Registration No. 333-1462
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 5 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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NEUROCORP, LTD.
(Name of small business issuer in its charter)
Nevada 8099 87-0446395
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation Classification
or Organization Code Number)
150 White Plains Road, Tarrytown, New York 10591 (914) 631-3316
(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 Feiler & Landau
52 Vanderbilt Avenue, New York, NY 10017
Approximate date of commencement of proposed sale to public: From time to
time after the effective date of the Registration Statement, as determined
by market conditions.
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]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Aggregate
Class of Amount Offering Proposed Maximum
Securities To Be Price Per Aggregate Offering Amount of
Registered Registered Share Price Registration Fee
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<S> <C> <C> <C> <C>
2,125,000
Common Stock Shares $2.5625 (1) $5,445,313 $1650.09
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Class B Warrants 300,000 Nil Nil Nil
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Common Stock
Issuable Upon
Exercise of Class 300,000
B Warrants Shares (3) $1.00 (2) $300,000 $90.91
- ----------------------------------------------------------------------------------------------------------
Class C Warrants 450,000 Nil Nil Nil
- ----------------------------------------------------------------------------------------------------------
Common Stock
Issuable Upon
Exercise of Class 450,000
C Warrants Shares (3) $2.00 (2) $900,000 $272.73
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TOTAL $2013.73(4)
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</TABLE>
(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, as reported on the
National Association of Securities Dealers' Over-The-Counter
Bulletin Board, a date 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, Registrant is also registering an
indeterminate number of shares of Common Stock which may become
issuable pursuant to the antidilution provisions of the Warrants.
(4) $2,677 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 or until this Registration
Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................... 2
ADDITIONAL INFORMATION................................................... 2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........................ 2
PROSPECTUS SUMMARY....................................................... 3
RISK FACTORS............................................................. 9
CERTAIN MARKET INFORMATION AND DIVIDENDS................................. 21
USE OF PROCEEDS.......................................................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................24
BUSINESS................................................................. 26
MANAGEMENT............................................................... 51
EXECUTIVE COMPENSATION................................................... 55
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................................... 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 56
SELLING SECURITY HOLDERS................................................. 62
PLAN OF DISTRIBUTION..................................................... 65
DESCRIPTION OF SECURITIES................................................ 66
SHARES ELIGIBLE FOR FUTURE SALE.......................................... 68
LEGAL PROCEEDINGS........................................................ 68
LEGAL MATTERS............................................................ 68
EXPERTS ................................................................. 68
Subject to Completion Dated December 9, 1997
PROSPECTUS
NEUROCORP, LTD.
2,875,000 Shares of Common Stock
300,000 Class B Warrants
450,000 Class C Warrants
All of the shares (the "Shares") and all of the Class B and Class C
Warrants (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 Security Holders"). 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 Security Holders. 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 it
will incur in connection with the offering of the Shares and Warrants (the
"Offering") will be approximately $400,000. Certain of the Selling Security
Holders are obligated to pay certain costs and expenses incurred in
connection with the registration of the Shares and Warrants. See "Selling
Security Holders" and "Plan of Distribution."
Of the 2,875,000 Shares of the Common Stock, par value $.001 per
share (the "Common Stock"), being offered hereby, (i) 750,000 Shares are to
be issued from time to time upon the exercise of certain Warrants described
herein, (ii) 600,000 of the Shares being offered hereby were issued in
connection with private placements under Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act"), (iii) 25,000 Shares are being
offered by a charitable foundation, (iv) 650,000 Shares were issued upon
cancellation of certain indebtedness and redemption of shares of
convertible preferred stock Class B, Series 2 of the Company and (v)
850,000 Shares were issued upon the exercise of 500,000 Class B and 350,000
Class C Warrants. The Warrants 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 "Selling Security Holders."
The Selling Security Holders 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 quoted on the National
Association of Securities Dealers' ("NASD") Over-the-Counter ("OTC")
Bulletin Board under the symbol "NURC". The Common Stock has not been
actively traded. At present, there is no market for the Warrants and there
is no assurance that any market will develop.
On December 1, 1997, the average of the last bid and asked prices
of the Company's Common Stock in the over-the-counter market as reported by
the NASD was $77/8. See "Certain Market Information and Dividends."
THE PURCHASE OF THE COMMON STOCK AND WARRANTS OFFERED HEREBY ENTAILS A HIGH
DEGREE OF RISK. SEE "RISK FACTORS", BEGINNING ON PAGE 11 FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE SHARES AND THE WARRANTS.
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES 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 , 1997
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2
(together with all amendments, exhibits and schedules, herein referred to
as the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") under the Securities Act. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules
and regulations of the Commission. For further information, reference is
hereby made to the Registration Statement.
The Company is subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith, the Company files certain periodic reports and
other information with the Commission. The Registration Statement and the
exhibits thereto filed by the Company with the Commission as well as the
periodic 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, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago Illinois 60661 and at 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may also be obtained by mail from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington D.C. 20549 and they are also available on the Commission's web
site at http://www.sec.gov.
ADDITIONAL INFORMATION
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 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information
currently available to the Company's management. When used in this
document, the words "anticipate," "believe," "estimate," "expect," "going
forward," and similar expressions, as they relate to the Company or Company
management, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including the risk factors described in this Prospectus. Should one or more
of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements and notes
thereto included or incorporated by reference in this Prospectus. Investors
should carefully consider information set forth under the heading "Risk
Factors".
The Company
The Company is primarily involved in two businesses: (i) it
sub-contracts clinical research and performs data analysis for health
agencies, research organizations and pharmaceutical companies, and (ii) it
owns, operates or manages a group of facilities that diagnose and treat
memory disorders. In addition, as an outgrowth of its research activities,
the Company also designs diagnostic testing software and equipment for
neuropsychiatric applications and the Company performs neurological testing
services for hospitals and physicians. The Company conducts these
activities through two wholly-owned subsidiaries, HZI Research Center,
Inc., a New York corporation ("HZI"), and Memory Centers(TM) of America,
Inc., a Delaware corporation ("MCAI"). In November 1994, the Company
acquired all of the issued and outstanding shares of HZI. HZI conducts
contract research, designs diagnostic software and equipment and performs
neurological testing services. In March 1996, the Company established MCAI,
which owns and operates a network of pilot facilities, Memory Centers(TM),
that treat memory disorders.
Contract Research
The Company's contract research business specializes in the
analysis of data collected in clinical studies of compounds that affect the
central nervous system. The Company obtains research contracts from
pharmaceutical companies and research organizations in both the United
States and Europe, and it subcontracts the clinical studies these contracts
require to other institutions, doctors or researchers. The Company
supervises the clinical research, and it monitors and analyzes the data
collected by doctors and researchers who perform these studies, but it does
not conduct clinical research itself. Contract research accounted for
65.15% of the Company's revenues in 1996, and 72.85% of its revenues
through the first nine months of 1997.
The Company's contract research business includes studies
conducted at both single and multiple locations, and it includes both
asymptomatic volunteer studies and symptomatic volunteer studies. In these
studies, the Company develops information on the clinical usefulness and
therapeutic doses of new psychotropic drugs, particularly drugs developed
to treat dementia, Alzheimer's disease, depression, schizophrenia and
anxiety disorders. Since almost all of the Company's contract research has
involved studies of central nervous system drugs, including 148 drug trials
over the last 23 years, the Company believes that it has accumulated
experience that gives it an advantage in analyzing such information. In
particular, the Company has developed a proprietary method to evaluate
central nervous system drugs, known as Quantitative Pharmaco-EEG
("QPEEG(R)"), and it has also developed proprietary software programs Brain
Function Monitoring System ("BFM System(R)"). In addition, as a result of
its experience and through the use of its proprietary methods and software,
the Company has been able to assemble a data base on the central nervous
system effects of over 190 drugs that further enhances its ability to
monitor and analyze the information generated in the clinical research
studies it supervises.
Since the Company does not conduct its own clinical research, it
does not take any responsibility for medical treatment or medical
liability. However, the research studies the Company sponsors adhere to
strict federal and local rules and regulations and they are supervised by
local institutional review boards, drug companies, and the local and
federal offices of the Food and Drug Administration ("FDA").
The Company has not made any efforts to market or promote its
contract research business and as a result, the Company estimates that it
has less than a 1% market share. However, the Company believes that
contract research, particularly research on central nervous system drugs,
is a growing industry: in the United States alone, there are over 100 new
central nervous system-related drugs devel- oped each year; in Europe and
Japan, the Company estimates that there are more than 200 central nervous
system-related drugs being developed each year. Major drug companies in the
United States, Europe and Japan all conduct their clinical research
primarily in the United States since, given the high level of regulatory
oversight in this country, the results of clinical tests performed here are
held in particularly high regard. Also, the Company believes that as drug
companies continue to try to control costs, they will increasingly
subcontract their clinical research projects.
The Company's management believes that its experience in analyzing
the effects of central nervous system drugs, its proprietary methodologies
and software, and its unique information databases will all position the
Company to take advantage of the anticipated growth in contract research
related to central nervous system drugs. In fact, despite its limited
marketing efforts, the Company has been invited to sponsor several
significant studies, including a study on the effects of Ginkgo Biloba the
results of which were published in October 1997 in the Journal of the
American Medical Association. The Company believes that the publicity
generated by this study will further enhance its ability to take advantage
of the expected growth in contract research related to central nervous
system drugs.
Memory Centers(TM)
In 1996, the Company established its second wholly owned
subsidiary, MCAI. MCAI provides non-medical management, educational,
consultation and marketing services to licensed physicians and entities
controlled by them. These physicians offer professional diagnostic,
preventive and treatment services, through a network of pilot facilities,
Memory Centers(TM), to persons who suffer from memory disturbances. MCAI,
through affiliated corporations, also supplies the medical equipment used
in Memory Centers(TM). There are currently six pilot Memory Centers(TM):
three located in New York City (Manhattan, Brooklyn and Queens), and one in
Tarrytown, New York, Nyack, New York and Bakersfield, California. The
Memory Centers(TM) in Manhattan, Brooklyn, Tarrytown and Nyack are operated
under a management agreement with Manhattan Westchester Medical Services.
The Memory Center(TM) in Queens is operated under a management agreement
with the Queens Diagnostic and Treatment Center and the one in Bakersfield
is operated under a management agreement with Truxton Psychiatric Group.
Under the terms of these management agreements, MCAI will supply equipment,
management, marketing, data handling and personnel services for physicians,
and the physicians provide all medical services and employ all clinical
staff. MCAI is compensated through fixed management fees for its managerial
services, and it is compensated for its billing services and variable
expenses, such as supplies, as they occur. These agreements are for a fixed
period of time, generally not less than one year. In addition to the six
Memory Centers(TM) described above, MCAI has begun to negotiate with
potential affiliates to open new Memory Centers(TM) in Philadelphia, San
Juan, Puerto Rico and Long Island, New York. MCAI hopes to complete these
negotiations by the end of calendar year 1997.
MCAI's business is based on the premise that the earlier physicians
can evaluate, diagnose and treat memory problems, the more likely it will
be that they can prevent severe memory problems from developing later.
Memory Centers(TM) offer early diagnosis of memory disturbances, followed
by propri- etary treatments. Although the protocol and treatment
recommendations are prepared by some members of MCAI's Medical Advisory
Board, the physicians at Memory Centers(TM) independently determine which
therapies will be employed for each patient, and as such, MCAI itself does
not represent the effectiveness of any particular treatment to any
individual. The assessment phase of the Memory Centers(TM) program
generally includes a comprehensive history, an examination by a physician,
a blood chemistry analysis, neuropsychological and neurophysiological
tests, and other steps that are designed to identify the cause of the
patient's problems. When an assessment is complete, the physician will
diagnose the patient and create an individual treatment plan to address
their particular needs. Therapies will include prescription medications,
cognitive exercises designed to improve mental performance, and dietary
supplements, among other things. The treatment program includes follow-up
assessments to confirm the patient's response to the prescribed therapy.
Since memory disturbances are known to be caused by a variety of underlying
causes, the treatments for any particular patient will only be determined
by the treating physician's assessment of the particular patient's
condition.
The Company does not believe that it requires FDA approval or
state licenses for any of its Memory Centers(TM) facilities since they are
being operated by licensed physicians or entities controlled by licensed
physicians. However, the physicians associated with Memory Centers(TM) have
to be licensed to practice medicine in the particular state, and certain
equipment utilized within Memory Centers(TM), as with most medical
facilities, does require FDA approval. MCAI requires its equipment vendors
to document that they have received FDA approval for their products. The
Company recognizes that the operation of the Memory Centers(TM) may be
deemed by certain regulators to constitute the practice of medicine. Many
states prohibit business corporations from engaging in the practice of
medicine, employing physicians, or entering into certain financial
arrangements with physicians, including fee splitting.
However, MCAI believes that it will be able to structure relationships
with physicians and other entities that will comply with all applicable
regulations.
Neuropsychiatric Testing Equipment and Software
The Company designs proprietary diagnostic testing software and
equipment that is used in neuropsychiatric applications, and it sells these
systems to physicians, researchers and hospitals. The system, known as the
CEEG-Scan System(R) or BFM System(R), enhances widely accepted diagnostic
tests, such as the electroencephalogram ("EEG") by quantifying their
results and permits these tests to be per- formed in a more practical and
economical fashion. The CEEG-Scan System also includes proprietary software
known as Dynamic Brain Mapping(R) that is sometimes sold separately. As of
September 30, 1997, the Company has sold 119 of these systems since
inception consisting of either hardware, software or both at prices ranging
from $15,000 to $130,000. This system, unlike those of its competitors, is
primarily based on the Company's proprietary software and off-the-shelf
hardware. The Company intends to solicit orders for this system from
government agencies and international health organizations.
Diagnostic Testing Services
The Company, through HZI, offers interactive neurological
diagnostic testing services to physicians and hospitals to assist in the
diagnosis of brain disorders. These services include diagnostic tests such
as EEG with or without Dynamic Brain Mapping(R), and are known collectively
as "Tele-Map". HZI provides physicians or hospitals with a conventional or
specially-designed modem, or transmitter, by which physicians conducting
neurological tests can transmit the data they collect via telephone to HZI.
The data is recorded and then analyzed by HZI employees and interpreted by
consultants and experts, and the reports are then provided to the testing
physicians. HZI's technical staff communicates with the physicians
throughout the test procedure to ensure the quality of the data the
physicians collect. 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 tests in their
individual offices, or hospitals without a substantial capital investment.
Revenues of the Tele-Map(R) division for the years ended 1996 and 1995 were
$129,622 and $146,119, respectively.
Developmental Activities
The Company is currently developing other products and services
some of which it believes may offer commercial potential in the future, but
which are not yet marketable:
Hardware and Software: The Company has six hardware and software
products in various stages of development. By early 1998, the
Company expects to begin the process of obtaining FDA approval for
three products: the EEG/EP Amplifier, the Digital EEG System
software and the HZI Electrode Headset. By early 1999, the Company
hopes to begin the FDA approval process for two additional
products: Enhanced Evoked Potential Software and Pharmacologically
Activated EEG (Test-Dose(R)) software.
Drug Development: The Company plans to use its proprietary
hardware, software, QPEEG(R) methodology and databases in order to
develop, either alone or with others, proprietary drugs for
conditions that affect the central nervous system. The Company has
compiled what it believes to be a unique database on the effects of
compounds used to treat Alzheimer's disease and memory impairment.
HZI believes that it can now study a variety of new chemical
entities or naturally occurring substances (such as plant extracts
or vitamins) using its proprietary software and database to identify
potential treatments for memory disorders.
In addition, the Company has entered one joint venture agreement,
and is currently negotiating a second. In January 1995, the Company entered
into an agreement with Tena, Ltd., based in Istanbul, Turkey ("Tena"), to
research, develop, market and sell the Company's products in the Mid-East,
the former Soviet Union and other countries where the Company has no
existing distribution network. Although the Company has not assigned any
development work to Tena yet, Tena has begun to market the Company's
existing products. In September 1997, the Company signed a letter of intent
that contemplates a joint venture with CoreCare Corporation ("CoreCare") to
establish a Memory Center, a tele-neuropsychiatric diagnostic laboratory
and a specially equipped neuropsychiatry clinic in Philadelphia. Although
the Company and CoreCare have not yet entered a final joint venture
agreement, CoreCare has ordered the proprietary systems from the Company
that will be used in the Memory Center. The Company hopes to have a final
agreement with CoreCare before the end of the 1997 calendar year.
For the fiscal years ended December 31, 1994, December 31, 1995 and
December 31, 1996, the Company has spent $224,010, $181,512, and $98,018,
respectively, on research and development activities to establish the
technological feasibility of proprietary items. The Company is not
reimbursed for any research or development expenses from its customers. See
"Risk Factors -- Government Regula- tion."
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............... 2,875,000 shares of Common Stock, 300,000
Class B Warrants and 450,000 Class C
Warrants. See "Description of Securities."
Of the 2,875,000 Shares of Common Stock,
par value $.001 per Share being offered
hereby, 750,000 shares are to be issued
from time to time upon the exercise of
certain Warrants and 850,000 Shares were
issued upon exercise of 850,000 Warrants.
600,000 Shares being offered were issued
in connection with private placements
under Section 4(2) of the Securities Act,
650,000 Shares were issued upon
cancellation of certain indebtedness and
redemption of shares of convertible
preferred stock, Class B, Series 2, of the
Company and 25,000 Shares are being
offered by a charitable foundation. See
"Selling Security Holders."
Common Stock outstanding
prior to the offering............ 9,313,806 shares.
Common Stock to be outstanding
after this offering ............. 10,063,806 shares assuming exercise of
750,000 Warrants offered hereby.
Outstanding Class A and Class B
Warrants......................... The 750,000 Warrants being offered hereby
are the unexercised Warrants remaining
from an aggregate of 1,600,000 Warrants
issued to stockholders of record of the
Company as of November 1, 1994 in
connection with the reverse acquisition of
HZI. 300,000 of the Warrants are Class B
Warrants and 450,000 are Class C Warrants
exercisable at $1.00 per share and $2.00
per share, respectively, at any time on or
before December 31, 1997. In March 1997,
200,000 Class A and 200,000 Class B
Warrants were exercised. In October 1997,
300,000 Class B and 150,000 Class C
Warrants were exercised. The Warrants are
redeemable by the Company at any time upon
thirty (30) days written notice at $.001
per Warrant. See "Description of
Securities-- Warrants."
Use of Proceeds.................. This Offering is being made by Selling
Security Holders and the Company will not
receive any of the proceeds of such
sales. The Company may receive cash
proceeds to the extent any of the Class B
and Class C Warrants are exercised. See
"Use of Proceeds" and "Selling Security
Holders."
Risk Factors..................... This Offering involves a high degree of
risk. See "Risk Factors."
NASD OTC
Bulletin Board Symbol............ NURC.
Summary Consolidated 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 and Management
Discussion and Analysis of Financial Conditions and Results of Operations
of the Company. See "Financial Statements."
Statement of Operations Data:
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Sales $1,453,766 $2,185,380 $2,350,989 $1,543,363 $ 1,068,891 $ 1,026,431
Gross profit 906,504 1,359,966 1,421,979 905,617 362,312 560,265
Total expenses 1,110,629 1,228,001 1,218,944 1,168,111 1,996,987 1,700,559
Net income (loss) $(204,125) $ 131,965 $ 203,035 $ (262,494) $(1,634,675) $(1,140,294)
Net income (loss)
per share $ (.30) $ .19 $ .04 $ (.05) $ (.23) $ (.14)
Weighted average
number of shares 680,000 680,000 4,676,666 5,484,585 7,002,279 8,068,250
Balance Sheet Data:
Working capital
(deficiency) $ (6,765) $ 1,082,613 $ 922,044
Total Assets $3,329,412 $ 4,580,364 $ 3,675,030
Long term liabilities $ 346,734 $ 279,502 $ 914,000
Stockholders' equity $1,917,669 $ 2,777,899 $ 2,226,855
</TABLE>
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:
Recent Losses and Possible Future Losses
The Company has operated at a net loss for the years ended December
31, 1995 and December 31, 1996 and the nine months ended September 30,
1997. Its net income for the fiscal year ended December 31, 1994 was
$203,035. For the years ended December 31, 1995, and December 31, 1996 and
the nine months ended September 30, 1997 the Company had a net loss of
$262,494, $1,634,675, and $1,140,294, respectively. Operating losses have
resulted primarily from the lack of major new contracts during the last
three years and from general and administrative expenses. The Company's
ability to achieve profitability depends upon its ability to enter into new
contract research agreements, develop pharmaceutical products, services and
medical devices, obtain regulatory approval for its proposed products and
enter into agreements for product development, manufacturing and
commercialization. In particular, it will depend on the Company's ability
to market its QPEEG(R) methodology for contract research, market Tele-Neuro
psychiatric systems based on the Company's proprietary software and
hardware equipment, successfully develop the proposed joint venture with
CoreCare Corporation and successfully develop Memory Centers(TM). There can
be no assurance that the operations of the Company will be profitable in
future periods. See "Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
In 1996 and 1997, MCAI operated at a loss principally due to
activities and investments related to the start-up of MCAI. The Company
believes that MCAI will sustain losses at least through 1998 as the ongoing
launch of the Memory Centers(TM) will require significant developmental
activities prior to generating revenues. Losses for 1996 totaled $307,854,
and for the first three quarters of 1997 totaled approximately $583,000.
The Company currently projects that MCAI will generate losses in 1998 of
approximately $1.7 million, based on the assumption that MCAI successfully
raises $5 million in new capital as of January 1, 1998, and undertakes
significant expansion activity through application of that capital and its
operational costs.
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 the difficulties and delays encountered in its
effort to conduct contract research and develop and commercialize new
pharmaceutical products, services and medical devices, the competitive
factors in the market place and the regulatory environment in which the
Company operates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Limited Trading Market
There is a very limited trading market for the Company's Common
Stock and there can be no assurance that a more active trading market in
the Common Stock will develop or, if an active market does develop, that it
will be sustained. Since there is a small public float in the Company's
Common Stock and it is thinly traded, sales of small amounts of Common
Stock in the public market could have a material adversely affect on the
market price for the Common Stock. In addition, the low trading volume may
have had a significant effect on the market price of the Common Stock,
which may not be indicative of the market price in a more liquid market.
Variations in the Company's quarterly operating results, announcements
regarding new product developments, regulatory pronouncements, developments
affecting the Company's competitors or general economic conditions
unrelated to the Company's operating performance may all have a significant
impact on the market price of the Common Stock.
The limited trading market could result in an investor being unable
to sell shares of his or her investment at times or for prices they deem
appropriate. Recent private sales by Company insiders were made at prices
below the market price. Certain officers and affiliates of the Company are
parties to "lock-up" agreements that prohibit the sale of their shares for
a period of three months ending February 22, 1998. If the Company raises an
additional $1 million during that time, the lock-up agreements may be
extended to May22, 1998; if the Company raises an additional $4 million by
that time, the lock-ups may be extended to August 22, 1998. Sales of Common
Stock, or the perception that such sales could occur, could have a material
adverse affect on prevailing market prices for the Common Stock and may
make it more difficult for the Company to sell shares of Common Stock in
the future at times and for prices it deems appropriate. See "Shares
Eligible for Future Sale."
Need For Working Capital - Dependence on Private Sales of Securities
The Company and its subsidiaries may require substantial additional
financing to continue their research, complete their product development,
obtain regulatory approvals and to manufacture and market any products and
services that they may develop. The Company is in the process of developing
new products including the EEG/EP Amplifier, the Digital EEG System, the
HZI Electrode Headset, evoked Potential Software and Pharmacologically
Activated EEG (Test-Dose(R)) software. The Company may also need to expend
substantial amounts of money on research relating to the application of
products or systems that may never develop into marketable products.
The Company has six pilot Memory Centers(TM) and it is currently in
negotiations to develop another four Memory Centers(TM) by the end of 1997.
This will require substantial amounts of capital without any assurance that
the new Memory Centers(TM) will be successful. Depending on size and
location, the Company estimates that each facility would require between
$150,000 and $200,000 for equipment, leasehold improvements, and working
capital, including corporate overhead. The ability of MCAI to undertake its
planned expansion and to in turn generate significant revenues is dependent
on its ability to secure investment capital in the immediate future.
Management forecasts that it will require $5 million in capital for MCAI to
expand its operations as called for in its business plan. To the extent
that MCAI is not successful in securing such capital, then the viability of
MCAI cannot be assured.
The Company has also signed a letter of intent with the CoreCare
Corporation to develop a joint venture that will establish a Memory
Center(TM), a tele-neuropsychiatric diagnostic laboratory and a specially
equipped neuropsychiatry clinic in Philadelphia. The Company estimates that
it will need to invest $3 - $5 million to develop this joint venture. There
can be no assurance that the joint venture will be successful or that, if
the Company cannot raise this money, that it will proceed with the joint
venture.
The Company has incurred a deficiency in net cash flow from
operating activities for each of the three years ended December 31, 1994,
1995 and 1996. The Company had a net working capital deficiency of $275,034
as of December 31, 1994, $6,765 as of December 31, 1995 and had positive
working capital of $1,082,613 as of December 31, 1996 and $922,044 as of
September 30, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Financial Statements."
The Company has financed its working capital requirements through
private sales of its securities to individual investors and groups of
investors and loans from officers and shareholders of the Company. In
particular, the Company has been dependent on Trinity American Corporation
("Trinity"), one of its principal stockholders, and Trinity's President for
loans. Such shareholders are under no obligation to continue financing the
operations 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. See
"Certain Relationships and Related 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 (i.e. warrants) and
expected cash flows from operations will be sufficient to finance its
working capital and capital requirements for at least a twelve month
period.
In view of the foregoing, in all likelihood, in order to fund any
future capital which may be required, the Company may have to undertake
additional financings by means of public or, as noted above, 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 acceptable
terms, if at all. If adequate funds are not available, the Company may have
to substantially reduce or eliminate expenditures to develop, produce and
market its proposed products, systems and programs, all of which would have
a material adverse effect on the Company. See "Business -- Developmental
Activities." In the event the Company obtains any additional funding
through the sale 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 Relationships and Related Transactions."
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."
Dependence Upon Key Personnel
Given the specialized scientific nature of the Company's business,
the Company's current and future success is highly dependent on its ability
to attract and retain qualified scientific and technical personnel. There
is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will
be able to attract or retain the qualified personnel necessary to develop
its business.
In particular, the Company is dependent upon the following
management and technical personnel: Dr. Turan M. Itil, Chairman and
President, Dr. Pierre Le Bars, Executive Vice President, Kurt Itil,
President and CEO of HZI, and Jonathan Raven, Executive Vice President of
the Company and President and CEO of the Company's subsidiary, MCAI.
Moreover, Dr. T. Itil is substantially responsible for generating new
business for the Company's contract research studies. Each of Dr. T. Itil,
Dr. Le Bars and Mr. Raven have Employment Agreements with the Company. None
of such personnel, with the exception of Dr. T. Itil, 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.
The success of Memory Centers(TM) is highly dependent on the
Company's ability to attract and retain qualified technical and marketing
personnel. There is intense competition for qualified personnel and there
can be no assurance that Memory Centers(TM) will be able to attract and
retain the qualified personnel necessary to develop its business. In
particular, Memory Centers(TM) are dependent upon the support of the
following management and technical personnel: Jonathan Raven, Executive
Vice President of the Company and President and CEO of MCAI and Dr. Turan
M. Itil, Chairman and President of the Company. As noted earlier, Mr. Raven
and Dr. Itil have employment agreements with the Company. With the
exception of Dr. Itil, none of such personnel is covered by key person life
insurance. The loss of key personnel or inability to hire and retain
qualified personnel could have a material adverse effect on Memory
Centers(TM) business and results of operations.
The loss of key personnel or inability to hire and retain qualified
personnel could have a material adverse effect on the Company's business
and results of operations. See "Business" and "Management -- Directors and
Executive Officers."
Control By Directors and Officers
The Company's current directors and officers and their affiliates
beneficially own approximately 53.3% 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 "Management" and "Selling Security Holders."
Dilution
As of November 1997, there were outstanding (a) employee stock
options to purchase 750,000 shares of Common Stock and (b) Warrants to
purchase 750,000 shares of Common Stock. In December 1996 the Company
issued additional warrants to purchase 1,100,000 shares of Common Stock.
See "Management." In addition, the Company has an outstanding loan
convertible into Common Stock and Warrants. See "- Possible Issuance of
Preferred Stock."
Any exercise of options or warrants will usually take place at a
time when the Company would be able, in all likelihood, to obtain funds
from the sale of the Company's Common Stock at prices higher than the
exercise prices thereof. As a result, investors in the securities offered
hereby may incur substantial dilution of their investments as the issuance
of such a significant number of additional securities, or even the
possibility thereof, may depress the price of such securities. See "Shares
Eligible for Future Sale."
Government Regulation
Product Development
The Company's proposed products, technologies and services are
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 products and services, particularly those involving medical
applications.
The Company is in the process of developing six new products. At
this time, the Company does not have any 510(k) Applications pending with
the FDA, but the Company intends to submit a 510(k) Application for three
of the six products in early 1998: the EEG/EP Amplifier; the Digital EEG
System software and the HZI Electrode Headset. The Company also intends to
submit a 510(k) Application for two additional products, enhanced Evoked
Potential Software and Pharmacologically Activated EEG (Test-Dose(R))
Software, in the latter part of 1998 or early 1999. The Company has not yet
decided when it will resubmit the application for its sixth new product.
The Food and Drug Administration ("FDA") must approve the Company's
products before the Company can market its products in the United States.
The process of obtaining approvals from the FDA is costly, time consuming
and often subject to unanticipated delays. There can be no assurance that
approvals of the Company's proposed products, processes, facilities or
services will be granted on a timely basis, if at all. In addition, new
government regulations may be established that could delay or prevent
regulatory approval of the Company's products under development. Even if
regulatory approval of the Company's proposed products is granted, such
approval may include significant limitations on indicated uses for which
any such products could be marketed. Further, even if such regulatory
approvals are obtained, a marketed drug or device and its manufacturer are
subject to continued review, and later discovery of previously unknown
problems may result in restrictions on such product or manufacturer,
including withdrawal of the product from the market. The Company's failure
to comply with FDA regulatory requirements can result in the delay of
premarket product reviews, fines, civil penalties, recalls, seizures and
injunctions all of which would have a material adverse effect on the
Company's business, financial condition and operations.
The Company's proposed products and technologies may also be
subject to certain other federal state and local government regulations,
including, but not limited to, the Federal Food, Drug and Cosmetic Act, the
Environmental Protection Act, the Occupational Safety and Health Act, and
state, local and foreign counterparts to certain of such acts. The Company
intends to develop its business to strategically address regulatory needs.
However, the Company cannot predict the extent of the adverse effect on its
business or the financial and other cost that might result from any
government regulations arising out of future legislative, administrative or
judicial action.
Contract Research
The Company's contract research business benefits from the
extensive government regulation of the drug development process in the
United States. The Company's recent contracts to conduct QPEEG(R) studies
for U.S. pharmaceutical companies resulted in part on the need for these
companies to comply with FDA regulations for the approval of central
nervous system drugs. From time to time, legislation is introduced in the
United States to substantially modify regulations administered by the FDA
governing the drug approval process. Changes in regulation, including a
relaxation in the scope of regulatory requirements or the introduction of
simplified drug approval procedures, could have a material adverse effect
on the Company and its contract research operations.
Telemedicine
The Company's Telemedicine business is subject to state licensing
laws that regulate the ability of a physician licensed in one state to
offer advice on the treatment of a patient located in another state. The
relevant licensing law depends on the state in which the patient resides,
and these laws vary from state to state. Under New York law, a physician
licensed in another state is permitted to consult with physicians in New
York on how to treat patients located in New York. However, there can be no
assurance that these regulations will not change, and a determination of
liability under any such laws could have a material adverse effect on the
Company's Telemedicine business.
Memory Centers(TM)
In addition, in connection with MCAI's management of Memory
Centers(TM), MCAI and its operations are and will continue to be subject to
extensive federal, state and local laws, rules and regulations affecting
the health care industry and the delivery of health care, including, but
not limited to, laws and regulations prohibiting the corporate practice of
medicine, fee-splitting, anti-kickback laws and physician referral laws. In
addition, contractual arrangements with hospitals, medical centers and
managed care organizations, among others, are extensively regulated by
state and federal law.
Medicare and Medicaid Fraud and Abuse
These laws include the fraud and abuse provisions of the Social
Security Act, which include "anti- kickback" and "anti-referral" laws.
Federal "anti-kickback" laws make it illegal to solicit, pay, receive, or
offer any direct or indirect remuneration to refer Medicare or Medicaid
patients or to order or provide Medicare or Medicaid covered services,
items or equipment. MCAI believes that since the non-medical management
services it provides are not reimburseable under Medicare or Medicaid, the
financial inducements in its management service contracts do not fall
within the scope of federal anti-kickback laws.
Federal "anti-referral" laws make it illegal for physicians to
refer patients that require certain designated health services to entities
with which they have a financial relationship. Violations of these laws may
result in substantial civil or criminal penalties for individuals or
entities, including large civil monetary penalties and exclusion from
participation in the Medicare and Medicaid programs. Such exclusion, if
applied to Memory Centers(TM) or the physician groups with which MCAI may
contract in the future, could result in significant loss of reimbursement.
A determination of liability under any such laws could have a material
adverse effect on MCAI. See "Business -- Government Regulation and
Supervision."
State Regulation
Several states, including New York, have adopted laws similar to
the federal "anti-kickback" and "anti-referral" laws and they cover
patients in private programs as well as government programs. See "Business
- -- Government Regulation: Memory Centers(TM)." New York law prohibits
physicians from splitting fees with non-physicians and prohibits
non-physician entities from practicing medicine. To comply with these laws,
MCAI has structured its management agreements such that its fees are based
on fixed and variable costs determined in advance, not as a percentage of
net or gross revenues generated by the physicians' practice at Memory
Centers(TM). In general, these laws vary from state to state and are
enforced by the courts and by regulatory authorities with broad discretion.
A determination of liability under any such laws could have a material
adverse affect on MCAI.
Compliance
Although the Company believes its operations as described in this
Prospectus are, and will continue to be, in material compliance with
existing applicable laws, the Company's business operations have not been
the subject of judicial or regulatory interpretation. There can be no
assurance that review of the Company's business by courts or regulatory
authorities will not result in determinations that could adversely affect
the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's existing
operations or their expansion. In addition, the regulatory framework of
certain jurisdictions may limit Company's expansion into, or ability to
continue operations within, such jurisdictions if the Company is unable to
modify its operational structure to conform with such regulatory framework.
Any limitation on the Company's ability to expand could have an adverse
effect on the Company. In addition to extensive, existing government health
care regulation, there have been numerous initiatives on the federal and
state levels for comprehensive reforms affecting the payment for and
availability of health care services. The Company believes that such
initiatives will continue during the foreseeable future. Aspects of certain
of these reforms as proposed in the past, such as further reductions in
Medicare and Medicaid payments and additional prohibitions on physician
ownership, directly or indirectly, of facilities to which they refer
patients, if adopted, could adversely affect the Company. See "Business --
Government Regulation."
Uncertainty of Memory Centers(TM) Market Acceptance
Memory Centers(TM) is a new business with only a one year operating
history and limited business experience and it is subject to all the risks
in the establishment of any new business venture. MCAI currently has
management agreements to operate four Memory Centers(TM), all in New York,
in conjunction with Manhattan Westchester Medical Services, the medical
practice operated by the Company's Chairman. MCAI has two additional
management agreements to operate Memory Centers(TM), one with Queens
Diagnostic and Treatment Center in Queens, New York and the other with
Truxton Psychiatric Group, PC in Bakersfield, California. The likelihood of
Memory Centers(TM) success must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
the development of a new business.
The Memory Centers(TM) concept is untested from a commercial
perspective in the United States, as, to the best of the Company's
knowledge, no commercial concern has attempted to create or operate a
similar business. MCAI provides non-medical management, educational,
consultation and marketing services to licensed physicians and entities
controlled by them. MCAI does not provide medical services directly to the
patients treated at Memory Centers(TM). MCAI believes that the medical
diagnostic and therapeutic procedures utilized within the Memory
Centers(TM) are consistent with the applicable standards of the care within
the communities served. As such, although patients may not be familiar with
how these services will be packaged, MCAI believes the care they receive
will be readily accepted. Notwithstanding this, There can be no assurance
that the Company will be able to achieve market acceptances of its Memory
Centers(TM) by the general population or the medical community, and the
failure to achieve such acceptance would, in all likelihood, have a
material adverse effect on the Company. since the Company cannot provide
medical services and diagnoses directly to patients, the Company will be
dependent upon its ability to establish relationships with physicians who
will provide the medical services, and who must accept the Company's business
format. There can be no assurance that such acceptance will be forthcoming,
however the Company believes that similarities between the Company's business
format and that of established practice management companies will be recognized
by physicians and will assist in achieving the necessary acceptance. Managed
care organizations ("MCO's"), including HMO's and PPO's are often involved in
contracting for services such as those to be offered by individual Memory
Centers(TM). Accordingly, the Company will be required to market directly
to such MCO's and gain their acceptance. The Company cannot ensure when or
if any MCO's will contract with the company or its affiliated physicians
for services.
Since the Company provides management and other services for
physicians, its revenue is not derived directly from the fees charged for
patient care. To the extent that the physicians reimbursement for patient
services delivered at Memory Centers(TM) may flow from third party insurers
or managed -care providers, the revenue that the affiliated physicians
receive may be negatively impacted by changes in reimbursement polices of
these payors. Management fees charged by MCAI are determined through
negotiation with affiliated physicians or medical practices and are not
derived as a percentage of patient charges. If affiliated physicians are
not reimbursed for Memory Centers(TM)-related services, then this could
lead to termination of management agreements with MCAI.
Concerns with Diagnosis and Treatment of Patients in Memory Centers(TM)
The patients who come to Memory Centers(TM) will be seen by a
licensed physician who will make a diagnosis and initiate treatment. MCAI
provides these physicians with certain well-established diagnostic tools,
such as electroencephalograms, neuropsychological tests and cognitive and
behavior tests. In addition, MCAI will provide expert technicians to
supervise, through tele-video, the testing procedures and offer expert
opinions to assist doctors in the diagnosis and treatment of their
patients.
Medical research is continuous with respect to treating patients
with memory disturbances, including Alzheimer's Disease, and new diagnostic
and treatment techniques, including drugs, are being developed regularly.
It is expected that as these new techniques become available and approved,
they will be offered through medical practitioners associated with Memory
Centers(TM). Since some of the patients who are expected to be seen at
Memory Centers(TM) will have advanced forms of dementia, including but not
necessarily limited to Alzheimer's Disease, and since the current state of
medical knowledge does not include a cure for Alzheimer's Disease, certain
patients who come to Memory Centers(TM) will not experience improvement in
their memory, although they may benefit from treatment in other ways, such
as possible relief from anxiety, agitation and depression.
Liability and Possible Insufficiency of Insurance
Although management intends to require the health care providers
with which the Company enters into management or other fee arrangements to
name the Company as an additional insured under such providers' medical
malpractice or liability insurance, there can be no assurance that the
company will be fully protected under such providers' insurance policies.
The Company currently has umbrella liability insurance with a limit of one
million per occurrence (two million in aggregate) to cover general
liability claims. Since the Company does not provide medical services, it
will not obtain medical malpractice insurance to cover the physicians
performing services at its Memory Centers(TM), and may not be able to
purchase other insurance at reasonable rates, which would protect it
against claims arising from the medical practice conducted by health care
providers, including physicians, at its Memory Centers(TM). In addition,
there can be no assurance that the Company or such health care providers
will be able to retain adequate liability insurance at reasonable rates, or
that the insurance indemnification provided by such health care providers
will be adequate to cover claims asserted against the Company, in which
event the Company's business may be adversely affected.
No Experience in Developing or Managing Memory Centers(TM)
The Company believes that a portion of its future growth is
dependent upon the successful development of its Memory Centers(TM).
Although the Company has opened and operated pilot Memory Centers(TM),
neither the Company nor any of the health care providers with whom the
Company is currently holding discussion as to possible affiliations, has
any experience in developing, opening or managing facilities such as Memory
Centers(TM). In addition, the Company has had no experience in operating
and managing its other business while simultaneously devoting management
time and attention to the development and management of Memory Centers(TM).
As the Company's development and management of Memory Centers(TM) will
entail different skills than those currently being utilized by the Company
and its management, with the exception of Mr. Jonathan Raven, no assurance
can be given that the Company will succeed in meeting its objectives with
respect to its opening or continued management of Memory Centers(TM).
Failure of Memory Centers(TM) may adversely affect the Company and other
divisions since the Company has allocated a substantial part of its
resources to this venture.
Effect of Third-Party Reimbursement on Memory Centers(TM)
The Company anticipates that certain of the services offered by
Memory Centers(TM) will be subject to reimbursement by third-party payors,
such as health and medical insurance programs and health maintenance
organizations, but that some services will not be reimbursed. The Company
intends to educate doctors to inform third-party payors as to the services
offered by their Memory Centers(TM). However, there can be no assurance
that third parties who may now reimburse some of the costs incurred by
patients will continue to do so, or that rates of reimbursement currently
in effect may not change. Depending upon such potential changes, and the
willingness of patients to absorb certain costs from their own funds, the
revenues of the Company and its affiliated caregivers might be adversely
affected.
Dependence on Health Care Providers
Certain states prohibit the Company from practicing medicine or
employing licensed physicians to practice medicine on the Company's behalf.
Accordingly, the Company's activities generally will be limited to owning
and managing Memory Centers(TM) at which health care providers (primarily
physicians and psychologists) will render services. Moreover, the success
of the Company's expansion will depend upon its ability to enter into
agreements with health care providers to render medical and other
professional services at the facilities to be managed by the Company. To
date, the Company is engaged in negotiations with physicians and other
organizations, some of which discussions are only preliminary in nature,
and there can be no assurance that such negotiations will result in a
formal agreement with any of such caregivers, that the Company will be able
to enter into agreements with other health care providers on satisfactory
terms, or that any such agreements will be profitable to the Company.
Technological Uncertainty/New Product Development
The Company's products and ventures are in an early stage of
development. Only one of the Company's seven products, its CEEG Scan System
software, has received FDA marketing approval. This product was approved in
March, 1987. The Company's product candidates will require significant
additional development, pre-clinical and clinical trials, regulatory
approval and additional investment prior to commercialization. In addition,
the Company's product candidates are subject to the risks of failure
inherent in the development of products based on innovative technologies.
Accordingly, there can be no assurance that the Company's research and
development efforts will be successful, that the Company's product
candidates will prove safe and effective, that any commercially successful
products will be developed or that the proprietary or patent rights of
others will not develop competitive or superior products. As a result of
the early stage product development and the regulatory review process that
these products must undergo, the Company cannot predict with certainty when
it will be able to market any of its products, if at all.
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, service or program developed by the
Company uneconomical or obsolete.
Competition
The market for the Company's contract research services is highly
competitive. The Company competes against traditional contract research
organizations, the in-house research and development departments of
pharmaceutical companies as well as universities and teaching hospitals.
Competition for contract research services has increased as a result of
consolidation within the pharmaceutical industry.
In addition, the medical and drug technology industry, including
the manufacture of diagnostic equipment and products in the United States
and abroad, is also extremely competitive. Major pharmaceutical, food and
chemical companies, specialized biotechnology firms, universities and
research institutions develop products, technologies and services that
compete with the Company's business. Many of these competitors have greater
financial and other resources than the Company and, therefore, are able to
expend more than the Company in areas such as research, marketing and
product development. Competitors may develop products or technologies that
are more effective than any that are being developed by the Company or they
may obtain FDA approval for products more rapidly than the company. There
can be no assurance that developments by others will not render the
Company's products or technologies or other therapeutic techniques
noncompetitive or obsolete.
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 also likely result in
increased competition. See "Business."
To the best of the Company's knowledge there are no other
commercial concerns in the United States that provide the services offered
by Memory Centers(TM). Until now, to the extent people have sought help
with their memory problems, they have generally done so at Alzheimer
centers, dementia clinics, neurology groups and other medical centers that
conduct memory assessments, offer prevention measures and treatment for
memory disturbed patients. The Company believes that Memory Centers(TM)
will provide an alternative to these treatment options.
Dependence on Others for Manufacturing and Marketing
Currently, the Company has not invested in the development of
commercial manufacturing facilities, and the Company has only limited
marketing capabilities. 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 cannot enter into contracts to manufacture its
products on acceptable terms, the Company's ability to conduct pre-clinical
and human clinical testing and its ability to market its products will be
adversely affected. This may cause delays in the Company's plans to submit
products for regulatory approval or initiate new product development
programs, which in turn could materially impair the Company's competitive
position and its efforts to achieve profitability. If the Company does
manufacture its own products, its manufacturing facilities and operations
must comply with the FDA's GMP regulations prior to obtaining pre-marketing
approval from the FDA. If the Company were to attempt to develop its own
manufacturing capabilities, there could be no assurance that the Company
would succeed or, if so, that it would receive GMP approval.
Similarly, the inability of the Company to enter into marketing or
selling agreements for its products will have a material adverse effect on
the Company's business. There can be no assurance that the Company will be
able to enter into such agreements, or that if they do, such future
partners will be successful in commercializing the Company's products or
that the products will be accepted by patients, health care providers and
insurance companies or that they can be manufactured and marketed at prices
that would permit the Company to operate profitably. See "Business."
Patent Protection
The Company's ability to compete effectively will depend in part on
its success in protecting its proprietary technology in the United States
and abroad. To date, the Company has seven patents. The patent positions of
pharmaceutical, biotechnology and drug delivery companies, including the
patent rights licensed by the Company, are uncertain and involve complex
legal and factual issues. No consistent policy has emerged regarding the
breadth of claims covered in biopharmaceutical patents. No assurance can be
given that the Company will develop additional proprietary products that
are patentable, that any patents issued to, or licensed by, the Company
will be valid or enforceable, or that patents issued to or licensed by the
Company will afford protection against competitors with similar technology.
As the Company's research develops, it plans to protect its
intellectual property rights, products, designs and processes through the
filing of additional patents with the United States Patent and Trademark
Office ("PTO") and with corresponding foreign authorities. The Company also
registers trademarks and trade names. There can be no assurance that the
PTO or any foreign jurisdiction will grant the Company's patent
applications, if made, or that the Company will obtain any patents or other
protection for which application for patent protection has been made. No
assurance can be given that patents issued to or licensed by the Company
will not be challenged, invalidated, or circumvented or that the rights
granted thereunder will provide any competitive advantage. The Company will
also rely on trade secrets, know-how and continuing technological
advancement in seeking to achieve a competitive position. No assurance can
be given that the Company will be able to protect its rights to its
unpatented trade secrets or that others will not independently develop
substantially equivalent proprietary information and techniques or not
otherwise gain access to the Company's trade secrets.
In addition to protecting its proprietary technology and trade
secrets, the Company may be required to obtain additional licenses to use
patents or other proprietary rights from third parties. No assurance can be
given that any additional licenses required under any patents or
proprietary rights would be made available on acceptable terms, if at all.
If the Company does not obtain required licenses, it could encounter delays
in product development while it attempts to design around blocking patents,
or it could find that development, manufacture or sale of products
requiring such licenses could be foreclosed.
The Company could also incur substantial costs in defending any
patent infringement suits or in asserting any patent rights, including
those granted by third parties, and there can be no assurance that an
action of this sort would be resolved in the Company's favor. If such a
dispute were resolved against the Company, in addition to incurring
potential damages, the Company's continued testing, manufacture or sale of
one ore more of its technologies, products or services could be enjoined.
Defense of any lawsuit or failure to obtain any required license could have
a material adverse effect on the Company. See "Business."
Potential Product Liability
In connection with providing contract research services, the
Company contracts with physicians to serve as investigators in conducting
clinical trials to test new drugs on human volunteers. Such testing creates
risks of liability for personal injury to or death of volunteers,
particularly to volunteers with life- threatening illnesses, resulting from
adverse reactions to the drugs administered. Although the Company does not
believe it is legally accountable for the medical care rendered by
third-party investigators, it is possible that the Company could be held
liable for the claims and expenses arising from any professional
malpractice of the investigators with whom it contracts or in the event of
personal injury to or death of persons participating in clinical trials.
The Company also could be held liable for errors or omissions in connection
with the services it performs. In addition, as a result of its Phase I
clinical trials (which are out-patient only), the Company could be liable
for the general risks associated with a Phase I trial, including, but not
limited to, adverse events resulting from the administration of drugs to
clinical trial participants or the professional malpractice of Phase I
medical care providers. The Company believes that its risks are reduced by
contractual indemnification provisions with clients and investigators,
insurance maintained by clients and investigators, various regulatory
requirements, including the use of institutional review boards and the
procurement of each volunteer's informed consent to participate in the
study. The contractual indemnifications generally do not protect the
Company against certain of its own actions such as negligence. The
contractual arrangements are subject to negotiation with clients and the
terms and scope of such indemnification vary from client to client and from
trial to trial. The financial performance of these indemnities is not
secured. Therefore, the Company bears the risk that the indemnifying party
may not have the financial ability to fulfill its indemnification
obligations. Moreover, the Company does not maintain professional liability
insurance or product liability insurance that covers the foregoing risks
and its products. The Company could be materially and adversely affected if
it were required to pay damages or bear the costs of defending any claim
outside the scope of or in excess of a contractual indemnification
provision or in the event that an indemnifying party does not fulfill its
indemnification obligations.
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 Securities offered hereby. See
"Shares Eligible For Future Sale."
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 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 one year from the date of purchase or pursuant to
another available exemption from the registration requirements under the
Securities Act. Currently, there are no additional shares subject to future
registration rights.
The approximate cost of registering the securities offered hereby
is $350,000. Certain of the Selling Security Holders are obligated to pay
certain costs and expenses incurred in connection with the registration of
the Shares and Warrants.
Possible Issuance of Preferred Stock
The Company's Certificate of Incorporation authorizes 5,000,000
shares of Preferred Stock ("Preferred Stock"), of which 150,000 Shares are
issued and outstanding and designated Class B, Series 1.
These 150,000 Shares of Class B, Series 1, have a liquidation
preference of $1 per Share and are not convertible into any other class of
stock. Cumulative dividends accrue on such stock 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. The
Company may redeem such Shares at any time for $3 per Share.
The remaining 4,850,000 authorized but unissued Shares of the
Company's Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions and having such
rights, privileges and preferences, as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to and
may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making
it more difficult for a third party to acquire or discouraging a third
party from acquiring a majority of the outstanding voting stock of the
Company. The existence of the Preferred Stock may have a depressive effect
on the market value of the Company's Common Stock. The Company has no
present plans to issue any additional shares of Preferred Stock. See
"Description of Securities -- Preferred Stock."
CERTAIN MARKET INFORMATION AND DIVIDENDS
Market Information
In connection with the Company's acquisition of HZI, the Company
issued to each of its public stockholders of record on November 1, 1994 one
Class B and one Class C Warrant for each Share of the Company's Common
Stock held by such stockholders, for an aggregate of 800,000 Class B and
800,000 Class C Warrants (after giving effect to a 50 to 1 reverse stock
split); of these Warrants, 400,000 have been exercised to date. 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 the Registration Statement of which this Prospectus is a part has
been declared effective by the Commission. 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. In December 1996, the Company
issued 1,100,000 Warrants exercisable for 1,100,000 Shares. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's Common Stock has traded publicly on the NASD OTC
Bulletin Board under the symbol "NURC" since March 2, 1995. Prior to that
time, there had been no public trading in the Company's Common Stock.
The table below sets forth the high and low range of quotations for
the Company's Common Stock for the quarters indicated as reported by the
NASD:
High Low
1995
First Quarter (commencing 3/2/95) 33/4 3
Second Quarter 33/4 22/8
Third Quarter 21/81/2
Fourth Quarter 11/8 11/2
1996
First Quarter 4 17/8
Second Quarter 13 3
Third Quarter 20 131/2
Fourth Quarter 173/4 6
1997
First Quarter 123/4 81/2
Second Quarter 117/8 73/8
Third Quarter 93/4 7
Fourth Quarter (through December 1) 93/4 61/2
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.
On December 1, 1997, the last bid price reported on the NASD
Over-the Counter Bulletin Board for the Common Stock was $77/8 per share.
On December 1, 1997, the Company had 9,313,806 shares of Common Stock
outstanding. The Company has 146 stockholders of record.
Dividends
The Company has never declared or 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
The Company will not receive any cash proceeds from securities to
be sold for the account of Selling Security Holders pursuant to this
Offering.
The Company may, however, receive cash proceeds to the extent
750,000 outstanding Warrants are exercised by Selling Security Holders. If
the Warrants are exercised in full, as to which there can be no assurance,
the net proceeds would be approximately $1,200,000. The Company would use
these proceeds, if any, for general corporate purposes including working
capital. See "Selling Security Holders" and "Certain Relationships and
Related Transactions."
Certain of the Selling Security Holders 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 may make 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was incorporated in the State of Nevada on March 18,
1987 with the name Tamarac Ventures, Ltd. On November 23, 1994, in
connection with the reverse acquisition of HZI Research Center, Inc., a New
York corporation ("HZI"), the Company amended its Certificate of
Incorporation to change its name to NeuroCorp, Ltd. and to reduce its
authorized common stock from 200,000,000 shares to 100,000,000 shares and
to authorize 5,000,000 shares of preferred stock.
The Company is primarily involved in two businesses: (i) it
sub-contracts clinical research and performs data analysis for health
agencies, research organizations and pharmaceutical companies, and (ii) it
owns, operates or manages a group of facilities that diagnose and treat
memory disorders. In addition, as an outgrowth of its research activities,
the Company also designs diagnostic testing software and equipment for
neuropsychiatric applications and the Company performs neurological testing
services for hospitals and physicians. The Company conducts these
activities through two wholly owned subsidiaries. In November 1994, the
Company acquired all of the issued and outstanding shares of HZI. HZI
conducts contract research, designs diagnostic software and equipment and
performs neurological testing services. In March 1996, the Company
established Memory Centers(TM) of America, Inc., a Delaware corporation
("MCAI"). MCAI provides non-medical management, educational, consultation
and marketing services to licensed physicians and entities controlled by
them. These physicians offer professional diagnostic, preventive and
treatment services, through a network of pilot facilities, Memory
Centers(TM), to persons who suffer from memory disturbances. MCAI, through
affiliated corporations, also supplies the medical equipment used in Memory
Centers(TM). There are currently six pilot Memory Centers(TM) located in
New York City (Manhattan, Brooklyn and Queens), Tarrytown, New York, Nyack,
New York and Bakersfield, California. These Memory Centers(TM) are operated
under management agreements with Manhattan Westchester Medical Services
(Manhattan, Brooklyn, Tarrytown and Nyack), the Queens Diagnostic and
Treatment Center (Queens) and the Truxton Psychiatric Group PC
(Bakersfield). Under the terms of these management agreements, MCAI will
supply equipment, management, marketing, data handling and personnel
services for physicians, and the physicians provide all medical services
and employ all clinical staff. MCAI is compensated through fixed management
fees for its managerial services, and it is compensated for its billing
services and variable expenses, such as supplies, as they occur. These
agreements are for a fixed period of time, generally not less than one
year. MCAI began full operation of the pilot program at the end of the
second quarter of 1996. Each facility is estimated to cost between $150,000
to $200,000 for equipment, leasehold improvements and working capital which
includes administration costs. Revenues from this wholly-owned subsidiary
are considered insignificant for the nine months ended September 30, 1997.
During the second quarter, the Company created a new division
within NeuroCorp Ltd., called Tele-Neuro Psychiatry ("TNP"). The TNP
division will be responsible for marketing Tele-Neuro Psychiatric systems
which are based on the Company's proprietary software and hardware
equipment. The TNP system will provide data communication with off-site
experts. Furthermore, the Company believes the new TNP system will be
useful for enhancing quality controls in research programs. The Company is
currently utilizing TNP systems at two MCAI pilot centers. In September
1997, Drs. Itil and Le Bars and Mr. Eralp received a patent for certain
data collection, analysis and transmission procedures that the TNP system
relies upon. This patent will be assigned to the Company.
In connection with maintaining and recruiting the talents necessary
in meeting its objectives, the Company entered into employment agreement
with certain individuals as follows:
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. 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.
2. On December 7, 1994, the Company entered into an employment agreement
with an 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 nine 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.
3. On December 18, 1996, the Company and MCAI entered into an employment
agreement with the CEO and President of MCAI and an Executive Vice
President of the Company providing for a base salary of $150,000 in
year one, $225,000 in year two and increasing by the Consumer Price
Index ("CPI") change each year thereafter. The agreement expires on
January 1, 2000 and is renewable on a year to year basis thereafter.
The agreement provides for 500,000 qualified stock options for purchase
of common stock exercisable at the lower of $7.00 per share or fair
market value. The options are exercisable upon vesting and expire
January 6, 2007. On January 6, 1997, 200,000 of such options vest and
150,000 options each vest on January 6, 1998 and 1999.
The Company recognizes revenue and costs from its contracts under
the percentage of completion method. Cost of revenues include all direct
material and labor costs and those indirect costs related to contract
performance. General and administrative expenses are accounted for as
period costs and are, therefore, not included in the calculation of the
estimates to complete contracts in progress. Changes in each contracts's
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 liability, "Billings in excess of contract revenues
on uncompleted contracts", represent billings in excess of revenues
recognized.
Revenue from computer system sales, which include BFM Systems(R),
are recognized upon the shipment of the turnkey systems. All other service
revenues are recognized as they are rendered on the accrual basis of
accounting.
Nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996
The Company reported a net loss of $1,140,294 for the nine months
ended September 30, 1997 as compared to a net loss of $639,202 for the nine
months ended September 30, 1996.
Revenues for the nine months ended September 30, 1997 and 1996
amounted to $1,026,431 and $985,715, respectively. Revenues increased by
$40,716 or 4% for the nine months ended September 30, 1997 as compared to
the nine months ended September 30, 1996. Gross profit for the nine months
ended September 30, 1997 and 1996 amounted to $560,265 and $497,082,
respectively or a net increase of $63,183. Gross profit percentage for the
nine months ended September 30, 1997 and 1996 amounted to 55% and 50%,
respectively, or a net increase of 5%. The Company includes in the cost of
sales amortization of its database and computer system product development
costs. Commencing, January 1, 1996 the Company revised its estimate of the
useful life of the software development cost from 17 years to 7 years. This
change was made to better reflect the estimated period during which the
assets will remain in service. For the nine months ended September 30, 1997
and 1996 amortization charges amounted to $204,591 and $135,900,
respectively, resulting in a reduction of the Company's overall gross
profit percentage by 20% and 14%, respectively.
Furthermore, the variation of sales and gross profit during the
nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996 is attributable to the following:
1. The Company has not entered into any major new long-term (over two
years) contracts since December 31, 1993 and major contracts recorded
prior to this period have been substantially completed during the
December 31, 1995 and 1994 year end. For the years ended December 31,
1996 and 1995 the Company received $759,000 and $516,000, respectively,
or $1,275,000 of new contracts. Revenues from contracts for the nine
months ended September 30, 1997 as compared to the nine months ended
September 30, 1996 amounted to $383,059 and $611,698, respectively, or
a net decrease of $228,639. The contract division's low revenues for
the September 30, 1997 and 1996 period is attributable to the Company's
lack of major new contracts during the last nine years. Management
believes that the drug research industry has temporarily been
negatively impacted due to consolidation in the pharmaceutical
industry, which has resulted in the reduction of the available pool of
new research contracts. The Company believes that demand for more
effective central nervous system drugs with fewer negative side
effects, will continue to stimulate the demand for contract research
on central nervous system drugs.
The gross profit percentage from contracts for the nine
months ended September 30, 1997 is 58% as compared to
September 30, 1996 which was 48%. The increase in gross
profit for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996, is a
result of efficiencies introduced within the contract
division.
2. Net sales of BFM Systems(R)for the nine months ended September 30, 1997
and 1996 amounted to $68,256 and $232,685, respectively or a net
decrease of $164,429. Gross profit amounts for the nine months ended
September 30, 1997 amounted to a negative $122,458 whereby for the nine
months ended September 30, 1996, the gross profit amounted to $141,938
or a net decrease of $264,396. As noted previously, the Company
changed its amortization of software development costs, resulting in an
increased charge to the BFM Systems(R)division. Amortization expense
for nine months ended September 30, 1997 and 1996 amounted to $106,387
and $133,800, respectively. The Company management is revising its
marketing strategy and believes the lack of sales is temporary.
3 Revenues of the TeleMap(R) division for the nine months
ended September 30, 1997 and 1996 amounted to $96,501 and
$91,379, respectively. Gross profit percentage for the nine
months ended September 30, 1997 and 1996 amounted to 41% and
47%, respec- tively due to a slight increase in labor costs.
4. Pilot Memory Centers(TM)revenue for the nine months ended September 30,
1997 amounted to $21,000. This revenue was derived entirely from
Manhattan Westchester through a pilot program conducted under the
management of MCAI. Manhattan Westchester is a medical practice that
is controlled by the Company's Chairman. While MCAI does not receive
any direct insurance reimbursements, it does receive a management fee
from Manhattan Westchester. Insurance reimbursements are received by
the medical practice conducting the program based on rates established
by third party payors which are in turn based on the number of visits
and type of service performed.
The TNP division completed its fourth sale during the third quarter
1997. The total cumulative sales for the TNP division amounted to $382,512.
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 products 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. Capitalized database
and computer system development costs are composed mainly of payroll and
other direct employee costs. Costs associated with above, which are not
capitalized during the period are charged to either general and
administrative or research and development expense.
General and administrative expenses for the nine months ended
September 30, 1997 were $1,553,296 as compared to the nine months ended
September 30, 1996 of $811,403 or an increase of $741,893 or 91%. The
increase in general and administrative expenses for the nine months ended
September 30, 1997 is due to the Company increasing its development costs
for its new subsidiary, MCAI by $436,608 as compared to the nine months
ended September 30, 1996. The intended business of MCAI is to manage and
distribute through professional medical practitioners a program that will
evaluate and treat mild memory disturbances.
Research and development costs ("R&D") for the nine months ended
September 30, 1997 were $88,917 as compared to the nine months ended
September 30, 1996 of $71,235 or an increase of $17,682.
Year ended December 31, 1996 as compared to the year ended December 31, 1995
The Company reported a net loss of $1,634,675 for the year ended
December 31, 1996 as compared to a net loss of $262,494 for the year ended
December 31, 1995.
Revenues for the years ended December 31, 1996 and 1995 amounted to
$1,068,891 and $1,543,364, respectively. Revenues decreased by $474,473 or
31% for the year ended December 31, 1996 as compared to the year ended
December 31, 1995. Gross profit for the years ended December 31, 1996 and
1995 amounted to $362,312 and $905,617, respectively or a net decrease of
$543,305. Gross profit percentage for years ended December 31, 1996 and
1995 amounted to 34% and 59%, respectively, or a net decrease of 25%. The
Company includes in the cost of sales amortization of its database and
computer system product development costs. For the year ended December 31,
1996 and 1995 amortiza- tion charges amounted to $264,790 and $179,308,
respectively, or a net increase of $85,482, resulting in a reduction of the
Company's overall gross profit percentage by 13%. Commencing, January 1,
1996 the Company revised its estimate of the useful life of the software
development cost from 17 years to 7 years. This change was made to better
reflect the estimated period during which the assets will remain in
service. The resulting effect of this change in estimate for the year ended
December 31, 1996 as compared to the year ending December 31, 1995 was an
additional charge to the cost of sales amounting to $77,227.
Furthermore, the net reduction of sales and gross profit during the
year ended December 31, 1996 as compared to the year ended December 31 of
1995 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, 1995 and 1994 year end. For the years ended December
31, 1996 and 1995 the Company received $759,000 and $516,000,
respectively, or $1,275,000 of new contracts. Revenues from contracts
for the year ended December 31, 1996 as compared to the year ended
December 31, 1995 amounted to $696,359, and $841,057, respectively, or
a net decrease of $144,698. The decrease in revenues from contracts
for the year ended December 31, 1996 is attributable to the Company
completing a major portion of multi-million dollar contracts during the
year ended December 31, 1995. Furthermore, a majority of the new 1996
contracts amounting to $759,000 were received during the third and
fourth quarter of 1996, and the contract division did not commence work
on these new contracts until the end of the fourth quarter, resulting
in lost revenue for the year ended December 31, 1996.
The gross profit percentage from contracts for the year
ended December 31, 1996 is 35% as compared to December 31,
1995 which was 52%. As noted previously, the company changed
its amortization of software development costs, resulting in
an increased charge to the contract division. This increased
amortization charge reduced the contract division gross
profit by 10%. The remaining reduction of gross profit for
the year ended December 31, 1996 as compared to the year
ended December 31, 1995, is due to less profitable contracts
and fixed overhead direct cost being absorbed by less sales.
As of December 31, 1996 the Company contract division had a
backlog of approximately $748,000 from uncompleted
contracts. The Company expects to realize a minimum of
$640,000 during 1997 from said contracts.
The contract research division during the 1996 fiscal 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. During the fourth quarter of the
1996 calendar year, the Company completed the statistical
report for the foreign customer and collected the remaining
portion of the outstanding receivable from September 30,
1996 which amounted to $50,000. As of December 31, 1996, the
receivable amount from this foreign customer amounted to
$320,000, of which $150,000 is expected to be collected
during the fourth quarter of 1997. In connection with this
second contract, the foreign customer has amended the
original contract to include additional patients, which has
resulted in a change of the estimated completion date from
December 1996 to December 1997.
2. Net sales of BFM Systems(R)for the years ended 1996 and 1995 amounted to
$212,685 and $556,187, respectively or a net decrease of $343,502.
Gross profit percentage for the years ended 1996 and 1995 amounted to
28% and 72%, respectively, or a net decrease of 44%. As noted
previously, the Company changed its amortization of software
development costs, resulting in an increased charge to the BFM Systems(R)
division. Amortization expense as a percent of sales for year ended
December 31, 1996 and 1995 amounted to 50% and 13%, respectively, or
net reduction of gross profit of 37%. During the last six months of
the year ended December 31, 1996, the Company did not sell any BFM
Systems(R).
3. Revenues of the TeleMap(R) division for the years ended
December 31, 1996 and 1995 amounted to $129,622 and
$146,119, respectively, or net decrease of $16,487. Gross
profit percentage for the years ended 1996 and 1995 amounted
to 48% and 37%, respectively. The increase in gross profit
is attributable to the Company reassigning part of the
internal staff of the TeleMap(R) division to MCAI.
4. Pilot Memory Centers(TM)revenue from date of commencement, March 1996 to
December 31, 1996 amounted to approximately $30,000. This revenue was
derived entirely from Manhattan Westchester through a pilot program
conducted under the management of MCAI. Manhattan Westchester is a
medical practice that is controlled by the Company's Chairman. While
MCAI does not receive any direct insurance reimbursements, it does
receive a management fee from Manhattan Westchester. Insurance
reimbursements are received by the medical practice conducting the
program based on rates established by third party payors which are in
turn based on the number of visits and type of service performed.
General and administrative expenses for the year ended December 31,
1996 were $1,249,022 as compared to the year ended December 31, 1995 of
$1,013,233 or an increase of $235,789 or 19%. The increase in general and
administrative expenses for the year ended December 31, 1996 is due to the
Company incurring in excess of approximately $205,000 of initial
development costs for its new subsidiary, MCAI. The intended business of
MCAI is to manage and distribute to professional medical practitioners a
program that will evaluate and treat mild memory disturbances. Furthermore,
it should be noted the Company for the year ended December 31, 1996 has
charged general and administration ex- pense for $330,000 of costs in
connection with two of the following projects: (i) design of a proposed
protocol for a multi-center Alzheimer study conducted through a leading
international health organization (ii) development of oxiracetam drug that
would be used as part of the overall treatment for Alzheimer disease. These
costs that are included in the December 31, 1996 general and administrative
expenses were derived from company personnel who were employed by the
Company during the year ended December 31, 1995, and were reassigned from
other general and administrative duties to the above projects. For the year
ended December 31, 1995 the Company Chairman waived $146,347 of his base
salary of $250,000. Said salary amount has been recorded as an
administrative expense and as a capital contribution.
Research and development costs for the year ended December 31, 1996
were $98,018 as compared to the year ended December 31, 1995 of $181,512 or
a decrease of $83,494. The decrease in research and development costs is
due to reductions in fixed cost for the research and development
department. At the end of 1995, Management relocated its research facility
to its main operating division at HZI, in order to enhance communications
between operational and research personnel and to lower fixed costs, such
as rent, depreciation and other associated fixed costs. The Company plans
on maintaining the same level of research and development, with lower fixed
costs associated therewith.
During 1996, the Company recorded an allowance amounting to
$440,000 for uncollectible receivables related to sales made during 1995
from a total sales of $1,543,000 in 1995. Accordingly, for the year ended
December 31, 1996 management has increased its allowance for doubtful
accounts by $440,000, resulting in a charge to bad debt expense by said
amount. The increase of the accounts receivable provision was based on
managements review of the Company's outstanding foreign receivables at
December 31, 1996.
Management has concluded that the costs of legally pursuing the
customers associated with these receivables, which consisted principally of
foreign research centers, would overweigh the benefits.
Effective January 1, 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 cumulative effect at
January 1, 1996 was a one time, non-cash charge to operations amounting to
$125,745.
Commencing July 19, 1995 through December 31, 1996, the Company
borrowed an aggregate of approximately $700,000, net of repayments, from
their shareholders and their affiliates (see Liquidity and Capital
Resources for sources and terms of such loans). These loans were used
principally to finance losses from operations. As a result of these
additional borrowings, interest expense for the year ended December 31,
1996 as compared to the year ended December 31, 1995 increased by $80,807.
On July 19, 1995 the Company entered into a letter agreement with
Trinity to borrow $100,000. As additional consideration for the $100,000
loan, the Company agreed to issue 49,998 shares of restrict- ed common
stock to Trinity. 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. The implicit rate of interest for this loan is 37%
per year.
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,
whichever comes first. As consideration for such loan the company issued
66,666 shares of restricted common stock. The Company has valued the common
stock at $133,333 or fifty percent (50%) of the fair value on May 24, 1996,
the date of the transaction. The Company recorded deferred financing costs
and increased stock- holders' equity by $133,333 for this transaction. The
deferred financing costs 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. The implicit rate of interest for this loan is 67% per year.
At the time of the loan from such stockholder, the Company was unable to
borrow at lower interest rates due to its financial condition and the size
of the loan. Accordingly, management considered the importance to the
Company of obtaining such funding which in its opinion outweighed the cost,
particularly since the costs of issuing its securities did not impair the
Company's cash flows since such costs did not involve the outlay of Company
funds.
Liquidity and Capital Resources
At September 30, 1997 and December 31, 1996, the Company had
working capital of $922,044 and $1,082,613, respectively.
For the nine months ended September 30, 1997 and 1996, the Company
used cash for operations of $1,489,662 and $664,121, respectively,
resulting in increased use of cash for operations by $825,541. The net
increase for the nine months ended September 30, 1997 is the result of loss
from operations amounting to $1,140,294 as compared to the loss from
operations for the nine months ended September 30, 1996 of $313,067. The
Company changed its amortization policy for computer system product
development costs effective January 1, 1996 resulting in an additional
non-cash charge to operation of $125,745 for the year ended December 31,
1996.
For the years ended December 31, 1996 and 1995, the Company used
cash for operations of $897,382 and $660,652, respectively, resulting in
increased use of cash for operations by $236,730. The net increase for the
year ended December 31, 1996 is the result of loss from operations
amounting to $1,634,675 as compared to the loss from operations for the
year ended December 31, 1995 of $262,494. As noted previously, the
Company's BFM System(R) and Contract division sales for the year ended
December 31, 1996 were $488,200 less than the prior year. Additionally, the
Company changed its amortization policy for computer system product
development costs effective January 1, 1996 resulting in additional charges
to operation of approximately $195,000. As discussed previously, management
determined that certain foreign receivables were deemed uncollectible and
provided for additional reserves of $440,000. Lastly, the company incurred
approximately $205,000 of initial development costs for its new subsidiary,
MCAI. The effect of these four items increased the loss from operations by
$1,328,000.
For the nine months ended September 30, 1997 and 1996 cash used by
investing activities amounted to $376,067 and $104,474, respectively, or a
net increase in use of cash of $271,593. The increased use in cash for
investing activities for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996 was attributable to
the following: (i) purchase of equipment and fixtures amounting to $104,618
(ii) $23,694 increase in database development costs and (iii) costs
incurred in organizing Memory Centers(TM) amounting to approximately
$149,368. The increase in the database development costs was the result of
a large amount of EEG studies inputted into the database. The Company
during the nine months ended September 30, 1997 purchased equipment and
incurred organization costs amounting to approximately $130,642 principally
for its new subsidiary MCAI. The organization costs expenditures were in
connection with future operating sites, legal documentation and other such
items.
For the years ended December 31, 1996 and 1995, cash used by
investing activities, mainly in connection with costs incurred for
development of databases and computer system development costs, amounted to
$132,395 and $218,127, respectively, or a net decrease in use of cash of
$85,782. During 1996, the Company reduced its payments by $105,050 for
database and computer system product development costs as compared to the
year ended December 31, 1995. As noted in the December 31, 1995 Management
Discussions and Analysis, future capitalization of computer system product
develop- ment costs primarily in connection with the BFM System(R) would 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(R). The Company during the six months ended June 30, 1995 received
a $34,271 payment from its insurance carrier on an automobile that was
destroyed in an accident.
A majority of proceeds from stockholders were received by the
Company from July 1995 to present. The amounts and related terms of such
loans are outlined below:
i) On July 19, September 14, October 12, 1995 and February 26, 1996, the
Company and the Chairman of the Board entered into letter agreements
with Trinity 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 due within 90 days and
six months, respectively, from the date of issuance with accrued
interest. Trinity and the Company agreed to extend the due dates of
the above loans to September 30, 1997 or the date the Class B and C
warrants were exercised in their entirety 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 Trinity.
The Company recorded the additional consideration as interest expense,
with a cost of $14,061, which is based upon fifty percent (50%) of the
fair market value of the common stock issued on July 19, 1995, the date
of the agreement. Further, the letter agreements give Trinity the
option to convert said loans into 550,000 shares of common stock.
On September 13, 1996 the Company borrowed from Trinity
$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 Trinity the option to
convert each $4.00 of debt into one (1) unit. Trinity and
the Company agreed to extend the due dates of the above
loans to December 15, 1998 or the date a substantial
percentage (90% or more) of the Class B and C Warrants are
exercised. Each unit will consist of one (1) share of Common
Stock of the Company and two (2) 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.
Effective December 16, 1996, the maturity dates on the above
notes were extended to December 31, 1998 with a revised
interest rate of 5% per annum.
ii) On July 16, 1996 the Company entered into two loan agreements
amounting to $200,000 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 the proceeds of the Company's securities including
the exercise of Class B and C Warrants. On April 30, 1997, the Company
liquidated one loan obligation amounting to $100,000 and extended the
second loan maturity date to December 15, 1998, or the date a
substantial percentage (90% or more) of the Class B and Class C
Warrants are exercised.
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 on the earlier of one (1) year from May 24, 1996 or 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. The Company issued and has valued the common stock at $133,333
or fifty percent (50%) of the fair 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. During June 1997, the
original maturity date of the May 24, 1997 was extended to December 15,
1998. Accordingly, as of September 30, 1997, such loans have been
classified as long term. Further, the Company agreed to register said
shares.
For the nine months ended September 30, 1997 and 1996 cash provided
by financing activities amounted to $329,567 and $746,566, respectively.
For the nine months ended September 30, 1997 the Company received $600,000
in connection with the exercise of 200,000 Class B and 200,000 Class C
warrants, which resulted in the Company issuing 400,000 shares of common
stock. During March 1996 the Company sold 1,000,000 shares of common stock
for $400,000 to foreign investors. Furthermore, during the nine months
ended September 30, 1996, the Company repaid a line of credit which
amounted to $50,000 and borrowed from shareholder $478,480 net of
repayments. On April 30, 1997 the Company repaid a shareholder loan
amounting to $100,000. The Company incurred registration costs for the nine
months ended September 30, 1997 and 1996 amounting to $114,035 and $25,046,
respec- tively, in connection with registering shares of common stock and
warrants pursuant to contractual obligations with certain stockholders. At
September 30, 1997 and 1996, the Company accrued $11,250 of dividends for
Series 1 preferred stock as required under terms of the preferred stock.
For the years ended December 31, 1996 and 1995, cash provided by
financing activities amounted to $2,740,372 and $682,843, respectively. For
the year ended December 31, 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.
During December 1996 the company sold 550,000 units for $2,001,068. Each
unit is comprised of one (1) share of common stock and two (2) warrants.
Each warrants entitles the holder to purchase one (1) share of common stock
at $8.00 per share until August 31, 1997 and thereafter at $10 per share.
The warrants expire August 31, 1998. Further- more, during the year ended
December 31, 1996 the company repaid a line of credit which amounted to
$50,000. The Company incurred costs in this period amounting to $25,046 in
connection with registering shares of common stock and warrants pursuant to
contractual obligations with certain stockholders. At December 31, 1996,
the company accrued $15,000 of dividends for Series 1 preferred stock as
required under terms of the preferred stock.
At September 30, 1997 the Company's outstanding debt with respect
to borrowings amounted to $756,506. During November 1997, several
outstanding obligations were converted into common stock.
In November 1997, Trinity released the Company from its obligations
in regard to (i) a $200,000 loan plus $32,850 in accrued interest, (ii)
250,000 Class B, Series II Preferred Shares, (iii) a $75,000 loan plus
$9,221 in accrued interest, (iv) a $50,000 loan plus $3,350 in accrued
interest and (v) $27,500 in accrued dividends on Preferred Stock. As
consideration for being released from these obligations, the Company, as
instructed by Trinity, issued 640,000 shares of Common Stock to Lancer
Partners.
In November 1997, SRS Partners released the Company from its
obligations under a note due to SRS Partners in the amount of $28,696.25,
including accrued interest. As consideration for being released from this
obligation, the Company, as instructed by SRS partners, issued 10,000
shares of Common Stock to Lancer Partners.
In November 1997, the Company issued 40,000 shares of Common Stock
to Dr. Itil upon conversion of a loan made to the Company.
The Company expects to repay the remaining debt from internally
generated funds or additional public or private sales of its securities.
In October 1997, the Company received $600,000 of capital in
connection with the exercise of Class B and C Warrants. Accordingly, in
connection with such exercise, the Company issued 450,000 shares of common
stock.
Management's Plan
The intended development of these Memory Centers(TM) requires
substantial amounts of capital without any assurance that they will be
successful. Depending on size and location, the Company estimates that each
facility would require between $150,000 and $200,000 for equipment,
leasehold im- provements, and working capital, including corporate overhead
attributable to operating the Memory Centers(TM). Therefore, the Company
estimates that its short term capital requirements for 10 fully functioning
Memory Centers(TM) will be in the range of $1,500,000 to $2,000,000.
During December 1996, the Company completed a private placement of
its securities which provided $2,001,618. Approximately 60% of the proceeds
of this private placement are intended to be used for the initial
development and expansion of Memory Centers(TM), including advertising,
working capital and new management. The Company intends to set up 100
centers within the next 5 years if additional capital can be raised. Long
term capital requirements for these centers based on the same assumptions
as set forth above, could range from $15,000,000 to $20,000,000. The
Company intends to raise such capital through public and private sale of
its securities as well as by debt financing. Addi- tionally the Company is
exploring joint ventures and strategic alliances with other companies. No
assurance can be given that such capital will be raised or that strategic
alliances or joint ventures will be formed.
As a result of a successful research project, the Company's largest
customer has made new commitments to the Company. In this connection the
Company received from this customer, as of December 31, 1996, $100,000 to
support the efforts of an Advisory Committee of a prominent international
health organization to develop an Alzheimer's Study protocol, as well as
commitments for $285,000 to continue its work on the plant extract product.
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(R) study. In September 1997, the Company obtained another contract in
the amount of $230,708 pursuant to which a U.S. pharmaceutical company will
use QPEEG(R) in their multi-center drug trial. QPEEG(R) is a methodology
developed by HZI that evaluates a drug's effect on the central nervous
system using computer analyzed EEG. HZI statistically analyzes the before
and after effects of a drug and correlates the changes with information in
HZI's psychotropic drug data base to determine the optimal time or dosage
window to yield particular central nervous system effects.
In January, 1995, the Company entered into a joint venture
arrangement with Tena, Ltd. in Istanbul, Turkey, for the purpose of further
research and development of the Company's products and the marketing and
sales of its products in the Mid-East, former U.S.S.R. countries and in
other geograph- ical areas in which the Company has no distribution. Each
project assigned to the joint venture requires a statement of work to be
completed, and a budget with funding responsibility to be decided by the
respective parties. The Company entered into this joint venture
anticipating that certain of its products could be developed by the joint
venture at a cost below that attainable in the United States. While no
development work has been assigned to Tena to date, Tena is involved in
marketing the Company's products. Accordingly, there are at present no
capital or other funding requirements anticipated with respect to this
venture. However, during the second quarter of 1997, Tena ordered a TNP
system, including a full BFM system, in order to set up a Memory Center in
Istanbul, Turkey. A letter of intent in connection with this joint venture
was signed in September 1997.
On September 4, 1997, the Company signed a letter of intent with
the CoreCare Corporation, a regional provider of mental health care
services, to form a joint venture. The joint venture, which, if
consummated, will be 50% owned by the Company, will be located at Kirkbride
Center, a large medical complex being developed in Philadelphia. Within the
Kirkbride Hospital complex, the agreement contem- plates that the joint
venture will establish a Memory Center and a Tele-Neuro psychiatric
diagnostic laboratory. The joint venture will also include a 30 bed
VIP-Neuropsychiatry clinic, a Phase I in-patient drug research unit and a
contract research site management venture.
A definitive agreement has not been executed nor has the joint
venture has not yet begun opera- tions. The Company hopes to have a final
agreement with CoreCare before the end of 1997. However, in September 1997,
CoreCare ordered two TNP systems in order to set up a Memory Center (each
at $95,800), and a TNP diagnostic laboratory. If initiated, the various
aspects of the joint venture will require additional development and
capital. Accordingly, there can be no assurance that any aspect of the
joint venture can be developed within a reasonable amount of time or that
any of these will be successful, or that capital will be found to develop
any of these ventures.
The Company intends to submit 510(k) applications to the FDA
between the latter part of 1997 and mid 1998 with respect its EEG/EP
Amplifier, HZI Electrode Headset and Digital EEG System Software. Two of
the products require improved prototypes and the software product is in the
final testing stage. The aggregate cost for finishing the products and
completing the 510(k) applications is estimated at $90,000, which funds
will be derived from currently available working capital raised in a recent
private offering.
The Company will meet its future cash requirements for its general
corporate overhead for at least the next twelve months through cash flow
from operations based on its current contract backlog amount- ing to
$270,000 at September 30, 1997, future contracts currently under
negotiation the balance of the $2,601,618 received during December 1996 and
March 1997 as a result of selling units in a private place- ment and the
exercise of warrants as previously discussed and the additional $600,000
received during October 1997 in connection with the additional exercise of
the Class B and C warrants. [During No- vember 1997, several outstanding
obligations were converted into Common Stock.]
In November 1997, Trinity released the Company from its obligations
in regard to (i) a $200,000 loan plus $32,850 in accrued interest, (ii)
250,000 Class B, Series II Preferred Shares, (iii) a $75,000 loan plus
$9,221 in accrued interest, (iv) a $50,000 loan plus $3,350 in accrued
interest and (v) $27,500 in accrued dividends on Preferred Stock. As
consideration for being released from these obligations, the Company, as
instructed by Trinity, issued 640,000 shares of Common Stock to Lancer
Partners.
In November 1997, SRS Partners released the Company from its
obligations under a note due to SRS Partners in the amount of $28,696.25,
including accrued interest. As consideration for being released from this
obligation, the Company, as instructed by SRS partners, issued 10,000
shares of Common Stock to Lancer Partners.
In November 1997, the Company issued 40,000 shares of Common Stock
to Dr. Itil upon conversion of a loan made to the Company.
In November 1997, Howard Katz, the son of Richard Katz, a director,
sold 67,500 shares of common stock to Lancer Partners.
In November 1997, Kurt Itil and Yasmin Le Bars each sold 75,000
shares of common stock to Lancer Partners.
The Company does not presently have any long term capital
commitments for its HZI and general corporate operations and does not
expect to have major capital expenditures for these activities.
Cautionary Statement Regarding forward Looking Information
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking information made on behalf of the Company.
All statements, other than statements of historical facts, which address
the Company's expectations of sources of capital or which express the
Company's expectation for the future with respect to financial performance
or operating strategies can be identified as forward-looking statements.
Forward-looking Statements made by the Company are based on knowledge of
the environment in which it operates, but because of the factors previously
listed, as well as the factors beyond the control of the Company, actual
results may differ materially from the expectations expressed in the
forward-looking statements.
BUSINESS
The Company is primarily involved in two businesses: (i) it
sub-contracts clinical research and performs data analysis for health
agencies, research organizations and pharmaceutical companies, and (ii) it
owns, operates or manages a group of facilities that diagnose and treat
memory disorders. In addition, as an outgrowth of its research activities,
the Company also designs diagnostic testing software and equipment for
neuropsychiatric applications and the Company performs neurological testing
services for hospitals and physicians. The Company conducts these
activities through two wholly-owned subsidiaries, HZI and MCAI. In November
1994, the Company acquired all of the issued and outstanding shares of HZI.
HZI conducts contract research, designs diagnostic software and equipment
and performs neurological testing services. In March 1996, the Company
established MCAI. MCAI owns and operates a network of pilot Memory
Centers(TM) that treat memory disorders.
Contract Research Services
HZI's contract research business specializes in the analysis of
data collected in clinical studies of compounds that affect the central
nervous system. The Company obtains research contracts from pharmaceutical
companies and research organizations in both the United States and Europe,
and subcontracts the clinical studies to other institutions, doctors or
researchers. The Company monitors and analyzes the data collected by
doctors and researchers who perform these studies, but it does not conduct
actual clinical research itself. Since its inception in 1974, HZI has
received aggregate revenues in excess of $15,000,000 from its contract
research services. Contract research accounted for 65.15% of the Company's
revenues in 1996, and 72.85% of its revenues through the first nine months
of 1997.
Contract Research Industry
Contract research organizations provide clinical research to
support the development of new drugs. In order to develop and market a new
drug, a company must obtain approval from the FDA, which involves, in part,
successfully testing that drug in animal or human studies. Traditionally,
very few animal research studies have been contracted out to independent
organizations, and then only to academic centers or contract research
companies with sophisticated animal facilities. By contrast, research
studies that involve human subjects are increasingly conducted by
independent investigators. In the past, when human studies were contracted
out to clinicians in private or academic centers, the drug companies or
health organizations initiating the research continued to manage these
studies. Today, though, these organizations hire contract research
organizations to organize, manage and monitor clinical research.
Contract research organizations are highly dependent on medical,
pharmaceutical and biotechnology companies. Contract research organizations
derive substantially all of their revenue from the research and development
expenditures of these companies. The contract research industry itself is
extremely fragmented, ranging from several hundred small organizations that
provide very limited clinical services to international organizations that
provide pre-clinical evaluations, design studies, manage clinical trials,
collect data, and provide biostatistical analysis and product registration
support.
As the medical, pharmaceutical and biotechnology companies seeking
to employ contract research organizations have become more international in
scope, the contract research industry has begun to consolidate. It is often
difficult for small contract research organizations to compete with larger
organizations that have the expertise and resources to respond to the
demands of international clients. For example, international clients often
require contract research organizations to have broad therapeutic
expertise, the ability to coordinate and manage complex clinical trials
that simultaneously take place within and across several countries, the
expertise to respond to the regulatory requirements in different countries,
and the ability to develop and maintain the complex information technology
systems required to integrate these capabilities. As a result, larger
research organizations that are able to offer a broader range of services
have acquired smaller contract research firms.
The Company believes that the following trends will create
increased opportunities for contract research organizations in the future,
although there can be no assurance that these opportunities will
materialize:
Drug Companies Will Increasingly Use Contract Research Services. As
drug companies face pressure to improve their operating margins,
they will increasingly focus on identifying cheaper, more efficient
ways to develop new products. The growing use of generic drugs, the
expiration of patents and increased regulatory pressures have all
contributed to the demands on drug company executives to control
costs. In response, the pharmaceutical industry has begun to
consolidate, centralize its research and development process and
outsource to contract research organizations. In so doing, drug
companies have been able to reduce the fixed costs associated with
internal drug development. Since contract research organizations
specialize in conducting and managing clinical trials, when
compared with drug companies, they can generally perform clinical
studies with a greater degree of expertise, more quickly and at a
lower cost. The Company believes that it will be able to take
advantage of this trend in the future, particularly as drug
companies begin to focus on developing compounds to treat
conditions that affect the central nervous system.
Increasingly Complex and Stringent Regulation; Need for
Technological Capabilities. As regulatory requirements throughout
the world have become increasingly complex, there is greater demand
for organizations that can collect, analyze and manage the
increasingly large volumes of data required for regulatory filings.
In fact, the FDA and corresponding regulatory agencies in Canada,
Japan and Western Europe have all begun to discuss the need to
harmonize the standards for preclinical and clinical studies as
well as the format and content of applications for new drug
approvals. The Company believes that in response to these
regulatory demands, medical, pharmaceutical and biotechnology
companies will increasingly rely on the ability of contract
research organizations to collect, analyze and manage data.
Drug Development Pressures. The Company believes that research and
development expenditures for medical, pharmaceutical and
biotechnology companies will increase as a result of the constant
pressure to develop a pipeline of new products. In particular, the
Company believes these expenditures will increase as companies try
to respond to the demand for products to meet the needs of an aging
population, to treat chronic disorders, such as Alzheimer's
disease, and life- threatening conditions such as infectious
diseases, including AIDS. Any effort to develop therapies for these
disorders will require complex clinical trials and sophisticated
databases in order to demonstrate whether a particular therapy is
effective and whether there are any long-term side effects.
Growth in the Biotechnology Industry Growth. The biotechnology
industry in the United States has grown dramatically over the last
ten years and, as a result, there will be significant numbers of
new drug candidates that will require regulatory approval. Since
many biotechnology companies do not have the necessary experience
or resources to conduct clinical trials, many of these companies
will outsource to contract resource organizations rather than
expend significant time and resources to develop internal clinical
development capabilities. In addition, the biotechnology industry
is rapidly developing in western Europe, which will provide
significant opportunities for contract research organizations to
grow and expand in these areas.
The Company's management believes that its experience in analyzing
the effects of central nervous system drugs, its proprietary methodologies
and software, and its unique information databases will all position the
Company to take advantage of the anticipated growth in contract research
related to central nervous system drugs. In fact, despite its limited
marketing efforts, the Company has been invited to sponsor several
significant studies, including a study on the effects of Ginkgo Biloba the
results of which were published in the October 1997 Journal of the American
Medical Association. The Company believes that the publicity generated by
this study will further enhance its ability to take advantage of the
expected growth in contract research related to central nervous system
drugs.
HZI's Contract Research Services
The Company's contract research business specializes in clinical
studies (Phase I-IV) of com- pounds that affect the central nervous system
for drug companies and research organizations in the U.S. and abroad. These
contracts include studies conducted at both a single location and across
multiple loca- tions; they include both asymptomatic volunteer studies
(Phase I and Phase Ib special studies with healthy subjects) and
symptomatic volunteer studies (Phase II-IV studies on patients). The
Company does not conduct its own human research, and as a result, does not
take any responsibility for medical treatment or liability. However, the
Company monitors the studies conducted in other organizations, it
supervises data collection and it analyzes both data and progress study
reports. The Company's research studies adhere to strict federal and local
rules and regulations and they are supervised by local institutional review
boards, drug companies, and the local and federal offices of the FDA.
In a "typical" single center contract research project, the Company
will prepare the protocol and negotiate the financing for the study. The
Company will then subcontract the study to another organization or to
individual investigators, such as the New York Institute for Medical
Research, Inc. ("NYI"), a private, not-for-profit organization, that will
perform the research under the Company's supervision. The Company closely
adheres to local, state and federal rules and regulations in conducting its
studies, and it has not been involved any legal conflict with any
regulatory authorities in regard to its contract research since its
inception.
The Company's single center studies fall into two categories:
asymptomatic volunteer studies (Phase I and Phase Ib special studies with
healthy subjects) and symptomatic volunteer studies (Phase II- IV studies
on patients). Phase I and Ib studies aim to establish the safety of a drug
in healthy subjects. Phase II trials are conducted to find a safe and
effective dose. Phase III studies aim to establish efficacy of a new
compound. After the drug is approved by the FDA and marketed, Phase IV
trials are conducted for safety and/or with different types of efficacy
questions. In general, these studies focus on the effects of drugs
developed to treat conditions that include dementia/Alzheimer's,
depression, schizophrenia and anxiety disorders among others. The
asymptomatic volunteer studies use the Company's QPEEG(R) meth- od. As
noted earlier, QPEEG(R) is a methodology developed by HZI that evaluates a
drug's effect on the central nervous system using computer analyzed EEG.
HZI statistically analyzes the before and after effects of a drug and
correlates the changes with information in HZI's psychotropic drug data
base to determine the optimal time or dosage window to yield particular
central nervous system effects. Thus, in these so-called Phase I and Phase
Ib special studies, the Company develops information on the clinical
usefulness and therapeutic doses of new psychotropic drugs. In 1987, with
the development of its BFM System(R), the Company was able to dramatically
increase its capacity for conducting QPEEG(R) studies. Prior to that time,
the Company could only conduct 6 QPEEG(R) studies a year; however, with the
BFM System(R), the Company has the potential to conduct up to 24 studies a
year. The Company has conducted a total of 145 QPEEG(R) studies with 125
new drugs. These studies generate between $30,000 - $450,000 in revenues
per study.
The Company believes that there will be a growing interest in
QPEEG(R) trials in the United States. The FDA is increasingly interested in
the pharmaco-dynamics of new and existing drugs, and the Task Force
Committee of the American College of Neoropsychopharmacology has cited the
QPEEG(R) method as one of the methods to establish pharmaco-dynamics of a
psychotropic drug at the central nervous system level. In addition, many of
the drugs newly-developed by bio-technology companies, which are based on
receptor and specific biochemical models, do not have readily identifiable
toxic ef- fects. Therefore, in both animal and human studies on these
drugs, it is very difficult to determine maximum tolerable doses, and thus,
very difficult to estimate therapeutic dosage levels.
In symptomatic volunteer (patient) studies (Phase II-IV), while
the use of the QPEEG(R) method is less frequent (although, in September
1997, the Company obtained such a contract from a U.S. pharmaceutical
company), the Company still relies on its BFM System(R) to identify whether
a drug has any therapeutic effects and in what doses. Again, these studies
are conducted either in facilities the Company subcontracts from NYI, or
facilities that the Company has subcontracted from hospitals or medical
centers, where the studies themselves will be conducted under the
supervision and monitoring of both the Company's and NYI's staff. One of
the Company's Directors, Mr. Richard Katz, is also the Chairman, Chief
Executive Officer and President of NYI. The Company's Chairman, Dr. Turan
M. Itil, is an Honorary Chairman of NYI. Dr. Pierre LeBars, the Executive
Vice President and Chief Operating Officer of the Company, is also the
Executive Director of NYI. None of these individuals receive salaries from
NYI.
In addition to its single-center studies, the Company has also
begun to conduct multi-center research studies. The Company was involved in
its first multicenter study in 1989, when it conducted a study on dementia
in five centers. Since then, the Company has been involved in a number of
other multicenter clinical studies, including a study of depression that
involved 450 patients in 19 centers that were spread over 16 countries.
In general, with each new study, asymptomatic or symptomatic, the
Company is able to increase its database of information on central nervous
system drugs. In addition, the Company's researchers, with the permission
and cooperation of the drug companies or research organizations that hire
the Company, will generally seek to publish the results of the studies they
conduct. For example, the Company has published 41 studies based on the
results of its QPEEG(R) methodology.
Competition
Three major companies dominate the market in the $500 million
contract research industry: Parexel International Corporation, Quintiles
Transnational Corporation and Besselear Associates. The Company has not
made any efforts to advertise or promote its contract research business and
as a result, the Company estimates that it has it has less than 1% market
share. However, the Company believes that contract research is a growing
industry in the United States. Major drug companies in the United States,
Europe and Japan all conduct their clinical research primarily in the
United States since, given the high level of regulatory oversight in the
United States, the results of clinical tests performed in this country, are
generally held in high regard . Moreover, the Company believes that drug
companies will increasingly subcontract clinical research projects, and
that many of these projects will increasingly focus on central nervous
system drugs. In the United States alone, there are over 100 new central
nervous system-related drugs developed each year; in Europe and Japan, the
Company estimates that there are more than 200 central nervous
system-related drugs being developed every year.
As far as the Company's proprietary technology is concerned, such
as its QPEEG(R) method or its BFM System(R), the Company has very little
competition in the United States. Since the FDA guidelines do not require
such studies, drug companies in the United States do not routinely conduct
QPEEG(R) studies. However, as noted above, given the increasing cost
pressure on drug company executives, the Company believes that there will
be growing interest in clinical studies that rely on the QPEEG(R) method to
determine therapeutic opportunities for psychotropic drugs in a cost
effective manner. Marketing Strategy
The Company's contract research has traditionally been dependent on
the publications and personal contacts of Dr. Turan Itil. The Company also
plans to rely on the personal contacts and professional reputation of its
staff to develop contacts and generate contracts for clinical research
studies, including Dr. Kurt Itil, Dr. Pierre Le Bars and Dr. I. Ahmed.
In addition to the contacts developed by its professional staff,
the Company plans to work with NYI on a coordinated marketing effort in
which the Company and NYI will make joint presentations to medical,
pharmaceutical and biotechnology companies. The Company also plans to more
aggressively advertise its research capabilities in professional journals,
in particular, highlighting its expertise in research on psychotropic
drugs. In the next several months, the Company expects to publish several
new drug studies, including papers produced by Dr. T. Itil, Dr. P. Le Bars,
Dr. K. Itil and Dr. I. Ahmed. The Company will also continue to participate
in meetings of the professional scientific community, and present the
results of its clinical research studies.
In the past, the Company has heavily relied on its ability to
produce scientific publications to promote and market its research
capabilities. However, the Company plans to focus on alternative marketing
strategies, such as media stories, advertising and a broader range of
publications to promote its activities.
Memory Centers(TM) of America, Inc.
MCAI provides non-medical management, educational, consultation
and marketing services to licensed physicians and entities controlled by
them. These physicians offer professional diagnostic, preventive and
treatment services, through a network of pilot facilities, Memory
Centers(TM), that handle patients whose memory problems range from "benign"
age-related forgetfulness to different brain disorders and Alzheimer's
disease. MCAI, through affiliated corporations, also supplies the
diagnostic and communication equipment used in Memory Centers(TM). There
are currently six pilot Memory Centers(TM): three located in New York City
(Manhattan, Brooklyn and Queens), and one in Tarrytown, New York, Nyack,
New York and Bakersfield, California. The Memory Centers(TM) in Manhattan,
Brooklyn, Tarrytown and Nyack are operated under a management agreement
with Manhattan Westchester Medical Services. The Memory Center in Queens is
operated under a management agreement with the Queens Diagnostic and
Treatment Center and the one in Bakersfield is operated under a management
agreement with Truxton Psychiatric Group. Under the terms of these
management agreements, MCAI will supply equipment, management, marketing,
data handling and personnel services for physicians, and the physicians
provide all medical services and employ all clinical staff. MCAI is
compensated through fixed management fees for its managerial services, and
it is compensated for its billing services and variable expenses, such as
supplies, as they occur. These agreements are for a fixed period of time,
generally not less than one year. In addition to the six Memory Centers(TM)
described above, MCAI has begun to negotiate with potential affiliates to
open new Memory Centers(TM) in Philadelphia, San Juan, Puerto Rico and Long
Island, New York. MCAI hopes to complete these negotiations by the end of
calendar year 1997.
MCAI management believes that as the population of elderly people
in the United States continues to grow, as scientists continue to perfect
drugs and procedures that improve memory and cognitive perfor- mance, and
as the early diagnosis of memory-related diseases continues to improve,
there will be increasingly strong demand for the services Memory
Centers(TM) provide. From January 1, 1996 through November 1, 1997, Memory
Center facilities received 347 new patients. Between January 1, 1997 and
November 1, 1997, Memory Centers(TM) facilities received 292 new patients,
and experienced 478 total patient visits in its facilities.
Background
MCAI is committed to providing professional help for a condition
that is largely ignored by medical practitioners. While the actual number
of people suffering from memory problems in the United States is difficult
to determine, MCAI's management conservatively estimates that there are
over 10 million people in the United States suffering from memory problems.
According to the Alzheimer's Association, as of 1997, 4 million Americans
suffer from Alzheimer's Disease. Patients with memory problems often do not
show any significant physical or mental symptoms. Medical professionals may
not treat patients with memory problems until they have significantly
deteriorated, perhaps even to the point where they are diagnosed as
suffering from dementia, such as Alzheimer's disease. Since memory
disturbance on its own is not considered a "disease", it does not have a
diagnostic label or CPT code. Third party payors, such as insurance
companies or Medicare, generally do not accept charges to treat memory
disorders unless they are tied to other symptoms that they do cover.
The memory process, which includes the ability to receive
information through the senses, to store this information and to retrieve
it when it is needed, is one of the most sensitive, cognitive functions of
the brain. Most brain disorders are also associated with memory
disturbances. For example, memory disturbances are frequently seen in
depression, anxiety, late symptoms of drug abuse, attention-deficit
disorders, head trauma, cerebrovascular disorders and other cerebral
diseases (such as syphilis, AIDS and brain tumors). Memory disturbances may
also be caused by deficiencies in vitamins and minerals or the toxic
effects of some drugs (such as anticholinergic
antidepressants, Parkinson drugs and drugs that control blood pressure).
Until a few decades ago, memory decline was considered the inevitable
result of the aging process. In mild cases it was called "senility"; in
more severe forms, senile dementia. Even today, the majority of physicians
who are unaware of the significant developments in this area do not take
memory decline seriously, particularly in aged persons.
At present, there is no significant treatment for serious memory
deficits such as Alzheimer's disease. In recent decades, however,
scientists have made a series of important discoveries. First, they
discovered chemicals that affect the brain, and reverse brain disorders,
such as schizophrenia, and reverse mood, such as depression. Scientists
also discovered chemicals called cognitive activators (or "smart" pills)
which reverse experimentally induced disturbances of memory both in man and
animals. Scientists have thus begun to quantify the degree and the type of
memory impairment, and they believe they may be able to reverse its effects
through chemical means. Large scientific studies have demonstrated that,
although older subjects more frequently suffer from memory impairment,
memory impairment is not the inevitable result of aging.
Even for Alzheimer's, scientists have begun to develop treatments
for the earlier stages of the disease. This includes the use of (i) ethical
drugs, such as anti-dementia drugs, cerebro-vascular drugs, hormones (male
and female) and cholesterol lowering agents, and (ii) "natural" substances
and plant extracts, the most important of which are Ginkgo Biloba, an
extract of Ginkgo tree leaves, and Glutathione. The only drugs that have
been approved to treat Alzheimer's in the United States are Cognex(R) and
Aricept(R). While the FDA has approved these drugs as being safe and
effective drugs to treat memory disturbances in Alzheimer's cases, the FDA
has not approved any drugs to enhance memory in otherwise healthy subjects.
The services Memory Centers(TM) provide will be particularly
important as the demographics of the population in the United States shifts
towards the older groups that have typically suffered from memory problems
in the past. The U.S. Bureau of Census estimates that in the United States,
over 50 million people will be 65 or older by the year 2030, and nearly 9
million will be 85 or older. Nearly 50% of all people aged 85 and older are
thought to have Alzheimer's Disease, according to the National Institute on
Aging and the National Institutes of Health's Report on Alzheimer's Disease
1996. To the extent Memory Centers(TM) can prevent the onset of memory
disorders that might otherwise occur, they will offer a particularly timely
and important service.
Memory Centers(TM)
As described above, there are currently six pilot Memory
Centers(TM) located in New York City (Manhattan, Brooklyn and Queens),
Tarrytown, New York, Nyack, New York and Bakersfield, California. Memory
Centers(TM) are operated by licensed physicians that have entered into
management agreements with MCAI. Under the terms of these agreements, MCAI
provides non-medical management, educational, consultation and marketing
services to licensed physicians, or entities controlled by them, and the
physicians provide professional diagnostic, preventive and treatment
services to persons who suffer from memory disturbances. The six Memory
Centers(TM) above are operated under management agreements with Manhattan
Westchester Medical Services (Manhattan, Brooklyn, Tarrytown and Nyack),
the Queens Diagnostic and Treatment Center (Queens) and the Truxton
Psychiatric Group PC (Bakersfield). These agreements are for a fixed period
of time, generally not less than one year. In addition to the six Memory
Centers(TM) described above, MCAI has begun to negotiate with potential
affiliates to open new Memory Centers(TM) in Philadelphia, San Juan, Puerto
Rico and Long Island, New York. MCAI hopes to complete these negotiations
by the end of calendar year 1997.. As of December 31, 1996, Memory
Centers(TM) had generated management fees of $30,000 since they began
operations in March 1996.
In general, MCAI plans to establish Memory Centers(TM) either on a
stand-alone basis and run by physicians, or where practical, in connection
with the offices of physicians. MCAI expects to operate Memory Centers(TM)
in a structural environment that will resemble medical practice management
companies, where local physicians or professional corporations conduct all
aspects of the medical services practice, and MCAI will provide certain
management, administrative, marketing and professional support services.
For example, MCAI will provide sophisticated, proprietary, high technology
diagnostic and treatment systems to each Memory Center. All Memory
Centers(TM) will have the ability to communicate via a tele-
neuropsychiatry system with a central facility where medical experts will
evaluate tests, provide reports and recommend treatment. MCAI will also be
responsible for national advertising campaigns and may, insofar as state
regulations allow, supply physicians at individual Memory Centers(TM) with
medicinal products such as minerals, vitamins and alternative herbal
medicines.
Physicians at Memory Centers(TM) offer early diagnosis of memory
disturbances, followed by medically accepted treatments. Since the
diagnostic battery requires knowledge in neuropsychology,
electrophysiology, neurology, and psychiatry, accompanied by treatment
which will include both conventional and "unconventional" strategies, the
majority of doctors are neither prepared nor equipped to provide a complete
"memory" evaluation and treatment. However, by working in concert with the
tele-diagnostic facilities provided at Memory Centers(TM), physicians can
offer a full memory evaluation.
Memory Centers(TM) currently offer five programs tailored to
specific groups who have concerns with their memory:
1. Memory Fitness For Life(TM): a program for younger people who want to
learn how they can best contribute to their own long-term functioning
and cognitive abilities.
2. Early Detection Program(TM): a program for people who
believe they are experiencing mild forms of memory
impairment.
3. Senior Memory(TM): a program for seniors and younger
patients with early onset of memory problems.
4. Family Memories(TM) Supportive Counseling Program: a program
to address the special needs of caregivers.
5. Executive Memory Fitness(TM): a program through which
corporations may offer their key executives a confidential
baseline assessment of their own mental performance and try
to enhance their cognitive abilities.
The assessment phase of the Memory Centers(TM) program generally
includes a comprehensive history, an examination by a physician, a blood
chemistry analysis, neuropsychological and neuro- physiological tests, and
other steps that are designed to identify the cause of the patient's
problems. When an assessment is complete, the physician will diagnose the
patient and create an individual treat- ment plan to address their
particular needs. Herbal medicines, including Ginkgo Biloba, are generally
unregulated by the FDA, and they are widely sold over-the-counter in retail
establishments such as pharmacies, groceries, health-food stores and
discount stores. If, and to the extent that the FDA regulates herbal
medicines in the future, MCAI does not anticipate that it will have any
adverse impact on Memory Centers(TM).
The services offered to patients at Memory Centers(TM) encompass
comprehensive diagnostic evaluations and a variety of treatment strategies
which can only be performed by licensed physicians. As such, Memory
Centers(TM) require professional medical supervision. MCAI, where
practical, will establish Memory Centers(TM) in sites (i.e., medical
practices) that already have the necessary administra- tive, diagnostic
hardware-software systems in place. The electrophysiological,
neuropsychological and medical test data will be transmitted telephonically
to the main center located in Tarrytown, New York. The data will be
evaluated there by medical experts and licensed physicians and a complete
profile of the patient will be returned to the center with treatment
recommendations. The individual Memory Centers(TM) will be charged for each
such evaluation.
Each physician associated with a Memory Center(TM) will be
responsible for his or her own professional liability. MCAI will recommend
that the medical professionals that participate in Memory Center(TM)
programs adhere to the standard operating procedures developed by MCAI's
Medical Advisory Board. MCAI may recommend research projects, such as drug
studies, that particular Memory Centers(TM) may conduct.
MCAI's plans to develop Memory Centers(TM) will require substantial
amounts of capital without any assurance that they will be successful.
Depending on their size and location, MCAI estimates that each facility
would require between $150,000 and $200,000 for equipment, leasehold
improvements, and working capital, including corporate overhead, to operate
the Memory Centers(TM). Therefore, MCAI estimates that its capital
requirements will range from $1,500,000 to $2,000,000, depending on the
number of Memory Centers(TM) it actually opens. MCAI intends to set up 100
Memory Centers(TM) within the next five years if the pilot program is
successful and if additional capital can be raised.
Competition
At the present time, MCAI is not aware of any facilities that focus
on providing point of contact services for memory disorders. Historically,
a number of neurologists, psychiatrists and psychologist have developed
memory oriented clinics, but these have all focused on conducting research.
While MCAI is not aware of any existing or proposed programs that offer the
services provided by Memory Centers(TM), the neurological departments of
any hospital, Alzheimer's clinics and even well-equipped neurologists in
private practice will potentially compete with the services Memory
Centers(TM) offer. However, as noted above, since memory impairment is
generally not considered an illness, or a diagnostic category, doctors and
hospitals have a tendency to belittle or ignore the problem, and patients
themselves generally hesitate to address the problem until it becomes more
severe. Patients with severe memory problems, such as Alzheimer's disease,
will generally go to specialized Alzheimer's centers, neurology clinics or
hospitals. However, for patients with light to moderate memory problems,
there are currently no professional organizations available to help them.
Memory Centers(TM) offer a unique set of services for this group of people,
and MCAI intends to capitalize on the potential for Memory Centers(TM) to
prevent memory problems that might otherwise occur, particularly given the
increasing size of the population aged 65 or older.
Marketing
MCAI management plans to market Memory Centers(TM) to patients,
third-party payors, corporations and community service and government
organizations. MCAI plans to initiate an aggressive, concentrated
advertising effort to inform potential patients that memory impairment can
be objectively diagnosed and that early treatment can stop further memory
deterioration. This media campaign will include print, radio and direct
mail sources as well as the internet. MCAI will also make presentations at
local organizations and community groups that include whose members largely
consist of potential patients.
MCAI will also market Memory Centers(TM) to physicians, both to
inform them about Memory Centers(TM) and the services they offer and to
help build a network of potential affiliates. By developing relationships
with physicians, Memory Centers(TM) will also build credibility and develop
an important source of referral business.
MCAI recognizes that it must develop a relationship with third
party payors to penetrate the managed care market and develop an
affiliation with HMO's and similar entities. In addition, to the extent the
availability of coverage from third party payors will significantly affect
its patient base, it will be important for MCAI to help third party payors
become comfortable with the nature of the services Memory Centers(TM)
provide, and the billing patterns they employ. MCAI also plans to market
Memory Centers(TM) to corporations who can sponsor wellness programs for
their executives that include the services Memory Centers(TM) offer.
Finally, MCAI intends to build relationships with community service
groups and government organizations. For example, local groups such as
assisted living centers, rehabilitation providers, senior centers and
Alzheimer Associations, all deal with populations that will be particularly
interested in the services Memory Centers(TM) provide. MCAI will also try
to build relationships with government organizations to create interest and
support among government leaders to fund programs that utilize Memory
Centers(TM). MCAI expects to be involved in the public debate on issues
such as third party payment, professional practice standards and the
regulation of telemedicine.
Neuropsychiatric Diagnostic Equipment
HZI offers a line of proprietary neuropsychiatric diagnostic
testing equipment to physicians, researchers and hospitals. This equipment,
known as the CEEG-Scan System(R) enhances widely accepted diagnostic tests
(such as EEG) by quantifying their results, and it permits them to be
performed in a more practical and economical fashion than through other
means. The CEEG-Scan System(R) also includes proprietary software used to
perform Dynamic Brain Mapping(R). Dynamic Brain Mapping(R) is HZI's
proprietary brain mapping technique that summarizes a patients electrical
brain activity on an anatomically correct, color-coded image of the
patient's brain. This software is sometimes sold separately.
As of December 31, 1996, the Company has sold 115 CEEG-Scan
Systems(R), 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, 1995 and 1996, revenues from sales of neuropsychiatric diagnostic
testing equipment accounted for 39%, 36% and 20%, respectively, of the
Company's total revenues. With respect to $556,187 of sales of this
equipment in 1995, $440,000 of receivables associated with these sales were
written off in 1996.
The CEEG Scan System(R), which the FDA approved in March 1987, is
currently being utilized by many of the world's largest psychiatric
research centers, such as the United States National Institute on Drug
Abuse, the National Institute of Mental Health in China, and the National
Academia of Medicine in Russia. This system, unlike those of its
competitors, is primarily based on proprietary software and off-the-shelf
hardware. In addition, the CEEG-Scan System(R) is based on the use of
digital, rather than analog, EEG. It was not until 1991 that the American
Electroencephalography Society began to accept the use of digital EEGs,
instead of the more traditional analog EEG presentation.
The Company has many competitors in this field, including leading
international academic centers and larger companies with greater financial
resources. The Company believes that some form of computer analysis of EEGs
and digital EEGs, with and without brain mapping, has been developed by
approximately a dozen companies in the United States, and perhaps another
35 companies outside the United States. These competitors are generally
larger organizations with far more resources than the Company. There is no
assurance that the Company's CEEG Scan System(R) software and systems will
continue to provide revenues. Nevertheless, the Company believes that its
CEEG-Scan System(R) offers physicians and other medical professionals one
of the most advanced, non-invasive, objective and economical brain function
monitoring tests.
Tele-Map(R)
HZI offers interactive neurological testing services to assist
hospitals and physicians in the diagnosis of brain disorders. These
services include providing diagnostic tests based on the Company's
CEEG-Scan System(R) with or without Dynamic Brain Mapping(R), and these
services are known collectively as "Tele-Map(R)." Revenues of the
Tele-Map(R) division for the years ended 1996 and 1995 were $129,622 and
$146,119, respectively.
In the Tele-Map(R) program, HZI provides hospitals or physicians
with a conventional or specially-designed modem that the physician uses to
transmit the data they collect during a diagnostic test, via telephone, to
HZI. HZI employees will then record the data, and HZI's consultants and
experts will then analyze and interpret the data, and prepare reports that
are sent back to the physician within 2 business days of the test. HZI
believes that this interactive service will continue to be attractive to
hospitals and physicians alike, since it permits physicians to conduct EEG
tests in their individual offices, or hospitals, without having to invest
in the equipment needed to analyze and interpret results. HZI's technical
experts will communicate with the testing physicians as they record data
during the procedure to ensure the quality of the results.
There can be no assurance that HZI will be able to increase or even
sustain this business in the future. The Company has at least two
competitors, one of which, Telemedix Corporation, claims to have more than
500 subscribers. The Company expects competition in this area will
increase. There is no assurance that the Company can expand or sustain its
services and revenues at their present level. Furthermore, since this
service is regulated by the FDA, any changes in FDA regulations or any
changes in professional standards could significantly affect the Company's
Tele-Map(R) services.
Developmental Activities
The Company is currently engaged in developing other products and
services which it believes may offer commercial potential in the future,
but which are not yet marketable.
Hardware and Software
The Company is in the process of developing six new products. At
this time, the Company does not have any 510(k) Applications pending with
the FDA, but the Company intends to submit a 510(k) Application for three
of the six products in late 1997 or early 1998: the EEG/EP Amplifier; the
Digital EEG System software and the HZI Electrode Headset. The Company also
intends to submit a 510(k) Application for two additional products,
enhanced Evoked Potential Software and Pharmacologically Activated EEG
(Test-Dose(R)) Software, in the latter part of 1998 or early 1999. The
Company has not yet decided when it will resubmit the application for its
sixth new product. For the fiscal years ended December 31, 1994, 1995 and
1996, the Company has spent $224,010, $181,512, and $98,018, respectively,
on research and development activities for these proprietary items. The
Company is not reimbursed for any research or development expenses from its
customers.
Drug Development
HZI plans to use its proprietary hardware, software, and databases
in order to try 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 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 indicated by brain
electrical activities.
HZI has compiled what it believes to be a unique database on the
effects of compounds on Alzheimer's disease and memory impairment. During
the last ten years, HZI has been involved, as a subcontractor for drug
companies, in the development of six new drugs for the treatment of
Alzheimer's disease, such as oxiracetam, suloctidil, nimodipine,
pramiracetam, BMY-21502 and Ginkgo biloba. HZI also studied
choline/lecithin, deprenyl, synthetic male hormone ("mesterolone"), thyroid
releasing hormone ("TRH"), physostigmine, tacrine ("THA"), neostigmine,
hydergine, velnacrine and propentofylline, all of which are claimed to be
effective in memory problems and Alzheimer's disease. HZI believes that it
can now study a variety of new chemical entities or naturally occurring
substances (such as plant extracts or vitamins) using its proprietary
software and database to search for potential treatments of memory
dysfunctions.
HZI believes that its database can be used to expedite the overall
drug development process (i) by finding new uses for compounds already on
the market, and (ii) by refining and improving experimental drugs that
manufacturers now consider marginal. The Company believes that, through the
use of HZI's proprietary systems, it can discover previously unexplored
effects and potentially new applications at a relatively low cost since the
bulk of the basic research has already been completed.
If the Company determines that a particular drug under study has
marketplace potential, the Company would try to license the drug to major
drug companies, or possibly enter into a joint venture partnership. For
example, in September 1995, the Company entered into a licensing agreement
with Mediator S.r.l., an Italian company ("Mediator"), which has exclusive
rights from SmithKline Beecham Farmaceutici Italia S.p.A to develop
oxiracetam, an anti-dementia drug. Mediator is a privately owned company
that provides consulting services to the pharmaceutical industry, conducts
contract research and acts as an intermediary to facilitate the licensing
of drugs between companies. Under its licensing agreement with Mediator,
the Company has the exclusive right to develop, use, sell and market
oxiracetam in the United States, and the right to market this product in
other countries. To date, the Company estimates it has incurred expenses
related to this project of approximately $170,000. Oxiracetam is presently
marketed by other companies in Italy and Korea. The Company is also
involved in a second joint venture. In January 1995, the Company entered
into an agreement with Tena, Ltd. ("Tena"), a company located in Istanbul,
Turkey, to jointly research and develop the Company's products, and to
market and sell the Company's products in the Mid-East, the former
republics of the Soviet Union and other areas in which the Company
currently has no distribution network. While to date, the Company has not
entered into any research and development projects with Tena, Tena has been
involved in marketing the Company's existing products. In June 1997, Tena
ordered a TNP system, which includes a full BFM System, in order to set up
a Memory Center in Istanbul as a joint venture.
Any effort by the Company to develop new drugs will require large
amounts of capital and be subject to substantial competition from
established pharmaceutical companies, among others. In addition, if the
Company decides to investigate a pharmaceutical product it will also incur
the costs of the burdensome government regulatory process. There is no
assurance than any of the projected drug developments of the Company will
be successful even if the required funds are available.
Tele-Medicine (Tele-Neuro-Psychiatry)
Tele-Medicine started about 30 years ago with the goal of improving
patient care in rural areas without significantly increasing the cost.
While technology was expensive, until five years ago, a variety of
companies have now developed hardware/software systems which improved the
quality of pictures and sound, while reducing the cost.
TNP is the application of tele-medicine in neurological and
psychiatric patients. The Company's system includes clinical data
collection and reporting; psychological-psychiatric evaluations and
reporting; interactive neuro-psychological evaluations and reporting;
neuro-physiological evaluations and reporting; cognitive rehabilitation and
reporting; and neuro-biofeedback and reporting. All the data collection is
done in a remote location by mental healthcare workers under the
medical-psychological-psychiatric supervision of experts in the receiver
center via a tele-video system. The experts provide confirmation of the
report and second opinions on the diagnosis and treatment. The Company has
developed its TNP system to use in its Memory Centers(TM) as well as in
multi-center contract research. Thus, Memory Centers(TM) can be located in
remote places but patients will be diagnosed and treated by experts in
receiver stations. Using TNP, even the most remote Memory Centers(TM) will
be supervised by memory experts, improving quality without a significant
increase in the cost. In contract research, the data collection, quality
control and study monitoring will be done on-line from a central location.
Management believes the Company should have a competitive edge by providing
high quality data at a reduced cost. There are, however, a series of
governmental and local restrictions in the use of tele-medicine. There is
no assurance whether TNP will successfully be developed and/or applied.
There is also no assurance that the patients will accept video interviews
in Memory Centers(TM) or that drug companies or the FDA will approve such
data collection procedures in multi-center trials. In September 1997,
Drs. Itil and Le Bars and Mr. Eralp received a patent for certain data
collection, analysis and transmission procedures that the TNP system
relies upon. The Company believes that the patent will be assigned to
it before the end of calendar year 1997.
Kirkbride/Core Care Joint Venture
On September 4, 1997, the Company signed a letter of intent with
CoreCare Corporation, a regional provider of mental healthcare services,
that contemplates a joint venture to establish a Memory Center, a
tele-neuropsychiatric diagnostic laboratory and a specially equipped
neuropsychiatry clinic in Philadelphia. The joint venture, which will be
50% owned by the Company, will be located at Kirkbride Center, a large
medical complex being developed in Philadelphia. The letter of intent also
contemplates that the companies will establish a 30 bed VIP-Neuropsychiatry
clinic, a Phase I in-patient drug research unit and a contract research
site management venture.
The joint venture agreement has not yet been finalized. However, in
September, 1997, CoreCare ordered two TNP systems in order to set up a
Memory Center (each at $95,800), and a TNP diagnostic laboratory. The
Company hopes to finalize the joint venture agreement before the end of
calendar year 1997. The various aspects of the joint venture will require
additional development and capital. Accordingly, there can be no assurance
that any aspect of the joint venture can be developed within a reasonable
amount of time or that any of these will be successful, or that capital
will be found to develop any of these ventures.
Government Regulations -- HZI
Substantial segments of the Company's proposed operations are
expected to be subject to regulation and supervision by federal, state and
local governmental authorities. Such regulations apply not only to
research, development and manufacturing activities (whether by the Company
or by licensees) but also to the marketing of proposed systems and
products, particularly those involving medical applications. Although the
Company cannot estimate the cost of compliance with various regulations, it
expects such costs to be significant.
Product Development
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 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 (e.g.,
hardware and software systems) and/or pharmaceutical products involving
humans involves many steps, including testing, to determine safety and
efficacy of the products. 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. If 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 be sold immediately. 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 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. Regulations
concerning importing 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.
Telemedicine
New York law does not expressly regulate telemedicine. However, it
does provide for exceptions from its general physician licensing laws for
"consultations" with out-of-state physicians. In New York, a license is not
required for a physician who is licensed in another state to meet a
licensed physician licensed for the purposes of consultation.
However, this consultation exception does not address whether
physicians affiliated with central facilities in New York could lawfully
treat patients in other states. In that case, the governing licensure laws
would be that of the states in which the patients reside. State laws in
this regard vary widely. Some states have adopted broad consultation
exceptions that are construed similarly to the New York law, while others
have enacted narrower consultation exceptions that limit the practice of
telemedicine or even laws that proscribe telemedicine altogether.
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."
Government Regulation -- Memory Centers(TM)
The activities of the Memory Centers(TM) will be regulated by a
variety of agencies on federal, state and possibly local levels. In
particular, MCAI and its operations are and will continue to be subject to
extensive federal, state and local laws, rules and regulations affecting
the health care industry and the delivery of health care, including, but
not limited to, laws and regulations prohibiting the corporate practice of
medicine, fee-splitting, anti-kickback laws and physician referral laws.
The Company believes that it will be able to structure relationships with
physicians and other entities that will comply with all applicable
regulations. However, there can be no assurance that any given regulatory
issue might not have a material impact on the ability of the Company to do
business in a particular jurisdiction.
Corporate Practice of Medicine and Fee-Splitting
New York law contains a broad policy against the corporate practice
of medicine, which prohibits physicians from being employed by
non-professional business corporations. In particular, under New York law,
it is illegal for any person to share in fees for professional services
provided by physicians unless that person is authorized to practice
medicine. These laws prohibit any arrangement where the space, facilities,
equipment or other services provided to a professional licensee are based
on a percentage of the income or receipts generated from the use of these
services. Since MCAI does not directly employ physicians, but rather only
provides managements services, it is not involved in the corporate practice
of medicine. More specifically, with respect to New York fee-splitting
laws, when MCAI provides management services to physician practices. Its
fees are based on a combination of fixed and variable costs determined in
advance, not a percentage of net or gross revenues.
Anti-Referral Laws
MCAI must also adhere to federal and state anti-referral laws that
forbid physicians from referring patients to entities with which the
referring physician has a financial relationship. At the federal level, the
regulations only apply to the referral of Medicare or Medicaid patients to
entities that furnish certain designated health services. Similarly, New
York law prohibits physician referrals for designated services to a health
care provider where the referring physician has a financial relationship
with that health care provider. MCAI is not providing health services
within the meaning of either federal or New York self-referral laws; it is
only providing management services to physician practices.
The anti-referral regulations at both the federal and New York
level also prohibit referrals by a physician to its own practice. However,
both the federal and New York anti-referral regulations contain an
exception for "in-office ancillary cervices" under which if physicians in
Memory Centers(TM) personally furnish or directly supervise the provision
of health services, provide these services at qualified locations, bill for
these services in their own name or that of their group practice, they will
comply with the regulation. However, unlike the federal exception, under
New York law, services not personally performed by the physician or a
member of the same group practice, must be performed personally by persons
who are employed by the group practice. As such, the staff of each Memory
CenterTM is employed by its respective professional corporation, not MCAI.
Anti-Kickback Laws
In addition to the anti-referral laws, federal law also prohibits
any type of payment, direct or indirect, that is intended to induce someone
to refer Medicare, Medicaid or other federally funded state healthcare
program patients, or to purchase goods or services reimbursable under such
programs. New York law has a similar prohibition that covers both Medicaid
patients, and patients generally. MCAI management believes that since
management services are not reimbursable under Medicare or state healthcare
programs, inducements to enter management service contracts would not
violate federal or state anti-kickback laws. More generally, since
management service agreements are based on the fair market value of
services provided, theydo not constitute a kickback to induce the referral
of business.
Compliance
The Company believes that its existing and proposed administrative
structures, including its relationship with physicians, comply with
relevant regulations. However, no formal ruling regarding the Company's
various structures and relationships has been obtained from any government
agency and there can be no assurance that any such ruling would deem such
structures or relationships in compliance with applicable laws and
regulations. There can be no assurance that review of the Company's
business by courts or healthcare, tax, labor, and other regulatory
authorities that have jurisdictions over matters including, without
limitation, the corporate practice of medicine, licensing of facilities and
equipment, and franchising will not result in determinations that could
adversely affect the operations of the Company or that the healthcare
regulatory environment will not change in a manner that would restrict the
Company's proposed operations or limit the expansion of the Company's
business or otherwise adversely affect the Company.
Company History
The Company, formerly known as Tamarac Ventures, Ltd., 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 was 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 purchase unknown existing businesses
or to acquire unknown existing assets to establish a subsidiary business or
businesses.
Personnel
The Company has 17 full-time employees, including five executives.
In addition the Company has six consultants and two part-time employees.
Property
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 $122,000 for the year ending December 31, 1997. In
addition, MCAI has recently entered into a contract to lease its Manhattan
Memory Center. The five year lease requires annual lease payments of
$110,000 during the first two years and $120,000 thereafter. 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 directors and the executive officers of the Company are as
follows:
Name Age Position with the Company
Turan M. Itil 73 Chairman of the Board, Chief Executive Officer,
President and Director
I. Ronald Horowitz 75 Director
Kurt Z. Itil 38 Director, Acting Chief Operating Officer
Pierre LeBars1 45 Director and Executive Vice President
Jonathan E. Raven 46 Director and Executive Vice President
Aileen A. Kunitz1 54 Vice President
Evelyn Sommer, Esq.2 71 Director
Richard Katz, Esq.1, 2 54 Director
Joseph DioGuardi, CPA1, 2 57 Director, Chief Financial Officer
_________________
1 Member of Audit Committee
2 Member of Compensation Committee
Each director is elected for a period of one year, expiring on the
date of the next annual meeting and thereafter until his or her successor
shall have been elected and qualified or until his or her death,
resignation or removal. 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 is to 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 January 1997, 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.
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; Past Vice President,
International Pharmaco-EEG Society; Secretary General, Academia, Medicinal
& Psychiatric 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, American Psychosomatic
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 inventor of 13 patents issued and has four patent applications pending.
Seven of the patents owned by Dr. Itil have been assigned to the Company
and six others have been assigned to major drug companies.
I. RONALD HOROWITZ, Esq., became Vice Chairman, President and
Director of the Company in 1995. He resigned in 1997 as President and
subsequently as Vice Chairman. 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 September 1997, Dr. Itil was assigned as the
Acting Chief Operating Officer of the Company. 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 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 and
administration.
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.
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 had 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 became a Director and Executive Vice President of
the Company and President and CEO of MCAI 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 of 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.
AILEEN A. KUNITZ has served as Vice President of the Company since
November 23, 1994. She also served as a Director until July 1997 and as
Chief Financial Officer ("CFO") until June 1997. After she resigned as
Director and CFO, she continued her employment with the Company as
Vice-President. Ms. 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 LLP'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. Skadden, Arps, Slate, Meagher & Flom LLP performs legal
services for the Company.
RICHARD A. KATZ, Esq. has been a Director of the Company since
November 23, 1994 and has been a Director of HZI since 1984. 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 member of the law firm of Fohret Last & Katz, P.C. since March 1,
1997 which firm performs legal services for the Company and was a partner
in the law firm of Opton Handler Feiler and Katz, LLP from January 1, 1995
through February 28, 1997 which firm serves as special counsel to the
Company. From January 1, 1994 to December 31, 1994 he was counsel to said
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.
JOSEPH DIOGUARDI, CPA. Mr. DioGuardi became a Director of the
Company in March 1996. He became "Special Assistant" to the Chairman in
November 1996, Acting CFO in June 1997 and CFO on July 1, 1997. 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. He received a Bachelor of Science Degree with honors from the College
of Business Administration of Fordham University in 1962.
Employment Arrangements
Dr. Turan M. Itil entered into an employment agreement with the
Company, effective September 20, 1995, providing for a base salary of
$250,000 per year plus annual increases and bonuses. 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. Dr. Itil waived $146,347 of his base salary for the
year ended December 31, 1995. Dr. Itil has waived negotiations for salary
increases for 1996 and 1997.
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 and to provide Dr. Itil with a car and driver. Dr. Itil waived
the life insurance requirement for the year ended December 31, 1995 and
1996. The life insurance policy was effective as of May 26, 1997; the
Company is a 50% beneficiary of the policy.
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 plus annual increases and bonuses. The agreement is for
an initial term ending January 1, 2000 and is renewable on a year to year
basis thereafter.
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 Incentive Stock Option to purchase 250,000 shares of the
Company's Common Stock at $.10 per share. In January, 1997 Mr. Horowitz
resigned from the position of President of the Company and subsequently as
Vice Chairman.
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. 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 MCAI. may be located within the general metropolitan area of Lansing,
Michigan.
Aileen A. Kunitz entered into an employment agreement with the
Company effective January 1, 1997 providing for annual base salary of
$85,000 plus bonus. The agreement is for initial term ending January 1,
2000 and is renewable on a year to year basis thereafter.
Joseph DioGuardi, a Director of the Company, has, since November
16, 1996, acted as a Special Assistant to the Chairman of the Company
working on various financial projects and business plans in connection with
private placements, and the Registration Statement of which this Prospectus
is a part, as well as the development of budgeting, accounting, reporting
and management information. In addition, Mr. DioGuardi became Acting CFO
and CFO in June and July 1997, respectively. Mr. DioGuardi works a minimum
of 3 days per week, and receives compensation of $7,500 per month.
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, 1996, the Chief Executive Officer and each of the most highly
compensated officers, to the extent each earned more than $100,000 in
salary and bonus.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation Awards
- -----------------------------------------------------------------------------------------------------------------
# Share
Name & Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation1 Options Compensation
- --------------- ----- ------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Turan Itil -
Chief Executive
Officer 1996 $250,000 - - - -
1995 $106,6532 $11,000 - -
1994 $255,000 - - - -
Pierre LeBars -
Chief Executive
Vice President 1996 $112,000 $50,000 - -
1995 $100,0003 - - - -
</TABLE>
1 Does not include an annual car allowance of $9,000 for Dr. Itil and
$6,000 for Dr. LeBars.
2 For the year ended December 31, 1995 Dr. Itil waived $146,347 of
his $250,000 base salary and for the year ended December 31, 1996,
Dr. Itil deferred $21,000 of his $250,000 base salary.
3 For the year ended December 31, 1995 Dr. Le Bars waived $5,857 of his
$100,000 base salary.
Stock Option Plan
On November 23, 1994 the Company adopted a stock option plan (the
"Plan") providing for the granting of options to purchase up to 1,500,000
shares of the Company's Common Stock. Options granted pursuant to the Plan
may be either incentive options or non qualified stock options. Incentive
stock options may be granted to persons who are employees or officers of
the Company. Non-statutory stock options may be granted to employees,
officers, non-employee directors and consultants to the Company.
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 in September, 1995 and Mr. Raven in 1997. No
options were granted for the year ended December 31, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November
21, 1997 regarding 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.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial Owner 1, 2 of Beneficial Ownership2 Percentage of Class12
<S> <C> <C>
Turan M. Itil,
Chairman, CEO, President and Director 3,562,000 3, 7 38.24%
I. Ronald Horowitz,
Director 250,000 5, 7 2.61%
Kurt Z. Itil,
Director 1,184,300 3, 7 12.72%
Eleonore Itil 566,000 3, 4, 7 6.08%
Pierre Le Bars,
Executive Vice President and Director 210,000 7 2.25%
Aileen A. Kunitz,
Vice President 86,400 6, 7, 8 *
Richard Katz,
Director 147,000 3, 7 1.58%
Evelyn Sommer,
Director 1,000 *
Joseph DioGuardi,
Chief Financial Officer and Director 1,000 *
Yasmin Itil Le Bars 723,000 3, 7 7.76%
Jonathan E. Raven
Executive Vice President and Director 400,000 8 4.12%
Trinity American Corporation
800 Kings Highway North
Cherry Hill, New Jersey 08034 862,998 9 8.79%
Lancer Partners, LP
Lancer Offshore, Inc.
Lancer Voyager Fund
Michael Lauer, General Partner
200 Park Avenue
New York, NY 3,717,500 10 35.70%
All directors and officers of the Company
as a group
(9 individuals) 4,510,400 12 45.27%
</TABLE>
- ----------------------
* 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 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.
4 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.
5 Includes 250,000 options currently exercisable at $.10 per share, expiring
June 30, 2002.
6 Includes 1,400 shares owned by Mrs. Kunitz' son.
7 In connection with a recent private placement of the Company's
securities each of these persons extended the duration of their
"lock-up" agreements prohibiting the sale of their shares for a three
month period ending February 22, 1998. If the Company raises an
additional $1 million during that time, the lock-up agreements may be
extended to May22, 1998; if the Company raises an additional $4 million
by that time, the lock-ups may be extended to August 22, 1998.
8 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. See "Certain Relationships and Related
Transactions."
9 Includes shares underlying 151,000 Class B Warrants currently
exercisable at $1.00 per share and 301,000 Class C Warrants currently
exercisable at $2.00 per share, both of which expire December 31, 1997;
and 16,666 shares of Common Stock owned by each of three adult sons of
Abraham Salaman, the President and sole shareholder of Trinity. See
"Certain Relationships and Related Transactions."
10 Includes shares underlying 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 Warrant. See "Certain Relationships and Related Transactions."
11 Includes the shares issuable upon exercise of certain options and
Warrants, as set forth in footnotes 6 and 8 above.
12 The percentage calculation for each of the named persons or entities is
based upon 9,313,806 common shares outstanding as of October 30, 1997
plus the number of shares underlying currently exercisable options,
warrants or conversion privileges held by the identified person or
entity.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
The Company, from December, 1989 until November 25, 1994 utilized
an office provided on a rent free basis by Monroe Arndt, its former
president, at 45 North Main Street, Marlboro, New Jersey.
On October 25, 1994, the Company issued to Trinity 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 "Risk Factors -- Possible Issuance of Preferred Stock" and Note 11 of
"Notes to the Consolidated Financial Statements." Abraham Salaman is the
President and sole shareholder of Trinity.
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.
On July 19, September 14, October 12, 1995 and February 26, 1996,
the Company and the Chairman of the Board entered into agreements with
Trinity to borrow $100,000, $40,000, $60,000 and $75,000, respectively. As
additional consideration for the $100,000 loan, the Company agreed to issue
an aggregate of 49,998 shares of restricted Common Stock to the President
of Trinity's three sons. Further, the agreements gave Trinity the option to
convert said loans into 550,000 shares of Common Stock.
On September 13, 1996, the Company borrowed $50,000 from Trinity,
payable from any future private placement proceeds. The loan bore interest
at 9.5% per annum. Further, the loan agreement gives Trinity 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) 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 Warrants
expire on August 31, 1998.
In November 1997, Trinity released the Company from its
obligationswith respect to these loans including (i) $45,421 in accrued
interest, (ii) 250,000 Class B, Series II Preferred Shares, and (iii)
$27,500 in accrued dividends on Preferred Stock. As consideration for being
released from these obligations, the Company, as instructed by Trinity,
issued 640,000 shares of Common Stock to Lancer Partners.
On November 16, 1995, the Company entered into a letter agreement
with SRS Partners, a partnership affiliated with Trinity to borrow $25,000.
The loan had an interest rate of 9%, and was due within nine months.
In November 1997, SRS Partners released the Company from
obligations in the amount of $28,696.25, including accrued interest. As
consideration for being released from this obligation, the Company, as
instructed by SRS partners, issued 10,000 shares of Common Stock to Lancer
Partners.
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 November, 1997, Dr. Itil converted the loan 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 (the "December 1995 Private
Placement"). 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.
On February 5, 1996, the Company borrowed from Trinity an
additional $50,000 from Trinity which was due on demand. This loan has an
interest rate of 10% and was repaid during April, 1996.
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. Subsequently, these shareholders each
sold 300,000 of their shares respectively to Four Acres Limited, Jersey,
Channel Islands; Meadowbrook Investments, Ltd., Nevis, West Indies; and JLB
Equities, Elmsford, New York. Subsequently, JLB Equities, which had
purchased 250,000 shares of the Company's Common Stock in a December 1995
Private Placement and purchased 300,000 additional shares from the above
referenced foreign investors sold an aggregate of 500,000 of its 550,000 of
the 550,000 shares which it owned to Lancer Partners, L.P. and Lancer
Offshore, Inc. The Company agreed to include the aggregate of 100,000
shares retained by Anker Bank, Risco Investment Trust and Mr. Hauchecorne,
in the Registration Statement of which this Prospectus is a part.
Accordingly these shares, as well as the 500,000 shares sold to Lancer
Partners L.P. and Lancer Offshore, Inc., by JLB Equities may be sold at
such time as the Registration Statement becomes effective.
In May 1996, the Company borrowed $200,000 from Elvena, Inc. Mr.
Lynn Dixon, a shareholder of the Company, is the beneficial owner of
Elvena. 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. 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, JLB Equities, a shareholder, loaned the Company
$100,000. This loan bore interest at 9% per year, was payable monthly, and
was repaid in full in April 1997.
On August 14, 1996, Dr. Itil and his wife Eleonore 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.
Subsequent to year end, the above loans between TAC, SRS Partners
and the Company were extended to December 31, 1998 with a revised interest
rate of 5% per annum. Accordingly, as of June 30, 1997, such loans have
been reclassified as long term.
As of December 31, 1996 Dr. Itil was the personal guarantor of bank
loans to the Company in the amount of approximately $18,500. The Company
has agreed to indemnify Dr. Itil should he be called upon for payment
pursuant to such guarantee.
As of June 30, 1997 said loan has been paid in full.
In December 1996 the Company sold an aggregate of 550,000 Units for
an aggregate of $2,001,068 ($3.64 per Unit) to three investors in a private
placement as follows: Lancer Partners, L.P. 269,755 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.
In two separate private transactions, Lancer Partners L.P. and
Lancer Offshore, Inc. (collectively, "Lancer"), two of the three investors
who purchased 550,000 Units in December, 1996, purchased an aggregate of
500,000 shares of the Company's Common Stock from J.L.B. Equities, Inc.
("JLB Equities"), a shareholder of the Company, and purchased 200,000 Class
B Warrants and 200,000 Class C Warrants from Trinity. In March, 1997, these
two investors exercised the 200,000 Class B and 200,000 Class C Warrants
which they had acquired from Trinity, for a total aggregate exercise price
of $600,000.00. In October, 1997, 150,000 Class B Warrants and 150,000
Class C Warrants were exercised by Lancer and in November 1997 150,000
Class B Warrants were exercised by Trinity. The Company agreed to register
the 500,000 shares purchased from JLB Equities and they are included in the
Registration Statement; as are the 850,000 shares of Common Stock issued
upon the exercise of the Class B and Class C Warrants. See "Selling
Security Holders."
In December 1996, Lancer Partners, L.P. and Lancer Offshore, Inc.
acquired an aggregate of 200,000 Class B and 200,000 Class C Warrants from
Trinity. In March, 1997, these Warrants were exercised and Lancer Partners,
L.P. and Lancer Offshore, Inc. were issued 400,000 shares of the Company's
Common Stock for which they paid an aggregate of $600,000. These shares are
included in the Registration Statement.
In October 1997, the Company received $600,000 of capital in
connection with the exercise of Class B and C Warrants. Accordingly, in
connection with such exercise, the Company issued 450,000 shares of common
stock.
In November 1997, Howard Katz sold 67,500 shares of Common Stock to
Lancer Partners.
In November 1997, Kurt Itil and Yasmin Le Bars each sold 75,000
shares of Common Stock to Lancer Partners.
Services Provided By Affiliates
HZI subcontracts material amounts of its patient testing performed
in connection with servicing contracts to NYI, a not for profit medical
research entity. One of the Company's Directors, Mr. Richard Katz, is also
the Chairman, Chief Executive Officer and President of NYI. The Company's
Chairman, Dr. Turan M. Itil, is an Honorary Chairman of NYI. Pierre Lebars,
the Executive Vice President and Chief Operating Officer of the Company, is
also the Executive Director of NYI. Expenses incurred with such contractor
for the years ending December 31, 1996 and 1995, respectively, were $-0-
and $40,715, respectively. Net payables to this contractor amounted to $-0-
and $37,583 at December 31, 1996 and 1995, respectively.
During 1994, HZI and Manhattan Westchester Medical Services, P.C.
("Manhattan Westchester") entered into an arrangement whereby Manhattan
Westchester would provide medical consulting services to HZI's Tele-Map(R)
business. This arrangement was suspended during 1995 and reactivated during
1996. Services provided by Manhattan Westchester to HZI for the years ended
December 31, 1996 and 1995 amounted to approximately $14,000 and $15,400
respectively. No services were provided during the three months ended June
30, 1997. Manhattan Westchester is a professional corporation of which Dr.
Turan M. Itil, Chairman of the Company owns the majority of shares
outstanding.
Revenues from Affiliates
The Company charges NYI, as well as Manhattan Westchester for the
use of certain employees and office and laboratory (administration
services) of the Company. Net revenues from these affiliates for the years
ended December 31, 1996 and 1995 and the nine months ended September 30,
1997 and 1996, amounted to $65,782, $186,123, $23,803 and $24,361
respectively.
Stockholders Notes and Loans:
December 31, 1996 September 30, 1997
Notes Payable bearing an interest
of 5% to 9% * $ 550,000 $ 450,000
Non interest bearing loans and
payables(i) 108,687 106,506
Non interest bearing loan payable 200,000 200,000
$ 858,687 $ 756,506
* Stockholder notes and loans payable relates to advances made to HZI by
its Chairman of the Board which are due on demand.
SELLING SECURITY HOLDERS
An aggregate of up to 2,875,000 Shares and 750,000 Warrants may be
offered by the Selling Security Holders consisting of (i) 750,000 shares
issuable upon the exercise of 300,000 Class B Warrants and 450,000 Class C
Warrants, both currently outstanding; (ii) 600,000 Shares issued in
connection with a private placement under Section 4(2) of the Securities
Act, (iii) 25,000 shares being offered by a charitable foundation, (iv)
650,000 shares were issued upon cancellation of certain indebtedness and
redemption of shares of convertible preferred stock of the Company, and (v)
850,000 shares issued upon the exercise of 500,000 Class B and 350,000
Class C Warrants in exempt transactions. 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
December 31, 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." None of the Selling
Security Holders has, or has had within the past three years any position,
office or other material relationship with the Company or any of its
predecessors or affiliates, except as noted.
<TABLE>
<CAPTION>
Amounts and
Nature of Number to Percent
Name of Selling Beneficial Number to be Owned of Class
Stockholder Ownership2 Be Offered After Sale After Sale
<S> <C> <C> <C> <C>
National Ethnic Albanian
American Foundation 25,0001 25,000 -0- -0-
Lancer Partners, L.P. 3,717,5001,15 1,500,0004 1,867,50015 20.1%15
Lancer Offshore, Inc. 3,717,5001,15 250,0005 1,867,50015 20.1%15
Lancer Voyager Fund 3,717,5001,15 100,0006 1,867,50015 20.1%15
Georges Hauchecorne 33,3341,7 33,334 -0- -0-
Anker Bank 33,3331,7 33,333 -0- -0-
Risco Investment Trust 33,3331,7 33,333 -0- -0-
Bear Stearns10 6,0008 6,000 -0- -0-
6,0009 6,000 -0- -0-
Herzog Heine Geduld Inc.10 4,0008 4,000 -0- -0-
4,0009 4,000 -0- -0-
Prudential Securities10 1,2008 1,200 -0- -0-
1,2009 1,200 -0- -0-
J. Streicher & Co.10 19,6008 19,600 -0- -0-
19,6009 19,600 -0- -0-
Karen Adeleman 8008 800 -0- -0-
8009 800 -0- -0-
Robert S. Adelman 1,2008 1,200 -0- -0-
1,2009 1,200 -0- -0-
Monroe Arndt 5,7358 5,735 -0- -0-
5,7359 5,735 -0- -0-
Morris Ashhkenazy 2,0008 2,000 -0- -0-
2,0009 2,000 -0- -0-
Joel Batchker 5,7338 5,733 -0- -0-
5,7339 5,733 -0- -0-
Kenneth Berwitz 1,6008 1,600 -0- -0-
1,6009 1,600 -0- -0-
Richard Breyley 8,0008 8,000 -0- -0-
8,0009 8,000 -0- -0-
Duncan H. Cameron II 1,2008 1,200 -0- -0-
1,2009 1,200 -0- -0-
Elaine Charney 1,2008 1,200 -0- -0-
1,2009 1,200 -0- -0-
Sharon Fingerhut 1,2008 1,200 -0- -0-
1,2009 1,200 -0- -0-
Ira Finkler 2,0008 2,000 -0- -0-
2,0009 2,000 -0- -0-
Jersey Transfer & Trust Co.12 5,7338 5,733 -0- -0-
5,7339 5,733 -0- -0-
Stanley Gross 2,0008 2,000 -0- -0-
2,0009 2,000 -0- -0-
Kahila Kedeshia Parkofski 6,8008 6,800 -0- -0-
6,8009 6,800 -0- -0-
Salene Myeroff 2,4008 2,400 -0- -0-
2,4009 2,400 -0- -0-
Rod Nenner 1,8008 1,800 -0- -0-
1,8009 1,800 -0- -0-
Jack Ornstein 1,2008 1,200 -0- -0-
1,2009 1,200 -0- -0-
Frank E. Perkiel 4,0008 4,000 -0- -0-
4,0009 4,000 -0- -0-
Morris Pinkowitz 8008 800 -0- -0-
8009 800 -0- -0-
Carolyn Protz 4008 400 -0- -0-
4009 400 -0- -0-
Michael Rakusin 2,2008 2,200 -0- -0-
2,2009 2,200 -0- -0-
Arthur Rogow 2,0008 2,000 -0- -0-
2,0009 2,000 -0- -0-
Howard Rosen 8008 800 -0- -0-
8009 800 -0- -0-
Hilda Rosenfeld 6,0008 6,000 -0- -0-
6,0009 6,000 -0- -0-
Jessie Sklarin 1,6008 1,600 -0- -0-
1,6009 1,600 -0- -0-
Robin Sklarin 4008 400 -0- -0-
4009 400 -0- -0-
Donna & Richard Sobel 2,0008 2,000 -0- -0-
2,0009 2,000 -0- -0-
Benjamin Sprecher, Esq. 19,2008 19,200 -0- -0-
19,2009 19,200 -0- -0-
Robert Thierer 3,2008 3,200 -0- -0-
3,2009 3,200 -0- -0-
Trinity American
Corporation13 360,9981 150,000 210,998 2.1%16
16
176,0008 176,000 -0- -0-
- -0-
326,0009 326,000 -0- -0-
- -0-
</TABLE>
- -----------------
* Represents less than one percent.
1 Represents number of shares of the Company's Common Stock beneficially
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.
4 400,000 of these shares were purchased from JLB Equities and
450,000 shares were acquired from the Company upon the exercise of
225,000 Class B Warrants at $1.00 per share and 225,000 Class C
Warrants at $2.00 per share. The Class B and Class C Warrants were
acquired from Trinity in December, 1996 and November 1997. 650,000
shares were acquired from the Company upon conversion of certain
indebtedness and in redemption of shares of convertible preferred
stock. 67,500 of these shares were purchased from Howard Katz,
75,000 were purchased from Kurt Itil and 75,000 were purchased from
Yasmin Le Bars.
5 100,000 of these shares were purchased from JLB Equities and
150,000 shares were acquired from the Company upon the exercise of
75,000 Class B Warrants at $1.00 per share and 75,000 Class C
Warrants at $2.00 per share. The Class B and Class C Warrants were
acquired from Trinity in December, 1996 and November 1997. Lancer
Partners, L.P. and Lancer Offshore, Inc. are respectively a
domestic hedge fund and an offshore fund. Both are managed by
Lancer Management Group LLC, of which Michael Lauer is the Managing
Director.
6 100,000 shares were acquired from the Company upon the exercise of
50,000 Class B Warrants at $1.00 per share and 50,000 Class C
Warrants at $2.00 per share. The Class B and Class C Warrants were
acquired from Trinity in November 1997.
7 In March 1996 the Company sold 333,333 shares of Common Stock to
Anker Bank, for $133,333 and in April the Company sold 333,333
shares to Risco Investment Trust, for $133,333 and 333,334 shares
to Georges Hauchecorne for $133,334. All of the sales were made to
foreign investors. Subsequently, these shareholders each sold
300,000 of their shares in private transactions. Subsequently, JLB
Equities, which had purchased 250,000 shares of the Company's
Common Stock in a December 1995 private placement, purchased
300,000 additional shares from the above referenced foreign
investors. Thereafter, JLB Equities sold an aggregate of 500,000 of
its 550,000 shares to Lancer Partners, L.P. and Lancer Offshore,
Inc. 100,000 shares retained by Anker Bank, Risco Investment Trust
and Mr. Hauchecorne are included in this Registration Statement.
Anker Bank is a Swiss Banking Corporation, located in Zurich,
Switzerland. Avi Herson is the beneficial owner of Risco Investment
Trust.
8 Represents both the number of Class B Warrants owned and number of
shares to be issued upon exercise of Warrants
9 Represents both the number of Class C Warrants owned and the number
of shares to be issued upon exercise of Warrants.
10 Represents percentage of Class B and Class C Warrants owned.
11 These entities are brokerage firms and the beneficial owners of the
Class B and Class C Warrants are customers of such firms.
12 J. Manger and H. Manger, the principals of Jersey Transfer and
Trust Co. are jointly the beneficial owners of 5,733 Class B and
Class C Warrants.
13 Abraham Salaman is the beneficial owner of Trinity.
14 Mr. Raven is Executive Vice President and a Director of the Company.
15 For purposes of this figure, Lancer Partners, Lancer Offshore and
Lancer Voyager Fund have been aggregated.
16 Represents percentage of shares of the Company's Common Stock
beneficially owned by such person.
PLAN OF DISTRIBUTION
The Selling Security Holders may sell the Shares and Warrants 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, (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. Sales may be made at fixed prices
which may be changed, at market prices prevailing at the time of sale or at
negotiated prices.
If a dealer is utilized in the sale of the Securities in respect of
which the Prospectus is delivered, the Selling Security Holders 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 Security Holders 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 Selling Security Holders and broker-dealers, if any, acting in
connection with the sale of the Securities might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act
and any commission received by them and any profit on the resale of the
Securities might be deemed to be underwriting discounts and commissions
under the Securities Act.
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
8,173,806 shares were issued and outstanding as at October 30, 1997.
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.
Preferred Stock
All of the 150,000 shares of issued and outstanding Preferred Stock
are designated Class B Series 1 and are owned by Trinity.
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 Company acts as its own transfer agent with respect to Class B
Series 1 and Class B, Series 2 Preferred Stock.
The remaining 4,850,000 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 Relationships and Related Transactions."
Warrants
In connection with the acquisition of HZI the Company issued
800,000 Class B Warrants and 800,000 Class C Warrants to all public
stockholders of the Company of record as of November 1, 1994. The Warrants
were distributed on the basis of 1 Warrant for 1 share of Common Stock
owned, each of which is exercisable for one share of Common Stock of the
Company. The Class B Warrants were originally exercisable at $2.25 per
share and the Class C Warrants were originally exercisable at $2.75 per
share until June 30, 1996. In January 1996 the Company reduced the exercise
price of the Class B Warrant to $1.00 per share and the exercise price of
the Class C Warrant to $2.00 per share and extended the exercise date until
June 30, 1997. In March 1997, 200,000 Class B and 200,000 Class C Warrants
were exercised in an exempt transaction. Accordingly, 300,000 Class B and
450,000 Class C Warrants are presently outstanding. In October 1997,
300,000 Class B and 150,000 Class C Warrants were exercised in exempt
transactions. The shares of Common Stock underlying the Warrants must be
registered with the 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. On April 28, 1997, the exercise date of the Class B
and Class C Warrants was extended until December 31, 1997.
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 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 Commission, such indemnification is
against public policy expressed in the Securities Act and is therefore
unenforceable.
Transfer Agent
The transfer agent for the Common Stock is Jersey Stock Transfer
and Trust Company, Vernon, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 3,325,000 shares covered by this Prospectus, an
aggregate of 750,000 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 1,834,825 shares of Common Stock issued
in private placements, an aggregate of 1,100,000 shares issuable upon
exercise of Warrants issued in December 1996 and an aggregate of 200,000
shares issuable upon exercise of Class C Warrants not included in this
Registration Statement are "restricted securities", as that term is defined
under Rule 144 promulgated under the Securities Act. In addition,
4,377,000 shares held by management and the directors may be "control
securities," as that term is defined under Rule 144. 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 one year 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 two years is entitled to sell such shares under
Rule 144 without regard to any of the limitations described above. As noted
above 3,325,000 shares included in this Prospectus may be publicly sold
without regard to the limitations set forth in Rule 144. See "Selling
Security Holders."
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 Feiler and Landau, LLP, 52 Vanderbilt Avenue,
New York, NY 10017.
EXPERTS
The consolidated financial statements for the years ended as of
December 31, 1996 and 1995 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.
In July 1997, Scarano & Tomaro, P.C. was formed and considered a
successor firm for auditing purposes, which firm has executed the report
referenced above and the consent annexed hereto.
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
(AMENDMENT #5)
NEUROCORP, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page number
Independent auditors' report F-1
Consolidated balance sheets at
September 30, 1997 (unaudited) and December 31, 1996 F-2 - F-3
Consolidated statements of operations for the nine months
ended September 30, 1997 and 1996 (unaudited) and
for the years ended December 31, 1996 and 1995 F-4
Consolidated statements of stockholders' equity
for the nine months ended September 30, 1997
(unaudited) and for the years ended
December 31, 1996 and 1995 F-5 - F-6
Consolidated statements of cash flows for the
nine months ended September 30, 1997 and 1996
(unaudited) and for the years ended
December 31, 1996 and 1995 F-7 - F-8
Notes to consolidated financial statements F-9 - F-29
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NeuroCorp, Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheet of NeuroCorp,
Ltd. and Subsidiaries (the "Company") as of December 31, 1996 and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1996 and 1995. 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 the Company as of December 31, 1996, and
the results of its operations and cash flows for the years ended December
31, 1996 and 1995 in conformity with generally accepted accounting
principles.
Scarano & Tomaro, P.C.
Syosset, New York
March 8, 1997, except for Note 10f
as to which the date is March 12, 1997
and Note 10h as to which the date
is March 26, 1997
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1997 December 31, 1996
Current assets:
<S> <C> <C>
Cash $ 314,952 $ 1,851,114
Accounts receivable, net of allowance for
doubtful accounts of $24,301 at September 30, 1997 and
$468,000 at December 31, 1996 909,153 550,163
Inventory 95,448 29,356
Prepaid expenses and taxes 74,034 36,982
Deferred financing costs - 53,516
Other current assets 62,632 84,445
------------ -----------
Total current assets 1,456,219 2,605,576
------------ -----------
Equipment and fixtures, net 173,383 83,549
------------ -----------
Other assets:
Database development costs, net 1,248,275 1,264,018
Computer system product development costs, net 403,047 496,518
Deferred registration costs 114,035 -
Other 280,071 130,703
------------ -----------
Total other assets 2,045,428 1,891,239
------------ -----------
Total assets $ 3,675,030 $ 4,580,364
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 172,890 $ 166,232
Accrued expenses 169,695 176,503
Stockholder notes and loans payable 106,506 858,687
Income taxes payable 2,004 6,400
Current portion of long-term debt - 38,715
Billings in excess of costs and estimated earnings
on uncompleted contracts 83,080 276,426
------------ -----------
Total current liabilities 534,175 1,522,963
------------ -----------
See accompanying notes to consolidated financial statements
(Unaudited)
September 30, 1997 December 31, 1996
Long-term liabilities:
Stockholder notes and loans payable 650,000 -
Long-term debt - 15,502
Deferred income taxes 264,000 264,000
------------ -----------
Total liabilities 1,448,175 1,802,465
------------ -----------
Commitments and contingencies (Note 11) - -
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 $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 8,173,806 and 7,723,806 issued and
outstanding, respectively 47,374 46,924
Less: discount on common stock (28,500) (28,500)
Additional paid-in capital 3,847,037 3,246,987
Contributed capital 100,000 100,000
Accumulated deficit (2,139,056) (987,512)
------------- ------------
Total stockholders' equity 2,226,855 2,777,899
------------ -----------
Total liabilities and stockholders' equity $ 3,675,030 $ 4,580,364
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
For the Nine Months For the Years Ended
ended September 30, December 31,
1997 1996 1996 1995
-------- -------- ------ -------
<S> <C> <C> <C> <C>
Net sales $ 1,026,431 $ 985,715 $ 1,068,891 $ 1,543,363
Cost of sales, including amortization
expense of $204,591 and $135,900 for
the nine months ended September 30,
1997 and 1996, respectively and
$264,790 and $179,308 for the years
ended December 31, 1996 and 1995,
respectively 466,166 488,633 706,579 637,746
--------- -------- ---------- --------
Gross profit 560,265 497,082 362,312 905,617
Expenses:
General and administrative expenses 1,553,296 811,403 1,249,022 1,013,233
Research and development 88,917 71,235 98,018 181,512
Bad debt expense - - 440,000 -
-------- ------- --------- -------
Total expenses 1,642,213 882,638 1,787,040 1,194,745
--------- -------- --------- ---------
Loss from operations before other
income (expense)
and income tax benefit (1,081,948) (385,556) (1,424,728) (289,128)
Other income (expense):
Cumulative effect of change of
accounting estimate - (182,235) (125,745) -
Interest income 27,128 8,527 10,302 11,760
Interest expense (85,474) (79,938) (126,793) (45,986)
Gain on sale of asset - - - 31,280
--------- ---------- ---------- -----------
Loss before income tax benefit $(1,140,294) $ (639,202) $ (1,666,964) $ (292,074)
Income tax (expense) benefit - - 32,289 29,580
----------- ------------ ----------- ------------
Net loss $(1,140,294) $ (639,202) $ (1,634,675) $ (262,494)
========== =========== ============ ============
Net loss applicable to common shares $(1,151,544) $ (650,452) $ (1,649,675) $ (262,494)
=========== ============ ============= ============
Loss per common equivalent share:
Primary:
Loss before income tax benefit $ (.14) $(.09) $ (.24) $ (.06)
Income tax (expense) benefit - - .01 .01
----------- ------ ------ --------
Net loss $ (.14) $(.09) $ (.23) $ (.05)
=========== ===== ====== ========
Net loss applicable to common shares $ (.14) $(.10) $ (.24) $ (.05)
=========== ===== ====== ========
Weighted average number of shares outstanding 8,068,250 6,924,548 7,002,279 5,484,586
=========== ============ ========= ==========
See accompanying notes to consolidated financial statements
</TABLE>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Class B
Series 1 Series 2
Common Stock Retained Total
Additional Earnings Stock-
Shares Amount Paid-in Contributed (Accumulated holders'
Shares Amount Shares Amount Capital Capital Deficit) Equity
------ ------ ------- ------ ------- ------- -------- -----
<S> <C> <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 - $ 924,657 $1,602,880
Sale of common stock - - - - 57,143 57 99,943 - - 100,000
Issuance of common
stock in connection
with loan - - - - 49,998 50 14,011 - - 14,061
Cancellation of
common stock
contributed by
shareholder - - - - (400,000) (400) (99,600) 100,000 - -
Sale of common stock - - - - 1,000,000 1,000 249,000 - - 250,000
Issuance of stock
option in
consideration for
compensation and
consulting fees - - - - - - 66,875 - - 66,875
Capital contribution
in connection with
waived Chairman's
compensation - - - - - - 146,347 - - 146,347
Net loss for the
year ended December
31, 1995 - - - - - - - - (262,494) (262,494)
-------- --------- -------- -------- --------- ---------- -------- ------- --------- ---------
Balance at December
31, 1995 150,000 150,000 250,000 250,000 6,107,141 16,807 738,699 100,000 662,163 1,917,669
</TABLE>
See accompanying notes to consolidated financial statements
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Class B
Series 1 Series 2
Common Stock Retained Total
Additional Earnings Stock-
Shares Amount Paid-in Contributed (Accumulated holders'
Shares Amount Shares Amount Capital Capital Deficit) Equity
------ ------ ------- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1995 150,000 $150,000 250,000 $250,000 6,107,141 $16,807 $ 738,699 $100,000 $662,163 $1,917,669
Sale of common stock - - - - 1,000,000 1,000 399,000 - - 400,000
Costs associated
with SB2
registration
statement - - - - - - (25,046) - (25,046)
Issuance of 66,666
shares of common
stock in lieu of
financing cost - - - - 66,665 67 133,266 - - 133,333
Accrued preferred
stock dividend - - - - - - - - (15,000) (15,000)
Sale of common stock 550,000 550 2,001,068 2,001,618
Net loss for the
year ended December
31, 1996 - - - - - - (1,634,675) (1,634,675)
--------- --------- ------ -------- -------- ------- ----------- ------- ----------- -----------
Balances at December
31, 1996 150,000 $150,000 250,000 $250,000 7,723,806 $18,424 $3,246,987 $100,000 $(987,512) $2,777,899
Accrued preferred
stock dividend - - - - - - - - (11,250) (11,250)
Issuance of common
stock in connection
with exercise of
warrants 400,000 400 599,600 - - 600,000
Issuance of common
stock in connection
with exercise of
stock option - - - - 50,000 50 450 - - 500
Net loss for the
nine months ended
September 30, 1997 (1,140,294) (1,140,294)
---------- -------- -------- -------- ---------- ------- ---------- -------- ---------- -----------
Balances at
September 30, 1997 150,000 $150,000 250,000 $250,000 8,173,806 $18,874 $3,847,037 $100,000 (2,139,056) 2,226,855
======= ======= ======= ======= ========= ====== ========= ======= ========== =========
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
NEUROCORP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended For the Years Ended
September 30, December 31,
1997 1996 1996 1995
-------- -------- ------ ----
Cash flows for operating activities:
<S> <C> <C> <C> <C>
Net loss from operations $(1,140,294) $(639,202) $ (1,634,675) $ (262,494)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Depreciation and amortization 235,329 160,311 300,630 230,546
Change in allowance for doubtful accounts - - 428,080 7,245
Amortization of deferred financing costs 53,516 46,485 79,818 -
Cumulative effect of change in accounting estimate - 182,235 125,745 -
Compensation in lieu of capital contribution - - - 146,347
Stock options issued in lieu of expenses - - - 80,936
Deferred income taxes - - (45,000) 12,000
Interest expense - - - 9,278
Gain on disposal of vehicle - - - (31,280)
Reclassification of net equipment to operations - - - 9,175
Decrease (increase) in:
Accounts receivable (358,990) (471,009) (258,323) (568,798)
Due from affiliates - - 85,673 62,527
Inventory (66,092) (4,898) 629 (11,592)
Prepaid expenses and taxes (37,052) 19,286 (66,234) 23,768
Other current assets 21,813 16,369 - -
Cost and estimated earnings in excess
of billings on uncompleted contracts - - 26,954 121,341
Increase (decrease) in:
Accounts payable 6,658 54,850 13,767 (55,429)
Accrued expenses (6,808) 5,409 (30,046) 60,087
Income taxes payable (4,396) (6,997) (1,893) (83,573)
Customer deposits - - 2,400 1,930
Billings in excess of costs and
estimated earnings on uncompleted
contracts (193,346) (26,960) 75,093 (412,666)
--------- -------- --------- --------
Net cash flows used for operating activities (1,489,662) (664,121) (897,382) (660,652)
---------- -------- ---------- --------
Cash flows for investing activities:
Purchase of equipment and fixtures (132,983) (28,365) (36,056) (47,955)
Database development costs capitalized (95,376) (71,682) (91,913) (60,478)
Patent cost capitalized - (2,150) (2,150) (5,380)
Computer system development costs capitalized - (2,277) (2,276) (138,635)
Other assets (149,368) - - -
Proceeds from sale of automobile 1,660 - - -
Proceeds from insurance on vehicle - - - 34,271
-------- ------- -------- --------
Net cash flows used for investing activities (376,067) (104,474) (132,395) (218,177)
--------- -------- --------- --------
Cash flows from financing activities:
Employee loans and advances - (2,800) - -
Proceeds from long-term debt - - - 30,778
Proceeds from loans - - - 90,334
(Repayments to) proceeds from demand note -line of credit - (50,000) (50,000) 50,000
Repayment of stockholders loans (102,181) (96,520) (46,694) (79,000)
Proceeds from stockholders loans - 575,000 525,000 312,674
Principal payments on long-term debt (54,217) (54,068) (64,506) (71,943)
Offering/registration costs incurred (114,035) (25,046) (25,046) -
Proceeds from exercise of warrants and
sale of common stock 600,000 400,000 2,401,618 350,000
------- ---------- --------- -------
Net cash flows provided by financing activities 329,567 746,566 2,740,372 682,843
------- -------- --------- --------
Net (decrease) increase in cash (1,536,162) (22,029) 1,710,595 (195,986)
Cash at beginning of period 1,851,114 140,519 140,519 336,505
--------- -------- --------- --------
Cash at end of period $ 314,952 $118,490 $1,851,114 $140,519
========= ======== ========== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 23,413 $ 11,691 $ 17,197 $ 16,322
========= ======== ========= ========
Income taxes $ - $ 8,526 $ 12,508 $ 3,508
========= ======== ========= ========
Schedule of non-cash investing and financing activities:
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 66,666 shares of restricted
common stock in connection with financing
costs associated with a loan $ - $133,333 $133,333 $ -
======== ======== ======== ========
Accrued dividends on Series 1 preferred stock $ 11,250 $ 11,250 $ 15,000 $ -
========= ======== ======== =======
Liquidation of loan in exchange for automobile $ 22,703 $ - $ - $ -
========= ======= ======== =======
See accompanying notes to consolidated financial statements
</TABLE>
NEUROCORP. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended
September 30, 1997 and 1996 is unaudited
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
give effect 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 is primarily involved in two business: it
performs contract medical research for health agencies,
research organizations and pharmaceutical companies, and it
owns, operates or manages a group of facilities that
diagnose and treat memory disorders. In addition, as an
outgrowth of its research activities, the Company also
designs diagnostic testing software and equipment for
neuropsychiatric applications and the Company performs
neurological testing services for hospital and physicians.
The Company conducts these activities through two
wholly-owned subsidiaries, HZI and Telemap, Inc.
("Telemap"). In November 1994, the Company acquired all of
the issued and outstanding shares of HZI. HZI conducts
contract research, designs diagnostic software and equipment
and performs neurological testing services. In March 1996,
the Company established a wholly-owned subsidiary, Memory
Centers of America, Inc., a Delaware corporation ("MCAI").
MCAI provides therapeutic services to people who suffer from
memory impairment. MCAI owns and operates a network of pilot
facilities, Memory CentersTM, which treat memory disorders.
MCAI began full operation of the pilot program at the end of
the second quarter of 1996. Each facility is estimated to
cost between $150,000 to $200,000 for equipment, leasehold
improvements and working capital which includes
administration costs. Revenues from this wholly-owned
subsidiary are considered insignificant for the nine months
ended September 30, 1997.
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 11(b) for additional information.
During the second quarter of 1997, the Company created a new
division within Neuro Corp. Ltd., called Tele-Neuro
Psychiatry ("TNP"). The TNP division will be responsible for
marketing Tele-Neuro Psychiatric systems which are based on
the Company's proprietary software and hardware equipment.
The TNP system will provide data communication with off-site
experts. Furthermore, the Company believes the new TNP
system will be useful for enhancing quality controls in
research programs. The Company is currently utilizing TNP
systems at two MCAI pilot centers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation
The consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiaries, HZI, MCAI and TeleMap. The consolidated
financial statements also include the accounts of New
York Institute for Medical Research, Inc. ("NYI").
NYI is a not-for profit entity, and as such, no
direct ownership interest exists by the Company. The
Company has elected to consolidate NYI in its
financial statements since shareholders and officers
of the Company also are the controlling members of
the board of NYI. All significant intercompany
transactions have been eliminated in consolidation.
b) Basis of presentation - Nine months ended
September 30, 1997 and 1996
The unaudited interim financial statements for the
nine months ended September 30, 1997 and 1996
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 are not necessarily indicative of the
results for the full year.
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 seventeen (17) years.
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. The Company's policy was to amortize such
costs over an estimated useful life of seventeen
years. Effective January 1, 1996, the Company revised
its estimated useful life for computer system product
development costs from seventeen (17) years to seven
(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 amounted to $125,745 for the year ended
December 31, 1996 and is included in the statement of
operations.
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) Income taxes
Effective for the year ended December 31, 1992, the
Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which requires the use
of the "liability method" of accounting for income
taxes. Accordingly, deferred tax liabilities and
assets are determined based on the difference between
the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for
the year in which the differences are expected to
reverse. Current income taxes are based on the
respective periods' taxable income for Federal, State
and City income tax reporting purposes.
i) Revenue recognition
The Company recognizes revenue and costs from its
contracts under the percentage of completion method.
Cost of revenues include all direct material and
labor costs and those indirect costs related to
contract performance. General and administrative
expenses are accounted for as period costs and are,
therefore, not included in the calculation of the
estimates to complete contracts in progress. Changes
in each contracts' performance, conditions and
estimated profitability including those arising from
contract penalty provisions, and final contract
settlements may result in revisions to costs and
income and are recognized in the period in which the
revisions are determined. In addition, losses are
recognized in full when determinable. The liability,
"Billings in excess of contract revenues on
uncompleted contracts", represent billings in excess
of revenues recognized.
Revenue from computer system sales, which include
BFM, are recognized upon the delivery of the turnkey
systems. All other service revenues are recognized as
they are rendered on the accrual basis of accounting.
j) Net loss per common share
Net loss per common share is computed based on 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.
k) 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.
l) Research and development costs
Research and development costs are charged to
operations when incurred.
m) 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.
n) Impact of recently issued accounting standards
In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", which requires impairment losses to be
recorded on long-lived assets used in operations when
indicators of impairment are present and the
undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying
amount. Statement 121 also addresses the accounting
for 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.
o) Accounting for stock-based compensation
The Company has elected earlier adoption of Statement
of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", which
requires the recognition of compensation expense for
stock-based awards based upon the fair value of the
award at the grant date. The Company elected adoption
of Statement 123 effective January 1, 1995.
p) Fair value disclosure as of December 31, 1996
The carrying value of cash, accounts receivable,
accounts payable, 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.
NOTE 3 - EQUIPMENT AND FIXTURES, NET
Equipment and fixtures, net consists of the following at:
(Unaudited)
September 30, December 31,
1997 1996
------------ ---------
Furniture and fixtures $ 18,972 $ 9,009
Equipment 716,211 570,016
Vehicles 15,840 50,117
---------- --------
751,023 629,142
Less: accumulated depreciation (577,640) (545,593)
----------- ---------
$ 173,383 $ 83,549
========== ========
Depreciation expense amounted to $27,086 and $49,224 for the
years ended December 31, 1996 and 1995, respectively. For
the nine months ended September 30, 1997 and 1996,
depreciation expense amounted to $41,964 and $22,461,
respectively. Equipment and fixtures are pledged pursuant to
a note payable. (See Note 7).
NOTE 4 - DATABASE DEVELOPMENT COSTS, NET
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------ ---------
<S> <C> <C>
Balance, beginning of period $1,264,018 $ 1,312,346
Capitalized costs during the period 95,377 91,913
Amortization charged to
cost of revenues (111,120) (140,241)
Balance, end of period $1,248,275 $1,264,018
========== ==========
</TABLE>
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 at
December 31, 1996 and September 30, 1997.
NOTE 5 - COMPUTER SYSTEM PRODUCT DEVELOPMENT COSTS, NET
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------ ---------
<S> <C> <C>
Balance, beginning of period $ 496,518 $ 744,551
Capitalized costs during the period - 2,261
Amortization charged to cost of revenues (93,471) (124,549)
Cumulative effect of change in accounting
estimate - (125,745)
--------- ----------
Balance, end of period $ 403,047 $ 496,518
========== =========
</TABLE>
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. Effective January 1, 1996,
management revised its estimate of the recoverability of its
development costs from seventeen (17) years to seven (7)
years, resulting in the cumulative effect of change in
accounting estimate.
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consists of the following at:
(Unaudited)
September 30, December 31,
1997 1996
------------ ---------
Salary and related taxes $ 54,640 $ 71,334
Legal and accounting fees - 44,272
Dividends 26,250 15,000
Interest 62,061 36,659
Insurance - 9,238
Other 26,744 -
---------- --------
$ 169,695 $ 176,503
========== =========
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------ ---------
<S> <C> <C>
Note payable due in thirty-nine (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. $ - $ 31,289
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. - 22,928
Less: current portion - (38,715)
---------- ----------
Long-term portion $ - $ 15,502
========= =========
Long-term debt matures as follows:
</TABLE>
Year
ended
December 31,
1996
1997 $ 38,715
1998 8,134
1999 7,368
---------
$ 54,217
NOTE 8 - BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON
UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 499,806 $2,080,641
Estimated earnings 556,735 1,654,834
---------- ----------
1,056,541 3,735,475
Less: Billings to date (1,139,621) (4,011,901)
---------- ---------
Billing in excess of costs and estimated
earnings on uncompleted contracts $ (83,080) $ (276,426)
=========== ===========
</TABLE>
NOTE 9 - INCOME TAX BENEFIT
Income tax benefits are comprised of the following at:
December 31, December 31,
1996 1995
Current:
Federal $ - $ (30,703)
State 12,711 (10,877)
---------- -----------
$ 12,711 (41,580)
---------- -----------
Deferred:
Federal $ (45,000) $ 12,000
State - -
--------- ---------
(45,000) 12,000
---------- ----------
Total income tax benefits $ (32,289) $ (29,580)
========== ===========
A reconciliation of the income tax benefit on income per the
U.S. Federal statutory rate to the reported income tax
expense is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
U.S. Federal statutory rate applied to
pretax loss $ (566,800) $ (99,300)
State and local income taxes, net of federal
income tax benefit (97,400) (17,100)
Increase in valuation allowance 664,200 116,400
Current provision (benefit) for Federal
and State taxes 6,400 (41,580)
Prior year under accrual recorded
in current year 6,311 -
(Decrease) increase in deferred tax
liability (45,000) 12,000
----------- ----------
Total income tax (benefit) $ (32,289) $ (29,580)
=========== ===========
</TABLE>
The Company has adopted SFAS No. 109, "Accounting for Income
Taxes", effective for the year ended December 31, 1992.
Management has evaluated the effect of implementation and
has determined that there is no material impact on the
Company's financial position except for the effect of HZI's
capitalized database development and computer system product
development costs.
Income taxes are provided for the tax effects of
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes related
to differences between the financial and tax basis of assets
and liabilities for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the
future tax return consequences of these temporary
differences, which will either be taxable or deductible in
the year when the assets or liabilities are recovered or
settled.
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,
1996
Net operating loss carry forwards $ 212,250
Valuation allowance (212,250)
------------
Long-term portion of deferred tax assets $ 0
===========
The tax effect of significant items comprising the Company's
deferred tax liability are as follows:
December 31,
1996
Database development costs $ 189,546
Computer system product development costs 74,454
-----------
Long-term portion of deferred tax liability $ 264,000
===========
The Company and HZI file a consolidated tax return. MCAI and
TeleMap do not file a consolidated tax return. As such, each
company or group of companies computes its tax based on its
own taxable income or loss. Further, NYI has a tax year
ending on September 30. For income tax purposes, NYI is
considered a for-profit corporation and accordingly files
its own income tax return.
At December 31, 1996, the Company has a net operating loss
carry forwards (NOL's) of approximately $1,090,000. The
Company has recorded a full valuation allowance against the
deferred tax asset at December 31, 1996 pursuant to SFAS
109, since management could not determine that it was "more
likely than not" that the deferred asset would be realized
in the future.
A portion of the Company's NOL's are subject to the
provisions of the Tax Reform Act of 1986 which limits use of
net operating loss carryforwards when changes of ownership
of more than 50% occur during a nine 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
10(g).
HZI has a tax credit carry forward 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 carry forward
period is allowed as a deduction in the year following the
expiration of the carry forward period.
With respect to the total carryforwards of NOL's and tax
credits said amounts expire between the years 2003 and 2011.
NOTE 10 - STOCKHOLDERS' EQUITY
a) Amendment to Certificate of Incorporation
In connection with the reverse acquisition of HZI (See Note
10(g)), 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.
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 10(e) 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 10(g), 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 were to expire 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 SEC wherein the Company will register the Warrants
and the shares of Common Stock underlying the Warrants.
However, until such time as said registration statement is
filed and becomes effective, the Warrants will not be
exercisable. The number of shares underlying the Warrants,
and the exercise price of the Warrants, may be adjusted
downward or upward at any time by the Company's Board of
Directors. Further, the Warrants are redeemable by the
Company at any time upon thirty days written notice, at a
price of $.001 per Warrant.
In January 1996, the Company's Board of Directors reduced
the exercise price of the Class B and Class C warrants from
$2.25 to $1.00 per share and from $2.75 to $2.00 per share,
respectively and the expiration dates were extended to
December 31, 1997. As described in Note 10(m), in February
1996, the Company filed a registration statement in order to
register such warrants. On March 12, 1997, two (2)
shareholders exercised in the aggregate 200,000 Class B
Warrants and 200,000 Class C Warrants, which resulted in the
Company receiving proceeds of $600,000 and issuing 400,000
shares of common stock (See Note 14(a) for additional
information).
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 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 ("Trinity")
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 Trinity contributed $400,000 to the
Company's capital account with no further issuance of common
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. 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
on the average closing bid price of the stock 30 consecutive
days prior to the date the dividend becomes payable. At
September 30, 1997 and December 31, 1996, the Company had
accrued cumulative dividends of $26,250 and $15,000,
respectively 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.
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 September 30, 1996 that one (1) share of
preferred stock can be converted into two (2) shares of
common stock. After September 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,
1997 and December 31, 1996, neither Trinity nor the Company
have exercised these conversion features (See Note 14(b) for
additional information).
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 stock option to purchase 250,000 shares
of common stock at an exercise 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.
On December 15, 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
March 26, 1997, the consultant exercised the stock option
and, the Company issued 50,000 shares of restricted common
stock pursuant to the terms of the oral stock option
agreement.
On December 18, 1996, the Company granted qualified stock
options to MCAI's CEO and President, and an Executive
Vice-President of the Company for the purchase of 500,000
shares of common stock exercisable at the lower of $7.00 per
share or fair market value. The options are exercisable upon
vesting and expire January 6, 2007. 200,000 of such options
vest on January 6, 1997, and the remaining 300,000 options
vest 50% on January 6, 1998 and 50% on January 6, 1999.
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 Trinity, for a purchase price
of $40,000. Such shares were transferred to Trinity
immediately upon the completion of the Company's acquisition
of HZI. Further, Trinity 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.
Trinity has the right, on one occasion, to demand that the
Company file a registration statement, at Trinity's expense,
as to all of the shares of the Company's common stock held
by Trinity.
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 loans
(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
Trinity 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.
Trinity 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. As additional consideration for the
$100,000 loan, the Company agreed to issue 49,998
shares of restricted common stock to Trinity. 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
Trinity the option to convert said loans into 550,000
shares of common stock (See Note 14(b) for additional
information).
On September 13, 1996 the Company borrowed from
Trinity $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
Trinity 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.
Subsequent to December 31, 1996, the above loans were
extended to December 31, 1998 with a revised interest
rate of 5% per annum. Accordingly, as of September
30, 1997, such loans have been reclassified as long
term.
(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 10(f)), 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 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 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 12(c). Further,
the Company has agreed to register said shares. (See
Note 10(m)). During June 1997, the original maturity
date of May 24, 1997 was extended to December 15,
1998. Accordingly as of September 30, 1997, such
loans have been classified as long term.
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 investors
unrelated to the Company 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 canceled by the Company. The
Company has accounted for this as a $100,000 contribution of
capital based upon the fair market 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 the costs
related to the registration. These costs have been deferred
and will be charged to additional paid in capital upon the
successful completion of the registration.
n) Chairman's capital contribution
As discussed in Note 11(c)(i) the Company's Chairman waived
$146,347 of his base annual salary for the year ended
December 31, 1995. Said amount was recorded as an
administrative expense and as an increase to additional
paid-in-capital for the year ended December 31, 1995.
o) Sale of common stock
During December 1996, the Company sold 550,000 units for
$2,001,068 pursuant to a private placement memorandum to
unrelated parties. Each unit is comprised of one (1) share
of common stock and two (2) stock purchase warrants. Each
warrant entitles the holder to purchase one (1) share of
common stock at $8.00 per share until August 31, 1997,
thereafter $10 per share. The warrants expire August 31,
1998.
NOTE 11 - 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,
1996 is as follows:
Year ended December 31,
1997 $ 92,557
1998 77,868
-----------
$ 170,425
Rent expense under all operating leases for the years ended
December 31, 1996 and 1995 was $145,369 and $202,755,
respectively. For the nine months ended September 30, 1997
and 1996, rent expense amounted to $94,680 and $91,811,
respectively.
b) Concentration of credit risk
For the years ended December 31, 1996 and 1995,
approximately 63% and 42%, respectively, of net sales were
derived from two unrelated customers, who are in the
pharmaceutical industry. For the nine months ended September
30, 1997 and 1996, approximately 44% and 62%, respectively,
of net sales were derived from three and two unrelated
customers, respectively, who are in the pharmaceutical
industry. As of September 30, 1997 and December 31, 1996,
approximately 54% and 61%, respectively, of accounts
receivable is due from three and two unrelated customers,
respectively.
c) Employment Agreements
i) 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 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 years ended December 31, 1996 and
1995, and the nine months ended September 30, 1996,
the Company's Chairman waived his right to receive
the term life insurance as provided for in the
employment agreement. During the nine months ended
September 30, 1997, the Company purchased life
insurance in accordance with the September 20, 1995
employment agreement. The Company has estimated the
annual cost for the initial policy year to be
$20,000.
For the year ended December 31, 1995 the Company's
Chairman waived $146,347, of his base annual salary.
Said salary amount was recorded as an administrative
expense and as an increase to additional
paid-in-capital.
(See Note 10(n)).
ii) On December 7, 1994, the Company entered into an
employment agreement with an 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) times his gross
annual compensation, in effect at date of
termination. Additionally, for the nine 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.
iii) On December 31, 1996, the Company entered into an
employment agreement with its Chief Financial Officer
providing for a base salary of $85,000 per year. The
agreement expires on January 1, 2000 and is renewable
on a year to year basis thereafter.
iv) On December 18, 1996, the Company and MCAI entered
into an employment agreement with the CEO and
President of MCAI and an Executive Vice President of
the Company providing for a base salary of $150,000
in year one, $225,000 in year two and increasing by
the Consumer Price Index ("CPI") change each year
thereafter. The agreement expires on January 1, 2000
and is renewable on a year to year basis thereafter.
The agreement provides for 500,000 qualified stock
options for purchase of common stock exercisable at
the lower of $7.00 per share or fair market value.
The options are exercisable upon vesting and expire
January 6, 2007. On January 6, 1997, 200,000 of such
options vest and 150,000 options each vest on January
6, 1998 and 1999.
d) Consulting agreement
On July 1, 1995, the Company entered into a five (5) year
consulting agreement with an entity controlled by the
Company's former President and Vice Chairman. Said agreement
provided for a fee of $75,000 per annum. The agreement was
amended on July 12, 1996 to provide for a reduced fee of
$30,000 per annum
NOTE 12 - RELATED PARTY TRANSACTIONS
a) Revenues from affiliates
The Company charges NYI, as well as Manhattan Westchester
Medical Services, P.C. ("Manhattan Westchester") for the use
of certain employees and office and laboratory space
(administration services) of the Company. Manhattan
Westchester is also under the common control of the
Company's Chairman. Net revenues from these affiliates for
the year ended December 31, 1996 and 1995 amounted to
$65,782 and $186,123, respectively. For the nine months
ended September 30, 1997 and 1996, net revenues from these
affiliates amounted to $23,803 and $24,361, 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 shareholders', 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.
During 1994 HZI and Manhattan Westchester entered into an
arrangement whereby Manhattan Westchester would provide
medical consulting services to HZI's TeleMap business. This
arrangement was suspended during 1995 and reactivated during
1996. Services provided by Manhattan Westchester to HZI for
the year ended December 31, 1996 and 1995 amounted to
approximately $14,000 and $15,400, respectively. No such
services were provided to HZI during the nine months ended
September 30, 1997.
c) Stockholder notes and loans payable
Stockholder notes and loans payable consisted of the
following at:
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------ ---------
<S> <C> <C>
Non-interest bearing loans and payables, except
for $20,000 which bears interest at 10% per
annum (See (i) below) $ 106,506 $ 108,687
Notes payable bearing an interest of
5% to 9% (See (ii) and (iii) below) 450,000 550,000
Non-interest bearing loan payable
(See (iv) below) 200,000 200,000
---------- ----------
$ 756,506 $ 858,687
========== ==========
i) Stockholder loans payable relates to advances made to
HZI and NYI by its Chairman of the Board which are
due on demand. Furthermore, pursuant to the terms of
the note dated January 30, 1996 amounting to $20,000,
said note can be converted into 40,000 shares of
common stock (See Note 14b).
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
Trinity 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.
Trinity 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
their entirety 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 Trinity. 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 Trinity the option to
convert said loans into 550,000 shares of common
stock (See Note 14(b) for additional information).
On November 16, 1995, the Company entered into a
letter agreement with SRS Partners, a partnership
that is affiliated with Trinity to borrow $25,000.
The loan bears interest at a rate of 9% and is due
within six months or out of the proceeds of the first
funding of a Reg. "S" transaction.
On September 13, 1996 the Company borrowed from
Trinity $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
Trinity the option to convert each $4.00 of debt into
one (1) unit. Trinity 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 their entirety.
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.
Subsequent to year end, the maturity dates on the
above notes were extended to December 31, 1998 with a
revised interest rate of 5% per annum. Accordingly,
as of September 30, 1997, such amounts have been
classified as long term (See Note 14(b)).
iii) On July 16, 1996 the Company entered into two loan
agreements amounting to $200,000 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 the proceeds of the Company's
securities including the exercise of Class B and C
Warrants. On April 30, 1997 the Company liquidated
one loan obligation amounting to $100,000 and
extended the second loan maturity date to December
15, 1998.
iv) 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 on the
earlier of one (1) year from May 24, 1996 or out of
the first proceeds resulting from any exercise of
outstanding Class B and Class C warrants, (See Note
10(f)) whichever comes first. As additional
consideration the Company issued 66,666 shares of
restricted common stock. The Company issued and has
valued the common stock at $133,333 or fifty percent
(50%) of the fair 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. During June 1997, the original maturity date of
the May 24, 1997 was extended to December 15, 1998.
Accordingly, as of September 30, 1997, such loans
have been classified as long term. For the year ended
December 31, 1996, amortization expense amounted to
$79,417. For the nine months ended September 30, 1997
and 1996, amortization expense amounted to $53,515
and $44,444, respectively. Further, the Company
agreed to register said shares. (See Note 10(m)).
v) At September 30, 1997 and December 31, 1996, accrued
interest related to such notes and loans amounted to
$62,061 and $36,376, respectively, and is included in
accrued expenses.
d) Shareholder transactions
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. As of September 30, 1997 and
December 31, 1996 such options have not been exercised.
e) Consulting agreement
On July 1, 1995, the Company entered into a five (5) year
consulting agreement with an entity controlled by the
Company's former President and Vice Chairman. Said agreement
provided for a fee of $75,000 per annum. The agreement was
amended on July 12, 1996 to provide for a reduced fee of
$30,000 per annum.
f) 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 canceled
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 10(m)).
g) Due from affiliates
The Company charges Manhattan Westchester for the use of
certain employees, laboratory space and management fees
related to MCAI's services. Manhattan Westchester is under
the common control of the Company's Chairman. At September
30, 1997 and December 31, 1996, amounts due from Manhattan
Westchester principally for management and administrative
services amounted to $13,764 and $33,495, respectively,
which have been included in other current assets.
h) Chairman's capital contribution
As discussed in Note 10(n) 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 a capital contribution for the
year ended December 31, 1995 with an increase to additional
paid-in-capital.
NOTE 13 SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in a single industry segment
which is comprised of contract medical research and the
operation and management of facilities which diagnose and
treat memory disorders utilizing the Company's proprietary
database and software. The Company has no foreign
operations. The Company included in net sales during the
years ended December 31, 1996 and 1995, sales to
unaffiliated customers in foreign countries ("export sales")
of $771,803 and $831,657, respectively. These sales were not
concentrated in any specific geographic area.
NOTE 14 - SUBSEQUENT EVENTS
a) Exercise of warrants
During October 1997, the Company received $600,000 of
capital in connection with the exercise of 300,000 Class B
and 150,000 Class C Warrants as described in Note 10(f).
Accordingly, in connection with such exercise, the Company
issued 450,000 shares of common stock.
b) Issuance of common stock
During November 1997, the Board of Directors approved a
related party transaction whereby debt and related accrued
interest totaling $399,217 and convertible preferred stock,
Class B, Series 2 and related accrued dividends totaling
$277,500 owed to certain shareholders were converted into
650,000 shares of common stock.
Lastly, during November 1997, the Company's chairman
converted $20,000 of advances made to the Company into
40,000 shares of restricted common stock with registration
rights, as discussed in Note 12(c)(i).
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, as the same shall be amended and supplemented, the Company shall,
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. 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 actions taken in any
capacity in which he or she served at the request of the Company.
Item 25. Other Expenses of Issuance and Distribution
The Company estimates that it will incur the following expenses:
SEC Registration Fees $2,014*
Accounting fees 75,561
Legal Fees 200,000
Printing, Engraving & Mailing 15,000
Transfer agent & Registrar's fees 2,500
Blue Sky fees and expenses 2,500
Miscellaneous expenses 2,425
TOTAL $ 300,000
* Actual
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.
On October 25, 1994, the Company issued to Trinity 120,000 shares of the
Company's Common Stock in consideration of Trinity's identifying 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 LeBars, 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, 250,000 shares are designated Class B, Series 2. Five (5) shares of
Class B, Series 2 Preferred Stock are convertible 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.*
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.*
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.
In May 1996, the Company issued 66,666 shares to Elvena, Inc., a
shareholder of the Company in consideration of a $200,000 loan to the
Company.*
In June 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.
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 Eleonore 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 550,000 Units for an
aggregate of $2,001,068 ($3.64 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 1,100,060 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.*
In March 1997, Lancer Partners, L.P. and Lancer Offshore, Inc.
exercised an aggregate of 200,000 Class B and 200,000 Class C Warrants for
a total of $600,000 and for which the Company issued 400,000 shares of
Common Stock.*
In October 1997, the Company received $600,000 of capital in connection
with the exercise of Class B and C Warrants. Accordingly, in connection
with such exercise, the Company issued 450,000 shares of common stock.
In November 1997, Trinity released the Company from its obligationswith
respect to these loans including (i) $45,421 in accrued interest, (ii)
250,000 Class B, Series II Preferred Shares, and (iii) $27,500 in accrued
dividends on Preferred Stock. As consideration for being released from
these obligations, the Company, as instructed by Trinity, issued 640,000
shares of Common Stock to Lancer Partners.
In November 1997, SRS Partners released the Company from its obligations
under a note due to SRS Partners in the amount of $28,696.25, including
accrued interest. As consideration for being released from this obligation,
the Company, as instructed by SRS partners, issued 10,000 shares of Common
Stock to Lancer Partners.
In November 1997, the Company issued 40,000 shares of Common Stock to Dr.
Itil upon conversion of a loan made to the Company.
* 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 Securities 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 Securities
Act or any State securities laws, and are Restricted Securities as that term
is defined in Rule 144 under the Securities Act, that the securities may not
be offered for sale, sold or otherwise transferred within the United States
and except pursuant to an effective Registration Statement under the
Securities Act and any applicable State securities laws, or pursuant to any
exemption from registration under the Securities 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
(d) Form of December 1996 Warrant***
(5)(a) Opinion of James Morris Vernon, Esq., with respect to the
validity of the securities offered
(10)(a) Stock Option Plan****
(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 Aileen Kunitz
(d)(i) Lease Agreement for premises situated at 150 White Plains Road,
Tarrytown, New York***
(d)(ii) Lease Agreement for premises situated at 225 E. 64th Street,
New York, New York***
(e) Voting Trust Agreement
(f) Licensing Agreement between the Company and Mediator S.r.l.
(g) Joint Venture Agreement between the Company and Tena, Ltd.
(h)(i) Research Contract between the Company and Schwabe Company,
dated October 23, 1996****
(h)(ii) Research Contract between the Company and Hoechst-Roussel
Pharmaceuticals, Inc. dated April 12, 1995****
(h)(iii) Research Contract between the Company and Hoechst-Roussel
Pharmaceuticals, Inc. dated April 28, 1995****
(h)(iv) Research Contract between the Company and Boehringer
Ingelheim Pharmaceuticals, Inc., dated October 6, 1997****
(h)(v) Research Contract between New York Institute and Unimed
Pharmaceutical Incorporated, dated December 6, 1996.****
(i) Clinical Trial Agreement between New York Institute and
Ciba-Geigy Corporation, dated April 20, 1996.****
(j) Consulting Contract between the Company and Boehringer
Ingelheim Pharmaceuticals, Inc., dated October 6, 1997****
(k) Financing Documents between the Company, Trinity American
Corporation and Elvena, Inc.
(l) Form of Memory Center Management Agreement***
(24)(a) Consent of Scarano & Tamaro P.C.****
(b) Consent of Counsel (to be included in Exhibit 5(a)).
(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 28, 1987.
** incorporated by reference to the Company's Annual Report on Form
10-K forth the period ending September 30, 1994.
*** to be filed by amendment.
**** 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) Reflect in the Prospectus any facts or events which individually or
together, represent a fundamental change in the information in this
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, 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 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 Commission such indemnification is
against pubic policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
amendment to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the Village of Tarrytown, State
of New York on December 9, 1997.
NEUROCORP, LTD.
s/TURAN M. ITIL
Turan M. Itil,
Chairman, Chief Executive Officer
President, and Director
Date: December 9, 1997
In accordance with the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
s/TURAN M. ITIL s/I. RONALD HOROWITZ
Turan M. Itil I. Ronald Horowitz
Chairman, Chief Executive Officer, Director
President and Director (principal Date: December 9, 1997
executive officer)
Date: December 9, 1997
s/KURT Z. ITIL s/RICHARD KATZ
Kurt Z. Itil, Acting Chief Richard Katz, Director
Operating Officer and Director Date: December 9, 1997
Date: December 9, 1997
s/EVELYN SOMMER s/PIERRE LEBARS
Evelyn Sommer, Director Pierre LeBars, Executive
Date: December 9, 1997 Vice President and Director
Date: December 9, 1997
s/JOSEPH DIOGUARDI s/JONATHAN E. RAVEN
Joseph DioGuardi, Chief Financial Jonathan E. Raven, Director
Officer and Director (principal and Executive Vice President
financial officer) Date: December 9, 1997
Date: December 9, 1997
s/DONALD L. GIANATTASIO
Donald L. Giannattasio, Controller
(principal accounting officer)
Date: December 9, 1997
</TABLE>
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(H)(i)
AGREEMENT FOR COLLABORATIVE PROGRAM 1996-1997.
The basis of our further cooperation are included in the summary letter of
January 25, 1996 (Dr., Stumpf - Dr. Le Bars,) and in the letter of August
19, 1996 (Dr. K.P. Schwabe - Dr. T.M. Itil).
The main activity for further cooperation between Dr. Le Bars and Schwabe
Company is the monitoring and the completion of the
*******************-Study according to rules and regulations for a Good
Clinical Practice. In order to avoid any problems to achieve the goal, we
decided to take into account the previous; contracts and agreement related
to the study (Contractual Agreement for Therapy Resistant Depression
Program of June 22th 92, including respect of the study protocol and
addendum, data analysis, reporting; and sponsor ownership).
The remaining financial figures related to these agreements are as follow:
Fourth and final payment, ****************** Study ********** U$
letters Jan. 25th and Aug. 19th 1996 ********** U$
********** U$
There are at this time no further financial commitments between Schwabe
and HZI Therefore it was decided to use the above mentioned Budget for
the following activities in 1996 and 1997:
1. Study ******
1.1) Preparing for further publications 1996-1997 deeding with:
- Definition of clinical responders
- Correlation of clinical data with ***** and ****
- special statistical analyses for trend or estimated outcome
1.2) A final report of the study supporting the publication and
approved by Dr Le Bars will be submitted to Schwabe.
2. **************-Program
2.1) Preparation of an addendum to specify or update outcome
measures and statistical analyses of the study.
2.2) Monitoring the data entered in the CRF and update of the
computerized data if necessary.
2.3) Visit of centers, consolidation of different data and close out.
2.4) Analyses and Preparation of the final report.
2.5) submission and approval by WHO and investigators of final
report and agreement that all results belong to Schwabe in
accordance within HZI- SCHWABE June 22th 92 contract .
3. The discussions on future projects with **** could not provide
definite decisions on study to be performed particularly because
**** is still ongoing, at least as analysis, reporting and
publication are concerned, and because the **** program is not yet
completed at the date of this agreement. However, in order to
maintain opportunities for further collaboration, the following has
been agreed upon:
Within the frame of the future **** program ( with ****), Dr. Le
Bars will be a member of the advisory board. He will present, if
necessary in December, the Schwabe data to interested parties. In
addition Dr Le Bars will help Schwabe to take care of the
progression of the **** study.
Financial support will be allocated within the current 96-97 budget
to Dr. Le Bars shall be included in the future **** study as an
investigator center, as already mentioned in the August letter. The
amount of patients and the total cost of this participation will be
independent if the current budget and may follow the future study
figure and requirement.
The issues developed in the above chapter 3 will only come in force
when the study will be initiated and in this case, an extra contractual
agreement will be finalized (most likely within second semester of 97).
Budget for 1996/1997
Dr. Le Bars Involvement
********** U$ (no later than end of Oct. 1996)
Monitoring of ***** and *****
(2.1, 2.2, 2.3 and 1.1)
********* U$ after finishing ***** publication (1.1) and
submission of supportive data set as reported in (1.2).
********* U$ after completion of the ***** study enrollment and
If the monitoring of the data, respecting all points of
chapter 2, is satisfactory for Schwabe advisory
committee. If the clause is no longer applicable the
unused funds will be reallocated to future
collaborative work.
********** U$ at the submission to Schwabe of the **** deposition data
set, analysis and report of the study (2.4, 2.5)
HZI and Dr. Itil agreement
An advanced payment of ***** U$ will Immediately be paid to complete the
**** study enrollment and finalize the data collection.
In addition, ***** U$ will immediately be paid to cover the cost of the
addendum of the ***** study protocol and to initiate the conceptualization
and the drafting of a future ***** protocol. However these funds will be
paid at the one condition that the whole current agreement is approved,
dated and signed by Dr. Itil.
By signing and dating the current document all parties, represented by Dr.
T.M. Itil, Dr. P. Le Bars and Dr. H. Slumpf agree that any relevant
conditions specified in this document, come in modification of the
original contractual agreements, or projects included in previous letters
of intent.
Dr. H. Stump, date and signature: s/Dr. H.Stumpf October 23, 1996
Dr. P. Le Bars, date and signature: s/Dr. P. LeBars, October 23, 1996
Dr. T.M. Itil, date and signature: __________________________________
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(H)(ii)
<TABLE>
<CAPTION>
Hoechst-Roussel Pharmaceuticals Inc.
Route 202-206 ~ P.O. Box 2500 ~ Somerville, NJ 08876-1258
- -----------------------------------------------------------------------------------------------------
AGREEMENT FOR GRANT ASSISTANCE FOR CLINICAL INVESTIGATION PAGE 1 OF 2
- -----------------------------------------------------------------------------------------------------
NAME OR CODE NUMBER OF DRUG PROTOCOL NUMBER
******* ***
- -----------------------------------------------------------------------------------------------------
***********************************************************************************************
**************
- -----------------------------------------------------------------------------------------------------
SPONSOR PRINCIPAL INVESTIGATOR(S) MAKE CHECKS PAYABLE TO:
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Clinical Research Department NAME AND ADDRESS: NAME AND ADDRESS:
Hoechst-Roussel Pharmaceuticals Inc.
Route 202-206, P.O. Box 2500 Turan Itil, M.D. HZI Research Center Inc.
Sommerville, New Jersey 2HZI Research Center Inc. 150 White Plains Road
08876-1258 150 White Plains Road Tarrytown, NY 10591
By: F. Jacob Huff, M.D. Tarrytown, NY 10591
Medical Director
Clinical Neuroscince INVESTIGATOR NUMBER: 117 SOCIAL SECURITY OR FEDERAL
ID NUMBER: 13-2772841
- --------------------------------------------------------------- -------------------------------------
</TABLE>
The undersigned submits this state- Principal Investigator(s) also
ment as a condition for receiving agrees that he/she and appropriate
grant assistance for the study of ancillary staff will be available
the above named drug: for and assist with any and all
sponsor monitoring visits and spon-
1.A If payment is to be made to the sor or regulatory agency audits of
Principal Investigator(s) directly. investigator's study records and
The study will be conducted by the procedures, as part of the Agreement
undersigned in accordance with the for Grant Assistance for Clinical
plan of investigator described in Investigation.
the above-referenced protocol and
Detailed Cost Breakdown Per Subject. 5. Grant checks are to be made
No changes shall be made in the pro- payable by the Sponsor to the Prin-
tocol or Detailed Cost Breakdown cipal Investigator(s) or additional
except by mutual agreement in writ- Authorized Payee(s) and sent to the
ing between the Sponsor and Princi- addressee(s) listed above. The total
pal Investigator(s). grant may be paid by pre-determined
installments agreed to by both the
1.B If payment is to be made to an Sponsor and Principal Investiga-
Authorized Payee acting as an agent tor(s)
of Principal Investigator(s). The
undersigned Principal Investiga- 6. The Sponsor is required to file
tor(s) by executing page 1 of the an IRS From 1099 with the U.S. In-
Agreement for Grant Assistance for ternal Revenue Service for all pay-
Clinical Investigation agrees to ees. The Principal Investigator(s)
conduct the study in accordance with is, therefore, required to furnish
the plan of investigation and the the Sponsor with the Social Security
terms of the Detailed Cost Breakdown or Federal Identification Number for
Per Subject and authorizes the Spon- all payees.
sor to pay the Authorized Payee di-
rectly ail monies which are the sub- 7. Because of governmental regula-
ject of grant assistance. The Autho- tions concerning freedom of informa-
rized Payee, as agent of the Princi- tion, the following has been added
pal Investigator(s) by executing the to this agreement:
Detailed Cost Breakdown Per Subject
form agrees to disburse all monies Expect to the extent of prior public
received from the Sponsor,, in ac- disclosure by the Sponsor the Spon-
cordance therewith. The Principal sor regards the following matters
Investigator(s) and the Authorized pertaining to the study to be confi-
Payee. dential information: the nature of
the compound under investigation,
2. The Principal Investigator(s) the protocol, and all raw data with
is responsible for ensuring the respect to the safety and efficacy,
scheduled enrollment of subjects and of the compound. The Principal In-
for the recording of all observa- vestigator(s) agrees that such in-
tions and other pertinent data on formation will not be disclosed to
the case report forms to be supplied third parties except where autho-
by the Sponsor. All data relevant to rized by the Sponsor or where re-
the investigational plan shall be quired by law. Further, the Princi-
made available b the Sponsor on re- pal Investigator(s) agrees not to
quest. publish the results of the study
until the Sponsor has reviewed the
3. Both Sponsor and Principal In- Principal Investigator(s) s proposed
vestigator(s) agree to comply with publication manuscript.
all applicable government regula-
tions. 8. The Sponsor shall have the
right to terminate this study at any
4. The Principal Investigator(s) time effective upon written notifi-
understands that the results of the cation to the Principal Investiga-
study may be used by the Sponsor in tor(s). The Principal Investiga-
support of an application for new tor(s) agrees to return a prorated
drug approval. Therefore, upon com- portion of the grant based on the
pletion of the study, the Principal percent of the total patient popula-
Investigator(s) agrees to cooperate tion in the attached protocol not
with the Sponsor, upon request, in enrolled by reason of such termina-
the preparation and review of any tion. Sponsor agrees to reimburse
reports, including a final study the Principal Investigator(s) for
report of the results of the study reasonable costs incurred pursuant
and agrees to acknowledge same by to this agreement which have not
written signature. otherwise been reimbursed by the
Sponsor, provided that this reim-
bursement shall not be made if ter-
mination is based upon failure of
the Principal Investigator(s) to
adhere to the attached protocol or
to any other provisions of this
agreement.
- ------------------------------------------------------------------------------
SIGNATURE(S) OF PRINCIPAL INVESTIGATOR(S) DATE April 12,1995
s/Turan Itil, M.D.
- ------------------------------------------------------------------------------
SIGNATURE OF VICE PRESIDENT OF GROUP
BUSINESS DEVELOPMENT AND ADMINISTRATION DATE
Donald G. Whitcomb
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HOECHST-ROUSSEL PHARMACEUTICALS INC.
Route 202-206 ~ P.O. Box 2500 ~ Somerville, NJ 08876-1258
- ----------------------------------------------------------------------------------------------
DETAILED COST BREAKDOWN PER SUBJECT PAGE 2 OF 2
- ----------------------------------------------------------------------------------------------
NAME OR CODE NUMBER OF DRUG PROTOCOL NUMBER PRINCIPAL INVESTIGATOR(S) DATE OF REQUEST
******* *** Turan Itil, M.D.
- ---------------------------- ------------------ ------------------------------ ---------------
STUDY START DATE STUDY COMPLETION DATE NO. OF SUBJECTS (ACCORDING TO PROTOCOL)
MARCH 1995 MAY 1997 at least ** completed
- ------------------------- ------------------------- ------------------------------------------
- ----------------------------------------------------------------------------------------------
<S> <C>
1. CLINICAL COSTS - FEES FOR SERVICES (PER SUBJECT) $ ********
SPECIFY IN DETAIL
*********************************, **********************, ***************
- ----------------------------------------------------------------------------------------------
************ Exam (**************), *********** (*********) $ ******
- ----------------------------------------------------------------------------------------------
**************, **************, *************, ************** $ ******
- ----------------------------------------------------------------------------------------------
****************, **********************, *************, ************* $ ********
- ----------------------------------------------------------------------------------------------
2. LABORATORY TEST COSTS (PER SUBJECT)
SPECIFY IN DETAIL
************, **********, ************************************************* $ ******
- ----------------------------------------------------------------------------------------------
*************************** $ ******
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
3. ******************************** $ ******
- ----------------------------------------------------------------------------------------------
4. *********** (PER SUBJECT)
SPECIFY IN DETAIL
************** - if required $ *****
************** - if required $ ******
- ----------------------------------------------------------------------------------------------
5. *********** AND *********** COSTS (PER SUBJECT) $ ******
- ----------------------------------------------------------------------------------------------
6. OTHER COSTS (PER SUBJECT)
SPECIFY IN DETAIL
Recruitment, Screening/Attrition, Other Records Administration, Patient and $ ********
Caregiver Lunches, Patient Transport and Administrative Fee
- ----------------------------------------------------------------------------------------------
*** Processing $ *****
- ----------------------------------------------------------------------------------------------
******/******* ****** $ ********
- ----------------------------------------------------------------------------------------------
TOTAL COSTS PER SUBJECT $ *********
- ----------------------------------------------------------------------------------------------
TOTAL GRANT REQUEST (Total Cost Per Subject x Number of Subjects) $ **********
- ------------------------------------------------------------------------------ ---------------
SUBMITTED: MEDICAL DIRECTOR DATE SIGNATURE OF PRINCIPAL INVESTIGATOR(S) DATE
CLINICAL NEUROSCIENCE
s/F. Jacob Huff, M.D. March 11, 1995 s/Turan Itil, M.D. April 12, 1995
- ----------------------------------------------------------------------------------------------
APPROVED: VICE PRESIDENT GROUP BUSINESS
DEVELOPMENT AND ADMINISTRATION DATE
Donald G. Whitcomb
- ---------------------------------------------- ---------------------------------------------
COPIES TO: CRD CENTRAL FILES o FINANCE AND ACCOUNTING o SPONSOR o INVESTIGATOR
</TABLE>
HOECHST MARION ROUSSEL, INC.
Route 202-206 . P.O. Box 6800 . Bridgewater, NJ 08807-0800
Telephone (908) 231-2000
- -------------------------------------------------------------------------
Direct Dial (908) 231-3138
Fax: (908) 231-3324
June 14, 1996
Turan Itil, M.D.
HZI Research Center, Inc.
150 White Plains Road
Tarrytown, NY 10591
RE: ******************** AMENDMENT 5 - AGREEMENT FOR METHOD OF PAYMENT
Dear Dr. Itil:
By signing this letter and the attached schedule you agree to the method
of payment described below for this ******* study amendment for an
open-label extension of treatment.
Payments will be issued for work done on the basis of the number of
visits completed in the treatment extension period by each subject during
the interval following the previous payment. The table attached provides
the amount payable for each completed visit. Costs for prematurely
terminated patients will be paid on the basis of work done referring to
the unit costs in the attached table.
As indicated in the protocol, HMR reserves the option to discontinue the
study at your site at any time following initiation. In this event, HMR
would reimburse your site only for expenses incurred to that point.
We look forward to hearing from you.
With best regards,
s/Dr. Ralph J. Nash
Dr. Ralph J. Nash
Associate Director
Clinical Neuroscience
I accept the conditions of payment specified in this letter and the
attached table.
s/Dr. Turan Itil
Investigator's Signature Date
Note: Also sign attached table
<TABLE>
<CAPTION>
******************* AMENDMENT 5 METHOD OF PAYMENT SCHEDULE 6/13/96
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VISIT 20 21 22 23 24 25 26 27 28 29 30
PROCEDURE TOTAL
**** ** ** ** ** ** ***
*** ** **
*** ** **
**** ** **
*** ** **
**** *** ***
********** *** ***
**************** ** ** ** ** ** ** ** ***
******************* ** **
**************** ** ** ** ** ** ** ** **
*** ** ** ** ***
*********** ** ** ** ** ** ** ** ** ** ** ** ***
************** *** *** *** *** ***
********** *** *** *** *** ***
******************** ** ** ** ** ** ** ** ** ** ** ***
***** ** ** ** ** ** ** ** ** ** ** ** ****
************** ** **
******************** ** ** ** ** ** ** ** ** ** ** ** ***
TOTALS *** *** *** *** *** *** *** *** *** *** *** ****
- ----------------------- ----- ------ ------ ------ ------ ------ ----- ------ ------ ----- ------ -------
I ACCEPT THE METHOD OF PAYMENT DESCRIBED ABOVE. ___________________________________
SIGNATURE DATE
</TABLE>
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE FREEDOM OF INFORMATION ACT.
<TABLE>
<CAPTION>
EXHIBIT 10(H)(iii)
HOECHST-ROUSSEL PHARMACEUTICALS INC.
Route 202-206 ~ P.O. Box 2500 ~ Somerville, NJ 08876-1258
- --------------------------------------------------------------------------------------------
AGREEMENT FOR GRANT ASSISTANCE FOR CLINICAL INVESTIGATION PAGE 1 OF 2
- ---------------------------------------------------------------------------------------------
NAME OR CODE NUMBER OF DRUG PROTOCOL NUMBER
******* ***
- ---------------------------------------------- ----------------------------------------------
PROTOCOL TITLE
*********************************************************************** *********************
- ---------------------------------------------------------------------------------------------
SPONSOR PRINCIPAL INVESTIGATOR(S) MAKE CHECKS PAYABLE TO:
<S> <C> <C>
Clinical Research Department NAME AND ADDRESS: NAME AND ADDRESS:
Hoechst-Roussel Pharmaceuticals Inc.
Route 202-206, P.O. Box 2500 Turan Itil, M.D. HZI Research Center Inc.
Sommerville, New Jersey 08876-1258 HZI Research Center Inc. 150 White Plains Road
150 White Plains Road Tarrytown, NY 10591
By: F. Jacob Huff, M.D. Tarrytown, NY 10591
Medical Director
Clinical Neuroscince INVESTIGATOR NUMBER: 117 SOCIAL SECURITY OR FEDERAL
ID NUMBER: 13-2772841
- ------------------------------- ------------------------------- -----------------------------
</TABLE>
The undersigned submits this state- Principal Investigator(s) also
ment as a condition for receiving agrees that he/she and appropriate
grant assistance for the study of ancillary staff will be available
the above named drug: for and assist with any and all
sponsor monitoring visits and spon-
1.A If payment is to be made to the sor or regulatory agency audits of
Principal Investigator(s) directly. investigator's study records and
The study will be conducted by the procedures, as part of the Agreement
undersigned in accordance with the for Grant Assistance for Clinical
plan of investigator described in Investigation.
the above-referenced protocol and
Detailed Cost Breakdown Per Subject. 5. Grant checks are to be made
No changes shall be made in the pro- payable by the Sponsor to the Prin-
tocol or Detailed Cost Breakdown cipal Investigator(s) or additional
except by mutual agreement in writ- Authorized Payee(s) and sent to the
ing between the Sponsor and Princi- addressee(s) listed above. The to-
pal Investigator(s). tal grant may be paid by pre-deter-
mined installments agreed to by both
1.B If payment is to be made to an the Sponsor and Principal Investiga-
Authorized Payee acting as an agent tor(s)
of Principal Investigator(s). The
undersigned Principal Investiga- 6. The Sponsor is required to file
tor(s) by executing page 1 of the an IRS Form 1099 with the U.S. In-
Agreement for Grant Assistance for ternal Revenue Service for all pay-
Clinical Investigation agrees to ees. The Principal Investigator(s)
conduct the study h accordance with is, therefore, required to furnish
the plan of investigation and the the Sponsor with the Social Security
terms of the Detailed Cost Breakdown or Federal Identification Number for
Per Subject and authorizes the Spon- all payees.
sor to pay the Authorized Payee di-
rectly ail monies which are the sub- 7. Because of governmental regula-
ject of grant assistance. The Au- tions concerning freedom of informa-
thorized Payee, as agent of the tion, the following has been added
Principal Investigator(s) by execut- to this agreement:
ing the Detailed Cost Breakdown Per
SubJect form agrees to disburse all Expect to the extent of prior public
monies received from the Sponsor,, disclosure by the Sponsor the Spon-
in accordance therewith. The Prin- sor regards the following matters
cipal Investigator(s) and the Autho- pertaining to the study to be confi-
rized Payee. dential information: the nature of
the compound under investigation,
2. The Principal Investigator(s) the protocol, and all raw data with
is responsible for ensuring the respect to the safety and efficacy,
scheduled enrollment of subjects and of the compound. The Principal In-
for the recording of all observa- vestigator(s) agrees that such in-
tions and other pertinent data on formation will not be disclosed to
the case report forms to be supplied third parties except where autho-
by the Sponsor. All data relevant to rized by the Sponsor or where re-
the investigational plan shall be quired by law. Further, the Princi-
made available b the Sponsor on re- pal Investigator(s) agrees not to
quest. publish the results of the study
until the Sponsor has reviewed the
3. Both Sponsor and Principal In- Principal Investigator(s) s proposed
vestigator(s) agree to comply with publication manuscript.
all applicable government regula-
tions. 8. The Sponsor shall have the
right to terminate this study at any
4. The Principal Investigator(s) time effective upon written notifi-
understands that the results of the cation to the Principal Investiga-
study may be used by the Sponsor in tor(s). The Principal Investiga-
support of an application for new tor(s) agrees to return a prorated
drug approval. Therefore, upon com- portion of the grant based on the
pletion of the study, the Principal percent of the total patient popula-
Investigator(s) agrees to cooperate tion in the attached protocol not
with the Sponsor, upon request, in enrolled by reason of such termina-
the preparation and review of any tion. Sponsor agrees to reimburse
reports, including a final study the Principal Investigator(s) for
report of the results of the study reasonable costs incurred pursuant
and agrees to acknowledge same by to this agreement which have not
written signature. otherwise been reimbursed by the
Sponsor, provided that this reim-
bursement shall not be made if ter-
mination is based upon failure of
the Principal Investigator(s) to
adhere to the attached protocol or
to any other provisions of this
agreement.
- ------------------------------------------------------------------------------
SIGNATURE(S) OF PRINCIPAL INVESTIGATOR(S) DATE
Turan Itil, M.D.
- ------------------------------------------------------------------------------
SIGNATURE OF HOECHST-ROUSSEL PHARMACEUTICALS INC. DATE
Rebecca A. Hyde, Business Director Neuroscience
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HOECHST-ROUSSEL PHARMACEUTICALS INC.
Route 202-206 ~ P.O. Box 2500 ~ Somerville, NJ 08876-1258
- -----------------------------------------------------------------------------------------------
DETAILED COST BREAKDOWN PER SUBJECT
PAGE 2 OF 2
- -----------------------------------------------------------------------------------------------
NAME OR CODE NUMBER OF DRUG PROTOCOL NUMBER PRINCIPAL INVESTIGATOR(S) DATE OF REQUEST
******* *** Turan Itil, M.D.
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
STUDY START DATE STUDY COMPLETION DATE NO. OF SUBJECTS (ACCORDING TO PROTOCOL)
MARCH 1995 MAY 1997 at least ** completed
- ------------------------- ------------------------- ------------------------------------------
<S> <C>
1. CLINICAL COSTS - FEES FOR SERVICES (PER SUBJECT)
SPECIFY IN DETAIL
*****************************, *******************, ********************** $ ********
- ----------------------------------------------------------------------------------------------
****************************, ***************** $ ******
- ----------------------------------------------------------------------------------------------
******************************, *************, ************** $ ******
- ----------------------------------------------------------------------------------------------
***************, *********************, *************, ************* $ ********
- ----------------------------------------------------------------------------------------------
2. LABORATORY TEST COSTS (PER SUBJECT)
SPECIFY IN DETAIL
************, **********, ************************************************ $ ******
- ----------------------------------------------------------------------------------------------
*************************** $ ******
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
3. ********* (PER SUBJECT) ********* $ ******
- ----------------------------------------------------------------------------------------------
4. *********** (PER SUBJECT)
SPECIFY IN DETAIL
************** - if required $ *****
- ----------------------------------------------------------------------------------------------
************** - if required $ ******
- ----------------------------------------------------------------------------------------------
5. *********** AND ************ COSTS (PER SUBJECT) $ ******
- ----------------------------------------------------------------------------------------------
6. OTHER COSTS (PER SUBJECT)
SPECIFY IN DETAIL
Recruitment, Screening/Attrition, Other Records Administration, Patient $ ********
and Caregiver Lunches, Patient Transport and Administrative Fee
- ----------------------------------------------------------------------------------------------
*** Processing $ *****
- ----------------------------------------------------------------------------------------------
****************************** $ ******
- ----------------------------------------------------------------------------------------------
TOTAL COSTS PER SUBJECT $ ********
- ----------------------------------------------------------------------------------------------
TOTAL GRANT REQUEST (Total Cost
Per Subject x Number of Subjects) $ *********
- ------------------------------------------------------------------------------- ==============
SUBMITTED: MEDICAL DIRECTOR DATE SIGNATURE OF PRINCIPAL INVESTIGATOR(S) DATE
CLINICAL NEUROSCIENCE
F. Jacob Huff, M.D. Turan Itil, M.D.
- ----------------------------------------------------------------------------------------------
APPROVED: DATE
HOECHST-ROUSSEL PHARMACEUTICALS INC. Rebecca A. Hyde
Business Director Neuroscience
- ---------------------------------------------- ---------------------------------------------
COPIES TO: CRD CENTRAL FILES o FINANCE AND ACCOUNTING o SPONSOR o INVESTIGATOR
</TABLE>
HOECHST MARION ROUSSEL, INC.
Route 202-206 . P.O. Box 6800 . Bridgewater, NJ 08807-0800
Telephone (908) 231-2000
- ----------------------------------------------------------------------
Direct Dial (908) 231-3138
Fax: (908) 231-3324
June 14, 1996
Turan Itil, M.D.
HZI Research Center, Inc.
150 White Plains Road
Tarrytown, NY 10591
RE: ********************* AMENDMENT 6 - AGREEMENT FOR METHOD OF PAYMENT
Dear Dr. Itil:
By signing this letter and the attached schedule you agree to the method
of payment described below for this ****** study amendment for an
open-label extension of treatment.
Payments will be issued for work done on the basis of the number of
visits completed in the treatment extension period by each subject during
the interval following the previous payment. The table attached provides
the amount payable for each completed visit. Costs for prematurely
terminated payments will be paid on the basis of work done referring to
the unit costs in the attached table.
As indicated in the protocol, HMR reserves the option to discontinue the
study at your site at any time following initiation. In this event, HMR
would reimburse your site only for expenses incurred to that point.
We look forward to hearing from you.
With best regards,
Dr. Ralph J. Nash
Associate Director
Clinical Neuroscience
I accept the conditions of payment specified in this letter and the
attached table.
- ------------------------------------ -------------
Investigator's Signature Date
Note: Also sign attached table
<TABLE>
<CAPTION>
******************* AMENDMENT 6 METHOD OF PAYMENT SCHEDULE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VISIT 14 15 16 17 18 19 20 21 22 23 24
PROCEDURE TOTAL
**** ** ** ** ** ** ***
*** ** **
*** ** **
**** ** **
*** ** **
**** *** ***
********** *** ***
****************** ** ** ** ** ** ** ** ***
****************** ** **
****************** ** ** ** ** ** ** ** **
*** ** ** ** ***
*********** ** ** ** ** ** ** ** ** ** ** ** ***
************** *** *** *** *** ***
********** *** *** *** *** ***
****************** ** ** ** ** ** ** ** ** ** ** ***
***** ** ** ** ** ** ** ** ** ** ** ** ****
************** ** **
****************** ** ** ** ** ** ** ** ** ** ** ** ***
TOTALS *** *** *** *** *** *** *** *** *** *** *** ****
- ---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
I ACCEPT THE METHOD OF PAYMENT DESCRIBED ABOVE. ___________________________________
SIGNATURE DATE
</TABLE>
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(H)(v)
Unimed Pharmaceuticals, Inc.
Research Agreement
Study No.: **********
Agreement made this 6th day of December, 1996, by and between the New
York Institute for Medical Research, a private no
t-for-profit corporation
in the public service, organized and existing under the laws of the State
of New York and having its offices 150 White Plains Road, Tarrytown, NY
10591 (hereafter called "the Institute"), and Unimed Pharmaceuticals,
Inc., organized and existing under the laws of the State of Delaware and
having its offices at 2150 E. Lake Cook Road, Buffalo Grove, IL
60089-1862 (hereinafter called "the Sponsor").
1. The Institute will undertake the project entitled ******************
************************************************************************
***********************************************************************
***********************************************************************
********************************************************************
******. (Sponsor Study **************; hereinafter called "the Study".
2. The Scope of Work. The work to be performed is as described in the
attached protocol labeled Exhibit "A".
3. Principal Investigator. The project will be under the supervision of
Turan M. Itil, MD, Chairman of the Institute. The Principal Investigator
will be responsible for the direction of the Study in accordance with all
applicable Institute policies and all applicable laws and regulations,
including but not limited to Federal Food, Drug and Cosmetic Act
regulations and guidelines. If during the performance period (as
hereafter defined) the Principal Investigator shall cease to supervise
the Study, then the Institute shall so notify the Sponsor and shall
endeavor to find a Principal Investigator or Principal Investigators
acceptable to the Sponsor to continue the supervision of the Study in
place of the Principal Investigator. If the Institute Is unable to find
such a Principal Investigator acceptable to the Sponsor, which acceptance
shall not unreasonably be withheld, within two months after such notice
to the Sponsor, this Agreement may be terminated by either party upon
written notice to the other party.
4. Period. The period of performance will be December 6, 1996, to
December 2, 1997.
5. Payments. In full compensation for the performance of the Study by the
Institute, the Sponsor shall pay the amount of $*******. The mutually
agreed upon budget is attached here to as "Exhibit B.. Payment of the
$******* shall be made in accordance with the mutually agreed open
payment schedule attached hereto as "Exhibit "C". No payment will be made
for ineligible subjects enrolled into the Study. Checks will be made
payable to "HZI Research Center Inc., 150 White Plains Rd., Tarrytown,
NY, 10591. Payments will be sent c/o Dr. Itil who will be responsible for
ensuring deposit in the proper study account.
6. Inventions and Patents. All results, discoveries, and inventions
developed as a direct result of Unimed- Sponsored Study ********** by the
Institute, its agents, employees, or any other person Involved In the
Study, including the Principal Investigator, shall be the exclusive
property of the Sponsor, but the Institute may have access to the data
for internal purposes.
7. Confidential Information. (a) Confidential Information as used herein
shall mean compounds or substances and information or data in written or
tangible form delivered by or on behalf of the Sponsor hereunder for the
performance of the Study and which is clearly labeled as confidential by
the Sponsor. Oral discussions between the Sponsor and the Institute shall
be deemed confidential unless otherwise stipulated by the Sponsor.
Confidential Information will not include any information that: (i) was
known by the Institute prior to its receipt from the Sponsor; (ii) is
generally publicly known or becomes publicly known subsequent to its
receipt from the Sponsor through no fault of the Institute; (iii) Is
hereafter developed by the Institute Independent of any disclosure by the
Sponsor hereunder; or, (iv) is received by the Institute from another
party not under an obligation of confidentiality to the Sponsor. (b) Both
parties recognize that the industrial standards for handling Confidential
Information may not be appropriate in academic settings. However, the
Institute agrees to retain Confidential Information In such confidence as
the Institute retains its own Confidential Information, not to reveal
such Confidential Information to third parties, except, as required, to
the Food and Drug Administration (FDA), without the prior written
permission of the Sponsor, and to use such Confidential Information only
for the purpose of conducting the research or work hereunder. At the
termination of this agreement, all Confidential Information (including
copies and unused substances) will be returned to the Sponsor, except
that the Institute may retain one copy of such Confidential Information
for archival purposes only. (c) The results of the Study shall be treated
in confidence by the Institute, except that the Institute retains the
right to publish any and all of its Study results, subject to the terms
of Section 10 below. (d) The Sponsor shall have the right to use, copy
and distribute as it sees fit any of the published results of the Study
and to use and copy unpublished research results, provided that the
Sponsor may not use the name of the Institute and its officers, agents or
employees for any public or commercial purpose, including advertising,
promotional or sales literature or product labeling without the prior
written consent of the Institute. (e) The Institute and the Sponsor shall
hold the business terms of this Agreement in confidence and shall not
disclose them or any of them to any third party except with prior written
consent of the other party or as otherwise required by law or regulation.
8. Termination. (a) This project may be terminated by the Sponsor upon
thirty (30) days written notice. In the event of termination by the
Sponsor, the Institute will be reimbursed for all costs incurred and all
non-cancelable commitments under Section 5. In the event of termination
by the Institute pursuant to Section 3 above, any unexpended or
unobligated balance of funds advanced by the Sponsor shall be refunded to
the Sponsor. Except in accordance with Section 3, the Institute may not
terminate the Study prior to completion of all pending assignments. (b)
sections 6, 7, 9, 10, 11 and 14 of this Agreement shall survive
termination or expiration of this Agreement.
9. Use of the Name of the Institute. The Sponsor shall not make use of
the Institute's name or the name(s) of any member of its staff for
publicity or advertising purposes, except with the consent of, and to the
extent approved by, the Institute.
10. Publications and Copyrights. (a) It is understood that the Institute
is involved in medical research and education. As such, it retains the
exclusive right of first publication of the results of this research in
peer- reviewed technical Journals and the like. The subject matter of such
publication shall not contain information about the processes or methods
of the Sponsor, and shall be confined to a statement of new discoveries
and interpretations of scientific fact. The Sponsor shall have the right
to review any proposed publication before submission to technical journals
and the like. Prior to submission for publication of a manuscript
describing the results of any aspect of the Study, the Institute shall
send the Sponsor a copy of the manuscript to be submitted, and shall allow
the Sponsor thirty (30) days from the date of receipt to review the
manuscript. The purposes for such review are: 0) to provide the Sponsor
with the opportunity to review and comment on the contents of the proposed
publication; (ii) to Identify any Confidential Information belonging to
the Sponsor to be deleted from the proposed publication; and, (iii) to
allow the Sponsor to determine whether the manuscript contains subject
matter for which patent protection should be sought prior to publication
of such manuscript. Should the Sponsor believe the manuscript contains
Confidential Information belonging to the Sponsor or that the subject
matter of the manuscript contains a patentable Invention, then prior to
the expiration of thirty (30) days from the date of receipt of such
manuscript to the Sponsor by the Institute, the Sponsor shall give written
notification of such determination to the Institute. (b) The Institute
agrees that no data will be disclosed to any outside persons until the
tests are complete, codes have been broken, and statistical analysis
completed. (c) The to, and the right to determine the disposition of, any
copyrights, or copyrightable material, first produced or composed in the
performance of this research, shall remain with the Institute, provided
that the Institute shall grant to the Sponsor an irrevocable royalty free,
non-exclusive right to reproduce, translate, and use all such copyrighted
material for its own purposes.
11. Records and Reports. (a) A final report of the progress of the work
shall be made to the Sponsor by the Principal Investigator within 45 days
of completion. For projects lasting more than six months, Interim reports
may be requested by the Sponsor at no more than four-month Intervals. (b)
Progress reports and data are to be maintained on a current basis by the
Institute and made available to authorized representatives of the FDA or
the Sponsor. Any FDA or Sponsor request for a follow-up report of the
study will be expedited. In the event of a request for an audit or report
by the FDA, the Institute shall notify the Sponsor immediately and prior
to any response. Study records include laboratory data and analyses based
on that data. The Principal Investigator shall be responsible for the
accuracy and completeness of the data for each patient. The Institute
shall retain records for a period of two (2) years after the NDA approval
or discontinuation of the IND. If the Principal Investigator moves during
this time, the Institute shall notify the Sponsor concerning the location
of the records of the Study. The Institute must contact the Sponsor prior
to disposing of any records related to the Study.
12. Changes. The Sponsor or the Institute may, at any time, in writing to
each other, suggest and by mutual agreement make changes within the
general scope of the work, including but not limited to: (a) revising or
adding to the work or deleting portions thereof, (b) revising the period
or schedule of performance, or (c) increasing or decreasing the total
cost. Upon receipt of such notice of change and their mutual agreement
thereto, the parties shall immediately use their best efforts to take all
necessary steps to comply therewith.
13. Use of Drugs and/or Chemicals. If drugs and/or chemicals are supplied
by the Sponsor, and if requested by the Institute, the Sponsor agrees to
accept unused portions of drugs and/or chemicals supplied by the Sponsor
under this Agreement, including the containers in which the drugs and/or
chemicals are shipped, provided that said drugs and/or chemicals and
containers are properly labeled by the Institute, upon the return to the
Sponsor. Further, for each drug and/or chemical supplied under this
Agreement, the Sponsor agrees to furnish the Institute with sufficient
information to permit reasonable interpretation of the results obtained
in the investigations described herein, and to identify precautions
needed to help protect the health and safety of personnel using the drugs
and/or chemicals.
14. Indemnification. (a) The Sponsor agrees to indemnify and hold
harmless the Principal Investigator, the Institute, its agents, officers,
and employees against any and all losses, expenses, claims, actions,
lawsuits and Judgments thereon (including reasonable attorney fees
through the appellate levels), which may be brought against the Institute
and Hs agents, officers, and employees by reason of personal injury,
illness or death to any person as a result of administration of the
medication provided that any loss, liability or damage resulting from:
(i) failure to adhere to the terms of the Protocol or the Sponsor's
written instruction relative to the use of the investigational drug; (ii)
failure to comply with generally accepted medical standards or any
applicable FDA, NIH or other governmental requirements; or, (iii) acts of
negligence or willful malfeasance by the Principal Investigator, the
Institute, Hs agents of any of these or any other person associated with
the Institute who participates in any professional or technical
activities of the study is excluded from this agreement to indemnify,
defend and hold harmless. Administration of medication or placebo, or
other treatment pursuant to the Protocol shall not be considered
negligence by the Institute. In the event any such claim is made or
lawsuit is initiated, the Institute shall notify the Sponsor within ten
(10) days of receipt of notice of claim in writing and shall cooperate
fully In the defense of such lawsuit and permit the Sponsor or it
insurance carrier to defend such a claim or lawsuit. The provisions of
this paragraph shall continue after the termination of this agreement.
(b) The institute and the Principal Investigator agree to notify the
Sponsor as soon as they become aware of a claim or action and to
cooperate with and to authorize the Sponsor to carry out sole management
and defense of such claim or action. (c) Neither the Principal
Investigator, the Institute, nor its officers, agents or employees shall
compromise or settle any claim or action without the prior written
approval of the Sponsor. (d) The Institute agrees to indemnify the
Sponsor, its employees and agents for the cost of defense and damages
awarded, if any, arising out of any claim or lawsuit brought by a subject
who has become 111 or physically Injured or has suffered complications of
any underlying injury as a result of the negligence or willful
malfeasance of the Principal Investigator, or the Institute's employees
or agents, or the failure of the Principal Investigator, or the
Institute's employees or agents to conduct the Study In accordance with
the Protocol, directions, instructions and precautions communicated by
the Sponsor, or generally accepted medical standards, or to comply with
any applicable FDA, NIH or other governmental requirements.
15. Insurance. Within thirty (30) days after the effective date of this
Agreement, the Sponsor shall furnish evidence to the Institute that the
Sponsor has sufficient financial protection to satisfy the
indemnification obligations set forth in this Agreement. Such evidence
shall be in the form of a letter accompanying the Sponsor's audited
financial statements in which an authorized official of the Sponsor
indicates that the Sponsor has sufficient assets to cover potential
losses which might arise in connection with the Sponsor's indemnification
obligations. The Institute will inform the Sponsor if such protection is
not acceptable.
16. Notices. All communications, reports, and notices required or
permitted hereunder shall be deemed sufficiently given if in writing and
personally delivered or sent by facsimile or registered mail, postage
prepaid, return receipt requested, addressee to the parties as follows or
at such other address as a party shall have given notice Of pursuant
hereto:
If to the Sponsor:
Robert E. Dudley, Ph.D.
Vice President, Clinical & Regulatory Affairs
Unimed Pharmaceuticals, Inc.
2150 E. Lake Cook Road
Buffalo Grove, IL 60089-1862
Telephone: (800) 864-6330, Extension 3010
Facsimile: (847) 541-2569
If to the Institute:
Turan M. Itil, MD, Chairman
New York Institute for Medical Research
150 White Plains Road
New York, NY 10591
Telephone: (914) 631-8998
Facsimile: (014) 631-8816
17. Laws and Regulations. This Agreement shall be governed by, and
construed and enforced in accordance with, the Laws of the State of New
York. The Sponsor and the Institute shall cooperate with the Institute In
complying with any applicable Federal, state and local laws, regulations
and policies governing research. In like manner, the Principal
Investigator and the Institute agree to conduct Study ********** in
accordance with all applicable Institute policies and all applicable laws
and regulations and other governmental requirements, including but not
limited to Federal Food, Drug and Cosmetic Act regulations.
18. No Assignment. The Institute shall not have the right to assign,
delegate or transfer at any time to any party, In whole or In part, any
or all of the rights, duties and interest herein granted without first
obtaining the written consent of the other party to such assignment.
19. Miscellaneous. (a) If any provision of this Agreement Is determined
to be Invalid or void, the remaining provisions shall remain in effect.
(b) No waiver by either party of any non-performance or violations by the
other party of any of the covenants, obligations or agreements of such
other party hereunder shall be deemed to be a waiver of any subsequent
violation or non-performance of the same or any other covenant, agreement
or obligation, nor shall forbearance by any party be deemed to be a
waiver by such party of its rights or remedies with respect to such
violation or non-performance. (c) The descriptive headings contained in
this Agreement are included for convenience and reference only and shall
not be held to expand, modify or aid in the interpretation, construction
or meaning of this Agreement. (d) It is not the intent of the parties to
create a partnership or joint venture or to assume partnership
responsibility or liability. The obligations of the parties shall be
limited to those set out herein and such obligations shall be several and
not joint.
20. Entire Agreement. This Agreement, including all Exhibits referenced
herein, shall be the complete Agreement of the parties hereto and shall
supersede all prior agreements and understandings, oral or written,
between the parties respecting the subject matter hereof.
The respective parties have executed this Agreement on the
dates indicated below.
HZI RESEARCH CENTER: SPONSOR:
- -------------------------------- ----------------------------------
Institute Official Sponsor Official
Kurt Z. Itil, MD Robert E. Dudley, Ph.D.
- -------------------------------- ----------------------------------
Typed Name Typed Name
President VP, Clinical & Regulatory Affairs
- -------------------------------- ----------------------------------
Title Title
- -------------------------------- ----------------------------------
Date Date
NEW YORK INSTITUTE FOR
MEDICAL RESEARCH:
I agree to act as Principal Investigator
for the project described above:
- --------------------------------
Principal Investigator
Turan Itil, MD
- --------------------------------
Typed Name
Chairman
- --------------------------------
Title
- --------------------------------
Date
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(j)
CLINICAL TRIAL AGREEMENT
Key Principles. This Clinical Trial Agreement ("Agreement") is made
this 20th day of April, 1996 by the Pharmaceuticals Division, Ciba-Geigy
Corporation, with offices at 556 Morris Avenue, Summit, New Jersey 07901
("Ciba") and New York Institute, with offices at 150 White Plains Road;
Tarrytown, New York ("Institution"). In addition, Islah Ahmed, M.D.
("Investigator") agrees to assume certain specific responsibilities
designated herein.
1. Scope. The purpose of this Agreement is to describe the
responsibilities of the parties in the performance of a clinical trial of
************* in patients with ************** ************** ("Trial").
2. Statement of Work and Payments. The clinical research protocol
entitled "**************************************************************
************************************************************************
***********************************************************************"
("Protocol") separately provided to Institution and Investigator, and as
may be modified by protocol amendment from time to time, is made a part
hereof The 'Total Grant Cost Per Patient" to Ciba for the completion of
this Trial by Institution shall not exceed the amount so designated in the
Trial "Ciba Grant Development Worksheet" ("Budget") attached as Exhibit 1
and made a part hereof Payments shall be made on the schedule set forth in
Exhibit 1 and by check in accordance with the information set forth in
Exhibit 2, Form ******.
3. Project Timeline. This Trial will be initiated by Ciba and
Institution on or about May, 1996 and the Core Trial will be completed no
later than July 13, 1997, unless Ciba, by written notice to Institution,
extends this period. Institution/Investigator will make best efforts to
provide * patients for this trial.
The extension portion of the Trial will continue until
************* is registered and launched in the US, or US development of
this compound terminates. The number of patients in the extension is
dependent upon the number of patients completing the Core Trial and
entering the Extension Trial.
4. Advertisements. Investigator must inform the IRB should he
utilize advertisements to recruit Trial subjects/patients. Investigator
must give a copy of the proposed advertisement to Ciba and the IRB for
approval. Any promotional representation or suggestion that an
investigational drug is safe or effective for the purposes for which it
is offered under investigation, is a violation of federal regulations 21
CFR 312.7 (a).
5. Obligations. Ciba will provide all supplies of ************* and
placebo necessary to conduct the Trial. institution will provide
appropriate personnel and facilities to carry out this Trial, and further
agrees that it will carry out this Trial in compliance with this
Agreement, the Protocol, CBI directions/procedures, Good Clinical
Practice regulations and all other applicable federal, state, local,
foreign and Institution's regulations or guidelines governing the conduct
of such trials.
6. Confidentiality. All oral and written information exchanged by
the parties both prior to the initiation, and during the course of this
Trial shall be considered confidential and proprietary. This information
will not be used for any purpose other than this Trial or disclosed in
any way by Institution and Investigator or any of Institution's staff
members. This obligation will not apply to information which (a) at the
time this Agreement is signed (or thereafter) is publicly available; (b)
is possessed by Institution or Investigator at the time of disclosure by
Ciba from a source other then Ciba; (c) is acquired from a third party
who has the right to disclose such information; or (d) is required by law
to be disclosed. In the event that information is required to be
disclosed, the party required to make disclosure shall notify the other
to allow that party to assert whatever exclusions or exemptions may be
available to it under such law or regulation.
7. Property. It is understood that all rights, title and interest
to the data and results arising from this Trial are the exclusive
property of Ciba. Ciba may use this information in any way it sees fit,
including, but not limited to, regulatory filings, publication,
disclosure to affiliates and third parties.
8. Publication. Upon request, Institution and Investigator shall
provide access to Ciba (or its employees or agents) to any and all
information collected on behalf of Ciba or bearing on any work done in
connection with this Trial. Any proposed publication, lecture,
manuscript, poster presentation or other dissemination of the data and
results of this Trial ('Publication") by Institution and/or Investigator
shall be submitted to Ciba at least forty-five (45) days prior to its
submission for publication or use for Ciba's review, comment and
approval. It is mutually agreed that such approval shall relate to issues
such as ensuring accurate presentation of data and/or protection of
proprietary information, but in no case shall extend to the refusal to
approve merely because such data may have an undesired impact upon Ciba's
commercial activities. Ciba's comments shall be provided without undue
delay. Final wording and/or disposition of the Publication shall be
agreed to by the parties. Data and results from this Trial shall not be
disclosed to any third party except pursuant to the publication procedure
above.
Institution and Investigator understand and agree that the Trial is a
multicenter clinical trial of ************ and that a multicenter
publication will be prepared and published. Institution and Investigator
further understand and agree that they will not publish the results of
their participation in the Trial for a period of one ( 1) year after
completion of the Trial in its entirety, allowing for the review and
analysis of the Trial results and the preparation and publication of the
multicenter manuscript. Institution and Investigator will be acknowledged
in such multicenter publication.
9. Ownership. Neither Institution nor Investigator shall acquire
any rights of any kind in ************ or its uses as a result of
participation in this Trial. Ciba and Institution and Investigator
understand and agree that all rights, title and interest in and to
inventions arising out of this Trial, and know-how incident thereto, and
any patent applications and resultant patents derived therefrom, shall be
owned by Ciba.
10. Assignments. This Agreement, and all rights and obligations
hereunder, are personal to the parties signing it and may not be assigned
without the express written consent of the other party, except that Ciba
may assign this Agreement and all its right and obligations hereunder to a
successor or assignee of the business to which this Agreement relates.
Islah Ahmed, M.D. is considered to be essential to the work performed on
this Trial. Substitution of Islah Ahmed, M.D. or substantial changes in
his level of participation or the assignment of his rights or obligations
hereunder may not be made without the express written approval of Ciba.
11. Publicity. Neither party shall use the other party's name nor
issue any public statement about this Agreement, including its existence,
without the prior written permission of the other party, except as
required by law (and, in such case, only with prior notice to the other
party). Such prior permission shall not be unreasonably withheld. The
Parties agree that in order for Institution to satisfy its reporting
obligations, it may identify Ciba as he Trial sponsor and the amount of
funding received from Ciba for the Trial, but will not include in such
report any information which identifies the name of the Trial compound or
the therapeutic areas of the Trial.
12. Choice of Law. This Agreement shall be construed and the rights
of the parties determined in accordance with the laws of the State of New
York.
13. Indemnification. Ciba will indemnify, defend and hold harmless
Institution and Investigator (collectively "Indemnitees") from any
liability for damages imposed by law for drug- related injuries to
subjects arising out of the Trial.
Ciba shall have no obligation of indemnification hereunder for any loss
or damages arising out of the negligence or willful misconduct of
Indemnitees in connection with the conduct of the Trial. This
indemnification by Ciba is expressly conditioned upon adherence by
Indemnitees in all respects to the Protocol and compliance with the
applicable requirements of the Food and Drug Administration. Ciba
reserves the right to approve all proposed settlements for damages for
which it will be required to make payments hereunder. Additionally, Ciba
reserved the right to approve any attorney for whose fees it may be
liable and to control the defense or disposition of any claim. Under all
circumstances, Institution shall notify Ciba in writing within seven (7)
days of receipt of any claim, demand or the service of any complaint.
14. Termination. Either party may terminate this Agreement upon
thirty (30) days prior written notice to the other party. In the event
that Ciba exercises this right, Ciba will reimburse Institution for costs
and non-cancelable commitments incurred prior to the giving of such
notice, and shall not be responsible, after such termination, for any
other amounts set forth in this Agreement. Ciba may, in its sole
discretion, terminate this Trial if it determines that an emergency or
other condition requires this Trial to be terminated.
15. Understanding. This Agreement (including exhibits and the
Protocol) constitutes the entire understanding between the parties with
respect to the subject matter hereof and supersedes all prior or
contemporaneous agreements or understandings, oral or written. In case of
any conflict between the body of this Agreement and any of he exhibits
hereto or the Protocol, the body of this Agreement shall prevail. This
Agreement may be modified only by a document signed by all parties
hereto.
Agreement and Authorization. The parties have caused this Agreement
to be executed by their duly authorized representatives as of the day and
year first above written.
Pharmaceuticals Division New York Institute
Ciba-Geigy Corporation
By:---------------------------- By:-----------------------------------
Amy E. Schecterson
Title:Medical Research Associate Title:--------------------------------
Clinical Operations
I have read this Agreement and
understand and accept my obligations
hereunder.
By:-----------------------------------
Islah Ahmed, M.D.
Clinical Research Agreement
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(H)(iv)
Boehringer
Ingelheim
CLINICAL RESEARCH AGREEMENT
This is an Agreement made by and between Boehringer Ingelheim
Pharmaceuticals, Inc., having its principal office at 900 Ridgebury Road,
Ridgefield, Connecticut 06877 (hereinafter called "BIPI") and HZI
Research Center, Inc. having its principal office at 150 White Plains
Road, Tarrytown, New York 10591 (hereinafter called "HZI").
BACKGROUND OF THE AGREEMENT
Under this Agreement, BIPI will sponsor and HZI will conduct a clinical
study to establish the effects of **************************** on
*****************************
*********************************************, according to BIPI's
clinical study *******. Turan M. Itil, M.D., a staff member of HZI, shall
act as Principal Investigator.
1. DESCRIPTION OF WORK TO BE PERFORMED
HZI acting through Turan M. Itil M.D., as Principal Investigator
(hereinafter referred to as "INVESTIGATOR"), shall carry out a
clinical study of *********** according to the Protocol
*******************************************************
*********************************************************
***************************************************************
************************attached hereto as Exhibit I and
incorporated herein by reference (hereinafter referred to
as the "STUDY"). The protocol for the STUDY may be amended from
time to time by the parties hereto.
In addition, HZI, acting through its Principal Investigator Dr.
Itil, will gather data from ************* (******), perform a
database comparison, analysis and statistical strategies as
outlined in Appendix 11.11 of the attached Exhibit I.
2. REIMBURSEMENT OF COST
A. In support of the STUDY, BIPI shall pay HZI according to the
itemized grant request and payment schedule attached hereto as
Exhibit II and Exhibit IIa. In support of the services to be
performed in accordance with Appendix 11.11 ***********
(******) in Exhibit I, BIPI shall pay HZI as outlined in the
itemized request, attached hereto as Exhibit III. In the event
the protocol is amended, the money may be adjusted.
B. Payments shall be by company checks made payable to HZI
Research Center, Inc. and mailed to: Attn.: Kurt Itil, Ph.D.,
150 White Plans Road, Tarrytown, NY 10591, Tax I.D. No.
13-2772841. The Internal Revenue Service requires us to have
one record, either a Social Security number or Tax I.D.
Number for each payee. Please be sure the payee and the
number you provide are an exact match with that which is
listed with the IRS or SSA.
3. PERSONNEL
The STUDY shall be performed by personnel assigned thereto by HZI,
who shall work under the supervision and direction of Turan M.
Itil, M.D., who shall be designated the Principal Investigator. HZI
shall promptly notify BIPI should Dr. Itil no longer be able to
function as Principal Investigator. In such event, BIPI may, at its
discretion, terminate this Agreement, such termination being BIPI's
sole remedy against HZI.
This Agreement is not to be construed as creating any employment or
agency relationship between INVESTIGATOR and BIPI. It is understood
and agreed that INVESTIGATOR and HZI will be acting as independent
contractors and not as employees or agents of BIPI during the term
of this Agreement.
4. PROPRIETARY INFORMATION
All information of BIPI (including, but not limited to,
information, data, know-how or chemical or biological samples)
which is disclosed or given by BIPI to HZI in connection with the
STUDY to be performed hereunder and which is identified in writing
by BIPI as being proprietary shall be referred to for the purpose
of this Agreement as Proprietary Information. HZI receiving
Proprietary Information shall, throughout the original or extended
term hereof, and for five years thereafter, treat the same as
confidential; that is, HZI shall refrain from using such
Proprietary Information for any purpose except the conduct of the
STUDY and shall further refrain from disclosing the Proprietary
Information to any third party, absent the prior written permission
of BIPI. HZI shall make those staff members who are assigned to the
STUDY aware that they, too, are to treat the Proprietary
Information as confidential. These obligations of confidentiality
shall not apply to information which:
A. was known to HZI party prior to disclosure;
B. at the time of disclosure was generally available to the
public, or which after disclosure becomes generally available
to the public through no fault of HZI;
C. is hereinafter made available to HZI by a third party having
the apparent right to do so; or,
D. is developed independently by HZI..
5. STUDY RESULTS
HZI agrees that any or all information resulting from, or generated
or developed by the STUDY is the property of BIPI and may be used
by BIPI in connection with any of its research, development,
marketing, or promotional activities, and may be disclosed by BIPI
to third parties, including without limitation, other clinical
INVESTIGATOR, consultants, the Food and Drug Administration (herein
"FDA"), and other federal, state, and/or local regulatory agencies.
6. The parties shall indemnify each other as provided below:
A. BIPI Indemnity
(1) BIPI undertakes to indemnify and hold harmless; HZI,
Principal Investigator, HZI's trustees, officers,
agents, employees, students, persons holding academic
appointments within HZI, and affiliated hospitals, from
any and all liability, loss or damage they may suffer
as the result of claims, demands, costs, including
reasonable attorneys' fees, or judgments against them
arising out of activities to be carried out in
performance of the STUDY and the Statement of
Investigator FDA Form 1572; provided however, that BIPI
will not be responsible for any losses or claims,
including attorneys' fees and court costs, arising from
any injuries or damages that are a result of:
a) the sole negligence or intentional misconduct of HZI,
the Principal Investigator, or HZI employees;
b) research activities conducted contrary to the
provisions of theProtocol or outside the scope of
the Protocol;
c) actions by HZI in violation of applicable laws or
regulations, orin violation of any written
instructions from BIPI;
d) unauthorized warranties by HZI relating to the
Product.
(2) BIPI agrees to provide a diligent defense against any
claims brought against HZI, Principal Investigator,
trustees, officers, agents, employees, students,
persons holding academic appointments within HZI and
affiliated hospitals with respect to the subject of the
indemnity contained in this section, whether such
claims or actions are rightfully or wrongfully brought
or filed.
B. HZI Indemnity
(1) HZI undertakes to indemnify and hold harmless BIPI, its
officers, agents and employees, from any and all liability,
loss or damage they may suffer as a result of claims,
demands, costs, including reasonable attorneys' fees, or
judgments against them arising out of activities to be
carried out in performance of the STUDY and the Statement of
Investigator FDA Form 1572 for the STUDY, where such injury
results from a failure to adhere to the terms of the
applicable protocol(s) or negligence in attending to a
research subject.
(2) HZI agrees to provide a diligent defense against any claims
brought or actions filed against BIPI, its officers, agents,
and employees, with respect to the subject of the indemnity
contained in this section, whether such claims or actions are
rightfully or wrongfully brought or filed.
C. Conditions of Indemnity
Any party (hereinafter referred to as the "Indemnified Party")
wishing to be indemnified hereunder shall:
(1) promptly after receipt of notice of any complaint or the
commencement of any action, suit or proceeding giving rise to
the right or indemnification, notify the other party thereof
in writing of all particulars known to the Indemnified Party
and enclose a copy of all papers served;
(2) permit the other party to retain counsel of that party's
choosing to represent the Indemnified Party (but in the event
that the other party does not choose counsel to represent the
Indemnified Party, the Indemnified Party may select its own
counsel, the fee and costs of which counsel will be borne by
the other party); and
(3) allow the other party to retain exclusive control of any such
action, suit or proceeding including the right to make any
settlement provided that the other party will not make any
settlement which could reasonably be expected to have a
negative effect on the reputation of the Indemnified Party,
without the prior written consent of the Indemnified Party.
7. TIME FOR COMPLETION OF STUDY
A. HZI shall use reasonable efforts to complete the STUDY by January 31, 1998
B. Notwithstanding the foregoing, the STUDY may be terminated by BIPI
at any time upon 30 days advance written notice to the HZI. Upon
receipt of notice of early termination, HZI shall use its best
efforts promptly to limit or terminate any outstanding commitments
and to conclude the work. All costs incurred by HZI as a result of
such termination shall be reimbursable including, without
limitation, all non- reimbursed costs and non-cancelable
commitments incurred prior to the receipt of the notice of
termination.
8. FORCE MAJEURE
HZI shall not be liable for any failure to perform as required by
this Agreement, to the extent such failure to perform is caused by
any reason beyond HZI control, or by reason of any of the
following: labor disturbances or disputes of any kind, accidents,
failure of any required governmental approval, civil disorders,
acts of aggression, acts of God, energy or other conservation
measures, failure of utilities, mechanical breakdowns, material
shortages, disease, or similar occurrences.
9. SERENDIPITOUS INVENTION
HZI shall retain exclusive ownership of any serendipitous invention
conceived and first reduced to practice in the course of, and as
part of or under the STUDY solely by an employee of HZI
(hereinafter referred to as the INVENTION"). In consideration of
BIPI's support of the STUDY as provided herein, HZI hereby grants
to BIPI an option to obtain an exclusive, worldwide license (with
right to grant sublicenses) under any patent claiming an INVENTION.
In the event that BIPI elects to exercise its license option, HZI
shall enter into negotiations in good faith as to the terms and
conditions of the licensing agreement based on usual and customary
commercial standards, but in no event shall HZI and BIPI be
obligated to negotiate for more than six (6) months from the date
of BIPI's exercise of its option hereunder.
10. ASSIGNMENTS
Neither HZI nor BIPI shall assign this Agreement to any other
person without the prior written consent of the other, and any
purported assignment without such consent shall be void.
11. SEVERABILITY
In the event that a court of competent jurisdiction holds any
provision of this Agreement to be invalid, such holding shall have
no effect on the remaining provisions of this Agreement, and they
shall continue in full force and effect.
12. ENTIRE AGREEMENT: AMENDMENTS
This Agreement and the Appendices hereto contain the entire
Agreement between the parties. No amendments or modifications to
this Agreement shall be effective unless made in writing and signed
by authorized representatives of both parties.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement by
their duly authorized or representatives.
BOEHRINGER INGELHEIM PHARMACEUTICALS, INC.
By:----------------------------------------
J. Douglas Wilson, M.B., Ch.B., Ph.D.
Senior Vice President
Title:Medical & Drug Regulatory Affairs
- -------------------------------------------
Date:--------------------------------------
HZI RESEARCH CENTER, INC.
By:----------------------------------------
Kurt Itil, Ph.D.
Title:President & CEO
- -------------------------------------------
Date:--------------------------------------
ACKNOWLEDGED BY:
Signature:
- -------------------------------------------
Turan M. Itil, M.D.
Principal Investigator
Date:
- -------------------------------------------
PORTIONS OF THIS EXHIBIT IDENTIFIED BY "***" HAVE BEEN DELETED PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED AND THE FREEDOM OF INFORMATION ACT.
EXHIBIT 10(i)
Boehringer Ingelheim Pharmaceuticals, Inc. Consultant Agreement
October 1, 1997
October 1, 1997
Kurt Z. Itil, Ph.D.
(President & CEO)
HZI Research Center, Inc.
150 White Plains Road
Tarrytown, NY 01591
Dear Dr. Itil:
I am pleased to offer HZI Research Center, Inc. (hereinafter "HZI"), a
consultantship with Boehringer Ingelheim Pharmaceuticals, Inc.
(hereinafter "BIPI"). We propose that the following be the terms and
conditions of HZI's consultantship.
1. HZI's field of consultation to BIPI shall be to instruct and train
****************** investigators in the operational process of
****************************************.
2. HZI agree to be available to provide up to sixteen (16) hours of
consultation to BIPI, at mutually agreeable times during the term
of HZI's consultantship. All consultation shall be rendered at
BIPI's facility located at 900 Ridgebury Road, Ridgefield, CT, or
at some other mutually agreed upon location.
3. The term of HZI's consultantship shall be for seven (7) months,
commencing on October 28, 1997 and ending on May 27, 1998, with
renewal or extension possible if agreed to in writing by BIPI and
HZI.
4. As compensation for HZI's services, BIPI shall pay HZI a consultant
fee of ************************* ($***) per hour, not to exceed a
total of ********************* ($*****). BIPI shall also reimburse
HZI for reasonable expenses for travel, accommodations and other
out-of-pocket expenses, which are incurred by HZI in connection with
the performance of HZI's consulting services. Payment of the
consultant fees and reimbursement of expenses shall be made within
thirty (30) days of HZI's presentation of a statement to BIPI
itemizing the hours of consultation provided and the expenses for
which reimbursement is sought.
5. BIPI shall have the right to terminate this Agreement at any time
by giving HZI notice of such intent. Upon receiving such notice,
HZI shall cease all further work under the Agreement. BIPI shall be
obligated to compensate HZI for all work done by HZI under the
Agreement prior to HZI's receipt of such notice.
6. HZI shall not, without the prior written consent of BIPI, disclose
to any third party, nor use for any purpose other than to provide
consultation under this agreement, any information which is made
available to HZI by BIPI, or any company which is affiliated with
BIPI, during the course of HZI's consultantship, or any information
which is derived by HZI directly from information which has been so
provided to HZI. These obligations of confidentiality shall not
apply to information which was known to HZI prior to receipt from
BIPI or its affiliate, which is or becomes generally known to the
public through no fault attributable to HZI, or which is hereafter
made available to HZI by any third party have a right to do so.
7. BIPI shall own and have the exclusive right to use, for any purpose,
all information, materials and reports which are provided by HZI and
are developed or written by HZI during the course of or as a result
of the consultation which HZI provide under this agreement, except
information, materials and reports already existing and not
developed by HZI for BIPI and HZI agree to assign to BIPI all right,
title and interest in and to all inventions which are conceived or
first reduced to practice by HZI during the course of or as a result
of the consultation which HZI will provide under this agreement. In
this regard, HZI further agree to cooperate with BIPI in the
preparation, filing and prosecution of any patent application, or in
the maintenance of any patent, claiming any such invention, and to
execute any document required to vest title to such invention to
BIPI.
8. With the exception of Paragraph 6, nothing in this agreement shall be
construed as limiting HZI's right to publish scientific article
provided that HZI supply BIPI with a copy of any draft manuscript,
concerning or related to HZI's work under this Agreement, prior to
its submission for publication, so that BIPI may evaluate such
manuscript and determine whether it contains subject matter on which
a patent application should be filed by BIPI pursuant to Paragraph
7, or information which was made available to HZI by BIPI. At BIPI's
request, HZI shall delay submission of such manuscript, for a period
not to exceed ninety days, in order to enable BIPI to prepare and
file a patent application, and shall delete from the manuscript any
information which is to be treated as confidential pursuant to
Paragraph 6.
9. It is agreed and understood that HZI's consulting services to BIPI
shall be performed as an independent contractor and not as an
employee or agent of BIPI.
10. HZI represent and warrant that HZI have the right to enter into
this Agreement, to grant any licenses or rights specified herein,
and that HZI have no preexisting obligations to other parties which
might preclude HZI from carrying out any or HZI's duties or
obligations under this Agreement. In particular, HZI represent and
warrant that (a) HZI's work as a consultant for BIPI will not
interfere in any way with HZI's responsibilities as an employee of
any other party; and (b) HZI's consultation under this Agreement
will relate only to HZI's general knowledge and expertise.
11. With the exception of Paragraph 6, above, nothing in this Agreement
shall be construed as limiting HZI's right to provide consultation
to other parties.
12. The obligations set forth in Paragraphs 6, 7, and 8 shall survive
the termination of this Agreement.
If the terms and conditions set forth herein are agreeable to HZI, please
sign and date both original copies of this Letter Agreement. One fully
executed original of this Letter Agreement should be returned to BIPI
whereupon it will become a binding Agreement between us.
Very truly yours,
BOEHRINGER INGELHEIM PHARMACEUTICALS INC.
By:------------------------------------------
J. Douglas Wilson, M.B., Ch.B., Ph.D.
Senior Vice President, Medical & Drug
Regulatory Affairs
Date:----------------------------------------
HZI RESEARCH CENTER, INC.
By:------------------------------------------
Kurt Z. Itil, Ph.D.
President & CEO
Date:----------------------------------------
EXHIBIT 10(a)
NEUROCORP, LTD
1994 STOCK OPTION PLAN
1. Purpose
The purpose of the 1994 Stock Option Plan (the "Plan") is to
motivate and provide an incentive for or consultants and
consultants of Neurocorp, Ltd. (the "Company") and its subsidiaries
to exert their best efforts on behalf of the Company by enabling
and encouraging such individuals to acquire a greater stock
interest in the business, encouraging their continued service, and
promoting the interests of the Company and all its stockholders. In
addition, the Plan is intended to permit the Company to compete
with other companies offering similar plans in attracting and
retaining the services of executive personnel.
2. Types of Options
Options granted pursuant to the Plan shall be authorized by action
of the Board of Directors of the Company (or a Committee designated
by the Board of Directors) and may be either incentive stock
options ("incentive Stock Options") meeting the requirements of
Sections 422A of the Code or non-statutory options which are not
intended to meet the requirements of Section 429A of the Code.
3. Definitions
(a) "Board" - the Board of Directors of the Company.
(b) "Common Stock" - the common stock of the Company
(c) "Fair Market" - the "fact market value" per share of Common
Stock on a given date shall be determined by the Board with
full authority and discretion, taking into account all
factors customarily considered in determining fair market
value; provided, however, in the event that the shares of
Common Stock of Company are actively traded in an established
market, fair market value shall be the "bid" price at closing
on the date of the grant of the option.
(d) "Financial Statements" - the financial statements of the
Company.
(e) "Options" - grants of options to purchase shares of Common
Stock under the Plan.
(f) "Option Right" - the right to purchase a share of Common
Stock upon exercise of an Outstanding Option.
(g) "Outstanding Option" at any time, an option to purchase
Common Stock granted by the Company pursuant to the Plan,
whether or not such stock option is at such time exercisable,
to the extent that such stock option at such time has not
been exercised and has not terminated.
(h) "Participants" - or consultants or consultants to whom
Options have been granted under the Plan. When appropriate
and not otherwise indicated that the incapacity or death of a
Participant terminates or limits his right under the Plan,
the term "Participant" shall also be deemed to refer, in the
event of the death or incapacity of a Participant, to his or
her legal representative.
(i) "Employee," "outstanding," and "subsidiary corporation" have
meanings assigned them in Section 422A or 425 of the Internal
Revenue Code of 1954, amended ("Code").
(j) "Consultant" - a person or entity performifor the Company or
its subsidiaries pursuant to a consulting agreement.
4. Administration.
(a) This Plan shall be administered by the Board (or a committee
thereof) which may, from time to time, issue orders or adopt
resolutions, not inconsistent with, the provisions of this
Plan, to interpret the provisions and supervise the
administration of the Plan. All determinations shall be made
by an affirmative vote of a majority of the members of the
Board at a meeting called for such purpose, or reduced to
writing and signed by a majority of the members of the Board.
Subject to the Company By-laws, all decisions made by the
Board in selecting optionees, establishing the number of
shares and terms applicable to each option, and in construing
the provisions of this Plan shall be final, conclusive, and
binding on all persons including the Company, shareholders, or
consultants, and optionees. No option may be granted by the
Board under the Plan which is not approved by at least two
directors who are ineligible to receive options under the
Plan.
(b) Each option shall be evidenced by an Option Agreement which
shall contain such term and conditions as may be approved by
the Board, and shall be signed by an officer of the Company
and the employee.
5. Effective Date and Duration.
The Plan shall become effective as of December 1, 1994. Unless
sooner terminated by the Board, the Plan will terminate on November
30, 2004, and no Options may be made, granted, or assigned under
the Plan after such date; however, shares issuable upon the
exercise of Options granted on or prior to such date may bc
subsequently delivered or made to Participants in accordance with
the terms and conditions applicable to their respective Options.
6. Eligibility
(a) Options shall be made and granted under the Plan only to or
consultants, including officers and directors who are or
consultants of the Company and its subsidiaries who are
responsible for the management, growth, and protection of the
business of the Company or to consultants of the Company or
its subsidiaries. The Participants shall be selected from
time to time by the Board, on the recommendation of the
Officers of the Company, from among those eligible.
(b) Options granted under the Plan which are intended to be
Incentive Stock Options shall be specifically designated as
incentive Stock Options and shall be subject to the following
additional teens and conditions:
No employee shall be granted any Option if he personally owns
voting stock having more than Ten Percent (10%) of the total
combined voting power of all classes of outstanding stock of the
Company. The aggregate fair market value (determined at the time
the Option is granted) of shares as to which an Option may be
granted under this Plan or under any similar program of the Company
intended to qualify under Section 422 of the Code to any one
employee in any calendar year shall not exceed $100,000 plus any
unused limitation carry over to such year as determined under
Section 422A of the Code.
7. Amendment and Termination of the Plan.
The Board may at any time terminate the Plan, or from time to time
make such amendments thereto, including additions or deletions, as
the Board deems advisable, except that no amendment may adversely
affect any Option, theretofore assigned, made or granted to a
Participant. No amendment shall be made, however,unless approved by
the Stockholders of the Company, which would (a) increase the
maximum number of shares as to which Options may be granted, (b)
extend the period during which Options may be granted, made, or
assigned, (c) change the purchase price per share at which Options
may be granted, (d) materially modify the requirements as to
eligibility for participation in the Plan, (e) reduce the minimum
time an Option must be outstanding before it may be exercised, (f)
increase the maximum period for exercise of any Option, or (g)
otherwise cause Rule 16b-3 of the Securities and Exchange
Commission, or the equivalent thereof from time to time in effect,
to become inapplicable.
8. Miscellaneous Provisions.
(a) Employment, No employees or consultants shall have any claim
or right to be granted an Option under the Plan. Neither the
Plan nor any action taken hereunder shall be construed as
giving any employee or consultant any right to be retained in
the employ of the Company, or to limit the right of the
Company or any subsidiary to terminate the employment of any
Participant at any time, or to change the terms of such
employment.
(b) Nonalienation of Benefits. A Participant's rights and
interests under the Plan may not be assigned or transferred
in whole or in part either directly or by operation of law or
otherwise (except as specifically provided in the Plan in the
event of a Participant's death), including, but not by way of
limitation, execution, levy, garnishments, attachment,
pledge, bankruptcy or in any other manner, and no such right
or interest of any Participant shall be subject to any
obligation or liability of such Participant.
(c) Effect Upon Other Compensation Plans. The adoption of the
Plan shall not affect any other compensation or incentive
plan in effect for the Company or any subsidiary, and the
Plan shall not preclude the Board from establishing any other
forms of incentive or compensation for employee or consultant
of the Company or any subsidiary.
9. Stock Subject to the Plan; Effect of Recapitalization, Merger, Etc.
(a) Shares which may be subject to Options Granted. Subject to
adjustments made pursuant subsection (b) of this Section 9,
the total number of shares which may be granted under the
Plan (which shares may be authorized but unissued shares or
treasury shares) is $1,500,000 shares of common stock without
par value. To the extent that any options granted under the
program shall expire or terminate, in whole or in part'
without having been exercised the number of shares subject
thereto shall again become available for the granting of Options
under the Plan and they may thus be reoptioned.
(b) Effect of Recapitalization, Merger, Etc.
(i) In the event there is a change in, reclassification,
subdivision, or combination of, stock dividend on, or
exchange of stock, or other similar event, the number
and class of shares subject to Options theretofore
granted under the Plan and the price per share payable
upon exercise of such Options shall be appropriately
adjusted by the Board whose determination shall be
conclusive.
(ii) If, prior to the expiration of any Option granted under
the Plan, there shall be a merger, consolidation, or
reorganization of the Company with another corporation
in which the Company is not the surviving corporation,
the holder of any then outstanding Option shall
thereafter be entitled to receive, upon exercise of the
unexercised portion of the Option, the same number and
laud of shares, securities, or other property (including
cash) as he would have received had be exercised the
unexercised portion of the Option immediately prior to
such merger, consolidation, or reorganization.
Notwithstanding the foregoing, any Participant may agree
to the assumption of his Option by a corporation other
than the Company, or the substitution of a stock option
of a corporation other than the Company for his Option.
10. Procedure for Granting Options and Related Matters
(a) Board to Make Determination. Subject to the terms, provisions,
and conditions of the Plan, the Board shall (i) select the
employees or consultants to whom Options shall be granted,
(ii) determine the number of shares subject to each Option
granted, (iii) determine the time or times when Options will
be granted, (iv) determine the time or times, when each Option
may be exercised within the limits' stated in the Plan, and
(v) establish the fair market value of the shares, and the
appropriate officers of the Company shall prescribe the form,
which shall be consistent with the Plan, of the instruments
evidencing any Options granted hereunder.
(b) Requisite Action by Participants, Etc. As a condition to the
granting of an Option, each Participant shall be required to
enter into an Agreement (the "Option Agreement") with the
Company which shall contain such provisions consistent with
the Option Plan as may be prescribed by the Board, including
such restrictions as to the transferability of the shares to
be issued upon the exercise of an Option as the Board may, in
its discretion, deem appropriate. Such restrictions may be
for the purpose of assuring compliance with Federal and State
securities laws (as contemplated by Section 13(d) hereof' or
for other reasons deemed advisable by the Board.
11. Option Price.
The purchase price per share of Common Stock under each Option
granted pursuant to the Option Plan shall be at least One Hundred
(100%) percent of the "fair market value" per share of Comm.on
Stock on the date such Option is granted.
12. Duration of Options
Except as provided in Section 15(c), each Option granted under the
Plan shall terminate not later than ten (10) years after the date
on which it was granted. The Board may, in its discretion, provide
a shorter period for any individual Option or Options.
13. Nontransferability of Options.
No Option granted under the Plan shall be transferable by a
Participant otherwise than by will or the Laws of Descent and
Distribution; and an Option may be exercised, during a Participants
lifetime by him or her.
14. Exercise of Options, Restrictions or, Exercise.
(a) Each Option shall be exercisable according to terms set by the
Board, at the time of the grant. The Board may direct that an
Option become exercisable in installments, which need not be
annual installments, over a period which may be less than the
term of the Option. At such time as an installment shall
become exercisable, it may be exercised at any time
thereafter, in whole or in part, until the expiration or
termination of the Option, unless otherwise provided in the
Option Agreement referred to under Section 10(b), an Option
granted under the Option Plan shall be exercisable, prior to
the expiration or termination of the Option, in whole at any
time or in part from time to time. Only full shares which a
Participant is entitled to purchase will be issued; no
fractional shares will be issued.
(b) A participant may purchase shares pursuant to an Option
granted under the Plan only by giving the Company written
notice of his election to exercise the Option, specifying the
number of shares to be purchased.
Payment for the stock shall be in cash. A Participant shall
have none of the rights of a Stockholder with respect to any
shares as to which he or she has exercised an Option until
the shares are issued to him or her.
(c) Each Option granted under the Plan shall be subject to the
condition that if, at any tune, in the opinion of counsel for
the Company, the registration, listing, or qualification of
the shares covered by any Option under the Securities Act of
1933, as amended (the "Act"), upon any securities exchange or
under any state law, or the consent or approval of any
governmental regulatory body or the updating, amendment, or
revision of any registration statement, listing application,
or similar document, is required as a condition of, or in
connection with,, the purchase of shares under such Option, no
such Option may be exercised unless and until such
registration, listing, qualification, consent, approval,
updating, amendment, or revision shall have been effected or
obtained free of any conditions not acceptable to the Board;
provided, however, that, subject to Section 15 hereof, if the
right to exercise any Option is suspended for any of the
foregoing reasons, the termination date for exercising such
Option is extended for the length of time of the suspension or
thirty (30) days after the date on which the holder of such
Option is modified that such suspension of the right to
exercise the Option has ended.
(d) The Board may, as a condition to the exercise by a Participant
of an Option, require that the Participant agree in writing
that he will not dispose of the shares to be acquired upon
such exercise in a transaction which, in the opinion of
counsel for the Company, would violate the Act and the rules
and regulations promulgated thereunder. The Board shall have
the authority to require additional agreements or impose
additional conditions which it reasonably believes are
necessary to assure compliance with Federal and State
securities and other laws.
(e) The Board may require the Participant to continue his or her
employment with the Company or the performance of services as
a consultant for the Company as a condition precedent to the
vesting of any Option granted hereunder.
15. Termination of Employment, Disability, Retirement or Death.
No option may be exercised by an employee or consultant unless, at
the time of such exercise, such optionee is, and has been
continuously since the date of the grant of his or her option,
employed by the Company or performing services pursuant to a
consulting agreement with the Company, except that if and to the
extent of the option agreement or instrument so provides:
(a) The option may be exercised by an optionee within the period
of three months after (i) the date the optionee ceases to be
an employee of the Company or (ii) the date such optionee's
consulting agreement with the Company is terminated (or
within such lesser period as may be specified in the
applicable option agreement);
(b) if an optionee dies while in the employ of the Company, or
while performing services pursuant to a consulting agreement
with the Company or within three months after such optionee
ceases to be such an employee or consultant, the option may
be exercised by the person to whom it is transferred by will
or the laws of descent and distribution within the period of
one year after the date of death (or within such lesser
period as may be specified in, the applicable option
agreement); and
(c) if an optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision
thereto which in the employ of the Company or while
performing services pursuant toe consulting agreement with
the Company, the option may be exercised within the period of
one year after the date the optionee ceases to be such an
employee or consultant because of such disability (or within
such lesser period as may be specified in the applicable
option agreement);
provided, however, that in no event may any option be exercised
after the expiration date of the option. For all purposes of the
Plan and any option granted hereunder "employment" shall be defined
in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations).
16. Effective Date of Plan
The Plan shall become effective as of December 1, 1994.
December 10, 1997
Neurocorp, Ltd.
150 White Plains Road
Tarrytown, NY 10591
We hereby consent to the use of our name "as experts", in
the "Summary Consolidated Financial Information" section
and the use of our opinion dated March 8, 1997, except
for the Note 10f as to which the date is March 12, 1997
and Note 10h as to which the date is March 26, 1997 for
NeuroCorp, Ltd to be included in the Amendment No. 5 to
Form SB-2 Registration Statement being filed for
NeuroCorp, Ltd.
Very truly yours,
/s/ Scarano & Tomaro
Scarano & Tomaro, P.C.
Syosset, New York
