts of its patient testing performed in connection
with servicing contracts to New York Institute, a not for profit medical
research entity. Richard Katz, a director of the Company is President and Dr.
Itil, the Company's Chairman is honorary Chairman of New York Institute (NYI).
Expenses incurred with such contractor for the years ending December 31, 1994
and 1995, respectively, were $283,936 and $118,123, respectively. Net payables
to this contractor amounted to $37,583 and $2,753, at December 31, 1995 and
1994, respectively.
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, 1994, 1995 and for the nine months
ended September 30, 1996 amounted to $285,132, $186,123 and $24,361,
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
of 7.5% per annum $ 18,900
Non interest bearing loans 59,170
50
<PAGE>
Accrued Interest 12,264
--------
$ 90,334
========
Stockholders Notes and Loans:
September 30, 1996 December 31, 1995
Notes Payable bearing an interest
of 7.5% to 10% * 550,000 $225,000
Non interest bearing loans and payables(i) 108,861 155,381
Non interest bearing loan payable 200,000 --
-------- --------
$858,861 $380,381
======== ========
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:
September 30, 1996 December 31, 1995
Due from Manhattan Westchester $ 78,356 $ 68,855
Due from Academia 21,294 20,088
-------- --------
$ 99,650 $ 88,943
======== ========
Manhattan Westchester is a professional corporation of which Dr. Turan M. Itil,
Chairman of the Company owns the majority of shares outstanding.
Academia Medicinae Psychiatriae Foundation, Inc. ("Academia") is a
not-for-profit organization. One of the Company's majority stockholders, Dr.
Turan M. 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 Tele-Map
division.
51
<PAGE>
This arrangement was temporarily discontinued in 1995 and has now been resumed.
Services provided by Manhattan Westchester to HZI for the years ended December
31, 1994 and 1995 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.
In December 1995, Trinity loaned $25,000 to the Company with interest payable at
the rate of 10% per year.
All of the foregoing loans, originally for periods of 90 days to twelve months,
have been extended to December 15, 1998 or the date the Class B and C Warrants
are exercised in their entirety, if prior to December 15, 1998. The interest on
the foregoing loans, originally at the rate of 9 and 10%, has been reduced to 5%
effective December 16, 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,
$20,000 was repaid in February 1996, and interest was waived. The $20,000
balance of the loan is convertible into 40,000 shares of the Company's Common
Stock.
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 "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".
During 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.
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 Risco Investment Trust, c/o 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. Subsequently, these shareholders each sold
300,000 of their shares respectively
52
<PAGE>
to Four Acres Limited, Jersey, Channel Islands; Meadowbrook Investments, Ltd.,
Nevis, West Indies; and J.L.B. Equities, Inc., Elmsford, New York. J.L.B.
Equities, Inc., which had purchased 250,000 shares of the Company's Common Stock
in the December 1995 private placement thereafter, in December 1996, sold an
aggregate of 500,000 of the 550,000 shares which it owned to Lancer Partners,
L.P. and Lancer Offshore, Inc. The Company agreed to include all of these
shares, as well as those retained by Anker Bank, Risco Investment Trust and Mr.
Hauchecorne, in the Registration Statement of which this Prospectus is a part.
Accordingly, these shares may be sold pursuant to this Prospectus.
In May 1996, the Company borrowed $200,000 from Elvena, Inc., a shareholder of
the Company. The loan is non-interest bearing and is payable within one (1) year
or is payable out of the first proceeds resulting from any exercise of
outstanding Class B and Class C warrants, whichever comes first. As additional
consideration the Company issued 66,666 shares of restricted common stock to
Elvena, Inc. These shares may be sold pursuant to this Prospectus. See "Selling
Stockholders." In July 1996, Elvena loaned the Company an additional $100,000 in
a non-interest-bearing loan. Both of the foregoing loans from Elvena, originally
for periods of twelve months, have been extended to the earlier of the date the
Class B and C Warrants are exercised in their entirety, or December 15, 1998.
In July 1996, J.L.B. Equities, a shareholder, loaned the Company $100,000. This
loan bears interest at 9% per year, payable monthly, and is payable in July
1997.
On August 14, 1996, Dr. Itil and his wife Eleanore Itil, each contributed 12,500
shares of the Company's Common Stock owned by them to the National Ethnic
Albanian-American Foundation, Inc. ("Foundation"), a nonprofit corporation
organized exclusively to receive and administer funds for religious, charitable,
scientific, literacy and educational purposes. Joseph J. DioGuardi, a director
of the Company is a director and President of the foundation. These shares may
be sold by the Foundation pursuant to this Prospectus. See "Selling
Stockholders."
In September 1996, Trinity American Corporation loaned the Company $50,000. This
loan bore interest at the rate of 10% per year which, effective December 16,
1996, was reduced to 5%. The loan, originally payable within one year, has been
extended to the earlier of the date the Class B and C Warrants are exercised in
their entirety, or December 15, 1998.
In December 1996 the Company sold an aggregate of 550,020 Units for an aggregate
of $2,000,000 ($3.63 per Unit) to three investors in a private placement as
follows: Lancer Partners, L.P. 269,775 shares; Lancer Offshore, Inc. 275,749
shares; and Michael Lauer, general partner of Lancer Partners, L.P. 4,496
shares. Each Unit consists of one share of Common Stock and two Warrants, each
of which entitles the holder to purchase one additional share of Common Stock.
The 1,100,000 Warrants included in the Units are exercisable at $4.00 per share
until December 31, 1997 and at $6.00 per share thereafter and until December 31,
1998, the expiration date of the Warrants. The purchasers of the Units have not
been granted registration rights with respect to the Units and none of the
Shares of Common Stock or Warrants comprising the Units or Shares of Common
Stock issuable upon exercise of the Warrants have been included in the
Registration Statement of which this Prospectus is a part.
53
<PAGE>
SELLING STOCKHOLDERS
An aggregate of up to 3,691,666 shares of Common Stock and 1,600,000 Warrants
may be offered by the Selling Stockholders consisting of (i) 2,066,666 shares
issued in Private Placements and other exempt transactions; (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 and
25,000 shares being offered by a charitable foundation. 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 September 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 and Percent Maximum Number to Percent
Nature of of Class Number to be Owned of Class
Name of Selling Beneficial Be Sold If Maximum After
Stockholder Ownership (2) Is Sold Sale
- --------------- ----------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Capital
Assets, Ltd. (3) 300,000(1) 3.88 % 300,000 -0- -0-
J.L.B. Equities, Inc. (3) 50,000(1) * 50,000 -0- -0-
Robsal Inc. (3) 225,000(1) 2.91 % 225,000 -0- -0-
Elvena, Inc. (3) 291,666(1) 3.77 % 291,666 -0- -0-
National Ethnic Albanian American 25,000(1) * 25,000 -0- -0-
Foundation (3)
Lancer Partners, L.P. (3) 400,000 5.17 % 400,000 -0- -0-
Lancer Offshore, Inc. (3) 100,000 1.29 % 100,000 -0- -0-
Anker Bank 33,333(3) * 33,333 -0- -0-
Four Acres, Ltd. 300,000(3) 3.88 % 300,000 -0- -0-
Georges Hauchecorne 33,333(3) * 33,333 -0- -0-
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Amounts and Percent Maximum Number to Percent
Nature of of Class Number to be Owned of Class
Name of Selling Beneficial Be Sold If Maximum After
Stockholder Ownership (2) Is Sold Sale
- --------------- ----------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Meadowbrook Investment, Ltd. 300,000(3) 3.88 % 300,000 -0- -0-
Risco Investment Trust 33,333(3) * 33,333 -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-
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-
Amounts and Percent Maximum Number to Percent
Nature of of Class Number to be Owned of Class
Name of Selling Beneficial Be Sold If Maximum After
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Stockholder Ownership (2) Is Sold Sale
- --------------- ----------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
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-
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 451,000(4) 56.3 %(6) 451,000 -0- -0-
251,000(5) 31.3 %(6) 251,000 -0- -0-
Lancer Offshore, Inc. 50,000(3)(4) 6.25 %(6) 50,000 -0- -0-
50,000(3)(5) 6.25 %(6) 50,000 -0- -0-
Lancer Partners, L.P. 150,000(3)(4) 18.75 % 150,000 -0- -0-
150,000(3)(5) 18.75 % 150,000 -0- -0-
Jonathan Raven 200,000(3)(5) 25 %(6) 200,000 -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.
(6) Represents percentage of Class B and Class C Warrants owned.
56
<PAGE>
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.
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 7,723,807
shares were issued and outstanding as at December 31, 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.
57
<PAGE>
Transfer Agent
The transfer agent for the Common Stock is Jersey Stock Transfer and Trust
Company, Vernon, New Jersey.
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 d 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
58
<PAGE>
share and extended the exercise date until June 30, 1997. The shares of Common
Stock 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.
As permitted by Section 78.751 of the Nevada General Corporation Law, the
Company shall, to the fullest extent permitted by the Nevada General Corporation
Law, as the same shall be added 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 therein shall not be
deemed exclusive of any other right to which any persons may be entitled under
any By-Law, resolution of shareholders, resolution of directors, agreement or
otherwise, as permitted by said articles, as to action in any capacity in which
he or she served at the request of the Company. 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.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 3,691,666 shares covered by this Prospectus, an
aggregate of 450,000 shares issuable upon the exercise of certain employees and
directors stock options at prices ranging from $0.10 to $7.00 per share and an
aggregate of approximately 2,100,000 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 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 2,000,000 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
Morris Vernon, Esq., 760 Mays Boulevard, 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.
60
<PAGE>
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., 333 Earle Ovington Blvd., Mitchell
Field, New York, as its new independent accountants.
61
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<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 September 30, 1996 (Unaudited)
and December 31, 1995 F-2
Consolidated statements of operations for the nine months ended
September 30, 1996 and 1995 (Unaudited) and for the years ended
December 31, 1995 and 1994 F-3
Consolidated statements of stockholders' equity for the nine months
ended September 30, 1996 (Unaudited) and for the years ended
December 31, 1995 and 1994 F-4
Consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995 (unaudited) and for the years ended
December 31, 1995 and 1994 F-5 - F-6
Notes to consolidated financial statements F-7 - F-28
<PAGE>
{Letterhead of Scarano & Lipton, P.C.]
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 sheet of NeuroCorp, Ltd.
and Subsidiaries (the "Company") as of December 31, 1995 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.
/s/ Scarano & Lipton, P.C.
- -------------------------------
Scarano & Lipton, P.C.
Mitchel Field, New York
April 5, 1996
F-1
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
------------ ------------
ASSETS
Current assets:
Cash $ 118,490 $ 140,519
Accounts receivable, net of allowance for
doubtful accounts of $57,556 and $39,920,
respectively 1,187,659 716,650
Inventory 34,883 29,985
Due from affiliates 99,650 88,943
Prepaid expenses and taxes 34,028 53,314
Deferred financing cost 86,848 --
Costs in excess of billings on uncompleted
contracts 1,757 28,833
---------- ----------
Total current assets 1,563,315 1,058,244
---------- ----------
Equipment and fixtures, net 86,970 81,066
---------- ----------
Other assets:
Database development costs, net 1,285,028 1,312,346
Computer system product development costs, net 527,678 744,536
Other 136,220 133,220
---------- ----------
Total other assets 1,948,926 2,190,102
---------- ----------
Total assets $3,599,211 $3,329,412
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUIY
Current liabilities:
Demand note - line of credit $ -- $ 50,000
Accounts payable 207,315 152,465
Accrued expenses 198,969 182,310
Stockholder notes and loans payable 858,861 380,381
Income taxes payable 1,296 8,293
Current portion of long-term debt 55,840 90,227
Billings in excess of contract revenues
on uncompleted contracts 174,373 201,333
---------- ----------
Total current liabilities 1,496,654 1,065,009
---------- ----------
Long-term liabilities:
Long-term debt 18,053 37,734
Deferred income taxes 309,000 309,000
---------- ----------
Total liabilities 1,823,707 1,411,743
---------- ----------
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 7,173,807 and 6,107,141 issued
and outstanding, respectively 46,374 45,307
Less: discount on common stock (28,500) (28,500)
Additional paid-in capital 1,245,919 738,699
Contributed capital 100,000 100,000
Retained earnings 11,711 662,163
---------- ----------
Total stockholders' equity 1,775,504 1,917,669
---------- ----------
Total liabilities and stockholders' equity $3,599,211 $3,329,412
========== ==========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months
ended September 30, For the years ended
(Unaudited) December 31,
-------------------- --------------------
1996 1995 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues $ 985,715 $ 1,130,085 $ 1,543,363 $ 2,350,989
Cost of revenues, including
amortization expense of $135,900,
and $136,131 for the nine months
ended September 30, 1996 and 1995
respectively, $179,308 and 166,710,
for the years ended December 31,
1995 and 1994 respectively 488,633 393,178 637,746 929,010
----------- ----------- ----------- -----------
Gross profit 497,082 736,907 905,617 1,421,979
Expenses:
General and administrative 811,403 673,097 1,013,233 985,074
Research and development 71,235 136,134 181,512 224,010
Cumulative effect of change
in estimate (Note 2f) 182,235 -- -- --
----------- ----------- ----------- -----------
Total expenses 1,064,873 809,231 1,194,745 1,209,084
----------- ----------- ----------- -----------
(Loss) income from operations (567,791) (72,324) (289,128) 212,895
Other income (expense):
Gain on disposal of vehicle -- 31,280 31,280 --
Interest income 8,527 11,037 11,760 18,246
Interest expense (79,938) (12,257) (45,986) (23,727)
----------- ----------- ----------- -----------
(Loss) income before provision
for income taxes and extraordinary
item (639,202) (42,264) (292,074) 207,414
Provision for (benefit from)
income taxes -- 25,720 (29,580) 56,413
----------- ----------- ----------- -----------
(Loss) income before
extraordinary item (639,202) (67,984) (262,494) 151,001
Extraordinary item
Forgiveness of debt,
net of taxes of $30,000 -- -- -- 52,034
----------- ----------- ----------- -----------
Net (loss) income $ (639,202) $ (67,984) $ (262,494) $ 203,035
=========== =========== =========== ===========
Net (loss) income applicable to
common shares $ (650,452) $ (67,984) $ (262,494) $ 203,035
=========== =========== =========== ===========
Earnings per share:
Primary:
(Loss) income before provision
for taxes and extraordinary item (.09) (.01) $ (.06) $ .04
Provision for (benefit from)
income taxes -- Nil (.01) .01
----------- ----------- ----------- -----------
(Loss) income before extraordinary
item -- -- (.05) .03
Extraordinary item -- -- -- .01
----------- ----------- ----------- -----------
Net (loss) income $ (.09) $ (.01) $ (.05) $ .04
=========== =========== =========== ===========
Net (loss) income applicable to
common shares $ (.10) $ (.01) $ (.05) $ .04
=========== =========== =========== ===========
Weighted average number of
shares outstanding:
Primary 6,924,548 5,434,920 5,484,586 4,676,666
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Class B Additional
Series 1 Series 2 Common Stock Paid-in Contributed
Shares Amount Shares Amount Shares Amount Capital Capital
----------- --------- --------- --------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 150,000 $ 150,000 250,000 $ 250,000 5,400,000 $ 16,100 $ 262,123 $ --
Sale of common stock -- -- -- -- 57,143 57 99,943 --
Issuance of common stock
in connection with loan -- -- -- -- 49,998 50 14,011 --
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 --
Issuance of stock option
in consideration for
compensation and consulting
fees -- -- -- -- -- -- 66,875 --
Capital contribution in
connection with waived
Chairman's compensation -- -- -- -- -- -- 146,347 --
Net (loss) -- -- -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- ----------- ---------
Balances at
December 31, 1995 150,000 150,000 250,000 250,000 6,107,141 16,807 738,699 100,000
Sale of common stock -- -- -- -- 1,000,000 1,000 399,000 --
Issuance of 66,666 shares
of common stock in lieu of
deferred financing cost
for a loan -- -- -- -- 66,666 67 133,266 --
Cost associated with the
registration for selling
stockholders and warrantholders -- -- -- -- -- -- (25,046) --
Accrued preferred stock dividends -- -- -- -- -- -- -- --
Net (loss) -- -- -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- ----------- ---------
Balances at September
30, 1996 150,000 $ 150,000 250,000 $ 250,000 7,173,807 $ 17,874 $ 1,245,919 $ 100,000
=========== ========= ========= ========= ========= ========= =========== =========
</TABLE>
Total
Retained Stockholders'
Earnings Equity
---------- -------------
Balances at
December 31, 1994 $ 924,657 $ 1,602,880
Sale of common stock -- 100,000
Issuance of common stock
in connection with loan -- 14,061
Cancellation of common stock
contributed by shareholder -- --
Sale of common stock -- 250,000
Issuance of stock option
in consideration for
compensation and consulting
fees -- 66,875
Capital contribution in
connection with waived
Chairman's compensation -- 146,347
Net (loss) (262,494) (262,494)
--------- -----------
Balances at
December 31, 1995 662,163 1,917,669
Sale of common stock -- 400,000
Issuance of 66,666 shares
of common stock in lieu of
deferred financing cost
for a loan -- 133,333
Cost associated with the
registration for selling
stockholders and warrantholders -- (25,046)
Accrued preferred stock dividends (11,250) (11,250)
Net (loss) (639,202) (639,202)
--------- -----------
Balances at September
30, 1996 $ 11,711 $ 1,775,504
========= ===========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine
months ended September 30, For the years ended
(Unaudited) December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (639,202) $ (67,984) $ (262,494) $ 203,035
Adjustments to reconcile net (loss)
income to net cash used for
operating activities:
Depreciation and amortization 160,311 171,327 230,546 293,240
Cumulative effect of change
in estimate 182,235 -- -- --
Amortization of deferred
financing costs 46,485 -- -- --
Compensation in lieu of capital
contribution -- -- 146,347 --
Stock options issued in lieu
of expenses -- -- 80,936 --
Deferred income taxes -- 40,000 12,000 25,145
Interest expense -- -- 9,278 --
Forgiveness of debt -- -- -- (75,000)
Gain on disposal of vehicle -- (31,280) (31,280) --
Reclassification of equipment
to inventory -- 9,193 9,175 --
Changes in operating assets
and liabilities:
Accounts receivable (471,009) (180,158) (561,553) 5,468
Inventory (4,898) (8,613) (11,592) (6,988)
Due from affiliates (10,707) (35,907) 62,527 (46,682)
Prepaid taxes and expenses 19,286 1,725 23,768 (55,362)
Costs in excess of billings
on uncompleted contracts 27,076 103,278 121,341 468,172
Accounts payable 54,850 66,689 (55,429) 159,735
Accrued expenses 5,409 169,178 60,087 21,993
Income taxes payable (6,997) (34,383) (83,573) 83,142
Customer deposits -- -- 1,930 (90,922)
Billings in excess of contract
revenues on uncompleted
contracts (26,960) (443,013) (412,666) (1,113,027)
----------- ----------- ----------- -----------
Net cash flows used for
operating activities (664,121) (239,948) (660,652) (128,051)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment and fixtures (28,365) (13,695) (47,955) (9,611)
Database development costs capitalized (71,682) (198,157) (60,478) (145,228)
Computer system product development
costs capitalized (2,277) (146,235) (138,635) (233,025)
Patent costs (2,150) -- (5,380) (4,220)
Proceeds from vehicle insurance claim -- 34,271 34,271 --
----------- ----------- ----------- -----------
Net cash flows used for
investing activities (104,474) (323,816) (218,177) (392,084)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt -- -- 30,778 275,000
Principal payments on long-term debt (54,068) (54,618) (71,943) (88,616)
Loan receivable -- -- 90,334 --
Employee loans and advances (2,800) -- -- --
(Repayments of) Proceeds from
demand note - line of credit (50,000) 50,000 50,000 --
Proceeds from stockholders loans 575,000 140,225 312,674 --
Repayments of stockholder loans (96,520) -- (79,000) (9,076)
Repayment of stockholder advance -- -- -- --
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 400,000 100,000 350,000 --
Deferred acquisition costs -- -- -- (44,136)
Deferred registration costs incurred (25,046) -- -- --
----------- ----------- ----------- -----------
Net cash flows provided by
financing activities 746,566 235,607 682,843 533,172
----------- ----------- ----------- -----------
Net (decrease) increase in cash (22,029) (328,157) (195,986) 13,037
Cash at beginning of period 140,519 336,505 336,505 323,468
----------- ----------- ----------- -----------
Cash at end of period $ 118,490 $ 8,348 $ 140,519 $ 336,505
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine
months ended September 30, For the years ended
(Unaudited) December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information: Cash paid during the
year for:
Interest $ 11,691 $ 9,336 $ 16,322 $ 22,489
=========== =========== =========== ===========
Income taxes $ 8,526 $ 4,353 $ 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 $ --
=========== =========== =========== ===========
Capital contribution in connection
with waived Chairman's
compensation $ -- $ -- $ 146,347 $ --
=========== =========== =========== ===========
Issuance of restricted 66,666
shares of common stock for
deferred financing cost
associated with a loan $ 133,333 $ -- $ -- $ --
=========== =========== =========== ===========
Accrued dividend on Series 1
preferred stock $ 11,250 $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
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 common 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 represent the assets and liabilities of HZI and it's affiliates
and the results of their operations and cash flows. 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 involved in
three interrelated 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, currently known as Brain
Function Monitoring (BFM) system and (iii) providing interactive
diagnostic testing services and analysis to physicians and hospitals via
the telephone, through HZI's subsidiary, TeleMap, Inc. ("TeleMap").
In January 1996, the Company created a wholly-owned subsidiary Memory
Centers of America, Inc. ("MC Inc."). MC Inc. will provide therapeutic
services to people who suffer from memory impairment. MC Inc. began its
pilot operations at the end of the second quarter of 1996.
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 information.
F-7
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation - nine months ended September 30, 1996 and
1995 The unaudited interim financial statements for the nine months
ended September 30, 1996 and 1995 included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and, in the opinion of the
Company, reflect all adjustments (consisting only of normal
recurring adjustments) and disclosures which are necessary for a
fair presentation. The results of operations for the nine months
ended September 30, 1996 and 1995 are not necessarily indicative of
the results for the full year.
b) Basis of presentation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries HZI, MC Inc. and TeleMap
as well as an affiliated entity, New York Institute for Medical
Research, Inc. ("NYI"), 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.
c) Inventory
Inventory, which consists solely of finished goods, is stated at the
lower of cost (first-in, first-out method) or market.
d) Equipment and fixtures
Equipment and fixtures are recorded at cost. Depreciation is
provided using the double-declining balance method over the
estimated useful lives (5-7 years) of the related assets.
e) Database development costs
Database development costs consist of direct labor costs associated
with the accumulation of results of previously tested drugs and
converting such results into a readable format. These costs are
being amortized on a straight-line method over the estimated useful
life of the database which is seventeen (17) years.
F-8
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
f) Computer system product development costs
Computer system product development costs consist primarily of
direct labor costs associated in developing the Company's product.
Such costs are capitalized from the time the product is determined
to be technologically feasible to the time the product is available
for general release to customers. 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. Technological
feasibility is established when a product design and working model
of the product have been completed and the completeness of the
working model and its consistency with the product design have been
confirmed by testing. The Company's policy was to amortize such
costs over an estimated useful life of seventeen years. On
September 30, 1996, the Company revised its estimated useful life
of these costs from 17 years to 7 years. This change was made to
better reflect the estimated period during which such assets will
remain in service. The cumulative effect of this change in estimate
amounting to $182,235 or $.03 per share was a charge to operations
during the third quarter 1996.
g) 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.
h) 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 paid-in capital
upon completion of the acquisition of the subsidiary.
i) 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 period's
taxable income for Federal, State and City income tax reporting
purposes.
F-9
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
j) 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. Percentage of completion is determined
based on either a cost-to-cost or unit of delivery basis as
determined by each individual contract. Changes in each contract
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.
k) Net income (loss) per common share
Net income (loss) per common share is computed by dividing the net
income (loss), after reduction for preferred stock dividends by the
weighted average number of shares of common stock outstanding during
each period. Common stock equivalents are excluded from the
computation of net loss per share of common stock since the results
are anti-dilutive. 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 (See
Note 11g).
l) Change of fiscal year end
The parent company NeuroCorp, Ltd. changed 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 operations prior to such date.
m) Research and development costs
Research and development costs are charged to operations when
incurred.
F-10
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
n) Use of estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
o) 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 long-lived assets
that are expected to be disposed of. The Company adopted Statement
121 in the first quarter of 1996 and there was no effect to the
Company.
p) 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).
q) 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.
r) Reclassifications
Certain reclassifications have been made to the December 31, 1994
financial statements to conform with the December 31, 1995 financial
statement presentation.
F-11
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 3 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
September 30, December 31,
1996 1995
------------- ------------
Costs incurred on uncompleted contracts $2,114,555 $4,028,216
Estimated earnings 1,390,337 3,305,124
---------- ----------
3,504,892 7,333,340
Less: Billings to date 3,677,508 7,505,840
---------- ----------
$ (172,616) $ (172,500)
========== ==========
Included in accompanying balance sheets under the following
captions:
Costs in excess of billings on
uncompleted contracts $ 1,757 $ 28,833
Billings in excess of contract
revenues on uncompleted
contracts (174,373) (201,333)
---------- ----------
$ (172,616) $ (172,500)
========== ==========
NOTE 4 - EQUIPMENT AND FIXTURES, NET
Equipment and fixtures, net consists of the following:
September 30, December 31,
1996 1995
------------- ------------
Furniture and fixtures $ 9,009 $ 9,009
Equipment 562,323 533,958
Vehicles 50,118 50,118
---------- ----------
621,450 593,085
Less: accumulated depreciation 534,480 512,019
---------- ----------
$ 86,970 $ 81,066
========== ==========
Depreciation expense amounted to $22,461, $34,712, $49,224 and
$126,530 for the nine months ended September 30, 1996 and 1995 and
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 NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 5 - DATABASE DEVELOPMENT COSTS, NET
September 30, December 31,
1996 1995
------------- ------------
Balance, beginning of year $1,312,346 $1,383,853
Capitalized costs during the year 71,682 60,479
Amortization charged to cost of revenues (99,000) (131,986)
---------- ----------
Balance, end of year $1,285,028 $1,312,346
========== ==========
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 to be necessary for the years ended
December 31, 1995 and 1994.
NOTE 6 - COMPUTER SYSTEM PRODUCT DEVELOPMENT COSTS, NET
September 30, December 31,
1996 1995
------------- ------------
Balance, beginning of year $ 744,536 $ 653,224
Capitalized costs during the year 2,277 138,635
Amortization charged to cost of revenues (36,900) (47,323)
Cumulative effect of change in estimate (182,235) --
---------- ----------
Balance, end of year $ 527,678 $ 744,536
========== ==========
In management's opinion the net realizable value of the unamortized
computer system product development costs after giving effect to the
cumulative effect of change in estimate as discussed in Note 2(f)
exceeds the carrying value, net, therefore, no additional 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. The
demand note was repaid in full during March 1996.
F-13
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 8 - ACCRUED EXPENSES
Accrued expenses consists of the following at:
September 30, December 31,
1996 1995
------------- ------------
Accrued payroll and related taxes $ 109,194 $ 19,482
Professional fees 39,456 149,783
Accrued interest - stockholder
(See Note 13c(ii)) 26,643 6,598
Registration costs 11,808 --
Accrued preferred dividends 11,250 --
Other 618 6,447
---------- ----------
$ 198,969 $ 182,310
========== ==========
NOTE 9 - LONG-TERM DEBT
Long-term debt consists of the following at:
September 30, December 31,
1996 1995
------------- ------------
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. $ 48,636 $ 97,715
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. 25,257 30,246
---------- ----------
73,893 127,961
Less: current portion 55,840 90,227
---------- ----------
Long-term portion $ 18,053 $ 37,734
========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
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
F-15
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 10 - PROVISION FOR INCOME TAXES (Cont'd)
consequences of these temporary differences, which will either be
taxable or deductible in the year when the assets or liabilities are
recovered or settled.
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 September 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.
F-16
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 10 - PROVISION FOR INCOME TAXES (Cont'd)
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 11g.
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, 600,000 shares (30,000,000 shares pre-split) 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
80,000 units (4,000,000 units pre-split) 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-nine months after the
effective date of the offering.
F-17
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
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.
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 September 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.
F-18
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
f) Issuance of warrants (Cont'd)
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 11m, in February 1996 the Company filed with SEC to register
these warrants.
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 superseded 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. The number of shares of stock to be issued when
dividends are paid in stock is based upon on the average closing bid
price of the stock for 30 consecutive days prior to the date the
dividend becomes payable. At September 30, 1996, the Company has
accrued a dividend of $11,250 related to this preferred stock based
upon an anticipated cash payment in the future. Further, the Company
may redeem such shares at any time for $3 per share.
F-19
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
g) Reverse acquisition of subsidiary (Cont'd)
The second class of 250,000 shares of convertible no par value
preferred stock, class B series 2, can be converted into common
stock and does not provide for dividend payments. 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. At September 30, 1996, neither TAC or the Company have
exercised these conversion features.
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. On November 6, 1996 the Company cancelled the option agreement
granted to the consultant, and issued 50,000 shares of the Company's
common stock.
F-20
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
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.
j) Sale of common stock
On April 14, 1995, March 2, 1996 and March 25, 1996, the Company
sold 57,143, 333,333 and 666,667 shares of common stock for
$100,000, $133,333 and $266,667, respectively, to foreign investors
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
i) On July 19, September 14, October 12, 1995 and February 26,
1996, the Company and the Chairman of the Board entered into a
letter agreement with TAC to borrow $100,000, $40,000, $60,000
and $75,000, 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 and $75,000 loans have an
interest rate of 10% and are due within 90 days and six
months, respectively, from the date of issuance including
accrued interest. TAC and the Company have agreed to extend
the due dates of the above loans to June 30, 1997 or the date
the Class B and C warrants are exercised in their entirety
prior to June 30, 1997. 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 fifty percent (50%) of the fair
value of the common stock issued on July 19, 1995, the date of
the agreement. Further, the letter agreements give TAC the
option to convert said loans into 550,000 shares of common
stock.
F-21
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
k) Issuance of common stock as consideration for loan (Cont'd)
i) (Cont'd)
On September 13, 1996 the Company borrowed from TAC $50,000,
which is payable from any future private placement proceeds.
Said loan bears interest at 9.5% per annum. Furthermore, the
loan agreement gives TAC the option to convert each $4.00 of
debt into one (1) unit. Each unit will consist of one (1)
share of Common Stock of the Company and two (2) Stock
Purchase Warrants. Each Warrant is exercisable into one (1)
share of Common Stock of the Company at $8.00 per share until
August 31, 1997, thereafter $10.00 per share. The Stock
Purchase Warrants expire on August 31, 1998.
ii) On May 24, 1996, the Company entered into an agreement with a
shareholder to borrow $200,000. The loan is non-interest
bearing and is payable within one (1) year or is payable out
of the first proceeds resulting from any exercise of
outstanding Class B and Class C warrants (See Note 11f),
whichever comes first. As additional consideration the Company
issued 66,666 shares of restrictive common stock. The Company
has valued the common stock at $133,333 or fifty percent (50%)
of the fair market value at the time of transaction. The
Company recorded deferred financing cost and increased
stockholders' equity by $133,333, respectively for this
transaction. The deferred financing cost is being amortized
over one year, which is the maximum term of the loan, or will
be charged to operations if paid prior to May 24, 1997. See
Note 13c. Further, the Company has agreed to register said
shares. (See Note 11m.)
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, as described
below.
m) Registration of common stock
During February, 1996, the Company commenced 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. 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.
The Company has also agreed to pay $25,046 of cost related to the
registration.
F-22
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11 - STOCKHOLDERS' EQUITY (Cont'd)
n) Chairman's capital contribution
As discussed in Note 12(c)(1) the Company's Chairman waived $146,347
of his base annual salary for the year ended December 31, 1995. Said
amount has been recorded as an administrative expense and as an
increase to additional paid-in-capital for the year ended December
31, 1995.
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 nine months ended
September 30, 1996 and 1995 and for the years ended December 31,
1995 and 1994 totalled $91,811, $117,537, $202,755 and $188,666,
respectively.
b) Concentration of credit risk
For the nine months ended September 30, 1996 and 1995, approximately
62% and 44%, respectively, of net sales were derived from two and
one unrelated customers, respectively, who are in the pharmaceutical
industry. As of September 30, 1996 and December 31, 1995,
approximately 60% and 54% of accounts receivable is due from two
unrelated customers.
F-23
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Cont'd)
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. Said salary amount
has been recorded as an administrative expense and as an
increase to additional paid-in-capital. Additionally, the
Company's Chairman waived his right to receive the term life
insurance as provided for in the employment agreement. See
Note 11(n).
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.
F-24
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
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 nine months ended September
30, 1996 and 1995 and for the years ended December 31, 1995 and 1994
amounted to $24,361, $156,002, $186,123 and $285,132, respectively.
The above transactions between HZI and NYI have been eliminated in
the consolidated financial statements.
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 amount of its patient
testing performed in connection with its long term contracts. NYI is
treated as a subsidiary of the Company and is included in the
consolidation. Expenses incurred with NYI for the nine months ended
September 30, 1996 and 1995 and for the years ending December 31,
1995 and 1994 were $0, $40,715, $118,123 and $283,936, respectively.
The net payable due NYI at September 30, 1996 and at December 31,
1995 amounted to -0- and $37,583, 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 would 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 nine months ended
September 30, 1996 and 1995 and for the years ended December 31,
1995 and 1994 amounted to -0-, $5,000, $15,400 and $40,177,
respectively.
c) Stockholder notes and loans
September 30, December 31,
1996 1995
------------- ------------
Non-interest bearing loans and payables
(See i below) $ 108,861 $ 155,381
Notes payable bearing an interest of
7.5% to 10% (See ii below) 550,000 225,000
Non-interest bearing loan payable
(See iii below) 200,000 --
---------- ----------
$ 858,861 $ 380,381
========== ==========
F-25
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
c) Stockholder notes and loans (Cont'd)
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.
ii) On July 19, September 14, October 12, 1995 and February 26,
1996, the Company and the Chairman of the Board entered into a
letter agreement with TAC to borrow $100,000, $40,000, $60,000
and $75,000, respectively. The $100,000 and $60,000 loans have
an interest rate of 9% per annum, respectively, and were due
in nine months from the date of issuance including accrued
interest, respectively. The $40,000 and $75,000 loans have an
interest rate of 10% and are due within 90 days and nine
months, respectively, from the date of issuance including
accrued interest. TAC and the Company have agreed to extend
the due dates of the above loans to September 30, 1997 or the
date the Class B and C warrants are exercised in the entirely
if prior to September 30, 1997. 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 fifty percent
(50%) of the fair value of the common stock issued on July 19,
1995, the date of the agreement. Further, the letter
agreements give TAC the option to convert said loans into
550,000 shares of common stock.
On February 5, 1996, the Company borrowed from TAC an
additional $50,000 which is due on demand. Said loan has an
interest rate of 10% and was repaid during April, 1996.
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 nine months or out of the proceeds of
the first funding of the Reg. "S" transaction.
On September 13, 1996 the Company borrowed from TAC $50,000,
which is payable from any future private placement proceeds.
Said loan bears interest at 9.5% per annum. Further, the loan
agreement gives TAC the option to convert each $4.00 of debt
into one (1) unit. Each unit will consist of one (1) share of
Common Stock of the Company and two (2) Stock Purchase
Warrants. Each Warrant is exercisable into one (1) share of
Common Stock of the Company at $8.00 per share until August
31, 1997, thereafter $10.00 per share. The Stock Purchase
Warrants expire on August 31, 1998.
On July 16, 1996 the Company entered into two loan agreements
with two unrelated shareholders. Each loan was for $100,000
and bear interest at 9% per annum and is due within one (1)
year, or from any sale proceeds of the Company's securities
including the exercise of Class B and C Warrants.
F-26
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
c) Stockholder notes and loans (Cont'd)
ii) (Cont'd)
At September 30, 1996 and December 31, 1995, accrued interest
related to such notes and loans amounted to $26,643 and
$6,598, respectively, and is included in accrued expenses (See
Note 8).
iii) On May 24, 1996, the Company entered into an agreement with a
shareholder to borrow $200,000. The loan is non-interest
bearing and is payable within one (1) year or is payable out
of the first proceeds resulting from any exercise of
outstanding Class B and Class C warrants, (Note 11f) whichever
comes first. As additional consideration the Company issued
66,666 shares of restrictive common stock. The Company issued
and has valued the common stock at $133,333 or fifty percent
(50%) of the fair market value on May 24, 1996 the date of the
transaction. The Company recorded deferred financing cost and
increased stockholders equity by $133,333, respectively for
this transaction. The deferred financing cost are being
amortized over one year, which is the maximum term of the
loan, or will be charged to operations if paid prior to May
24, 1997. Further, the Company has agreed to register said
shares. (See Note 11m).
d) Due from affiliates
Due from affiliates represent amounts due to HZI which are unsecured
demand obligations amounting to the following:
September 30, December 31,
1996 1995
------------- ------------
Due from Manhattan West $ 78,356 $ 68,855
Academia 21,294 20,088
---------- ----------
$ 99,650 $ 88,943
========== ==========
Academia Medicine Psychiatric Foundation, Inc. ("Academia") is a
not-for-profit entity. One of the Company's majority stockholders is
one of nine Directors of the Board.
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.
F-27
<PAGE>
NEUROCORP, LTD. AND SUBSIDIARIES
(Formerly Tamarac Ventures, Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
e) Shareholder transactions (Cont'd)
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 seven (7) 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 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.
g) Capital contribution
In December 1995, the Company sold 1,000,000 shares of 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, see Note 11m.
h) Chairman's capital contribution
As discussed in Note 12(c)(1) the Company's Chairman waived $146,347
of his base annual salary for the year ended December 31, 1995. Said
amount has been recorded as an administrative expense for the year
ended December 31, 1995 with an increase to additional
paid-in-capital.
F-28
<PAGE>
UNTIL .................. 1997, (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
As permitted by Section 78.751 of the Nevada General Corporation Law, the
Company shall, to the fullest extent permitted by the Nevada General Corporation
Law, as the same shall be added 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 therein shall not be
deemed exclusive of any other right to which any persons may be entitled under
any By-Law, resolution of shareholders, resolution of directors, agreement or
otherwise, as permitted by said articles, as to action any capacity in which her
or she served at the request of the Company.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses are estimated:
SEC Registration Fees $ 2,595*
Accounting fees 88,500
Legal Fees 60,000
Printing, Engraving & Mailing 6,000
Transfer agent & Registrar's fees 2,500
Blue Sky fees and expenses 2,500
Miscellaneous expenses 6,405
--------
TOTAL $168,500
========
* Actual
II-1
<PAGE>
Item 26.
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. *
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.*
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. an 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.
In May 1996, the Company borrowed $200,000 from Elvena, Inc., a shareholder of
the Company. The loan is non-interest bearing and is payable within one (1) year
or is payable out of the first proceeds resulting from any exercise of
outstanding Class B and Class C warrants, whichever comes first. As additional
consideration the Company issued 66,666 shares of restricted Common Stock to
Elvena, Inc.
II-2
<PAGE>
In November 1996 the Company issued 50,000 shares of its Common Stock to
Jonathan Rahn for services rendered as a consultant to the Company and cancelled
his outstanding stock options.
On August 14, 1996, Dr. Itil and his wife Eleanore Itil, each contributed 12,500
shares of the Company's Common Stock owned by them to the National Ethnic
Albanian-American Foundation, Inc. ("Foundation"), a nonprofit corporation
organized exclusively to receive and administer funds for religions, charitable,
scientific, literacy and educational purposes.*
In December 1996 the Company sold an aggregate of 550,020 Units for an aggregate
of $2,000,000 ($3.63 per Unit) to three investors in a private placement. Each
Unit consists of one share of Common Stock and two Warrants, each of which
entitles the holder to purchase one additional share of Common Stock. The
1,100,000 Warrants included in the Units are exercisable at $4.00 per share
until December 31, 1997 and at $6.00 per share thereafter and until December 31,
1998, the expiration date of the Warrants.*
* 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.
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 ***
II-3
<PAGE>
(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
(c)(iii) Employment Agreement between the Company and Jonathan E. Raven***
(c)(iv) Employment Agreement between the Company and Kurt Itil*** (c)(v)
Employment Agreement between the Company and Aileen Kunitz*** (d)
Lease Agreement for premises situated at 150 White Plains Road,
Tarrytown, New York
(e) Voting Trust Agreement
(f) Agreement between the Company and Mediator S.R.L.
(g) Agreement between the Company and Tena, Ltd.
(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 have been previously
filed with the Registration Statement..
* 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.
*** Filed herewith.
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 - 4
<PAGE>
(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) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities (other
than he 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-5
<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 S-B2 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 January 31,
1997.
(Registrant) NEUROCORP, LTD.
By (Signature and Title) S/TURAN M. ITIL
----------------------------------
Turan M. Itil,
Chairman, Chief Executive Officer
President, and Director
Date: January 31, 1997
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
- ----------------------------------- -------------------------------------
Turan M. Itil I. Ronald Horowitz
Chairman, Chief Executive Officer, Vice Chairman
President and Director
Date: January 31, 1997 Date: January _____, 1997
S/KURT Z. ITIL
- ----------------------------------- -------------------------------------
Kurt Z. Itil, Director Richard Katz, Director
Date: January 31, 1997 Date: January ____, 1997
S/PIERRE LE BARS
- ----------------------------------- -------------------------------------
Evelyn Sommer, Director Pierre Le Bars,
Date: January _____, 1997 Executive Vice President
& Director
Date: January 31, 1997
S/JOSEPH DIOGUARDI S/AILEEN A. KUNITZ
- ----------------------------------- -------------------------------------
Joseph DioGuardi, Director Aileen A. Kunitz, Vice President
Date: January 31, 1997 Director, Principal Financial Officer
Principal Accounting Officer
Date: January 31, 1997
S/JONATHAN E. RAVEN
- -----------------------------------
Jonathan E. Raven, Director
and Executive Vice President
Date: January 31, 1997
<PAGE>
Exhibit 5.(a)
[Letterhead of James Morris Vernon]
January 31, 1997
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
RE: Neurocorp, Ltd.
Amendment No. 3
Registration Statement on Form SB-2
Registration No. 333-1462
Dear Sirs:
In connection with the above referenced Registration Statement filed by
NeuroCorp, Ltd., a Nevada corporation (the "Company") with the Securities and
Exchange Commission (the "Commission"), relating to the sale by certain Selling
Stockholders of:
A maximum of 3,691,660 shares of Common Stock of the Company, par value
$.001 per share (the "Common Stock").
We have reviewed the Certificate of Incorporation and By-Laws of the Company, as
amended, records of certain of the Company's corporate proceedings as reflected
in the Company's minute books and have examined such authorities and statutes as
we have deemed relevant to the opinion set forth hereinafter.
Based upon the foregoing, it is our opinion that:
The shares of Common Stock presently issued and outstanding are, and the shares
of Common Stock to be issued upon the exercise of Class B and Class C Warrants,
will be, when sold in accordance with the terms and conditions set forth in the
Prospectus constituting a part of the Registration Statement, legally issued,
fully paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
Prospectus which forms a part thereof.
/s/ James Morris Vernon
------------------------------------
James Morris Vernon
<PAGE>
Exhibit 10.(c)(iii)
PERMANENT EMPLOYMENT AGREEMENT
This Permanent Employment Agreement ("Agreement") is made as of the 18th
day of December, 1996, between NeuroCorp., Ltd. and Memory Centers of America,
Inc. ("Companies"), and Jonathan E. Raven, an individual residing at 2556
Dustin, Okemos, MI ("Employee").
RECITALS
1. The Companies wish to secure the permanent uninterrupted services of
Employee as Chief Executive Officer, President and Director of Memory Centers of
America, Inc. and as Executive Vice President and Director of NeuroCorp., Ltd.,
and all of its subsidiaries and Employee wishes to perform such services for
Companies on the terms and conditions hereinafter set forth and for the duration
of this Permanent Employment Agreement.
2. Accordingly, the Companies and Employee wish to execute this Permanent
Employment Agreement.
AGREEMENT
1. Definitions. As used in this Agreement, the terms identified below
shall have the meanings indicated, and variants and derivatives of the following
terms shall have correlative meanings.
"Board" means the Board of Directors of each Company.
"Confidential Information" means, with respect to the affairs of the
Companies, any information, data, figures, sales figures, projections,
estimates, customer lists, tax records, personnel history, accounting
procedures, promotions, manuals, procedures, and any writings or conversations
concerning the foregoing.
"Continuation Date" means January, 2000.
"Disability" means a physical or mental incapacity which is incurred by
Employee and which would allow Employee to receive benefits under the Company's
long-term disability income plan.
"Effective Date" means January 6, 1997.
"Incapacity" means incapacity due to physical or mental illness (other
than an incapacity which constitutes a Disability), as a result of which
Employee has been receiving payments under the Company's long-term disability
income plan.
"MCA" shall mean Memory Centers of America, Inc.
1
<PAGE>
"NCL" shall mean NeuroCorp, Ltd.
"Person" means any person (other than Employee), firm, corporation,
partnership, joint venture, or other entity or an affiliated group including any
Person (other than Employee).
2. Permanent Employment. The Companies hereby agree to permanently employ
Employee as Chief Executive Officer, President and Director of Memory Centers of
America, Inc. and as Executive Vice President and Director of NeuroCorp., Ltd.
and all of its subsidiaries. Employee shall devote full time and attention
(during normal business hours) exclusively to the performance of his duties
hereunder. Employee will perform his duties faithfully, competently, diligently,
and to the best of his ability.
3. Term. The term of this Agreement shall commence on the Effective Date
and continue to the same date in 2000. Following the Continuation Date, this
Agreement shall continue for successive one-year term unless the Companies
provide Employee with written notice of intent to terminate at least 12 months
prior to the end of the initial three-year term or a subsequent term, or unless
terminated pursuant to Section 6. In each successive continuation year of this
Agreement, compensation shall be guaranteed according to Section 4 below, with
salary to increase annually by an amount consistent with CPI as compared to the
prior year. Employee's performance under this Agreement is conditional upon the
Companies raising $2,000,000 prior to the Effective Date.
4. Compensation. As full compensation for the permanent services of
Employee, Companies shall provide Employee with the following salary and
benefits:
a. Base Salary. Base salary, at the annual rate of $150,000 in the
first year. Thereafter, base salary shall be $225,000 in year two and shall
increase as set forth in Paragraph 3 above. Payments shall be made in bi-weekly
installments.
b. Incentive compensation bonus. Employee shall be entitled to
receive an incentive compensation bonus during the term of this agreement
pursuant to an annual executive incentive plan to be developed by the Companies.
c. Expenses. Reimbursement for necessary and reasonable business
expenses incurred by Employee in his employment including, but not limited to,
all expenses attendant to Employee's travel to and from the Companies' current
corporate offices in Tarrytown, New York.
d. Fringe Benefits. Participation in all employee benefit plans and
arrangements commensurate with Employee's
2
<PAGE>
position and length of service which are presently or hereafter made generally
available to key employees of the Companies. Employee shall have an auto lease
allowance of $800 per month.
e. Options. 500,000 qualified stock options for purchase of common
stock exercisable at the lower of $7.00 per share or fair market value. Said
options shall: be exercisable, upon vesting, for a period of 10 years from the
Effective Date of this Agreement; be protected against dilution in a manner
consistent with the provisions of stock options under the Company's stock option
plan; vest 200,000 options upon the Effective Date, and 150,000 options on each
of the first and second anniversaries of the Effective Date, so that they are
fully vested 24 months after the Effective Date.
5. Termination. This Agreement and Companies' unaccrued obligations
hereunder shall terminate as follows:
a. Death. Upon death of Employee.
b. Incapacity. If, as a result of Employee's incapacity due to
physical or mental illness, Employee shall be absent from his duties hereunder
for six (6) consecutive months, and if, within 30 days after written notice of
the Companies' intention to terminate this Agreement-time basis, Companies may
terminate this Agreement for "Incapacity."
c. For Cause. "Cause" means (i) the willful and continued failure by
Employee to substantially perform his duties hereunder; (ii) any willful,
intentional, or grossly negligent act by Employee having the demonstrable effect
of substantially injuring the reputation or business of the Company; or (iii)
conviction of Employee of any crime which constitutes a felony. No act, or
failure to act, on Employee's part shall be considered "willful" unless done, or
not done, by Employee not in good faith and without reasonable belief that the
act or omission was in the best interest of the Companies. Notwithstanding the
foregoing, Employee shall not be deemed to have been terminated for cause unless
and until the Companies shall have delivered to Employee a copy of a resolution
duly adopted by the affirmative vote of not less than sixty percent of the
entire Board (which sixty percent must include at least one-half of the
independent outside directors) at a meeting of the Board called and held for the
purpose (after reasonable notice to Employee and an opportunity for Employee,
together with counsel selected by Employee, to be heard before the Board),
finding that in the good faith opinion of the Board Employee engaged in the
conduct set forth above in clauses (i), (ii), and (iii) in the first sentence of
this subsection and specifying the particulars thereof in detail.
d. Notice by Employee. Upon three months written notice by Employee
to Companies.
3
<PAGE>
6. Compensation upon Termination or During Incapacity. During any period
that Employee fails to perform his duties as a result of Incapacity, Companies
shall continue to pay base salary (and Employee shall be entitled to all other
benefits and provisions under this Agreement) at the rate in effect at the
commencement of such Incapacity until this Agreement is terminated pursuant to
Section 5(b); provided, however, that the obligations of Companies under this
Section 6 shall be reduced by the amount of any disability income insurance
payments or workers compensation payments Employee may receive during Incapacity
under any state plan or policy carried by Companies of which Employee is a
beneficiary. Upon termination of employment under this section, this Agreement
shall terminate and Companies shall have no further obligation to Employee
except to the extent Employee is otherwise entitled to any accrued payments or
benefits hereunder or under any benefit plan or program of Companies.
7. Indemnification. The Companies shall indemnify Employee, to the maximum
extent permitted by applicable law, during and after the termination of his
employment, against all judgments, settlement payments, costs, attorney fees,
and other reasonable expenses incurred by you in connection with the defense of
any action, suit, or proceeding, arising from events before or during the term
of his employment to which he has been made a party because of the performance
of his duties under this agreement. This right of indemnification shall be in
addition to any rights that he may otherwise be entitled to under the bylaws of
the Companies or otherwise, but shall exclude acts of willful misconduct or
gross negligence by Employee, upon such finding in a final judgment by a court
of competent jurisdiction.
8. Cooperation With Employer. Following any termination of this Agreement,
Employee shall fully cooperate with Companies in all matters relating to
theansfer of any such pending work to other employees of Companies as may be
designated by Companies.
9. Intellectual Property Rights. All right, title and interest of every
kind and nature whatsoever, whether now known or unknown, in and to any
intellectual property, including any inventions, patents, trademarks,
copyrights, films, scripts, ideas, plans, creations and properties invented,
created, written, developed, furnished, produced or disclosed by Employee, in
the course of rendering Employee's services to Companies under this Agreement
shall, as between the parties hereto, be and remain the sole and exclusive
property of Companies for any and all purposes and uses whatsoever, and Employee
shall have no right, title or interest of any kind or nature therein or thereof,
or in and to any results and proceeds therefrom.
4
<PAGE>
10. Companies Location. It is the specific understanding of the parties
hereto that as consideration and inducement to Employee to enter into this
Agreement, Companies have agreed that the national administrative office of MC
Inc. may be located within the general metropolitan area of Lansing, Michigan at
Employee's discretion. It is the intent of the parties that for the first three
months of this Agreement, Employee expects to work Monday through Thursday at
NCL headquarters and for the second three months of this Agreement, Employee
expects to divide his work time as circumstances require and permit between NCL
headquarters and Lansing, Michigan.
11. Return of Property. Upon termination of this Agreement, regardless of
how termination may be effected, Employee or his estate shall immediately turn
over to Companies all of Companies' property, including all items used by
Employee in rendering services hereunder or otherwise, which may be in
Employee's possession or under his control.
12. Governing Law. This Agreement is made and entered into in the State of
New York, and the laws of New York shall govern its validity and interpretation
and the performance by the parties hereto of their respective duties and
obligations hereunder.
13. Entire Agreement. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by both parties.
14. Notices. Any notice, request, demand or other communication hereunder
shall be in writing and shall be deemed to be duly given when personally
delivered to an officer of Companies or to Employee, as the case may be, or when
delivered by certified mail (return receipt requested) at the following address:
TO COMPANIES: TO EMPLOYEE:
Dr. Turan Itil Jonathan E. Raven
Chairman of the Board 2556 Dustin
NeuroCorp., Ltd. and Okemos, Michigan 48864
Memory Centers of America, Inc.
150 White Plains Road
Tarrytown, New York 10591
15. Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
16. Attorney Fees. In the event of any litigation arising out of this
Agreement, the non-prevailing party will pay the expenses of the prevailing
party, including, without limitation, reasonable attorney fees.
5
<PAGE>
17. Partial Invalidation. Should any valid federal or state law or final
determination of any administrative agency or court of competent jurisdiction
affect any provision of this Agreement, the provision or provisions so affected
shall be automatically conformed to the law or determination and otherwise this
Agreement shall continue in full force and effect.
18. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns (including successive, as well as
immediate, successors and assigns) of the Companies. The obligations of this
Agreement may not, however, be transferred by the Companies without the consent
of Employee, and subject to the following sentence. If the Companies transfer to
any other Person substantially all of its business and assets by merger,
consolidation, sale of assets or otherwise, the Companies must transfer its
obligations hereunder to such other Person and such other Person must accept
such transfer and assume the obligations of the Companies imposed hereby.
Companies shall notify the Employee in writing within the thirty (30) day period
following any transfer of business and assets that the transferee has accepted
the transfer and assumption of the Companies' obligations under this Agreement.
This Agreement shall inure to the benefit of and be binding upon the heirs and
assigns (including successive, as well as immediate, assigns) of Employee. The
rights of Employee under this Agreement may be assigned only to his personal
representative or by Will or pursuant to applicable laws of descent and
distribution. If Employee should die while any amount would still be payable to
Employee under this Agreement if Employee had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with this
Agreement to Employee's personal representative or by Will or pursuant to
applicable laws of descent and distribution.
19. Non-Compete: In the event of termination of this Agreement pursuant to
Section 5, above, Employee will not, for a period of one year from the effective
date of such termination, engage, directly or indirectly, in any capacity
(whether as officer, director, stockholder, partner, associate, employee,
consultant, owner or otherwise) or have an interest in, or be associated with
any business in competition with Memory Centers of America, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed to be effective as of the Effective Date.
WITNESSES: NEUROCORP., LTD.
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- -------------------------------- -------------------------------
Its:______________________________
6
<PAGE>
MEMORY CENTERS OF AMERICA, INC.
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- -------------------------------- -------------------------------
Its:______________________________
/s/ [ILLEGIBLE] /s/ Jonathan E. Raven
- -------------------------------- ----------------------------------
Jonathan E. Raven
7
<PAGE>
Exhibit 10.(c)(iv)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 31st day of
December, 1996, between NeuroCorp, Ltd. ("Company") and Kurt Z. Itil, an
individual residing at 59 Tweed Blvd. Nyack, NY 10960 ("Employee").
RECITALS
1. The Company wishes to secure permanent uninterrupted services of
Employee as President of HZI Research Center, a wholly-owned
subsidiary of NeuroCorp, Ltd. And all of its subsidiaries and
Employee wishes to perform such services for Company on the terms
and conditions hereinafter set forth and for the duration of this
Employment Agreement.
2. Accordingly, the Company and Employee wish to execute this
Employment Agreement.
AGREEMENT
1. Definitions. As used in this Agreement, the terms identified below
shall have the meanings indicated, and variants and derivatives of
the following terms shall have correlative meanings.
"Board" means the Board of Directors of the Company.
"Confidential Information" means, with respect to the affairs of the
Company, any information, data, figures, sales figures, projections, estimates,
customer lists, tax records, personnel history, accounting procedures,
promotions, manuals, procedures, and any writings or conversations concerning
the foregoing.
"Continuation Date" means January 1, 2000.
"Disability" means a physical or mental incapacity which is incurred
by Employee and which would allow Employee to receive benefits under the
Company's long-term disability income plan.
"Effective Date" means January 1, 1997.
"Incapacity" means incapacity due to physical or mental illness
(other than an incapacity which constitutes a Disability), as a result of which
Employee has been receiving payments under the Company's long-term disability
income plan.
"NCL" shall mean NeuroCorp, Ltd.
<PAGE>
"Person" means any person (other than Employee), firm, corporation,
partnership, joint venture, or other entity or an affiliated group including any
Person (other than Employee).
2. Permanent Employment. The Company hereby agrees to permanently
employ Employee as President of HZI Research Center, a wholly-owned
subsidiary of NeuroCorp, Ltd. And all of its subsidiaries. Employee
shall devote full time and attention (during normal business hours)
exclusively to the performance of his duties hereunder. Employee
shall perform his duties faithfully, competently, diligently, and to
the best of his ability.
3. Term. The term of this Agreement shall commence on the Effective
Date and continue to the same date in 2000. Following the
Continuation Date, this Agreement shall continue for successive
one-year terms unless the Company provides Employee with written
notice of intent to terminate at least 3 months prior to the end of
the initial three-year term or a subsequent term, or unless
terminated pursuant to Section 6.
4. Compensation. As full compensation for the permanent services of
Employee, Company shall provide Employee with the following salary
and benefits:
a. Base Salary. Base salary at the annual rate of $105,000.00. Payments
shall be made in semi-monthly installments in arrears.
b. Incentive Compensation Bonus. Employee shall be entitled to receive
an incentive compensation bonus, based on performance, during the
term of this agreement pursuant to an annual executive incentive
plan to be developed by the Company. Because of the need to generate
profits as a publicly-traded corporation and to get away from the
perception that our salary structure depends on investment money, we
need to be sure that each division is bringing in enough revenues to
cover all of its direct and indirect expenses. So, in order to
justify the level of income that is the subject of this agreement,
the Executive Committee reserves the right to reduce the base salary
by up to 10% for failure to meet the above-stated goals. It is
contemplated that the first review will be done after a 6 month
period from the effective date of this agreement.
c. Expenses. Reimbursement for necessary and reasonable business
expenses incurred by Employee in his employment as defined by
Company policy.
d. Fringe Benefits. Participation in all employee benefit plans and
arrangements commensurate with Employee's position and length of
service which are presently or hereafter made generally available to
key employees of the Company under the Company's Employee Benefit
Policy.
e. Stock Options. Qualified stock options for purchase of common stock
may be awarded under the Company's Employee Stock Option Plan by the
Compensation
<PAGE>
Committee in recognition of outstanding performance.
5. Termination. This Agreement and Company's unaccrued obligations
hereunder shall terminate as follows:
a. Death. Upon death of Employee.
b. Incapacity. If, as a result of Employee's incapacity due to
physical or mental illness, Employee shall be absent from his
duties hereunder for three (3) consecutive months, and if,
within 30 days after written notice of the Company's intention
to terminate this Agreement, Employee shall not return to the
satisfactory performance of his duties on a full-time basis,
Company may terminate this Agreement for "Incapacity".
c. For Cause. "Cause" means (i) the willful and continued failure
by Employee to substantially perform his duties hereunder;
(ii) any willful, intentional, or grossly negligent act by
Employee having the demonstrable effect of substantially
injuring the reputation or business of the Company; or (iii)
conviction of Employee of any crime which constitutes a
felony. The Executive Committee of the Company shall be
responsible for making a determination under this paragraph.
d. Notice by Employee. Upon three months written notice by
Employee to Company.
6. Compensation upon Termination of During Incapacity. During any
period that Employee fails to perform his duties as a result
of Incapacity, Company shall continue to pay base salary (and
Employee shall be entitled to all other benefits and
provisions under this Agreement) at the rate in effect at the
commencement of such Incapacity until this Agreement is
terminated pursuant to Section 5(b); provided, however, that
the obligations of Company under this Section 6 shall be
reduced by the amount of any disability income insurance
payments or Workers' Compensation payments Employee may
receive during Incapacity under any state plan or policy
carried by the Company of which Employee is beneficiary. Upon
termination of employment under this section, this Agreement
shall terminate and Company shall have no further obligation
to Employee except to the extent Employee is otherwise
entitled to any accrued payments or benefits hereunder or
under any benefit plan or program of Company.
7. Indemnification. The Company shall indemnify Employee to the
maximum extent permitted by applicable law, during and after
the termination of his employment, against all judgments,
settlement payments, costs, attorney fees, and other
reasonable expenses incurred by him in connection with the
defense of any action, suit, or proceeding, arising from
events before or
<PAGE>
during the term of his employment to which he has been made a
party because of the performance of his duties under this
agreement. This right of indemnification shall be in addition
to any rights that he may otherwise be entitled to under the
bylaws of the Company or otherwise, but shall exclude acts of
willful misconduct or gross negligence by Employee, upon such
finding in a final judgment by a court of competent
jurisdiction.
8. Cooperation with Employer. Following any termination of this
Agreement, Employee shall fully cooperate with Company in all
matters relating to the winding up of his pending work on
behalf of the Company and to the orderly transfer of any such
pending work to other employees of Company as may be
designated by Company.
9. Intellectual Property Rights. All right, title and interest of
very kind and nature whatsoever, whether now known or unknown,
in and to any intellectual property, including any inventions,
patents, trademarks, copyrights, films, scripts, ideas, plans,
creations and properties invented, created, written,
developed, furnished, produced or disclosed by Employee, in
the course of rendering Employee's services to Company under
this Agreement shall, as between the parties hereto, be and
remain the sole and exclusive property of Company for any and
all purposes and uses whatsoever, and Employee shall have no
right, title, or interest of any kind or nature therein or
thereof, or in and to any results and proceeds therefrom.
10. Non-compete. In the event of termination of this Agreement
pursuant to Section 5 above, Employee will not, for a period
of one year from the effective date of such termination,
engage, directly or indirectly, in any capacity (whether as
officer, director, stockholder, partner, associate, employee,
consultant, owner or otherwise) or have an interest in, or be
associated with any business in competition with Company or
any of its subsidiaries.
11. Return of Property. Upon termination of this Agreement,
regardless of how termination may be affected, Employee of his
estate shall immediately turn over to Company all of Company's
property, including all items used by Employee in rendering
services hereunder or otherwise, which may be in Employee's
possession or under his control.
12. Governing Law. This Agreement is made and entered into in the
State of New York, and the laws of New York shall govern its
validity and interpretation and the performance by the parties
hereto of their respective duties and obligations hereunder.
13. Entire Agreement. This instrument contains the entire
agreement of the
<PAGE>
parties. It may not be changed orally but only by an agreement
in writing signed by both parties.
14. Notices. Any notice, request, demand or other communication
hereunder shall be in writing and shall be deemed bo be duly
given when personally delivered to an officer of Company or to
Employee, as the case may be, or when delivered by certified
mail (return receipt requested) at the following address:
To Company: To Employee:
Dr. Turan M. Itil Kurt Z. Itil, Ph.D.
Chairman of the Board 59 Tweed Blvd.
NeuroCorp, Ltd. Nyack, NY 10960
150 White Plains Road
Tarrytown, NY 10591
15. Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
16. Attorney Fees. In the event of any litigation arising out of
this Agreement, the non-prevailing party will pay the expenses
of the prevailing party, including, without limitation,
reasonable attorney fees.
17. Partial Invalidation. Should any valid federal or state law or
final determination of any administrative agency or court of
the competent jurisdiction affect any provision of this
Agreement, the provision or provisions so affected shall be
automatically conformed to the law or determination and
otherwise this Agreement shall continue in full force and
effect.
18. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns
(including successive, as well as immediate, successors and
assigns) of the Company. The obligations of this Agreement may
not, however, be transferred by the Company without the
consent of the Employee, and subject to the following
sentence. If the Company transfers to any other Person
substantially all of its business and assets by merger,
consolidation, sale of assets or otherwise, the Company must
transfer its obligations hereunder to such other Person and
such other Person must accept such transfer and assume the
obligations of the Company imposed hereby. Company shall
notify Employee in writing within the thirty (30) day period
following any transfer of business and assets that the
transferee has accepted the transfer and assumption of the
Company's obligations under this Agreement. This Agreement
shall insure
<PAGE>
to the benefit of and be binding upon the heirs and assigns
(including successive, as well as immediate, assigns) of
Employee. The rights of Employee under this Agreement may be
assigned only to his personal representative or by Will or
pursuant to applicable laws of descent and distribution. If
Employee should die while any amount would still be payable to
Employee under this Agreement if Employee had continued to
live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with this Agreement to Employee's
personal representative or by Will or pursuant to applicable
laws of descent and distribution.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed to be effective as of the Effective Date.
WITNESS: NEUROCORP, LTD.
__________________________________ by: _________________________________
Its: ________________________________
EMPLOYEE:
__________________________________ _____________________________________
Kurt Z. Itil, Ph.D.
<PAGE>
Exhibit 10.(c)(v)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 31st day of
December, 1996, between NeuroCorp, Ltd. ("Company") and Aileen A. Kunitz, an
individual residing at 4004 Whispering Hills Chester, NY 10918 ("Employee").
RECITALS
1. The Company wishes to secure permanent uninterrupted services of
Employee as Chief Financial Officer of NeuroCorp, Ltd. And all of
its subsidiaries and Employee wishes to perform such services for
Company on the terms and conditions hereinafter set forth and for
the duration of this Employment Agreement.
2. Accordingly, the Company and Employee wish to execute this
Employment Agreement.
AGREEMENT
1. Definitions. As used in this Agreement, the terms identified below
shall have the meanings indicated, and variants and derivatives of
the following terms shall have correlative meanings.
"Board" means the Board of Directors of the Company.
"Confidential Information" means, with respect to the affairs of the
Company, any information, data, figures, sales figures, projections, estimates,
customer lists, tax records, personnel history, accounting procedures,
promotions, manuals, procedures, and any writings or conversations concerning
the foregoing.
"Continuation Date" means January 1, 2000.
"Disability" means a physical or mental incapacity which is incurred
by Employee and which would allow Employee to receive benefits under the
Company's long-term disability income plan.
"Effective Date" means January 1, 1997.
"Incapacity" means incapacity due to physical or mental illness
(other than an incapacity which constitutes a Disability), as a result of which
Employee has been receiving payments under the Company's long-term disability
income plan.
"NCL" shall mean NeuroCorp, Ltd.
<PAGE>
"Person" means any person (other than Employee), firm, corporation,
partnership, joint venture, or other entity or an affiliated group including any
Person (other than Employee).
2. Permanent Employment. The Company hereby agrees to permanently
employ Employee as Chief Financial Officer of NeuroCorp, Ltd. And
all of its subsidiaries. Employee shall devote full time and
attention (during normal business hours) exclusively to the
performance of her duties hereunder. Employee shall perform her
duties faithfully, competently, diligently, and to the best of her
ability.
3. Term. The term of this Agreement shall commence on the Effective
Date and continue to the same date in 2000. Following the
Continuation Date, this Agreement shall continue for successive
one-year terms unless the Company provides Employee with written
notice of intent to terminate at least 3 months prior to the end of
the initial three-year term or a subsequent term, or unless
terminated pursuant to Section 6.
4. Compensation. As full compensation for the permanent services of
Employee, Company shall provide Employee with the following salary
and benefits:
a. Base Salary. Base salary at the annual rate of $85,000.00.
Payments shall be made in semi-monthly installments in
arrears.
b. Incentive Compensation Bonus. Employee shall be entitled to
receive an incentive compensation bonus, based on performance,
during the term of this agreement pursuant to an annual
executive incentive plan to be developed by the Company.
Because of the need to generate profits as a publicly-traded
corporation and to get away from the perception that our
salary structure depends on investment money, we need to be
sure that each division is bringing in enough revenues to
cover all of its direct and indirect expenses. So. In order to
justify the level of income that is the subject of this
agreement, the Executive Committee reserves the right to
reduce the base salary by up to 10% for failure to meet the
above-stated goals. It is contemplated that the first review
will be done after a 6 month period from the effective date of
this agreement.
c. Expenses. Reimbursement for necessary and reasonable business
expenses incurred by Employee in his/her employment as defined
by Company policy.
d. Fringe Benefits. Participation in all employee benefit plans
and arrangements commensurate with Employee's position and
length of service which are presently or hereafter made
generally available to key employees of the Company under the
Company's Employee Benefit Policy.
e. Stock Options. Qualified stock options for purchase of common
stock may be awarded under the Company's Employee Stock Option
Plan by the Compensation Committee in recognition of
outstanding performance.
<PAGE>
5. Termination. This Agreement and Company's unaccrued obligations
hereunder shall terminate as follows:
a. Death. Upon death of Employee.
b. Incapacity. If, as a result of Employee's incapacity due to
physical or mental illness, Employee shall be absent from her
duties hereunder for three (3) consecutive months, and if,
within 30 days after written notice of the Company's intention
to terminate this Agreement, Employee shall not return to the
satisfactory performance of her duties on a full-time basis,
Company may terminate this Agreement for "Incapacity".
c. For Cause. "Cause" means (i) the willful and continued failure
by Employee to substantially perform her duties hereunder;
(ii) any willful, intentional, or grossly negligent act by
Employee having the demonstrable effect of substantially
injuring the reputation or business of the Company; or (iii)
conviction of Employee of any crime which constitutes a
felony. The Executive Committee of the Company shall be
responsible for making a determination under this paragraph.
d. Notice by Employee. Upon three months written notice by
Employee to Company.
6. Compensation upon Termination of During Incapacity. During any
period that Employee fails to perform her duties as a result of
Incapacity, Company shall continue to pay base salary (and Employee
shall be entitled to all other benefits and provisions under this
Agreement) at the rate in effect at the commencement of such
Incapacity until this Agreement is terminated pursuant to Section
5(b); provided, however, that the obligations of Company under this
Section 6 shall be reduced by the amount of any disability income
insurance payments or Workers' Compensation payments Employee may
receive during Incapacity under any state plan or policy carried by
the Company of which Employee is beneficiary. Upon termination of
employment under this section, this Agreement shall terminate and
Company shall have no further obligation to Employee except to the
extent Employee is otherwise entitled to any accrued payments or
benefits hereunder or under any benefit plan or program of Company.
7. Indemnification. The Company shall indemnify Employee to the maximum
extent permitted by applicable law, during and after the termination
of her employment, against all judgments, settlement payments,
costs, attorney fees, and other reasonable expenses incurred by her
in connection with the defense of any action, suit, or proceeding,
arising from events before or during the term of her employment to
which she has been made a party
<PAGE>
because of the performance of her duties under this agreement. This
right of indemnification shall be in addition to any rights that she
may otherwise be entitled to under the bylaws of the Company or
otherwise, but shall exclude acts of willful misconduct or gross
negligence by Employee, upon such finding in a final judgment by a
court of competent jurisdiction.
8. Cooperation with Employer. Following any termination of this
Agreement, Employee shall fully cooperate with Company in all
matters relating to the winding up of her pending work on behalf of
the Company and to the orderly transfer of any such pending work to
other employees of Company as may be designated by Company.
9. Intellectual Property Rights. All right, title and interest of very
kind and nature whatsoever, whether now known or unknown, in and to
any intellectual property, including any inventions, patents,
trademarks, copyrights, films, scripts, ideas, plans, creations and
properties invented, created, written, developed, furnished,
produced or disclosed by Employee, in the course of rendering
Employee's services to Company under this Agreement shall, as
between the parties hereto, be and remain the sole and exclusive
property of Company for any and all purposes and uses whatsoever,
and Employee shall have no right, title, or interest of any kind or
nature therein or thereof, or in and to any results and proceeds
therefrom.
10. Non-compete. In the event of termination of this Agreement pursuant
to Section 5 above, Employee will not, for a period of one year from
the effective date of such termination, engage, directly or
indirectly, in any capacity (whether as officer, director,
stockholder, partner, associate, employee, consultant, owner or
otherwise) or have an interest in, or be associated with any
business in competition with Company or any of its subsidiaries.
11. Return of Property. Upon termination of this Agreement, regardless
of how termination may be affected, Employee of his estate shall
immediately turn over to Company all of Company's property,
including all items used by Employee in rendering services hereunder
or otherwise, which may be in Employee's possession or under her
control.
12. Governing Law. This Agreement is made and entered into in the State
of New York, and the laws of New York shall govern its validity and
interpretation and the performance by the parties hereto of their
respective duties and obligations hereunder.
13. Entire Agreement. This instrument contains the entire agreement of
the parties. It may not be changed orally but only by an agreement
in writing
<PAGE>
signed by both parties.
14. Notices. Any notice, request, demand or other communication
hereunder shall be in writing and shall be deemed bo be duly given
when personally delivered to an officer of Company or to Employee,
as the case may be, or when delivered by certified mail (return
receipt requested) at the following address:
To Company: To Employee:
Dr. Turan M. Itil Aileen A. Kunitz
Chairman of the Board 4004 Whispering Hills
NeuroCorp, Ltd. Chester, NY 10918
150 White Plains Road
Tarrytown, NY 10591
15. Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
16. Attorney Fees. In the event of any litigation arising out of this
Agreement, the non-prevailing party will pay the expenses of the
prevailing party, including, without limitation, reasonable attorney
fees.
17. Partial Invalidation. Should any valid federal or state law or final
determination of any administrative agency or court of the competent
jurisdiction affect any provision of this Agreement, the provision
or provisions so affected shall be automatically conformed to the
law or determination and otherwise this Agreement shall continue in
full force and effect.
18. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns (including
successive, as well as immediate, successors and assigns) of the
Company. The obligations of this Agreement may not, however, be
transferred by the Company without the consent of the Employee, and
subject to the following sentence. If the Company transfers to any
other Person substantially all of its business and assets by merger,
consolidation, sale of assets or otherwise, the Company must
transfer its obligations hereunder to such other Person and such
other Person must accept such transfer and assume the obligations of
the Company imposed hereby. Company shall notify Employee in writing
within the thirty (30) day period following any transfer of business
and assets that the transferee has accepted the transfer and
assumption of the Company's obligations under this Agreement. This
Agreement shall insure to the benefit of and be binding upon the
heirs and assigns (including
<PAGE>
successive, as well as immediate, assigns) of Employee. The rights
of Employee under this Agreement may be assigned only to her
personal representative or by Will or pursuant to applicable laws of
descent and distribution. If Employee should die while any amount
would still be payable to Employee under this Agreement if Employee
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with this Agreement to
Employee's personal representative or by Will or pursuant to
applicable laws of descent and distribution.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed to be effective as of the Effective Date.
WITNESS: NEUROCORP, LTD.
__________________________________ by: ________________________________
Its: _______________________________
EMPLOYEE:
__________________________________ ___________________________________
Aileen Kunitz
<PAGE>
Exhibit 24.(a)
[Letterhead of Scarano & Lipton, P.C.]
February 3, 1997
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 5, 1996 for
NeuroCorp, Ltd. to be included in the Amendment No. 3 to Form SB-2 Registration
Statement being filed for NeuroCorp, Ltd.
Very truly yours,
/s/ Scarano & Lipton, P.C.
- ----------------------------------
Scarano & Lipton, P.C.
